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May 22, 2013

CFOs should encourage innovation

by Daniel Milroy Maher

A report published by the Chartered Institute of Management Accountants (CIMA) and the American Institute of Certified Public Accountants (AICPA) has revealed why managements accountants, led by the CFO, must have "more of an open mind" when assessing the innovations of a business.

According to the report, finance professionals must "nurture creativity" in order to help the company on its way to success; this is key to cultivating a productive corporate culture, which, according to the report, "is a more important driver of radical innovation than labour, capital, government or national culture."

It is crucial that management accountants seek to "create an opportunity framework that promotes clarity, transparency and discipline across the total portfolio of innovation projects," as well as considering methods like "ring fenced budgets that offer more flexibility for the innovation process."

In the report, Managing Innovation: Harnessing the power of finance, interviews were conducted with companies such as Coca-Cola and Royal Dutch Shell who shared their insights regarding finance’s role as a driving force behind innovation.

CFO of Royal Dutch Shell, Simon Henry, said: "Finance is the creative tfinancing partner in commercialisation… it needs to be less mechanistic and have the ability to live with ambiguity, to identify risk and to manage it." Shell estimated their total annual investment in deploying innovation efforts at US$4bn.

"Whether it’s a new product, process or business model, the management accountant can help assess the results, evaluate how things have gone and learn lessons," Coca-Cola’s director of global services strategy, Doug Bonthrone said.

The report concluded that finance leaders must support innovation, rather than allowing "metrics used in the operational business" to restrict an idea that may provide long-term benefits for the company.

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