CGMA research: CFOs must take hands on approach to innovation

New report from AICPA and CIMA reveals how finance professionals at Coca-Cola, Royal Dutch Shell and other global innovation leaders help to drive new advancements.

Add another duty to the expanding role of CFOs: Innovation catalyst. New research from the Chartered Institute of Management Accountants (CIMA) and the American Institute of CPAs (AICPA) finds that management accountants, led by the CFO, play a vital and growing role in driving advancements at some of the world’s most innovative companies.

In those businesses, the CFO and finance team are deeply embedded in the process of innovation and have a clear framework to let new ideas take shape. They partner early with other departments to identify concepts with market potential, replace rigid financial metrics with staged measurements to avoid eliminating ideas too soon, and accept that failure is a tolerable outcome for projects along the path to commercialisation.

The conclusions are captured in a new Chartered Global Management Accountant (CGMA) report, “Managing Innovation: Harnessing the power of finance,” and based on interviews with global finance leaders at companies including Coca-Cola, Royal Dutch Shell and BT Group. 

“The role of finance in all of this is multifaceted,” Royal Dutch Shell CFO Simon Henry FCMA, CGMA, explains in the report. “A finance function needs to be able to understand the business well enough to know what is a worthwhile activity but also, in this part of the business, to have a bit more of an open mind. It is less mechanistic and has the ability to live with ambiguity, to identify risk and to manage it.”

“There’s an art to innovation but there needs to be some science that goes with that: understanding the forward-looking side of strategy, being able to scope the opportunity,” adds Doug Bonthrone, ACMA, CGMA, and recently director of global services strategy at Coca-Cola. “In all these areas, the management accountant is really critical. Whether it’s a new product, process or business model, the management accountant can help assess the results, evaluate how things have gone and learn lessons.”

The report recommends five areas where finance professionals should take action:

  • Create an innovation-centric mindset. Develop a framework in which innovation can thrive and accept that sometimes projects will fail.
  • Nurture creativity. Explore ideas like ring fenced budgets that offer more flexibility for the innovation process.
  • Prepare the path to profits. Finance can be a valuable part of innovation teams – for example, helping build more robust business cases to secure further backing.
  • Match metrics to the stage of development.  Finance leaders shouldn’t put metrics used in the operational business around nascent or experimental initiatives. Consider a phased approach to give an idea room to breathe.
  • Take a balanced view on innovation risk. Companies increasingly employ a portfolio of strategies to drive innovation. Management accountants should seek to create an opportunity framework that promotes clarity, transparency and discipline across the total portfolio.

For press enquiries, interview requests and a copy of the report, please contact:

James Tall
Senior Profile and Communications Officer, CIMA
T. +44 (0)20 8849 2427

Andrew Graham
Public Relations Manager, AICPA
T. +1 212 596 6286

Alex Bevis
Account Director, Four Colman Getty
T. +44 (0)20 3023 9012

Notes to Editors:

Innovation Checklist

Create an innovation-centric mindset:

  • Ensure your CFO is actively engaged with the business and helping to drive innovation.
  • Consider how your company’s financial management processes – including reporting cycles, remuneration and KPIs – can be structured to support innovation, and not hinder it.
  • Structure your incentives and performance measures to reward innovation and promote an appropriate risk appetite.
  • Consider adopting a portfolio approach to innovation, combining organic innovation with openness to external ideas.

Respect and nurture the innovation process:

  • Understand where good ideas come from in your organisation, and how finance can help that process.
  • Learn to balance good financial management and discipline with the uncertainties inherent in innovation.
  • Encourage finance professionals to move around the business and gain exposure to the innovation process.
  • Balance the freedom to experiment with the right checks and balances once the innovation has reached an appropriate stage.

Help your business plan the path to profit:

  • Check that you have the tools to model the impact of a product or idea in various markets and against a range of scenarios.
  • Understand your wider organisational strategy and where your company gains its competitive advantage.
  • Embed financial professionals in the innovation process to help build the business case for upcoming ideas.
  • Proactively advise on different options for funding business proposals.

Apply the right metrics at the right stage of development:

  • Consider using an appropriate stage gate process to allocate budgets, targets and metrics on a phased basis.
  • Help quantify and assess the results, successes and failures of innovation across the organisation.
  • Incorporate a blend of quantitative and qualitative measures to help assess the progress of ideas through your innovation funnel.

Take a balanced view on innovation risk:

  • Ensure that your risk appetite is reinforced by the company’s governance structure, risk and reward structure, and reporting cycles.
  • Ensure your risk strategy helps identify innovation opportunities as well as threats.
  • Consider the soft risks of not innovating, as well as the hard risks of innovation.
  • Consider adopting a portfolio approach to risk, balancing more and less risky innovations over various timescales.

Chartered Global Management Accountant (CGMA)
Two of the world’s most prestigious accounting bodies, AICPA and CIMA, have formed a joint-venture to establish the Chartered Global Management Accountant (CGMA) designation to elevate the profession of management accounting. The designation recognises the most talented and committed management accountants with the discipline and skill to drive strong business performance.

Chartered Institute of Management Accountants (CIMA)
The Chartered Institute of Management Accountants, founded in 1919, is the world’s leading and largest professional body of Management Accountants, with more than 203,000 members and students operating in 173 countries, working at the heart of business. CIMA members and students work in industry, commerce, the public sector and not-for-profit organisations.

American Institute of CPAs (AICPA)
The American Institute of Certified Public Accountants (AICPA) is the world’s largest association representing the accounting profession, with nearly 386,000 members in 128 countries and a 125 year heritage. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting.