This is my second article looking at the relationship of Finance with innovation. Last time I shared a few thoughts on how Finance can support strategic business innovation, which benefits customers and provides competitive advantage.
This time I want to turn my attention to innovation within Finance, affecting what we do on a day to day basis.
What is innovation?
One thing we haven’t talked about yet is, what is innovation?
I remember attending a presentation a while back. In it they expressed great concern that a survey showed very few CFOs had priorities in innovation within Finance. (Well, of course, they did. The event was sponsored by one of the big software vendors! There’s me being cynical again!) And I sat there thinking, what do they mean by innovation? And why is it such a high priority thing to do? We’re all so busy. And some software sales person comes along and says we really need to consider their interesting technology product that we’ve never heard of before. Why?
At the same time, in my career, I’ve seen some really good use of technology in Finance, to the extent that when I go somewhere less advanced I wonder why they haven’t kept up.
But what is innovation? We have to be clear about that, otherwise how can we know what we’re being urged to pay attention to.
Is it innovative to scan invoices and have access to them electronically, rather than in paper files? I worked for a company doing that in 1996! Similarly, is workflow, OCR, and intranet collaboration, still counted as innovation? They’ve also been around for 15-20 years or more.
Is it still innovative for companies to bring themselves up to date with 1990s technology?
If you look at the definition of innovation, it’s just the use of something new to improve something.
Well, that kind of takes the wind out of my sails. Because I always got the impression that innovation was transformative. Innovation, it turns out, doesn’t have to improve something very much to count as innovation. It just has to be new. And it doesn’t have to be brand new, just new to whomever is using it.
And it doesn’t have to be technology-related, although it normally is. For instance, I’d say that “Beyond Budgeting” is pretty innovative (as well as transformative), even though Handelsbanken was doing it in the 1970s!
But the other thing to note is that innovation is not invention. Inventors create new things. Innovators use those inventions to improve things. Innovators come up with good uses for new inventions, or even new uses for old inventions.
What about innovation within Finance?
So, where does this lead us in thinking about innovation within the Finance function?
This time we’re not talking about offering innovation to customers of the business, but accepting it into our own activities.
Some would say, how can we ask our customers to accept innovation if we’re not ready to accept it ourselves? But, that’s illogical.
We know that our customers won’t accept the innovations of our business unless it clearly makes their lives better. We have to demonstrate, in our marketing, how it does that.
When we turn our thoughts towards innovation within Finance, or anywhere within our business, we don’t have to be ready to jump on every innovation bandwagon. We are the customers. We should only apply an innovation if it makes things better for us. And just like our customers are cautious, we should be too.
So, there’s a positive and a negative here.
Positively, we should be on the look out for ways to use new inventions and innovations presented to us, to help us improve.
Negatively, we shouldn’t just implement something just because it’s new.
This is simply to say, there must be a good business case for whatever we propose to do. If workflow technology, RPA, Artificial Intelligence, won’t bring net benefits for our business, we don’t have to feel compelled to implement them, even if the Finance media gently sneers at us for being backward. If there is a good business case, we should implement with enthusiasm and confidence.
(So, if you were wondering about the Pink Floyd reference in the title, I was going to say, “we don’t need no innovation!”)
We don’t need no innovation?
But Finance technological innovation faces a significant problem. And it’s the same problem we have with the Finance function in general – how can we justify the value of it? How can we articulate the value of cloud technology, artificial intelligence, etc, even if it gives us better quality data, speed of access to information, better presentation of information?
We often resort to looking at efficiency – because we can measure the amount of time people spend on things. But in my experience, efficiency in Finance doesn’t often pay enough to cover even the software maintenance costs of new technology. And it also gives the wrong impression – that Finance can only add more value in the business by being cheaper.
So, where is the business case?
This is where the big software vendors can help. Instead of just coaxing customers towards new technology because it suits them, they need to get better at articulating and quantifying and measuring the benefits.
As an aside, I once had a conversation with someone at one of the big ERP software companies. As we were chatting he talked about how they were trying to get customers to “move to the cloud”. And he asked what it would take to get the company I was working for to the make the move. My advice was that they should talk more about the benefits, rather than the technology – sell us the why, rather than the what.
If we can be innovative in technological solutions, why can’t we find innovative ways of articulating the value of things like speed of decision making?
The problem for Finance is that if we have to rely on subjectivity and mere trust in software vendors, we can’t impose anything more stringent on the business. If our project business cases are subjective, how can we ask for more objectivity from the business in their business cases?
What’s the value of Finance
My parting shot on this is that to build a business case for implementing innovation in Finance, we need to be clearer on our vision and strategy for Finance. That means being clear on where our value lies – and it’s not just in being cheap. If you want to put more thought into where the value of Finance comes from, why not take a look at my mini course How Finance Can Drive Business Performance?
I don’t have all the answers on this. What are your thoughts? Have you come up with ways of quantifying and measuring the more intangible benefits we can get out of innovation in Finance?
Do you have opinions on what counts as innovation in Finance? I’d love to hear.