Pacesetter Matrix - Innovation
In part two of the eight-part series we explore INNOVATION.
Something different that creates value.
Innovation is not just about a new discovery, but also about reinvention, adaptation, and noticing opportunity. Something different can be a major breakthrough, but it can also be an everyday improvement that makes the complicated a bit simpler, or the slow a bit faster. Innovation is the only path to successfully sustain business performance. Creativity is necessary to continually advance an organisation, via evolved products, systems, and processes.
“Innovation distinguishes between a leader and a follower”
- Steve Jobs, Apple
CFOs are under pressure to create opportunities from complexity. Applied to the Finance function, innovation is the process by which CFOs transform the function’s operating model, processes, systems, team, and culture to eliminate inefficiencies, generate better insights, and improve enterprise value. Typically ‘best practice’ methodology inhibits creativity and innovative thinking, breeding complacency. Modern business is continually evolving; applying solutions that worked yesterday, may not be suitable for tomorrow.
Analysis from PwC identifies two types of organisational leaders: Producers and Performers.
Producers are skilled at conceiving new ideas and bringing them to fruition
Performers know how to optimise the existing systems, processes, and practices of an organisation
Producers are naturally innovative. They develop new business ideas and bring together distinct thoughts and often conflicting stakeholders to see these ideas through.
Producers possess a variety of "habits of mind" that they apply to every task they take on. These include:
Empathetic imagination: Seeing grand potential where others only see change
Patient urgency: Operating at different speeds in different time frames at the same time
Inventive execution: Combining creative functions with operations
Taking a relative view of risk: Worrying about the long-term future instead of immediate loss
Successful businesses thrive on a combination of both producers and performers. A good example is Apple's dream team of founder CEO Steve Jobs (a producer), and former COO and current CEO Tim Cook (performer).
Ten characteristics typical of innovative leaders include:
Curiosity - see part one of our Pacesetter Matrix https://www.20twonorth.com/insights/curiosity. Innovators lead with questions, not answers. In Good to Great, Jim Collins emphasizes this as a foundational trait of what he calls Level 5 Leaders (the peak of the pyramid)
Challenger - it is easy to fall into the trap of doing things the way they have always been done. Innovators are not afraid to break with the norm and push past conventional wisdom. Innovators challenge the status quo and think outside the box
Catalytic learner - continuous learner with an eagerness to seek new ideas, and the logic to convert the learning into productive, results-oriented action
Risk-taker - innovation often requires some level of risk and an appreciation that not all ideas are successful. There needs to be a willingness to leave one’s comfort zone, without fear of failure or repercussions
Visionary - possess a clear sense of purpose and motivate through action. They excel at creating clarity on an otherwise undefined path. To create a culture of innovation leaders inspire continuous growth, taking small steps forward towards the destination, not a giant leap to the peak
Collaborative - innovation often comes from divergent thinking, where conflict and disagreement can be beneficial. Innovative leaders work across and beyond the organisation, embracing expertise from other stakeholders with the perspective that many minds are better than one
Exceptional judgment - able to make sound choices in the absence of clear-cut, relevant data or an obvious path. Attentive listeners that instinctively know the right moment to contribute or take action
Persistent - effective change managers who know how to navigate through resistance to their ideas
Optimistic - energetic, able to weather setbacks, but continue on with enthusiasm
Persuasive - highly effective in getting others to accept good ideas by presenting with enthusiasm and conviction
Jeff Bezos, founder and CEO of Amazon, outlined his approach to innovative decision making as, “high-quality, high-velocity decisions.” This means that to succeed, innovative leaders must be able to make good decisions quickly.
He believes that innovative leaders should place emphasis on fighting conformity, avoid group thinking, and resist the conventional thinking that achieving harmony is desirable. Bezos expects people to challenge him. He demands a quality discussion with people bringing in new ideas, different perspectives, and disruptive thinking. Amazon’s Leadership Principles state that leaders are “obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting; they do not compromise for the sake of social cohesion.”
Finance plays a pivotal role in developing and maintaining a successful innovation strategy. Change requires careful strategic thought. The finance function must evaluate the upfront investment to get things off the ground, understand future funding requirements, and crucially, predict what are the likely returns. This means looking at every potential cost vs benefit. Innovation projects have a high rate of failure, so finance leaders face the difficult challenge of determining at what point to stop funding the project because it simply isn't going to work. This is not just their decision; they need to provide visibility into the cost-benefit and associated opportunity costs so decision-makers are empowered to make the right choices about a project. Even once a finance function knows the type of innovation it requires, there are many obstacles affecting change.
Common barriers to innovation include:
Lack of time - daily demands prevent spare capacity for creative thinking. Google’s famous 70:20:10 rule sought to address this
Organisational culture - perception that doing things differently produces no tangible benefits, lack of infrastructure / support to bring ideas to fruition
Organisational inertia - reluctance to change what is working today, maintaining the status quo is inconsistent with discovering tomorrow’s model
Lack of accurate ways to measure success - innovation is expected to prove ROI
In the HBR article “Breaking Down the Barriers to Innovation”, a solution to overcome innovation barriers is identified, named “BEANs”.
Behaviour Enablers - Behaviour enablers are tools or processes that make it easier for people to do something different
Artefacts - things you can see and touch—support the new behaviour
Nudges - a tactic drawn from behavioural science, promote change through indirect suggestion and reinforcement
Effective BEANs are:
Simple
Fun
Trackable
Practical
Reinforced
Organisationally consistent
To drive innovation in the Finance function, CFOs should create an environment that champions ideas, encourages intelligent risk-taking, and rewards rather than penalises failures. Astute finance leaders should question existing approaches, apply critical thinking, and creative problem-solving to identify improvements.
