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Innovate to invest

Innovate to invest

How data can make Finance an engine for innovation.

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Adrian Griffiths

Partner, Head of Life Sciences

KPMG in the UK

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Demands from shareholders and wider stakeholders are increasing. They want faster growth, bigger dividends, better products – all of which is piling pressure on leadership teams.  As a result, 16 FTSE-100 groups announced a change of leader in 2018.

Beyond making change at the top, companies need to find new ways to grow and make money in a fast-paced and challenging external environment. Even strong brands are feeling the strain. One major retailer, for example, reported a 99% fall in profits in 2018, while a global social networking site's share price fell nearly 40% in the second half of 2018. Clearly, a formula that worked last year and the year before no longer guarantees stakeholder satisfaction and profitable growth going forward. Innovation has become an imperative, but what does this mean for Finance – and how can finance leaders support the innovation agenda?

Meet the new opportunity generator

The first step is to recognise that Finance’s traditional role of qualifying and tracking bets (evaluating business cases, ensuring funding, monitoring ROI) is no longer enough. CEOs want more. In fact, 85% say the greatest strategic value a CFO can bring is in applying financial data to achieve profitable growth.

This creates a huge opportunity for Finance. By leveraging the extensive range and volume of data available to the function, Finance is perfectly positioned to identify trends in customer and competitor habits and provide real insight into new opportunities. Rather than qualifying bets, Finance can start to generate them. This turns the current conversation on its head. It’s no longer the business that says: “Here’s an idea, what’s the opportunity?”. Now, it’s Finance that says: “Here’s the opportunity, what’s the idea?”.

Data-driven innovation happening now

There are already examples of how data and advanced analytics are helping businesses in this way. For example, some retail companies now analyse a huge volume of external signals such as crime statistics, traffic flows and temperature, to identify specific sites where stores will be most profitable. A data-driven approach has also been instrumental in helping Starbucks identify new channels to market. Having analysed customer orders, behaviours and industry intelligence, the coffee chain decided to launch their products in supermarkets for home consumption.

In the medical devices market, one company has successfully used data from social media and internet traffic to identify an opportunity for a new product focussed around the lower rather than the upper body. They took the analytics one step further and used data from third-party applications to confirm that their competitors did not have a competing product coming to market, allowing them to develop and launch the right product to meet customer needs.

What needs to change?

Finance is at the heart of these innovations, helping to drive revenue growth, improved margins and cost efficiencies. To be even more effective, Finance needs to be much more closely involved in the front end of the innovation process. This is starting to happen, with finance business partners increasingly co-located with business. Here, they are better placed to build their understanding of the business and identify potential opportunities.

Another change required to support innovation is a shift in mindset. The function needs to move away from its favourite question: “What happens if things go wrong?”. To foster innovation, Finance needs to be able to ask: “How great would it be if we got it right?”. That means stepping out of its comfort zone as a risk manager and embracing the less comfortable truth that new ideas sometimes fail.

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