The Evolving Role of Finance: Fostering Innovation and Leading Business Model Evolution
A short while ago I wrote down some thoughts on organizational learning and the strategy process. In today's blogpost I aim to write down some thoughts on finance function's role in supporting innovation and business model transformation.
We are operating in changing times. Interest rate environment has changed completely in a year, there are many possible paths that the economy might take in the near term as well as neither our main competitors nor fintechs are sleeping. Given the complex landscape, we in finance are uniquely positioned to guide the organization through the changes. In this post, I'll explore ideas on finance's expanding responsibilities and possibilities of taking a role in driving innovation and steering business model evolution.
Understanding the Finance Function
Historically, finance was about managing a company's finances - financial planning and analysis, treasury, audit, and investor relations. However, in line with Gartner's observations, finance's role has significantly transformed, largely due to technological advancements and increasing complexity of business operations. I believe that our finance function is seen as a strategic partner across the business, as we support business strategy, and provide relevant insights.
The Necessity of Innovation and Business Model Disruption
In the words of Clayton Christensen, disruption is a process, not an event. It challenges established industry norms and creates new opportunities. For us to stay competitive in, we need continuous innovation and a willingness to disrupt our own business models. As the largest bank in the region, we remain focused on our core business. However, we need to be ready to disrupt ourselves when circumstances require.
Bringing in an example from the Harvard Business Review, we must foster a culture of innovation and reinvent ourselves to stay ahead of competition.
Finance as the Catalyst for Innovation
As McKinsey implies, the finance function should play a central role in driving innovation. Finance serves as a strategic partner that enables and drives change by effectively allocating resources. As the gatekeeper of resources, finance can transform from being perceived as the skeptics into an innovation enabler, fostering an environment where innovation is woven into the company's fabric, contributing to sustainable, consistent, and capital-efficient growth. By using financial modeling, finance can assess potential return on innovative projects and ensure accountability and learning through tracking and analyzing results.
One clear example of the finance function driving innovation is Google's '20% time' policy. The finance function facilitated this innovative approach by dedicating 20% of engineers' time to side projects, which led to the development of some of Google's most successful products, such as Gmail and AdSense.
Finance at the Forefront of Business Model Evolution
With a holistic view of our organization, our finance function is primed to lead business model evolution. Aside from supporting business in calculations around revenue potential, we can identify areas where disruption can create value, guide resource reallocation, and manage the financial risks associated with change.
As Peter Senge underlined, companies must learn to adapt and change their business models to survive. We in the finance function can steer this learning process in the planning process, proposing financial models that show alternative paths take and support business ideas with financial insights during the process.
CFOs, with expanded roles and faster strategic decision-making, are pivotal in driving business model innovation. This report by Accenture highlights overcoming the decision-making "paradox of choice", balancing regular and transformative efforts, and focusing on execution to unlock value from enterprise reinvention
The Challenges and the Road Ahead
Embracing a non-traditional role is not without its challenges. It requires a shift in mindset, new skills, and likely implementing new tools and processes. According to Gartner, these challenges can be overcome with continuous learning, technology investment, and fostering a culture that embraces change.
The future of finance is promising, with its role extending into strategic decision-making and business model innovation. It's exciting to be a leading force in driving change, fostering a culture of innovation, and ensuring sustainable growth.
To accommodate these changes, any finance function will need to continue investing in technology and the people. As McKinsey suggests, finance professionals will need to take on a more forward-looking and strategic approach, providing faster and richer insights supporting dynamic decision-making.
Conclusion
The evolving business landscape necessitates a shift in the finance role from a traditional number-oriented perspective to a more strategic and forward-thinking one. Amid rapid technological advancements and business complexities, we in finance stand at the center of steering our organization towards innovation and business model disruption.
However, harnessing the full potential of our role requires us to overcome challenges through continuous learning, investment in technology and people, and fostering a culture of innovation. As we adapt to these changes, finance is set to play an increasingly strategic and integral role in business innovation and disruption, making this an exciting time to be part of the finance function.