Guest post by Andy Burrows

I am still staggered when I think of the rate of change over my working life. It’s been transformed in less than 30 years.
There have been hard lessons for businesses that failed to adapt quickly. Just think of Blockbuster Video. They could have bought Netflix for $50m in 2000. Instead, they ignored it, and went out of business ten years later. Netflix is now worth almost $30bn.

As Finance professionals, we have to get clearer in our thinking about innovation as a business strategy. So, what should our approach be?
1. Free up resources for research
As far as business resources permit, we must allow and enable research into new technology and new thinking.
It might seem unproductive for long periods of time as people sift through new ideas and research new approaches. The important thing to remember is that those people have a purpose and a clear deliverable. During strategy discussions, their ideas should be entertained with an open mind.

2. Don’t stamp out innovations too quickly

The business case must be based on fair scenario comparisons. Something that radically improves customer experience may not bring in more money, significantly increase sales, or significantly reduce our costs. The fair comparison is against the “what if we don’t do it” scenario.
We then need to assess whether it’s an idea that competitors might take up. Perhaps competitors are already starting to do it. Can we afford to let our competitors do a better job of serving our customers?

3. Control the risk

Where you can find innovation, you can also find a kind of recklessness. Recklessness means taking too much risk, or taking risks that endanger the survival of the business, rather than just risking its short term performance.
Where we have an innovative proposal, we need to ensure that we have set parameters for risk.
How much money can we stand to lose? How much money can we put at stake for the potential return?
Risk management is not there to eliminate all risk, but to ensure that the risks of activities and ventures are in keeping with the potential reward. We have to get detailed with risk analysis. What’s the potential impact? What’s the likelihood? If, for example, the potential impact could be business destructive, rather than just losing a bit of money, that’s a risk you probably wouldn’t want to take (or you’d want all sorts of safety nets).

4. Consider your options

This point follows on from risk management. There are a number of risk mitigation options that don’t involve saying a flat, ‘no’! Prototyping, market testing, customer surveying, piloting, etc. These are all ways of reducing risk and uncertainty.
If something is innovative, it probably hasn’t been done before. So, there probably isn’t a huge amount of information to go on to assess the amount of risk, or even the potential return. Committing money to research, small scale piloting or testing, can therefore significantly reduce risk, through eliminating areas of uncertainty and allowing real customers to help refine the potential offering.