David Duncan, who has spent decades helping large companies overcome the “innovator’s dilemma,” says CFOs have a key role in helping their companies avoid missing out on breakthrough innovations.
“The CFO feels this most acutely, there is only one pool of money in the company,” says Duncan during a virtual conversation moderated by Assets in partnership with Workday. Together with the CEO, CFOs must help companies figure out “where you think the future is going, what that means for where you are today, and where you need to go, and that then gives you the confidence to start investing in that direction.” “,” he says.
The book assumes that a company can seemingly do everything “right” but still miss out on a new wave of disruptive innovation “The Innovator’s Dilemma” written by the late Harvard Business School professor Clayton M. Christensen, who also co-founded the consulting firm Innosight, where Duncan spent over 18 years of his career.
With complete control over company budgets, the CFO plays a critical role in directing money from the core business – where perhaps the highest margins and revenue are generated – into new ventures that may look very different than what has previously made the company successful Point.
“For very rational reasons, it is often very difficult to prioritize investments in these new types of innovations,” says Duncan. For successful innovation, he advises large companies to create enough structure to ensure team members are focused, but also leave enough room for creativity to flourish.
Volkswagen works with Rivian
A new example of how a traditional company places great value on groundbreaking innovations is: Volkswagenwhich earlier this month formed a joint venture with American electric vehicle maker Rivian Automotive that will create the German automaker Increasing its investment with Rivian to $5.8 billion an increase from the previously announced $5 billion. Volkswagen’s investment includes a 50 percent stake in the company.
“There is a high level of respect for Rivian’s innovation mentality and approach, which the Volkswagen Group also wants to infuse into its own culture and the way it operates the company as a whole,” says Claire McDonough, CFO at Rivian.
As part of the joint venture, developers and software engineers from Rivian and Volkswagen will work together to develop next-generation software technology and electrical architecture that can be used for future electric vehicles in both manufacturers’ fleets. By working together, they can share in the development costs needed to support innovation.
“If we think about the scale that we will now have together when we work with the Volkswagen Group, it actually offers a greater opportunity for innovation for both sides, but it is done in a way that is also more cost-effective,” says McDonough.
Creating space for innovation outside of the core business is a fairly popular approach among larger companies and can often achieve positive results. Embraer, a Brazilian aircraft manufacturer, pursued this path in 2017 with the creation of venture arm Embraer Xwhich focused on new projects and breakthrough technologies such as electric vertical take-off and landing aircraft (eVTOL).
The company later combined its electric aircraft subsidy, known as Eve, with a special purpose acquisition company, known as a SPAC, and listed it on the New York Stock Exchange in 2021. This allowed Embraer to continue pursuing a new innovative technology, which can be costly, with the support of outside investors.
“My job was to put money into the market while trying to reduce the associated risk as much as possible,” says Antonio Carlos Garcia, executive vice president and CFO at Embraer.
Looking to the future at Embraer
Garcia joined Embraer in January 2020, just as the aviation industry was facing one of its biggest challenges turbulent years in its historyas the pandemic grounded flights, resulting in a decline in passenger traffic and revenue. Amid the turmoil, rival Boeing ended a strategic project with Embraer that aimed to jointly develop new aircraft.
Although the industry’s prospects have improved and larger competitors such as Boeing and airbus face challenges related to Safety concerns And Order delaysGarcia and Embraer’s finance team must focus heavily on budget planning for aircraft development projects that can take a decade to complete.
It must also allocate funding for new innovations, such as autonomous flight, and finance is encouraged to work closely with engineers and other colleagues across the company to fully understand the innovation roadmap and how finance can help.
“Curiosity helps you make better evaluation and judgment about these investments,” Garcia says.
McDonough says she takes a similar approach at Rivian, where “we’re really part of the core business as a whole and are seen as a strategic partner that can help steer the business, make better decisions and see across functions.” Because the role of finance really affects every single element of the business.”