CGMA Innovation

Posted on September 12, 2013 View More News

In the late 1950s, the average tenure of a company in the S&P 500® was 61 years. Today it is down to only 18 years. In just the last decade, approximately half of the companies in the Index have been replaced by newcomers such as Google and Facebook. Organizations that are able to foster the creativity needed for innovation, and finance and efficiently implement it across the organization, reap numerous rewards in terms of growth, profitability and marketplace distinction.

In the midst of this uncertain marketplace, a new role for management accountants—manager of innovation—has not only emerged but has also grown in demand. What uniquely positions management accountants as catalysts for the innovation needed for long-term success? Their ability to evaluate the risks associated with specific opportunities, and their multi-faceted role across the organization when helping to transform creative ideas into commercially successful innovations.

New Resource for Management Accountants

To obtain further insights into how management accountants drive innovation, the American Institute of CPAs (AICPA) and Chartered Institute of Management Accountants (CIMA) developed a program to explore how successful organizations encourage innovation without compromising risk management. They were also interested in learning more about how management accountants can promote a culture of creativity while providing for sustainable success, reliable data analysis and strategic decision making.      

As part of the program, the AICPA and CIMA held roundtable meetings and conferences in the Americas, Asia and Europe where financial leaders from The Coca-Cola Company, Royal Dutch Shell,BT Group and a wide range of other organizations from around the world shared their experiences and opinions. The result is a Chartered Global Management Accountant (CGMA) report titled Managing Innovation: Harnessing the Power of Finance.

The report combines top insights from roundtable and conference participants with AICPA and CIMA research findings, and explains how management accountants are playing a vital role in ensuring that the most innovative ideas are funded and properly executed. It also features real-life examples and anecdotes from a diverse range of senior financial executives and acclaimed thought leaders about how the finance function, working with innovation strategies, can have a positive, measurable, bottom-line impact on the organization. The report concludes with a detailed checklist that management accountants can apply to their own organization’s innovation plans.

Four Steps to Unleashing Innovation

Building a culture that comfortably balances creative thought and flexibility as well as it does discipline and control can be a challenge for even the best-managed organizations. The following are four areas where management accountants can help strike this balance and put an organization on the path to an innovation-powered future.

  1. Create a New Mindset. Support from the top is necessary for the success of the most important initiatives, and shaping an innovation-centric mindset is no exception. More than half of respondents to a recent McKinsey & Company survey cited C-suite support as a driver of innovation success. With demonstrated backing from the leadership team, innovation can more successfully flow within the organization—and spread among supporters and advocates at all levels.
  2. Focus on Flexibility. When evaluating and measuring innovation, financial metrics need to be more flexible than the traditional metrics applied to business operations. Financial processes and metrics should align with different innovation lifecycle stages—more relaxed criteria that gradually tightens as ideas approach implementation—with ideas challenged and refined as necessary at each stage. There also needs to be an understanding that there will likely be detours, and in some cases failures, in the pursuit of innovation.      
  3. Pave a Path to Profits. Thelong-term rewards of innovation require that projects conceivably generate some degree of profit—innovation is not an end in itself. With expert advice on costs, financing and resource allocation, among other areas, a more successful progression from idea to implementation can occur. What follows is finance being valued as a contributor to, and not a constraint on, innovation.    
  4. Take a Balanced View of Risk. Although minimizing risk plays an indispensable role in an organization’s daily activities, it can present a challenge when applied to innovation, which includes risk as an inherent part of its process. However, innovative organizations recognize that the risk function helps ensure that they have balanced strategies and actions needed for growth, which repositions risk as a value driver. Organizations are then better able to make business decisions that allow innovation to flourish.    

Innovation is not easy to unleash and support. It can be disruptive to operations and uncertain in its outcomes, and requires new thinking and a strong appetite for risk. However, it has become a lifeforce for today’s organizations. Management accountants can guide organizations through the many stages of the innovation process and help them avoid the risks that can undermine long-term success, including what is perhaps the greatest risk of all—the failure to innovate.

Additional Information

CGMA designation holders can download a copy of Managing Innovation: Harnessing the Power of Finance at http://www.cgma.org/Resources/Reports/Pages/managing-innovation.aspx.

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