budgeting for innovation a cfo networking event. the cfo as the steward of profitable innovation...
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Budgeting for Innovation
A CFO Networking Event
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The CFO as the Steward of Profitable Innovation
David A.J. AxsonManaging Director
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It’s been a crazy few years
3
Eurozone meltdown
Global Financial Crisis
Greece, Cyprus, Spain…
Volcanic ash
Terrorism
Oil prices
Healthcare
Commodity prices
H1N1
Arab Spring
Tsunamis & Earthquakes
US Debt
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4
• Setting capital investment priorities• Developing credible targets and
forecasts• Aligning resources with global growth• Creating a scalable finance
organization • Effectively managing cash and
capital
Challenges
Volatility is here to stay
Euro/$ Exchange Rate 2008-2013
U.S. New Housing Starts – 2003-2013
US Dollar to Euro Exchange Rate, 2008 to 2013. Accessed June 2013, at: http://www.indexmundi.com/xrates/graph.aspx?c1=USD&c2=EUR&days=1825
And
Identifying profitable sources of innovation
Historical Crude Oil Prices 1990-2012
Crude Oil Spot Prices, Brent vs. WTI . US Energy Information Administration . Accessed at: http://www.eia.gov/
New Residential Construction, 2003 to 2013. Accessed at:http://www.census.gov/econ/
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Global R&D spending is beginning to pick up
$1.5 trillion
+3.7%From 2012
Source: 2013 Global R&D Funding Forecast, R&D Magazine
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About a third of the total is in the US
28.3%$423 billion
2
US ROW
Source: 2013 Global R&D Funding Forecast, R&D Magazine
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Innovation is seen as a critical strategic enabler by the majority of all organizations
Little or No Dependence
Dependent
Very Dependent
Extremely Dependent
24%
43%
26%
7%
To what extent is your organization’s strategy dependent upon innovation for success?
Source: Why “Low Risk” Innovation Is Costly Overcoming the Perils of Renovation and Invention By Wouter Koetzier and Adi Alon Accenture 2013
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For 70 percent of companies it’s in the top 5 strategic priorities
Not in the Top 10Top 10Top 5 Number 1
18%
52%
23%
7%
Where innovation ranks among your strategic priorities?
Source: Why “Low Risk” Innovation Is Costly Overcoming the Perils of Renovation and Invention By Wouter Koetzier and Adi Alon Accenture 2013
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What will be your company’s priorities for growing organically?
Top Five Priorities for Organic Growth – Overall
Source: Accenture, FPM Media Survey, January 2013
Product innovation and R&D is the#1 organic growth priority
Produ
ct In
nova
tion
/ R&D
Expan
d Sal
es C
hann
els
Enter
new
mar
kets
Upgra
de M
arke
ting
& Sal
es
Pricin
g
Series 122%
19%18% 17%
11%
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Yet success remains elusive for many and has become more challenging in recent years
Series 1
How satisfied are you with your ability to realize profits from your innovation investments?
38%32%
Percent“Very Satisfied”
2009 2012Source: Why “Low Risk” Innovation Is Costly Overcoming the Perils of Renovation and Invention By Wouter Koetzier and Adi Alon Accenture 2013Copyright © 2013 Accenture All Rights Reserved
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So how are leading organizations approaching the financial
management of innovation?
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Understand the types of innovation and the outcomes to be expected
Sta
ge
1S
tag
e 2
Sta
ge
3
Level of Sophistication
Val
ue
Ad
d f
rom
In
no
vati
on
Random
Process Driven
Capability Based
• Innovative culture with skilled people
• Proactive, strategically driven innovation
Enterprise wide
•Breakthrough growth and opportunities
• Sustainable and predictable flow of innovations
• Managed resource allocation
Business unit
•Structured & prioritized innovation efforts
• Quick wins• Competitive
reactive
Activity level
•Low impact •Shotgun wins
INTENT SCOPE OUTCOMES
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These typically align to industry strategies
Industry Challenges Innovation Themes
Customer Centricity
• Understanding customer behaviors
Monitor and understand behaviors in the digital and physical space
Strategic/marketing actions for a truly customer centric approach
Turn analytical insight into a distinctive brand experience
New Markets
• Harnessing trends and expand in emerging markets
Improve point of sale visibility and increase control over channels
Define operational model to deal with channels’ fragmentation
Ramp up sales force capabilities and scale into new markets
Data & Digital Strategy
• Develop a coherent strategic approach to the digital world
• Collect data across all the customer interactions with the brand
Involve customers in deep digital interaction & turn them into brand advocates
Leverage cross-channel and multi-platform communication
Integrate soft and hard data Use data to take proactive actions ahead of
trends
Illustrative Innovation Agenda: Consumer Products
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Look at innovation as a separate class of investment
NewInitiatives
Grow
ImprovementInitiatives
Improve
OperationalExecution
Operate
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Match management focus to the risk/return profile
Operate Improve Innovate
RiskProfile
High
Low
Return Expectations
High
Low
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Pick the right tools
Innovation Improvement Operation
Activity based costing ✔Benchmarking ✔Balanced scorecard ✔Game theory ✔Simulation models ✔ ✔Scenario planning ✔Real options ✔Five forces analysis ✔Six Sigma ✔ ✔Re-engineering ✔ ✔Portfolio analysis ✔ ✔Shareholder value analysis ✔ ✔
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Balance strategic fit and ROI
Return on Investment
Strategic Fit
Low HighLow
High
A
F
BJ
CE
G
D
I
H
Circle size denotes scale of investment
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Don’t just track the traditional metrics
Investment On-time On-budget
A
B
C
D
StillRelevant
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For every investment - define:
Criteria for abandonment
Under what circumstances does the original business
rationale for making the investment no longer make
sense?
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Reduce innovation risk through a formal innovation management process
① End-to-end processes that contribute to speed and flexibility
② Unique customer experiences that foster loyalty and growth
③ Application of risk management techniques
④ Integration of the customer voice
⑤ Frugal innovation that can: reduce complexity shorten time to market reduce the cost of innovation disrupt business models serve the emerging middle class in developing countries
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Examplenew technology promises a lot
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Up in the Cloud: Hype and High Expectations for Cloud Computing Knowledge@Wharton and SAP, January 2013
ExampleWe need to move beyond the hype
Is big data just big hype?Computer Weekly, March 2012
The Elementsof Analytics—Peel Away The HypeDeloitte 2nd April 2013
Cutting through the Mobility Hype
IDC 27th March 2013
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ExampleEnsure technology investments drive real ROI
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Cloud
Big Data
Social
Mobility
Analytics
$
EnterpriseValue
Earnings
Capital
Customer
Product/Service
Revenue
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A final word…
"Capital isn't so important in business. Experience isn't so important. You can get both these things.
What is important is ideas. If you have ideas, you have the main asset you need, and there isn't any limit to what you can do with your business and your life."
— Harvey S. FirestoneFounder Firestone Tire and Rubber Company
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Thank You
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The CFO as the Steward of Profitable Innovation
DISCLAIMER: Accenture does not endorse or recommend any of the products or vendors mentioned in this presentation. This presentation is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals
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