Finance’s Role in Supporting Innovation: Becoming a Business Partner

David Matheson, President and CEO, SmartOrg Inc.

Finance can provide valuable support to Innovation when the function acts as a business partner to the line organization. Too often, however, finance has difficulty separating their role as fiduciaries from that of a business partner. To benefit most from finance support it is important to understand and separate the two very different roles.

As fiduciaries, the finance role is:

• Necessarily skeptical and cautious.
• Independent and neutral. They typically report to the CFO rather than through the line management, emphasizing their need to stay a little aloof from the business and so as not be compromised.
• Used to dealing with hard numbers.

As business partners, the finance role is:

• Close to the business. They need to help people think critically about economic issues.
• Future focused. Unlike budgets and accounting data are fundamentally uncertain and, therefore, have few or no hard numbers.

These two roles naturally conflict, since dealing with uncertainty and ambiguity as a business partner can often seem like speculation to the fiduciary. Used to independence and filling the role of a judge and scorekeeper, the fiduciary can become very uncomfortable.

Distinguish Business Partners from Accountants

To mobilize the finance function to support innovation, one must appreciate these conflicting roles and seek the best individuals to step into the business partner (strategic) role.

The first step: Recognize that some finance people are accountants who do not take well to strategic roles. For example, consider making a decision about investing in a risky project with a high chance for failure, but with a potentially huge payoff. An accountant will naturally ask, “How much will this cost?”, “What will people commit to?”, and “How do we limit the risk?” A business partner will ask strategic questions like “Is this a good calculated risk?”, “Does our portfolio enable us to play the odds?”, and “How can we drive toward the upside value?”

It is critical to select persons who are capable of stepping out of the fiduciary role into the business partner role.

The second step: Give permission to the finance person to temporarily step out of the fiduciary role, avoiding the tendency to assume that strategic business models need to be up to fiduciary standards. Encourage the person to leave scorekeeping for later.

The third step: Provide appropriate tools and training. Teach finance business partners to go beyond standard models and cases based on assumptions. They need to relate to business situations, consider ranges of uncertainty around model variables and perform sensitivity analysis to identify critical factors that drive value.

The bottom line: Finance can contribute significantly to business units that depend on innovation by moving from their roles as fiduciaries to becoming partners with business units in developing business models, forecasts and plans that return high value to the company from innovative products and ideas.

For an in-depth discussion of how value-based portfolio management can increase profitable growth at your company, contact us at info@smartorg.com.