The nature of innovation and growth is changing and the finance function will play an increasingly important role, prompting Lesley Meal, FSN writer, to ask, should the CFO should be driving digital innovation?
Airbnb and Uber are the poster kids for the latest generation of digital disruptors. However, as well as being exemplars for digital disruption and innovation, they are exemplars for what can be achieved when a market entrant undercuts and outperforms the competition by using peer-to-peer sharing to tap into privately held idle capacity.
The ‘sharing economy’ has enabled Airbnb and Uber to gain global traction with consumers (and attract lawsuits and resistance from competitors and governments) in ways that established players in short term accommodation and transport do not. But digital start-ups do not have a monopoly on digital innovation. All digital disruptors are innovators but all innovators are not disruptors.
There are plenty of examples of digital innovation in established enterprises. “We pioneered the connected car back in 1996,” General Motors (GM) CEO Mary Barra reminded attendees at the Consumer Electronics Show 2016 in Las Vegas, while unveiling the all-electric Chevrolet Bolt EV. In recent years, GM has been overshadowed by Tesla Motors’ success in the all-electric car space, but GM is playing catch up - fast.
Taking a car from concept to production can take years (if it happens at all); the Bolt EV will hit showrooms within a year. In the digital world size can be a decelerator, but according to Barra it enabled GM to create its affordable connected car. “We can use our scale to bring new technologies to more people faster,” said Barra. GM has manufacturing capabilities and dealership networks that newer market entrants may lack.
“Major corporates recognise they will have to play the tech challengers – which have completely transformed some markets or created entirely new ones – at their own game,” Ajay Chowdhury, partner and MD at BCG Digital Ventures UK, wrote in Computer Weekly. Over the next decade, he expects some digital disruptors to be overshadowed by established enterprises. “They must become technology innovators as well,” he said.
Attempts to do this present enterprises and their CFOs with new challenges and difficult decisions. Should you build or buy innovation? How do you budget for it? Can you budget for failure? How do you build a culture of innovation? Can you afford to lag behind disruptors? Does the finance function need to build new relationships and develop new skills and tools and systems?
The modern CFO
Although CFOs must carry on planning, forecasting, ensuring compliance, communicating business and finance information to internal and external stakeholders, they must also take on more, as managers of risk and proactive drivers of business evolution and innovation. Manuel Vellutini, co-CEO at Tagetik (a provider of unified corporate performance management solutions), expects “progressive CFOs” to set an example by being:
- forward-thinking and frequently reforecasting, modelling, and uncovering opportunities;
- a partner to business unit leaders in driving operational performance and strategy; and
- embracing new technology to help finance combine strategy with innovation, while remaining bulletproof from a compliance standpoint.
Many CFOs are already responsible for the IT which is becoming a differentiator. “It matters how the finance group uses technology and how it changes finance,” said Vellutini. As well as this, he adds: “The CFO should keep an alert eye for new technologies that can deliver concrete benefits throughout the enterprise and strive to incorporate them into the company’s business processes and models.”
Some digital innovation initiatives will be easier to support and sign off on than others. When the low-cost Canadian airlines Transat and WestJet decided to remove the seatback entertainment systems that characterise long-haul flights, this didn’t just cut costs, it positioned them as digital innovators and proved popular with passengers – around 80% of whom now carry their personal mobile devices onto flights.
The WestJet system uses satellite internet, an on-board server with a wireless network and apps to stream films and TV shows directly to mobile devices at “roughly half” the cost of the old system. It removes more than 1,500lbs of weight off each aircraft, which will result in fuel savings. Passengers pay $7.99 for the convenience of personal in-flight connectivity and those without their own device (which they can recharged from their seat) can rent a tablet.
Taking a proactive approach to digital innovation by developing and building on new partnerships between finance and other parts of the business can also pay off – and on various levels. At Tokio Marine & Nichido Fire (TMNF) insurance, a collaboration between the corporate planning team and the IT team has led to some convenient and popular new digital products that also happen to be innovative and disruptive.
When TMNF launched its pay by the day auto insurance it was the first product of its type in Japan. It can be bought anytime, anywhere from a mobile phone. There’s an app for reporting accidents (with camera phone photos) and requesting a tow truck, with the phone GPS used for automatic location identification – and it has allowed millions of infrequent drivers to use cars owned by friends and parents without pushing up their premiums.
These digital innovations confound the bean counter misconception. “CFOs get underserved bad press,” said Andrew Vance, from Xledger (a supplier of cloud accounting and financial management systems). “Finance departments have had to evolve from traditional holistic bookkeeping functions, able to tell the business what has happened, to being a strategic partner able to analyse and provide insight to support future business strategy and growth.” CFOs are emerging as the drivers on the road to innovation; not the speed bumps.