Reevaluate metrics in pursuit of innovation

Amy Radin, the author of The Change Maker’s Playbook: How to Seek, Seed and Scale Innovation in Any Company, serves on the board of directors for the Association of International Certified Professional Accountants. She wrote for FM magazine on how CFOs can enable innovation in late 2020. And, in early 2021, Radin was a guest on the FM podcast to discuss establishing innovation metrics.

Innovation and metrics are the topic for this episode, in which Radin talks about how innovation principles can play a role in an organization’s financial planning and analysis (FP&A) functions. In two weeks at AICPA & CIMA ENGAGE 22, Radin is co-presenting with Tom Hood, CPA/CITP, CGMA, executive vice president–Business Engagement and Growth for the Association of International Certified Professional Accountants.

What you’ll learn from this episode:

• Radin’s explanation of the phrase “extended FP&A.”
• How Radin has partnered with finance over the years on innovation projects.
• The changing mindset of CFOs and other finance leaders.
• Why Radin says it’s important to “expand your network.”
• The type of traditional metrics that can “kill” an innovation project.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript:                                                            

Neil Amato: Hi, this is Neil Amato with the Journal of Accountancy. We’re glad to have you tuned in to another episode of JofA podcast. This episode features a discussion with an innovation experts and ENGAGE presenter. That event, AICPA & CIMA ENGAGE 22, is in-person and online, starting in less than two weeks. Links that are pertinent to the conversation will be shared on this episode’s JofA page, and you’ll hear the interview right after this word from our sponsor.

Amato: Welcome to the Journal of Accountancy podcast. I’m joined again by Amy Radin. Amy is previously an executive at companies such as American Express, Citi, and AXA. She’s an award-winning author, a member of the board of directors for the Association of International Certified Professional Accountants. As I said, a previous podcast guest, in late 2020, we talked some about an article she wrote on innovation. Amy, I’m going to start with this. What does the phrase “extended FP&A” mean to you? The reason I’m asking about that phrase, is it’s in the description for your session with Tom Hood at ENGAGE in about two weeks now.

Amy Radin: Right, so I’m not a big fan of introducing more jargon, and certainly I am not an accounting or finance management professional. I’m somebody who’s been a close partner and depended upon my relationship with my finance and accounting colleagues throughout the course of my career. To me, what it means and what I’ve experienced when it works, is accounting and finance professionals who are taking their tremendous skill set around data and analytics and understanding the business model of the organization they’re supporting, and redirecting it in an integrated and forward-looking fashion, to help their colleagues, instead of just looking at what’s happened before, verifying and validating and then apply that to the future, taking their knowledge to thinking more strategically about where is the world going, and how do we advance our business model and our finance and accounting assumptions? How do we advance them to help take the business forward, into a much more ambiguous, unpredictable, and volatile economy and marketplace.

Amato: Now, a Gartner survey mentions this trend of extended FP&A, or xFP&A, and says it will become more prevalent in business. But I’d say that next-level FP&A has been around for at least a little bit, right?

Radin: I think it absolutely has been, and I think that certainly I experienced it in my corporate life, that there are individuals throughout finance and accounting functions and certainly CFOs, and many of the CFOs who I had the good fortune to work with, who are stepping up and embracing a different mindset about their function and building a much more strategic relationship with the CEO and with their other C-suite colleagues and being leaders in recognizing that the business environment is changing radically, and the old assumptions that we use to rely upon, we can’t just incrementally tweak those assumptions and we can’t hope and pray that things are going to change. We really have to reset the table around how we’re running the business, and then understanding how do you reflect that in our assumptions on the income statement and the balance sheet and how we manage risk and all the other dimensions that accounting and finance professionals help with.

You start to see it, I think the opportunity for this profession is how do you embrace it consistently, and how do you learn and relearn and unlearn the things that you need to know, so that you’re delivering an integrated solution to your colleagues really consistently and seeing that show up in the business results?

Amato: Now, we talked about some of your background. It’s in marketing, it’s in innovation. But now you’re a board member with the Association. So why are you focused and interested in this?

Radin: I mean, that’s a great question, because honestly, when I told some of my colleagues from the past that I had built this close relationship with the Association they are like, “Amy, you?,” because accounting and finance is certainly not my background, but here’s the thing and here’s why I think this is so important and why I’m going to be speaking with Tom Hood and ENGAGE, and why I’ve written for the AICPA, etc. Is that I really saw throughout my career when I was one of the first global chief innovation officers, when I led the digital transformation of one of the world’s largest consumer franchises, the Citi Cards North American franchise, that my partnership with forward-thinking analytics professionals, particularly in the finance accounting functions, as well as risk and decision sciences, but particularly the finance and accounting function, were able to help us reimagine the business model for a major consumer lending business, to understand what happens when digital is introduced. What happens when mobile devices become people’s bank in their pocket. They were critical partners in helping us translate ideas and concepts into realities that can be reflected in the balance sheet and the income statement for a very, very huge business, operating with a high degree of regulation, where the make or break was how you managed risk. We would not have been successful without that forward-thinking mindset and skillset to help us advance our strategies.

Amato: You just used that phrase “forward-thinking mindset.” If an organization or a finance function is maybe a little bit behind on their innovation practices or their xFP&A, what about that has to change? How do you change your mindset?

Radin: I think a great way to start is to expand your network to include colleagues and peers in other organizations, who are addressing the same challenge and who maybe are a couple of steps ahead of you. Then you can feel that your de-risking change, because change always feels risky, and it can accelerate your ability to learn from others, how do we get there?

I think reaching outside and learning from others is really critical, and we all should be doing that anyway. One of the drivers of innovation and change is curiosity and a willingness and a desire and an appreciation for the value of asking questions. I think just starting there can be very mind expanding. You’ll learn, and you’ll realize, you’ll find ways to get there executionally.

Amato: We will hit on that seeking knowledge of the crowd and connecting with peers to learn more in just a bit. Let’s go back to one other topic of innovation. I don’t know if there’s a better way to ask this, but what is it about that innovator’s toolset that matters for extended FP&A.

Radin: Well, first of all, think about innovation. It’s not just cool stuff, or it’s not just about technology. Innovation is about understanding where are the new needs in the marketplace, and how am I going to deliver on them to satisfy those needs?

For the finance and accounting professionals, you know your business is really changing. You know there’s huge pressure really accelerated by the pandemic, the nature of the workforce, the desire for hybrid or remote work, supply chain issues, changing customer expectations and demands — all of those things and more are coming down and putting pressure on your business model.

The importance of innovation is due to say, “Wow, how are we going to innovate, how we approach our jobs, our roles, and our relationship in the organization so that we can help the CEO, other members of the C-suite and our other business colleagues. How are we going to help them address those challenges?”

For you to be effective in helping the business address all of the market forces that are changing and accelerating requires you as finance and accounting professionals to innovate your roles. That comes back to, what do you need to learn, what do you need to unlearn, and what do you need to relearn in order to really excel in the new role that you can define for yourselves to help the business and deal with very unprecedented changes and strong likelihood of continued unpredictability and volatility in the market?

Amato: Now, when we last talked for a podcast, the topic was how to set metrics for innovation, and first a note to our listeners, we will include a link to that episode in the show notes. But Amy, I’ll ask you, those who are trying to be innovative in their extended FP&A practices, what should they be thinking about as it relates to metrics or questions around those metrics?

Radin: Well, I always say, and I certainly experienced this throughout my career. One of the best ways to kill an important innovation that could really matter for your business is to impose the wrong metrics. I think what the traditional metrics that the finance and accounting function apply, say to business cases, they will be the old metrics. What’s the ROI? What’s the net present value of the stream of revenues five years from now? You cannot look at an ROI for an unproven idea. It’s just way too early to be looking at that metric. Redesigning the metrics and saying what’s appropriate for now. For example, innovators will want to test new ideas in small trial pilots.

Well, the metric for a small trial pilot might be, have we determined as a result of the pilot that there’s a large addressable market? That’s a good metric coming out of a pilot. It might be qualitative feedback from customers who were in the pilot having nothing to do with a number at all but qualitative feedback that allows you to exercise judgment, to move towards refined metrics.

I think challenging yourself on the metrics and saying, “What are the right measures that are appropriate for where we are this stage of the innovation?,” and avoiding the tendency to apply the traditional metrics that you use to evaluate a robust and mature business. It’s one of the most critical things that a finance and accounting professional can do to assist their colleagues in the organization who are advancing new products and services.

Amato: I don’t know how much Tom Hood has spoken to you about a group he has spearheaded the formation of the Future of Finance Leadership Advisory Group, but it seems like a group of people you’d really like to get to know. What do you know about that group and some of the discussions they’re having around innovation?

Radin: First of all, I think it’s fantastic when you’re trying to drive the change that Tom has been spearheading for the AICPA on behalf of the profession. It’s so critical to bring in outside perspectives, and as I said before reach to your network, so Tom has basically built a network of very high-powered, very enthusiastic, and really prominent leaders in the finance and accounting community to help inform and define what should the future of the profession look like.

I think it’s a really important step to make sure that the recommendations that are developed reflect the needs of the profession, reflect the needs of the people who are listening to this. It’s also a great opportunity for professionals to follow that group and take advantage of their thought leadership.

Amato: Now some of those prominent finance leaders will be at ENGAGE. Also in about two weeks by the time this episode airs, will be your session at ENGAGE, Amy. Anything you’d like to say about that or anything else in closing?

Radin: I’m really looking forward to being at ENGAGE in Las Vegas. Tom Hood and I will be presenting the morning of the [June 9] on extended FP&A and innovation. Tom will be certainly speaking about what it is, how important it is, and how professionals are getting engaged, and I will be adding to the discussion, “What do you really do?” You’re in your office, real or virtual, and you want to figure out how to bring these skills and mindsets to your organization. I’m all about practical advice. I’ll be bringing perspective, some outside-in perspective to the discussion. Hope to see everybody there.

Amato: Great. Thank you, Amy. We really look forward to what that looks like in practice for organizations and hearing from you. Thank you very much.

Radin: Thanks. Always a pleasure to be here. Have a great day.