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To spur corporate innovation, accountants have to become more than bean counters
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WHEN it comes to innovation, the first image that comes to mind is usually a group of scientists in lab coats and protective eyewear.
For a long time, many of us have tended to associate innovation exclusively with the R&D departments at companies.
This all changed recently for me though. One lesson I’ve learned about innovation is that it is — or, at least, ought to be — an all-out endeavor that involves everyone. Even accountants.
At a recent forum held at the Shanghai National Accounting Institute, Kip Krumwiede from the United States explained that innovation is a competency that determines the ability of a company to create value for its customers. This value, in turn, enables a company to achieve profitability and growth.
As director of research with the US-based Institute of Management Accountants (IMA), Krumwiede has spent years looking into the contribution of financial staff to companies’ performance in innovation. He once led a survey of 271 accounting and finance leaders around the world in which he and his team tried to pinpoint the top sources of innovative ideas and inputs.
They found that the two most important factors are key employees charged with idea creation and input from employees via idea suggestions.
Their research also found that the role of CFOs, who obviously count as key employees, is undergoing profound change. According to the survey, ten years ago only 10 percent of the senior finance and accounting leaders were asked to support innovation efforts. This figure now stands at 25 percent, and it is expected to jump to 40 percent in the next three years.
Krumwiede believes that these changes have been precipitated by cutthroat competition among modern businesses, many of which see innovation as their only hope for survival.
Things weren’t so harsh half a century ago. In 1958, the average lifespan of a company listed on the S&P 500 was 61 years. But in 2011, it was just 18 years. And by 2026, longevity is expected to shrink to 14 years.
The IMA survey found that 75 percent of respondents agreed that their organizations must significantly evolve or reinvent their business value propositions at least every five years.
Therefore, instead of just analyzing accounting reports and trying to spot financial problems in day-to-day operations, CFOs need to expand their roles to accommodate the increasingly complex nature of modern corporate governance. In other words, said Krumwiede, they will have a harder time living up to popular expectations of what they can deliver.
Considering that they are now expected to become champions of innovation, he suggested several strategies to achieve this goal. These include, for example, making innovation part of strategic planning and budgeting as well as establishing processes for generating and pursuing innovative ideas.
In his opinion, however, the most important competency for modern-day accountants is the ability to be a valuable business partner to operational units outside the accounting/finance department.
His views are echoed by Huang Xubin, CFO of TCL Group, a domestic household appliance manufacturer.
Huang said he “cannot agree more with him (Krumwiede)” on the importance of breaking down barriers and “silos” inside an individual company.
“Different divisions have to integrate to innovate, with the ideal being intimate involvement of accounting/financial teams in specific areas of business,” Huang told the forum.
Although just a decade ago the duties of accounting professionals might be to monitor cash flows and offer advice to improve cost efficiency, these skills now carry less significance than the strategic vision of knowing where to look for future growth opportunities.
For example, an accountant is no more than a bookkeeper if he fails to see things beyond the narrow confines of his own department. As Huang sees it, this calls for the capacity to think, act and communicate strategically.
Successful accountants can make connections between corporate strategy and investments in innovation to see how these will create future value, he argued.
Describing the CFO’s ideal role as “chief value designers,” he added that at least 10 to 20 percent of their energy should be channeled into new types of business.
If CFOs keep innovation on the agenda for executive management, they are in an excellent position to help lead innovation in their organizations, said Huang.
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