“If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”― Jack Welch
As the pace of change speeds up and the business environment becomes less predictable organisations must be more adaptable than ever before. VUCA is an acronym to describe or to reflect on the volatility, uncertainty, complexity and ambiguity of general conditions and situations. The U.S. Army War College introduced the concept of VUCA to describe the more volatile, uncertain, complex and ambiguous multilateral world resulting from the end of the Cold War. I think you might agree, we all live in a world strongly characterised by VUCA. Business operations in this environment of change must also adapt. Unfortunately, financial education based on a more predictable world rarely prepares financiers for today’s business world, in fact, financiers are often set up for frustration and failure. If the financier is not frustrated themselves, they are often the scourge for many a budding innovator. Even worse, finance teams can set businesses up for failure because often acting with the best intentions, a CFO may kill ideas before they even begin to blossom.
“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” — John Maynard Keynes
The Curse of Job Titles
In an established company, job titles reflect the way tasks are organised to execute a known business model in a predictable business environment. For example, sales in an existing company is all about execution around a series of knowns, because the business has historical data, including seasonality and preferred products and/or services, thus the organisation can predict sales volume. When a CFO quizzes a corporate innovation team on expected sales volumes, the answer is at best a guess, the innovators genuinely do not know. However, because a corporate CFO is used to planning around a series of knowns, the innovator or intrapreneur represents a threat to stability, predictability, and order and is often rejected.
Compared with established companies, innovation teams and startups need CFOs who are comfortable with volatility, uncertainty, complexity and ambiguity. When a CFO is educated to understand that innovation is about learning from hypotheses, experiments and frequent change, then they will learn how to support it. When organisations are designed for efficiency across the board, this detracts from creating a fertile environment for innovative ideas. We must remember that while many CFOs may experience that uneasy feeling that they are stifling creativity, we must also consider how the CEO supports them and how the business incentivise them.
The Curse of Incentives
“You’ve got to change incentives for good behaviour as opposed to just disincentivising bad behaviour.” — Gavin Newsom
Incentives are powerful tools that shape our behaviour. When we demonise those who have the power to bless or block our initiatives, we should understand their worldview. Years ago, I worked in an organisation where the CFO was an idea killer, her rationale was if it could not guarantee a profit within 18 months she would kill it. In her worldview, she was acting in the best interest of the shareholders. In her worldview, she was doing her best to ensure we hit our targets for the quarterly board meetings. In her worldview, she was trying to survive.
I wanted to understand such a definitive approach, so I dug deeper. Once I understood that she received a bonus based on EBIDTA (earnings before interest, taxes, depreciation, and amortisation, a proxy for a company’s current operating profitability.) It was then that I understood what I represented to her. I was the proverbial red rag to the bull. Anytime, I came to the office to pitch an idea; I represented chaos to her order. With her incentives how could any initiative succeed? Soon afterwards, I left the organisation. If you cannot change the organisation, you change organisations. This highlights an important consideration for any changemaker joining a new organisation. Incentives and board support are important dynamics to understand, incentive structures can sound the death knell for innovation, transformation and change projects.
The Failure of Language
“The language of financial accounting merely asserts answers, it does not invite inquiry. In particular it leaves unchallenged the world view that underlies. Thus, management accounting has served as a barrier to genuine organisational learning. Never again should management accounting be seen as a tool to drive people with measures. Its purpose must be to promote inquiry into the relationships, patterns and processes that give rise to accounting measures” — H. Thomas Johnson (Economic Historian)
Semantics is a word that comes from ancient Greece, where sēmantikós meant ‘significant’. Semantics it is the study of meaning and focuses on the relation between words, phrases, signs, and symbols and what they stand for — their ‘denotation’ and their ‘connotation’. Denotation typically refers to words with dictionary definitions, the literal meaning of words. Connotation refers to the implied or secondary meaning of a word, besides its literal meaning. Connotations can be positive or negative, those words that comprise multiple underlying meanings. Connotations are associated with an individual’s subjective, emotional, and cultural experiences.
For many corporate innovators or startup workers, the connotations associated with finance are negative. As a result, it primes many of us towards a negative experience with those who hold the purse strings to our future. The language of finance and the worldview of those who work in finance are limiting. The language, the learning, and the leanings are designed for a predictable world that no longer exists. Initially, such mismatches were visible in emerging business opportunities, but increasingly there is a clear gap in the mindset required for today’s organisations and the actual mindset of most finance executives.
For regular readers of the Thursday Thought, you will have heard my mantra that we cannot change business models before we first change mental models. We cannot change what people do until we change how they think. Changing the words heralds a charge in the practice. When we change the words we use, we gradually change how we think and that changes how we behave. To influence change in finance, we need to introduce a new language. The CFO as a Chief Flexibility Officer is a start, but it sparks connotations of a finance officer in a leotard practicing yoga, so I will leave it to you to find a new language that works for your organisational culture. Changing the language will force an avalanche of other revisions including metrics that will enable a more flexible organisation. I leave you with the words of a great leader, Dee Hock is the founder and CEO Emeritus of VISA, I am honoured to announce a multi-part documentary with Dee coming soon to the Innovation Show.
“In the years ahead we must get beyond numbers and the language of mathematics to understand, evaluate, and account for such intangibles as learning, intellectual capital, community, beliefs, and principles, or the stories we tell of our tribe’s value and prospects will be increasingly false.” — Dee Hock, Founder and CEO Emeritus of VISA
For more on how to create the environment for change listen to Episode 197 of the Innovation Show: The Innovator’s Book: Rules for Rebels, Mavericks and Innovators with Dr Max McKeown
Max delivers concise advice on how to move from original insights to new ideas, and from new ideas to valuable real-world innovation. You’ll learn how to increase creativity, understand the psychology of thinking differently, encourage collaboration, co-create with customers, overcome indifference, create an idea-hungry culture, rid yourself of creativity zombies and get to innovation paradise.
Drawing on over 30 years of the author’s research and experience, this honest, straight-to-the-point playbook can be dipped into or read cover to cover, giving you important reminders and guidance in how to make new ideas useful. Are you ready to change the world?
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