We live in a time that presents scenarios of uncertainty, recession, and changes of all kinds. It is here that organizations find an opportunity to adapt and create solutions that allow them to bring their value proposition to their customers. Over the weekend I read a report from the Gartner consultancy called “Disrupting Traditional Approaches to Create a Resilient Innovation Funding Model” in which a series of points are addressed to be able to manage innovation in organizations.
Managing innovation presents challenges that should be discussed by the company leader in conjunction with his CFO. To ensure the success of this management, leaders must involve CFOs throughout the entire innovation cycle to align it with the strategic and financial objectives of the institution. Their contribution is essential, as it establishes flexible approaches to finance different types of innovation, as well as providing the speed and agility that this type of investment demands. Many of the innovation projects that organizations develop die on the way, because they do not find the resources, nor do they have the strategic basis to be sustainable over time.
Find your innovation capabilities and resources.
One of the main challenges of innovation in organizations is the centralization of financing. What happens today is that the areas of the companies manage their own budgets to innovate, but create a financing methodology that incurs parallel experiments, duplication and higher costs. This added to obstacles such as the lack of flexibility, the bureaucracy of the processes, the aversion to risk and the lack of a culture of innovation in the members.
For this reason, it is very important to establish processes for financing and communicate it to all areas of the organization, in such a way that they can adapt and manage it in an efficient way. Here the role of the CFO is key, as they have a broader vision and control over spending throughout the organization. If we add to this the contribution of the CIO in prioritizing innovation projects, we can make better investment decisions.
Determine your innovation portfolio
On the other hand, you need to create an innovation investment portfolio and align funding with business objectives and market conditions. For example, in a company with a high risk of interruption, it is best to allocate funds in the innovation of a new business model, and abandon incremental innovation initiatives. If, on the contrary, the objective is to control costs and expenses, it is better to invest in incremental innovation of quick profit. There are clear examples of adaptation such as Uber and Airbnb that, after the 2008 financial crisis, developed a sharing economy that led to success.
Develop an investment decision framework.
There are other companies that centralize innovation from a corporate laboratory that functions as a business unit and is responsible for analyzing, managing and allocating the investment of innovation throughout the organization. This team is empowered to allocate funds and resources for the development of new products or launches. This team is empowered to allocate funds and resources for the development of new products or launches. These capabilities are executed in a similar way to other shared service groups. The objective is to promote distributional innovation and reduce duplication of resources. In addition, to support the innovation initiatives that may arise in the areas, the fundamental capabilities must be available to the business units, in such a way that each of them can plan adequately and take responsibility for their own innovation efforts. In other words, it is providing the resources that a startup would need just starting out. Each startup then finances its own experiments and best practices from the laboratory are used to replicate to other areas.
Create your set of flexible approaches
The innovation opportunities that most urge the organization can be delayed or abandoned with classic investment approaches. In that sense, budgeting and financing processes for innovations must be aligned with iterative and flexible cycles to prevent innovation from being lost. An innovation council can be formed that includes the CIO, innovation leaders, CFO, and other key stakeholders needed to accelerate decision-making for experiments and funding.
This model can be very helpful during economic and market crises or recessions. Instead of “canceling innovation” or putting it on “hold”, a dynamic and flexible innovation financing model can make innovation resilient during any crisis.
Finally, a typical response in a period of crisis such as the one we are experiencing is to cut budgets and slow down innovation processes, when it should be the opposite. It is in this situation when we most need to innovate our business model. Taking into account all these points, we can ensure that we are really managing innovation in our organizations in a strategic, conscious way and above all, ensuring the sustainability of our efforts in the long term.
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