“Innovate or perish” is the rallying cry of business in the 21st century, and for companies that excel at innovation it is well understood that an exacting and ongoing commitment is needed.
“Simply articulating a compelling vision [for innovation-led growth] is far from sufficient,” global consulting firm McKinsey & Co notes in its report, The Eight Essentials of Innovation Performance.
Quantifying the scope of innovation required to meet financial growth objectives is an exercise every company should consider, but McKinsey laments that only a “handful” of companies do this as part of their strategy and planning processes.
“Only once [innovation] is quantified is a company able to ensure that managers make the proper trade-off to drive innovation alongside other business activities and put in place the appropriate metrics to track progress,” the report notes.
McKinsey adds that a strong “innovation portfolio” goes beyond new products and includes factors such as new business models and processes that can offer an edge.
“Of all innovation types, business-model innovation can create the most significant long-term value,” the report states. “These innovations can include new distribution and production methods – both can disrupt current practices and erect powerful barriers to competition.”
How the CEO sees it
Professional services powerhouse Deloitte Australia is imbued with the innovation imperative. Former chief executive Giam Swiegers – appointed in 2003 to revitalise the then lacklustre firm – stressed the importance of innovation.
Swiegers’ successor, Cindy Hook, who was appointed last year, is increasing that focus.
She recently announced record revenue for Deloitte Australia of $1.53 billion for the year ending May 31.
“The rapid pace of change in the world today requires business leaders to strike a balance between delivering operating profits today and investing in transforming their business models to enable sustainable growth and profitability in the future,” Hook says.
How the CFO sees it
While it is often CEOs who are most identified with a company’s innovation strategy, chief financial officers also play a vital role in providing the financial and strategic framework in which innovation flourishes.
Deloitte Australia CFO Andrew Griffiths says innovation is deeply embedded in the organisation. “Innovation is what we do – it’s not separate, it has become integral to the way we do business,” Griffiths says.
“If you do innovation for innovation’s sake you don’t get anywhere. Innovation requires a proper framework that links it back to the business purpose – the reason you innovate is to help you achieve your strategy. It is not just about coming up with ideas; but delivering on the ideas and having tangible, measurable outcomes.”
Innovation, he adds, must be “viable and sustainable”, include reward mechanisms, and be measurable against performance indicators. “There needs to be a strong link between the strategic plan, business plan and financial plan,” he says.
Stressing the importance of “structure, support and enablement” in driving innovation, Griffiths says he works closely with Deloitte’s chief strategy officer to create the structure that takes innovation “from ideation to commercialisation”.
Every initiative aimed at advancing the firm’s strategic objectives – whether it’s a push to pursue new markets or better service clients, or an acquisition aimed at expanding capabilities – goes to the investment committee including the CFO, CSO and CEO.
Recent acquisitions include businesses specialising in identity security, cloud consulting and spatial design.
When Swiegers became chief executive he was among the first business leaders in Australia to talk about the little-understood concept of “disruption” and its impact on Deloitte and its clients. That focus is being increased today.
“We are constantly asking ‘how do we disrupt ourselves?’ because unless you disrupt yourself, you’re in trouble,” Griffiths says. “We have to integrate disruption into the business and we have to look at new ways of doing things to be a sustainable business.”
Innovation is what we do – it’s not separate, it has become integral to the way we do business.– Andrew Griffiths, chief financial officer, Deloitte Australia
How to go global
Linda Dillon has been CFO with diverse companies including architects Woods Bagot, wind-energy company Vestas and engineering group Aurecon. These days the Melbourne executive specialises in consulting and Interim CFO roles for ASX small cap and businesses with growth trajectories preparing for IPO and ASX listing.
Dillon has been involved in setting and overseeing the “strategies, processes and platforms” that provide the framework for commercialising innovation.
Australian companies looking to commercialise their intellectual property internationally often partner with overseas companies to create the necessary scale and distribution reach. To do this successfully, Dillon says, it is important to have the governance, risk management and financial systems in place.
“To partner with world-class organisations you need to have world-class processes,” she says. “In many cases my role has been to ensure that robust platforms are in place for the commercialisation of Australian R&D and innovation.”
This includes undertaking due diligence of potential partners, setting performance benchmarks, developing risk management protocols, creating reporting systems, and managing tax and regulatory compliance.
Dillon says innovation, research and development geared towards national and international growth must be underpinned by financial, risk and scenario models.
“Modelling plays a critical role when pursuing growth strategies so that everyone knows what the possible outcomes and potential risks are,” Dillon says. “Nobody wants to be caught half-way through a major rollout without sufficient capital or with the organisation under great stress.”
Idea in brief
- Innovation is more than new products, it includes new business models
- Rapid pace of change requires business leaders to strike a balance between delivering operating profits today and investing in transforming their business models to enable sustainable growth and profitability in the future
- Innovation must be viable and sustainable, include reward mechanisms, and be measurable against performance indicators
- R&D geared towards international growth must be underpinned by strong risk management