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Budgeting for Innovation A CFO Networking Event. The CFO as the Steward of Profitable Innovation David A.J. Axson Managing Director.

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Presentation on theme: "Budgeting for Innovation A CFO Networking Event. The CFO as the Steward of Profitable Innovation David A.J. Axson Managing Director."— Presentation transcript:

1 Budgeting for Innovation A CFO Networking Event

2 The CFO as the Steward of Profitable Innovation David A.J. Axson Managing Director

3 Its 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 Copyright © 2013 Accenture All Rights Reserved

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 4 Euro/$ Exchange Rate U.S. New Housing Starts – US Dollar to Euro Exchange Rate, 2008 to Accessed June 2013, at: ays=1825 ays=1825 And Identifying profitable sources of innovation Historical Crude Oil Prices Crude Oil Spot Prices, Brent vs. WTI. US Energy Information Administration. Accessed at: New Residential Construction, 2003 to Accessed at:

5 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 Copyright © 2013 Accenture All Rights Reserved

6 About a third of the total is in the US 28.3% $423 billion Source: 2013 Global R&D Funding Forecast, R&D Magazine Copyright © 2013 Accenture All Rights Reserved

7 Innovation is seen as a critical strategic enabler by the majority of all organizations 24% 43% 26% 7% To what extent is your organizations 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 Copyright © 2013 Accenture All Rights Reserved

8 For 70 percent of companies its in the top 5 strategic priorities 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 Copyright © 2013 Accenture All Rights Reserved

9 What will be your companys 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 22% 19% 18% 17% 11% Copyright © 2013 Accenture All Rights Reserved

10 Yet success remains elusive for many and has become more challenging in recent years How satisfied are you with your ability to realize profits from your innovation investments? 38% 32% Percent Very Satisfied Source: Why Low Risk Innovation Is Costly Overcoming the Perils of Renovation and Invention By Wouter Koetzier and Adi Alon Accenture 2013 Copyright © 2013 Accenture All Rights Reserved

11 So how are leading organizations approaching the financial management of innovation?

12 Understand the types of innovation and the outcomes to be expected Stage 1 Stage 2 Stage 3 Level of Sophistication Value Add from Innovation 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 INTENTSCOPE OUTCOMES Copyright © 2013 Accenture All Rights Reserved

13 These typically align to industry strategies Industry ChallengesInnovation 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 Copyright © 2013 Accenture All Rights Reserved

14 Look at innovation as a separate class of investment New Initiatives Grow Improvement Initiatives Improve Operational Execution Operate Copyright © 2013 Accenture All Rights Reserved

15 Match management focus to the risk/return profile OperateImproveInnovate Risk Profile High Low Return Expectations High Low Copyright © 2013 Accenture All Rights Reserved

16 Pick the right tools InnovationImprovementOperation 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 Copyright © 2013 Accenture All Rights Reserved

17 Balance strategic fit and ROI Return on Investment Strategic Fit LowHigh Low High A F B J C E G D I H Circle size denotes scale of investment Copyright © 2013 Accenture All Rights Reserved

18 Dont just track the traditional metrics InvestmentOn-timeOn-budget A B C D Still Relevant Copyright © 2013 Accenture All Rights Reserved

19 For every investment - define: Criteria for abandonment Under what circumstances does the original business rationale for making the investment no longer make sense? Copyright © 2013 Accenture All Rights Reserved

20 Reduce innovation risk through a formal innovation management process End-to-end processes that contribute to speed and flexibility Unique customer experiences that foster loyalty and growth Application of risk management techniques Integration of the customer voice 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 Copyright © 2013 Accenture All Rights Reserved

21 Example new technology promises a lot Copyright © 2013 Accenture All Rights Reserved

22 Up in the Cloud: Hype and High Expectations for Cloud Computing and SAP, January 2013 Example We need to move beyond the hype Is big data just big hype? Computer Weekly, March 2012 The Elements of Analytics Peel Away The Hype Deloitte 2 nd April 2013 Cutting through the Mobility Hype IDC 27 th March 2013 Copyright © 2013 Accenture All Rights Reserved

23 Example Ensure technology investments drive real ROI Copyright © 2013 Accenture All Rights Reserved Cloud Big Data Social Mobility Analytics $ Enterprise Value Earnings Capital Customer Product/Service Revenue

24 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. Firestone Founder Firestone Tire and Rubber Company Copyright © 2013 Accenture All Rights Reserved

25 Thank You Copyright © 2013 Accenture All Rights Reserved

26 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 readers 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 Copyright © 2013 Accenture All Rights Reserved


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