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CFO to CFO: Innovation during the Pandemic

By Daniel Butcher
December 1, 2020

Putting out fires takes priority during crises, but the CFOs of Penn Mutual and Huntington stress the importance of innovation.

 

During crises such as the COVID-19 pandemic and economic downturns, management accounting and finance professionals are positioned to provide the leadership and insights to help their organizations react and adapt to the challenges being faced. Even when encountering unexpected obstacles, the CFO must encourage other members of the C-suite to continue focusing on innovation along with the organization’s core value propositions. Strategic Finance explored these themes in a conversation with Dave Raszeja, CFO of Penn Mutual, an insurance and annuity company based in Philadelphia, Pa., and Zachary Wasserman, CFO of Huntington Bancshares Inc., a Columbus, Ohio-based regional bank holding company.

 

SF: How do you and your organization approach innovation?

 

Wasserman: The best approach is to go about it in multiple different ways—you don’t want to rely on any one approach. We’ve got a business unit-led innovation program with each of our major business lines, and we have a central innovation team that’s an enterprise-level utility to drive innovation sprints and to develop and wireframe innovative ideas to support any one of those business units. So we have a diversified approach in that respect.

 

Zachary Wasserman

 

We look at our strategic planning process, which I happen to lead for the company every year, as an opportunity for both the most important vectors of competitive threat and the most important opportunities of growth to be highlighted. This guides where the innovation’s focus areas should be. And then we use the financial management process to allocate funding that, to some degree, provides both the resources and the impetus for where innovation needs to happen so that we can kick-start it and ensure that it’s resourced and that there’s a sustainable program behind it.

 

We’ve set pretty clear goals and key performance indicators [KPIs] that we could hold ourselves accountable for in terms of what innovation needs to drive: new products, features, and services launched; revenues; and the number of innovation sprints and development programs that we do on an annual basis.

 

Raszeja: Innovation is both a threat and an opportunity, to use some of our risk language, so you’ll see us similarly taking multiple shots at it. We don’t have a centralized approach to innovation. We decentralize our efforts, and we’ve had a lot of success on the technology side, with an industry-leading e-application delivery and service model that’s been particularly helpful over the last few months as we’re all being socially distant. But we’re ahead of some of our larger peers there. We stress internally that innovation isn’t just about technology. Innovation is a way of thinking, and so we try to push it through the organization to make it part of our culture.

 

Dave Raszeja

 

SF: What are concrete steps that a CFO can take to contribute to fostering a culture of innovation?

 

Raszeja: Across leadership, we need to make sure that we’re making space in the organization for it, both financially but also culturally, and encouraging it. I think that sometimes, particularly as CFOs, we need to find ways to look beyond just project ROI [return on investment] when it comes to some of these innovation opportunities. So we’ve focused our innovation thoughts around three pillars. One is experience. Does it create a better customer experience? Does it breed efficiency? Or does it increase scalability? If it hits one of those three pillars, we’re willing to look a little bit beyond project ROI in order to invest in the long term, which is an advantage that we have as a mutual company, to focus on the long term.

 

Wasserman: That’s typical for Huntington as well, particularly in terms of recognizing that the benefits of innovative projects sometimes aren’t clear, and to some degree, they could very well be foundational projects that subsequent business initiatives could generate the return from. We were cognizant that the return may not be present. You need to have a commitment to drive innovation for primary research purposes, as well as clear business economics.

 

We’re in a unique position to understand the trends, analyze the competitive environment, and illustrate for the organization the pressures that will manifest over the medium term. Ultimately, financial performance illustrates the criticality of innovation and, to some degree, frames the gap. It has to be closed through new growth levers.

 

There’s an opportunity for CFOs to create an environment of balance around risk taking and the probability of failure in an initiative. In some organizations, the finance team can be seen as the one that is defending shareholder interests and trying to maximize return in every single instance. This is an opportunity to say, “No, actually the goal of great financial management is to generate financial return over the entirety of the portfolio.” Communicate that kind of perfunctory plan going in. Nine out of 10 innovative ventures are going to fail, and we’re okay with that because we’re developing a portfolio—and, to some degree, even celebrating failures. We celebrate the decisions that helped us to quickly find when things were offtrack and adjust. It’s the act of innovating that’s the key here and not always the specific return or results of any one particular attempt.

 

Raszeja: I have dialogue with the folks who report to me that includes their idea generation. Just because we don’t accept an idea, it doesn’t get funded, or we don’t go forward with it doesn’t mean that it lacked value. I heard a great story that a manager at some company had a big urn and every time he got an idea that he didn’t accept, he would put a white ball in the urn, and every time he got an idea that went forward, it was red. And over time, he saw that he only accepted 5% of ideas, but they were great. He would remind his folks that he needed the white ideas in order to generate enough of the red ideas. The need for constantly asking his folks to be thinking differently and to be raising their thoughts was part of it.

 

SF: How can the CFO drive the company’s strategic planning to achieve shared objectives?

 

Wasserman: Strategy sounds complicated and can mean a lot of different things. One of the core jobs of a CFO is to make strategic planning a simple, natural part of the operating cadence of management. The CFO should leverage the financial management processes that the finance function owns to drive [strategic planning] and make it part of the DNA and operating rhythms of the company.

 

When I try to boil it down and keep it simple, strategic planning means what happens over the long term in the presence of the competitive environment and the macroeconomic environment. It rests on a clear-eyed assessment of where we are and where we need to get to. And then lastly, design it based on a simple, short list of the most important priorities that we’re going to work together to get to.

 

That’s boiling down a high degree of complexity and lots of different meanings into a more action-oriented and consumable process. Coincidentally, we’re right in the middle of an annual strategic planning process, and it started with just a few important objectives to come out of the process. One was asking and answering some of the most important questions about where we are and what pressures we’re facing as well as what competitive threats are out there that we need to address.

 

Secondly, we frame the key priorities that we’re going to execute to get there. In any large business, there are innumerable individual priorities, but it’s critical to get down to four or five enterprise-level priorities that we’re going to put the full weight of the organization behind. Third, [we make] a specific list of individual initiatives that have KPIs and clear economics and accountabilities for who will drive them that are laddered up to those priorities.

 

Fourth, [we create] a financial plan overall that includes the investment allocations to those initiatives and illustrates the financial performance of the company overall, to which executives and the organization commit. And then lastly, once you’re done with strategic planning, you need a vision for going back to operating the business on a month-by-month, quarter-by-quarter basis. And so ensuring that there’s a strong tie between the longer-range outlook and planning the strategic planning process drives with the month-to-month, quarter-to-quarter operating management cadence of the business. And so KPIs, a clear linkage of those priorities into business reviews, even the linkage into executive compensation, are the ways that you can tie that strategic planning into the execution mode.

 

Raszeja: For me, and for a lot of CFOs, it’s easy to try to lead with the answer, but it’s important that our strategic planning starts with listening, so we’ve definitely spent some time with the other executives to get their thoughts first going in. And in that, we’re able to generate a couple different scenarios of what happens if we take our money that we get to allocate to different projects and move those forward, understanding that we can’t fund them all. By doing some what-ifs, we can see what the impact is. So listen and then give a financial impact to what we hear and then be flexible and try to bring everyone together.

 

And finally, you’ve asked them the questions. That’s great, how would we measure that? Because sometimes there’s a lot of excitement for different areas among those who want to move the business forward in a particular direction, and we need to keep bringing the discipline of finance to those conversations and keep saying, “That sounds great. How can we measure success there and bring it back through a strategic lens to the group?”

 

SF: How can CFOs influence a company’s strategic direction and fuel its efforts to innovate?

 

Raszeja: What’s helpful for us, from a culture standpoint, is that our finance function is colocated, and so we can bring it together and have a shared vision. So being the leader in the room, but still working toward a shared vision, helps get good alignment. The more there’s a command-and-control mentality, the more that stifles innovation, whereas the more it feels like teamwork—“Let’s all agree to the direction, and I want to hear everyone’s best ideas of how to get there”—the better off we are. And our department is of a size where we can be nimble enough to adapt in real time and to keep trying new ways and see what works.

 

Wasserman: If you think about the finance function 10 years from now, it should look different than it does today. CFOs, as leaders within the finance function, have a tremendous opportunity to drive that change and establish capabilities that are needed for the next generation. One core element is putting a real focus on challenging us and acknowledging that we should get better and there should be a real program around that.

 

There has been a significant amount of improvement around financial management technology and portfolio-optimization technology. An important element is getting our teams to recognize that and to have a program of establishing a technology road map for finance, which hasn’t always been an area of significant investment. AI and machine learning have a real application to finance, so we’re also challenging the teams to continue to innovate around where we put our finance resources. It’s like an operations function saying, “Where are the most process-intensive parts of our work? How can we free up that resource to be more analytical, revenue-generating, or efficiency-generating for the organization?”

 

Continue to raise the bar on talent development. What are the skills for the future? How do we build and train leaders who contribute to a world-class finance function that ultimately gets better and better every year?

 

Daniel Butcher is the finance editor at IMA. You can reach him at daniel.butcher@imanet.org.
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