BUSINESS BYTES

Disruption beats optimisation

  • Posted 2 years ago
  • 2 min read

Whoever said nostalgia isn’t what it used to be could have made a similar remark about change.

There was a time when business change was incremental – step by comfortable step, contained within departmental boundaries, managed at a sedate pace. Not any longer.

In the twenty-first century, change is the handmaiden of innovation, which is at the heart of creating new corporate value. If the CFO isn’t at the centre of the change debate, the chances are that he or she won’t remain the CFO for very long.

Consider this tale from consultant Matt Kingdon, author of The Science of Serendipity. Kingdon recalls discussing innovation strategy with the board of a multimillion pound company. The CEO was adamant that the company had squeezed every pounds-worth of innovation that it could from production and distribution. Kingdon pressed the CEO on how much growth was needed from innovation to fulfil the company’s ambitious business growth strategy. The CEO conferred with his CFO and the answer came back: £1bn over four years. In short, he needed another £250m contribution from innovation within a year to keep his strategy on track. “As the penny dropped, the rest of the board gave a collective gulp,” recalls Kingdon.

So here is an initial change management challenge for the CFO: what is the growth gap – how much revenue does innovation have to deliver in the future to meet business targets? If that turns out to be a big number, then change management needs to be a core strategic issue for the CFO – and, by implication, for the rest of the company.

The challenge here is embracing genuine change, rather than asset optimisation. CFOs – and the C-suite in general – have long been well-versed in the language of efficiency, in enhancing productivity and cutting costs in order to achieve profit growth. However, it’s too easy to ‘iterate into oblivion’ – using investments to optimise and marginally improve existing products, rather than working on a genuinely revolutionary, disruptive solution.

In the short term, iteration and a focus on legacy products is the safe option and, as such, it’s the one that many C-suite executives gravitate to. But it should be the CFO’s job to persuade executives to let go of legacy activities that no longer deliver value and focus on new ones that do.

However, that doesn’t mean letting go of asset optimisation completely – that would most likely result in short-term ruin. In a world in which every inch of competitive advantage counts, both innovation and efficiency are important. The point is more that CFOs who may have focused more on asset optimisation and less on change management or innovation in the past, now need to rebalance their efforts.

In order to walk the fine line between these two dangers, many CFOs might have to change themselves, as their focus on technology needs to move away from maintenance and integration to ways in which IT can drive strategic, operational and professional objectives. They also may find themselves exploring less familiar data sources – such as customer preferences, competitor analyses and employee satisfaction indices – for trend data that may help them interpret what’s likely to be driving value in the future. The first quality of a change leader, CFOs may discover, is the ability to change themselves.