Innovation

Open the annual report for nearly any public company and there in the first couple of sentences is usually a statement about innovation. Companies claim to have innovation in their blood and that it’s the foundation on which the companies growth initiatives are build. Scarcely though, there is any real commitment to innovation whether it’s through training, structure, capital investment or culture.

But what is innovation and why is it so important? Thinking about it in its simplest form, innovation is a change in thinking around product, process and the organization itself. It’s important not only within the boundaries of an organization, but in societal settings as well. The relevance of innovations impact on healthcare, education and community development cannot afford to be ignored.

But with that said, private organizations scarcely have trouble coming up with new, fresh ideas – it’s the natural progression into the commoditization and monetization of these ideas that leaves leadership teams scratching their heads. Failure to be able to make that next critical step can mean severe limitations on the growth of an organization.

Naturally, innovation is often thought of with respect to its relationship with top line revenue. Driving new products, improving quality in existing products, outsmarting your competitors, creating new demand and extending the lifecycle of existing products and services is at the core of what innovation is about, but what about the effects that it can have in other areas of the business? Gross profitability can be grown by innovative thinking around labor, processes and the way materials are treated. It can create value in a company by creatively thinking about ways to finance an operation, mitigate risk or capture and retain knowledge. It can be vital to an organizations stewardship by reducing energy costs, reducing environmental impact and generally minimizing footprint that it will leave.

So with all the potential upside to having an organizational emphasis on innovation, what changes culturally should firms be willing to make to achieve these desired outcomes? The path to the future should start by visiting its past. Ignoring or overlooking legacy experience is failing to leverage an important asset. By building a knowledge management infrastructure, cross functional teams can analyze and interpret data and make informed decisions on the path forward.

Espousing the merits and virtues of innovation in your culture is something that leaders, managers and employees have to live and breathe.  By measuring and sharing metrics around innovation, the organization can demonstrate its commitment to ensuring that the innovation process is a success. A portion of these metrics are of course relative to the financial performance of the company, but there’s a unique opportunity here as well. Tracking innovation metrics that aren’t financially related can reinforce the message from leadership that innovation is as much about the successes in these initiatives as it is about the bottom line.

Chief Financial Officers can and should be a tremendous asset and advocate for innovation. Being able to clearly demonstrate the metrics and measures around innovation are critical in distilling a clear story around the efforts of the innovation teams while simultaneously eliminating the chaos that comes with too much information and no context. The CFO must also use their authority to break down the bureaucratic barriers and, to fund small capital projects and to encourage long-term investments to create a sustainable, relevant organization.