Here's why more risk-taking is the right move for CFOs who want to innovate effectively

Profile picture for user Tim Wakeford By Tim Wakeford October 30, 2019
Summary:
CFOs need to be ready to embrace and manage risk to foster innovation in a changing world, writes Workday's Tim Wakeford

Risk concept - man balancing on rope over precipice in mountains at sunset © PHOTOCREO Michal Bednarek - shutterstock

Businesses that are afraid to take risks and try new things will ultimately fall behind competitors who are willing to take tactical risks in the pursuit of success — even if that means failure. Risk taking is the foundation of digital transformation, but many businesses are struggling to find the balance between seizing the need for innovation and a reluctance to stray outside of their comfort zone. Analysis paralysis is delaying decision making, and ultimately leaving organizations stagnant.

The finance function has always been justifiably risk-averse. However, as technology continues to transform every department of traditional business, CFOs need to shift their approach to marry their stewardship skills with a more open approach to risk.

No one is suggesting the finance function throws caution to the wind, but rapid decision-making, driven by tools and data, does open up the ability to think and fail fast in the pursuit of value creation. Here are three key areas to consider for finance leaders during key decision-making processes going forward.

Redefine ROI

When proposing a new technology rollout or devising a new business critical process, the first question from the board will always be, “How will we measure return on this investment?” The natural instinct is to refer back to how investments will impact the bottom line of the business, and how changes will drive the top line. It may sound counter-intuitive, but a sales and cost focussed approach shouldn’t be the be all and end all. In a rapidly moving business landscape, organisations need to consider the ramifications of not making a move early enough, and suffering competitive disadvantage as a result.

To bring this into context, let’s look at the use of the spreadsheet. Despite being seen as the comfortable standard for finance processes, studies from Ventana Research shows that they’re error-prone. Indeed, 35% of organizations said they routinely find errors in data and 26% find formula errors in the most important spreadsheet they use. Proposing a move away from spreadsheets to an alternative solution can be seen as an overhaul too risky to undertake.

However, in not making the change from the tried and trusted spreadsheets, finance departments are beholden to human error, use valuable employee time on data input, and will ultimately fall behind digital-first regulation. Moreover, spreadsheets are often duplicated, making version control a huge issue. Not to mention that some sheets are only understood by the people who created them — adding more risk into the business. Sometimes, the biggest risk a company can take is to do nothing at all about changing the status quo. Yes, people don’t like change, but you have to meet that challenge head on if you are to thrive in today’s business environment.

Create a fearless culture

Motivating through fear is a highly unsustainable management style; we don’t live in the autocratic world of the 20th century any more. Employees who fear their leaders are far less likely to try new things or drive creativity and efficiency into their day-to-day work. True disruptors fail fast, learn from their mistakes and bounce back stronger. They also empower employees to find new and innovative solutions to everyday problems. The Japanese methodology of ‘kaizen’ is a great case in point.

A perfect example of this in action was in Jeff Bezos’ letter to shareholders earlier this year. He stated that “ multibillion-dollar failures ” are the key to Amazon’s success as a business, and the ability to make mistakes is central to the pursuit of true innovation.

The only way to foster this mindset in your finance team is to create a culture that accepts failure and embraces innovation from the top-down. If a team commits to a project and spends time and energy that ultimately doesn’t pay off, this has to be met with positivity from leadership. Often, the failure itself is enough to teach the lesson, and an executive piling on subsequent pressure will only destroy morale. Ultimately, innovation is a process of continuous learning, and not a switch you can flick overnight.

Don’t get too attached

The constant measurement and analysis of ongoing projects is something that is key for organisational agility. Successful CFOs are constantly measuring and analysing to ensure that the team is on track to meet its goals. In doing so, it is vital that finance leaders recognise when a project is destined for failure as early as possible, so that the team can pivot quickly and focus attention elsewhere.

If you are involved with a new initiative from the outset, it is easy to get too invested, and not recognise when to pull the plug. When implementing a new expenses process for example, if adoption rates are slow or requests are getting backed up, the team needs to be able to switch track quickly. This way they can preserve their internal reputation and limit any potential damage. From a team management perspective, it is important that the idea is celebrated, even when it doesn’t work out. No one likes to see their ideas fail, so it is vital for leaders to create a supportive team environment. An environment which encourages team members to pick themselves back up and try again when things don’t go as planned — celebrate the idea, not the outcome.

Ultimately, agility isn’t just about being able to set off from the start line at a rapid pace, it is being able to stop or change course just as quickly. There shouldn’t be a taboo associated with killing a project if it isn’t performing. It should be seen as an opportunity to invest resources in other ideas and initiatives that may have a more positive outcome.

The innovation game

As technology continues to empower innovation, inertia will be treated with little sympathy from the board. Finance has a critical role to play in leading from the front and changing hearts and minds in its approach to embracing change, innovation and failure.

Ultimately, finance teams that embrace risk, and don’t fear failure are best positioned to lead the way as technology transforms the way businesses operate. And you might just surprise a few people in your business along the way.