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

Budgeting for Innovation

A CFO Networking Event

The CFO as the Steward of Profitable Innovation

David A.J. AxsonManaging Director

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

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

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/

http://www.indexmundi.com/xrates/graph.aspx?c1=USD&c2=EUR&days=1825



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


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


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


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


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%


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

So how are leading organizations approaching the financial

management of innovation?

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


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


Look at innovation as a separate class of investment

NewInitiatives

Grow

ImprovementInitiatives

Improve

OperationalExecution

Operate


Match management focus to the risk/return profile

Operate Improve Innovate

RiskProfile

High

Low

Return Expectations

High

Low


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 ✔ ✔


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


Don’t just track the traditional metrics

Investment On-time On-budget

A

B

C

D

StillRelevant


For every investment - define:

Criteria for abandonment

Under what circumstances does the original business

rationale for making the investment no longer make

sense?


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


Examplenew technology promises a lot


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


ExampleEnsure technology investments drive real ROI


Cloud

Big Data

Social

Mobility

Analytics

$

EnterpriseValue

Earnings

Capital

Customer

Product/Service

Revenue

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


Thank You


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