1 00:00:05,309 --> 00:00:06,800 Welcome back to Count Me In, 2 00:00:07,180 --> 00:00:10,840 the podcast that explores the world of business from the management accounting 3 00:00:10,841 --> 00:00:14,720 perspective. I'm Adam Larson, and our guest today is Bruno Pešec. 4 00:00:15,260 --> 00:00:16,360 As you've probably noticed, 5 00:00:16,540 --> 00:00:20,310 we talk quite a bit about innovation here at Count Me In. After all, 6 00:00:20,579 --> 00:00:24,590 it's the mechanism for how companies create new products and services to drive 7 00:00:24,591 --> 00:00:25,470 profitable growth. 8 00:00:26,200 --> 00:00:30,230 Bruno is an engineer by training and an expert in helping companies think 9 00:00:30,231 --> 00:00:34,750 systematically about where continuous improvement ends and how robust innovation 10 00:00:34,810 --> 00:00:35,643 begins. 11 00:00:35,850 --> 00:00:40,460 His insight about how management accountants fit into the picture can often 12 00:00:40,630 --> 00:00:41,820 upend conventional wisdom, 13 00:00:42,229 --> 00:00:45,979 which makes this a discussion you do not want to miss. Let's get started. 14 00:00:53,030 --> 00:00:55,540 Bruno, thank you so much for coming on the podcast today. 15 00:00:55,541 --> 00:00:59,850 Really appreciate having you on as we discuss innovation within the corporate 16 00:00:59,851 --> 00:01:03,650 sector. And one thing I wanted to kind of start with is, you know, 17 00:01:03,660 --> 00:01:05,130 we've gone through almost two, 18 00:01:05,131 --> 00:01:10,050 three years of a global pandemic and organizations are really struggling to 19 00:01:10,051 --> 00:01:13,770 keep afloat, whether keep afloat, figuring how to use hybrid work from home, 20 00:01:13,790 --> 00:01:17,520 not work from home. Where does innovation sit in the midst of all this, 21 00:01:17,720 --> 00:01:21,560 as we're trying to restructure what the world looks like as we go forward? 22 00:01:22,740 --> 00:01:24,600 So Adam first happy to be here. And second, 23 00:01:26,770 --> 00:01:31,160 great opening question. If I might add what I really well, 24 00:01:31,440 --> 00:01:33,840 I want to say what I really love about the last three years, 25 00:01:33,910 --> 00:01:35,390 but that's a wrong choice of words. 26 00:01:35,610 --> 00:01:39,990 So I will rather say what has became obvious in the last three years 27 00:01:40,610 --> 00:01:45,430 are good and bad habits in handling disruption and not just 28 00:01:45,480 --> 00:01:46,313 innovation, 29 00:01:46,880 --> 00:01:51,870 those companies and business leaders that were innovative before all these 30 00:01:52,190 --> 00:01:54,060 big changes happened, fared better, 31 00:01:54,720 --> 00:01:59,620 not because they had the best ideas or they had the coolest products, 32 00:01:59,880 --> 00:02:04,340 but because the process of innovation is the process of handling uncertainty. 33 00:02:05,210 --> 00:02:09,430 So they developed a skillset and capabilities that allowed them to handle this 34 00:02:09,660 --> 00:02:12,980 uncertainty. And innovation is one of those words. You know, 35 00:02:12,981 --> 00:02:15,940 you ask 10 people what it means you're gonna get 20 definitions. 36 00:02:16,600 --> 00:02:19,260 So I'm not here to tell you or your audience, 37 00:02:19,261 --> 00:02:21,419 what is the definition of innovation, 38 00:02:21,800 --> 00:02:24,580 but I want to share what is my take on innovation? 39 00:02:24,600 --> 00:02:26,580 So whomever is listening that they know what am, 40 00:02:27,100 --> 00:02:31,690 what am I actually thinking when I use those words. So in the broadest terms, 41 00:02:32,290 --> 00:02:36,770 I consider innovation to be something new that creates value. Something new, 42 00:02:36,790 --> 00:02:38,730 not to the history of mankind, 43 00:02:38,830 --> 00:02:41,970 but new to your customers and to your organization. 44 00:02:42,150 --> 00:02:47,010 That's enough to qualify as new and value must be two by directional. 45 00:02:47,350 --> 00:02:49,760 So it needs to create value for the customers. 46 00:02:49,761 --> 00:02:52,280 Something that we have gradually gotten better at, 47 00:02:52,620 --> 00:02:55,200 but it also must create value for the organization. 48 00:02:55,630 --> 00:02:59,560 What sense does it make to create new product services and business models? 49 00:03:00,100 --> 00:03:01,919 If they drive you out of business? 50 00:03:02,620 --> 00:03:06,440 And this is where our accounting friends are very, very useful, 51 00:03:06,470 --> 00:03:10,760 sometimes maybe underappreciated, but back to your question. 52 00:03:11,620 --> 00:03:15,880 So the companies that were already innovative before they coped much, 53 00:03:15,881 --> 00:03:19,389 much easier in this disruptive periods, why? 54 00:03:19,390 --> 00:03:23,870 Because they were able to actually go back to their customers and learn 55 00:03:24,370 --> 00:03:26,389 how did their reality change, 56 00:03:27,410 --> 00:03:31,310 how people were buying and using your product could have changed overnight, 57 00:03:31,540 --> 00:03:36,060 just look at hospitality industry. So everything dramatically changed. 58 00:03:36,990 --> 00:03:40,900 Incumbents, like big hotel chains or even smaller motel chains. 59 00:03:41,010 --> 00:03:44,860 They were just adjusting to what happened with Airbnb, booking, 60 00:03:45,980 --> 00:03:48,380 hotels.com and all these disruptors and bomb. 61 00:03:48,730 --> 00:03:53,660 Then COVID came and suddenly the whole industry was flipped upside 62 00:03:53,661 --> 00:03:56,210 down. And those that actually managed to stay afloat, 63 00:03:56,211 --> 00:03:58,690 they used a lot of different tactics, 64 00:03:58,691 --> 00:04:03,090 basically repurposing the whole venues for something else. 65 00:04:03,390 --> 00:04:07,850 So that, that was a good example of how did they handle disruption? 66 00:04:08,000 --> 00:04:11,690 What I've especially seen the companies that didn't handle it well, 67 00:04:12,290 --> 00:04:17,160 did all the same things. One, they tried to weather the storm. 68 00:04:17,830 --> 00:04:21,960 They said, okay, this is going to blow away in three months, six months, 69 00:04:22,029 --> 00:04:24,720 nine months, two years, three years, who knows how long, 70 00:04:24,980 --> 00:04:28,560 but they basically said we have our fat, we have our supplies. 71 00:04:28,820 --> 00:04:32,670 We have our business, let's just try to weather the storm. 72 00:04:32,700 --> 00:04:36,550 Basically put our hand heads into the sand. 73 00:04:36,900 --> 00:04:37,830 That did not work. 74 00:04:38,529 --> 00:04:42,670 The only thing that we have seen is that all our projections were pretty much 75 00:04:42,800 --> 00:04:46,910 wrong. What we expected to be weeks than months turned into, well, 76 00:04:46,930 --> 00:04:48,070 we are in the third year, 77 00:04:48,330 --> 00:04:51,420 but we have a war that kind of is even more disruptive. 78 00:04:51,960 --> 00:04:54,420 So people are looking more to that. 79 00:04:55,010 --> 00:04:59,420 Another thing is besides trying to weather the storm was 80 00:04:59,620 --> 00:05:01,380 ignoring the changes in reality. 81 00:05:01,960 --> 00:05:06,180 So kind of just assuming that the strategy you had before the business model you 82 00:05:06,181 --> 00:05:11,050 had before the product portfolio you had before that it's still valid and kind 83 00:05:11,051 --> 00:05:14,690 of trying to keep optimizing that, you know, sending people home, 84 00:05:14,691 --> 00:05:18,170 working from home, hoping that will be lower operational expenses, 85 00:05:18,190 --> 00:05:19,570 but still keep the same revenue 86 00:05:21,400 --> 00:05:23,610 that did not work out so well. 87 00:05:24,029 --> 00:05:27,440 And the third one was a failing to adjust the leadership mode. 88 00:05:28,140 --> 00:05:33,000 So what was really and remains very important in this period are leaders 89 00:05:33,600 --> 00:05:37,960 that are also able to provide this emotional and psychological safety. 90 00:05:38,460 --> 00:05:42,279 So kind of the leader doesn't need to have all the answers that's sometimes not 91 00:05:42,280 --> 00:05:45,750 even desirable, but the leader should always be able to say, 92 00:05:45,930 --> 00:05:49,589 I'm here for you. We gonna figure it out together. 93 00:05:50,890 --> 00:05:53,630 And those that were not able to kind of maintain that, 94 00:05:53,860 --> 00:05:58,160 that were not able to direct their crew in the right direction. No, 95 00:05:58,300 --> 00:06:00,560 the people suffered a lot emotionally, 96 00:06:00,630 --> 00:06:05,160 then that spills over into family spills over then back to the company on the 97 00:06:05,161 --> 00:06:05,994 performance. 98 00:06:06,060 --> 00:06:10,960 So these are kind of the things that I will highlight just at the top of the 99 00:06:10,961 --> 00:06:11,794 pile. 100 00:06:12,200 --> 00:06:14,080 For sure. Yeah. There's a lot, 101 00:06:14,081 --> 00:06:17,950 that's at the top of the pile and I'm sure more trickles down as we get into the 102 00:06:17,951 --> 00:06:22,510 conversation. So you start with what you kind of talked about, you know, 103 00:06:22,511 --> 00:06:26,550 where you kind of have to adapt leaders have to adapt. People have to adapt. 104 00:06:26,551 --> 00:06:30,230 The company needs to adapt companies that were innovating before have to 105 00:06:30,430 --> 00:06:33,670 continue innovating. They're probably a better set. So what about, you know, 106 00:06:33,671 --> 00:06:35,460 when you look at innovation like some, 107 00:06:35,600 --> 00:06:39,020 and you said something new that creates value is your definition of innovation, 108 00:06:39,021 --> 00:06:43,060 which I think is a great definition, but those outcomes, 109 00:06:43,061 --> 00:06:46,500 they can't be guaranteed. So how do you measure it? 110 00:06:46,520 --> 00:06:48,580 How do you measure that within an organization, 111 00:06:48,581 --> 00:06:52,650 especially when you have all these new factors, there's a lot of new things, 112 00:06:52,930 --> 00:06:55,330 a lot of new things that could create value are happening right now. 113 00:06:55,390 --> 00:06:57,370 So how do you measure all of those elements? 114 00:06:58,170 --> 00:07:00,370 Yeah. Yeah. So Adam, I mean, 115 00:07:00,610 --> 00:07:02,930 I could probably be talking about this question for days, 116 00:07:03,150 --> 00:07:05,330 but we don't have days. 117 00:07:05,670 --> 00:07:08,370 So I'm going to focus on a couple of things. 118 00:07:09,029 --> 00:07:11,800 You nail the problem straight on the head. 119 00:07:11,980 --> 00:07:16,640 So what is specific for innovation is that no one can guarantee 120 00:07:16,720 --> 00:07:20,840 outcomes. Like it doesn't matter if you do everything by the book, 121 00:07:20,900 --> 00:07:23,480 if you follow the best innovation processes, 122 00:07:23,940 --> 00:07:28,800 you can still end up with a product service or even the whole failed project 123 00:07:29,110 --> 00:07:31,590 that there was no return on investment. 124 00:07:33,050 --> 00:07:37,350 But what we do have in control is the 125 00:07:37,580 --> 00:07:40,790 expense side, the organization side, the work side, 126 00:07:41,380 --> 00:07:45,350 what ideas do we select? What ideas do we prioritize over others? 127 00:07:45,850 --> 00:07:50,140 How do we fund these ideas? How do we control these ideas? 128 00:07:50,210 --> 00:07:54,100 What people do we put on them, et cetera, et cetera, et cetera. 129 00:07:54,520 --> 00:07:58,780 So I gonna focus on three specific practices and 130 00:07:59,620 --> 00:08:03,140 this come out of my experience, working in different industries, 131 00:08:03,210 --> 00:08:04,860 both large and SMEs. 132 00:08:05,280 --> 00:08:10,250 And I gonna focus specifically on the work I did with CFOs and the 133 00:08:10,251 --> 00:08:12,970 financial functions in larger organization. 134 00:08:13,590 --> 00:08:16,610 So unfortunately I say, unfortunately, 135 00:08:17,970 --> 00:08:18,810 internal accounting, 136 00:08:19,290 --> 00:08:23,850 business controlling and CFO are often seen as kind of gatekeeper to 137 00:08:23,851 --> 00:08:28,560 innovation, but people don't understand or they misunderstand their role. 138 00:08:28,810 --> 00:08:32,800 Their role is to protect the assets of the organization. Of course, 139 00:08:32,801 --> 00:08:35,280 they will say no to your silly idea. 140 00:08:35,720 --> 00:08:39,320 You you're just coming to them with something that's unproven, no evidence, 141 00:08:39,321 --> 00:08:39,700 nothing. 142 00:08:39,700 --> 00:08:44,470 And you're asking them to unlock the coffer in this difficult times and invest 143 00:08:44,670 --> 00:08:46,990 in something that's completely uncertain. Of course, 144 00:08:47,020 --> 00:08:49,710 then they will react by saying no in most cases. 145 00:08:50,730 --> 00:08:55,070 What's better for both sides and I gonna start from the financial side is that 146 00:08:55,080 --> 00:08:56,640 there is a specific system. 147 00:08:57,240 --> 00:09:02,080 They can set up to protect the organization without stifling the innovation. 148 00:09:02,970 --> 00:09:03,803 First thing, 149 00:09:04,170 --> 00:09:08,480 think about any innovation project innovative idea, 150 00:09:08,840 --> 00:09:12,120 anything in your organization. Think about it as an option. 151 00:09:13,200 --> 00:09:15,780 Don't think about it as a big bang investment, 152 00:09:16,400 --> 00:09:19,820 but you are buying an option in this innovation project. 153 00:09:20,890 --> 00:09:23,500 Combine that with funding in trunches, 154 00:09:23,929 --> 00:09:26,780 what it means is there must be an innovation budget, 155 00:09:27,420 --> 00:09:29,740 whatever let's say for the sake of conversation, 156 00:09:29,741 --> 00:09:31,100 let's say it's a hundred million, 157 00:09:32,260 --> 00:09:36,350 but that does not mean that you assign a hundred million to a single idea, 158 00:09:36,570 --> 00:09:40,910 but rather that you drip feed it. You drip feed from that big budget, 159 00:09:41,790 --> 00:09:45,950 a lot of small ideas numbers tell us that we need to invest into a hundred, 160 00:09:45,970 --> 00:09:49,990 to 150 ideas to get that golden idea that will return significant 161 00:09:50,690 --> 00:09:53,660 investments, return on investments, significant meaning 10X, 162 00:09:54,880 --> 00:09:58,740 not just recovering the cost of the investment 163 00:09:59,800 --> 00:10:03,820 to get more practical or more specific. So one organization, 164 00:10:04,650 --> 00:10:08,620 they set up their innovation strategy. They prepared innovation budget, 165 00:10:09,309 --> 00:10:12,170 and then they set out call for ideas. 166 00:10:12,710 --> 00:10:14,330 And there were hundreds of ideas. 167 00:10:14,760 --> 00:10:18,850 What they were funding was they did not release big money to go and develop a 168 00:10:18,851 --> 00:10:20,650 prototype. That's even too big. 169 00:10:21,150 --> 00:10:25,670 What they were funding is two weeks for employees to 170 00:10:25,860 --> 00:10:30,340 explore the idea further. That's the level of granularity we are talking about. 171 00:10:30,400 --> 00:10:34,660 So CFO doesn't need to be on those teams. That would be waste of their time. 172 00:10:34,920 --> 00:10:38,420 Not even accountants are needed on those teams, accountants, 173 00:10:38,740 --> 00:10:39,900 business controllers, etcetera. 174 00:10:39,901 --> 00:10:44,700 They should be invited once the investment breaches specific threshold. 175 00:10:45,120 --> 00:10:49,370 But in the beginning, what we want to do is a lot of small, small, 176 00:10:49,371 --> 00:10:54,130 small investments, just to check if these ideas are worth of anyone's time. 177 00:10:55,000 --> 00:10:59,730 That is, that is how CFO can set up a system that actually doesn't prohibit 178 00:11:02,080 --> 00:11:05,809 or retard innovation while still protecting the assets. 179 00:11:06,280 --> 00:11:08,170 Combining that with options theory, 180 00:11:08,309 --> 00:11:12,530 and options thinking what they have at all the time is option to basically stop 181 00:11:12,550 --> 00:11:14,690 the project before it gets too big. 182 00:11:15,330 --> 00:11:20,090 I would rather spend 10,000 euros to determine 10 ideas should not be 183 00:11:20,091 --> 00:11:25,000 invested in than spend 10 million euros in one idea that doesn't work 184 00:11:25,020 --> 00:11:27,880 out after five years. And, you know, 185 00:11:27,950 --> 00:11:32,080 once you stop thinking just about the money, but the whole opportunity cost, 186 00:11:32,480 --> 00:11:33,313 I mean, 187 00:11:33,950 --> 00:11:38,320 wasting two weeks of your five employees is much better than 188 00:11:38,550 --> 00:11:41,400 wasting five years of hundred employees. 189 00:11:41,750 --> 00:11:44,070 Just putting money aside. I mean, 190 00:11:44,490 --> 00:11:49,190 the talents I it's painful and people will 191 00:11:49,470 --> 00:11:51,870 probably leave your company. If after five years, 192 00:11:51,880 --> 00:11:56,480 their project has been stopped or it has failed or something else. 193 00:11:56,820 --> 00:11:59,720 So we have from the CFO office to the middle management, 194 00:11:59,721 --> 00:12:04,040 basically define the budget, release it in trunches, think about options. 195 00:12:04,740 --> 00:12:09,080 And then something you mentioned at the beginning of our conversation monitor 196 00:12:09,840 --> 00:12:13,190 specific measures. And this is where it gets really difficult. 197 00:12:13,610 --> 00:12:17,030 It doesn't matter if it's an SME or a large corporate, 198 00:12:17,929 --> 00:12:22,270 we still haven't completely cracked the code of what are good innovation 199 00:12:22,271 --> 00:12:25,710 measures. And there isn't a silver bullet. 200 00:12:25,711 --> 00:12:28,470 Unfortunately I'm not bringing that silver bullet, 201 00:12:29,170 --> 00:12:33,940 but what has been working so far as a really good solution is taking a 202 00:12:33,941 --> 00:12:36,380 systems approach to measuring innovation. 203 00:12:36,970 --> 00:12:40,700 What I mean by that is CFO and top management. 204 00:12:40,970 --> 00:12:44,179 They should measure the performance of their innovation portfolio. 205 00:12:44,559 --> 00:12:46,380 So looking at portfolio metrics, 206 00:12:46,480 --> 00:12:50,690 that's looking at basically an aggregated measures showing, okay, 207 00:12:51,170 --> 00:12:53,770 out of all the investments in innovative ideas, 208 00:12:53,771 --> 00:12:57,490 we have made what's the average time of return. 209 00:12:58,390 --> 00:13:02,690 What's the profit margin compared to other products. In my opinion, 210 00:13:02,980 --> 00:13:07,120 innovative projects should have above average profit margins. 211 00:13:07,630 --> 00:13:11,920 Otherwise you could just do continuous improvement. That doesn't make sense. 212 00:13:11,980 --> 00:13:14,400 So if you are making a risk investment, 213 00:13:14,809 --> 00:13:17,240 there should be a significant return. 214 00:13:17,340 --> 00:13:21,679 So that's what we're talking at top measures, moving into the middle layer, 215 00:13:21,929 --> 00:13:24,200 let's call middle management. If you want. 216 00:13:24,630 --> 00:13:29,429 This is where especially controllers and company accountants get useful. 217 00:13:30,490 --> 00:13:33,870 It is measuring basically what we call innovation funnel. 218 00:13:34,450 --> 00:13:37,710 So in your company, there might be different maturity levels. 219 00:13:37,770 --> 00:13:41,830 You might have product live cycle or something of a kind where you basically 220 00:13:42,070 --> 00:13:44,700 say, you know, step number one is exploring the idea. 221 00:13:44,730 --> 00:13:46,780 Step number two is validating the idea. 222 00:13:46,809 --> 00:13:50,500 Step number three is taking it to market step number four, scaling. 223 00:13:51,179 --> 00:13:53,260 So kind of every company I worked with, 224 00:13:53,330 --> 00:13:55,740 they do have some sort of a model like that. 225 00:13:56,120 --> 00:14:01,100 So measuring that funnel then becomes important for one simple reason 226 00:14:01,530 --> 00:14:04,690 what we said in the beginning, there is no guarantee of outcome, 227 00:14:05,110 --> 00:14:10,050 but the quality of work, the quality of innovation process and how costly it is, 228 00:14:10,550 --> 00:14:14,770 that's something you can control. And that is what accounting is golden for. 229 00:14:15,520 --> 00:14:18,370 It's the mindset here that becomes difficult because you 230 00:14:20,170 --> 00:14:24,080 business controllers have unfortunate title like this controlling. 231 00:14:24,440 --> 00:14:29,200 It sounds like they're there to be police officers to punish if you're out of 232 00:14:29,201 --> 00:14:31,440 boundaries, but that's not really their role. 233 00:14:31,690 --> 00:14:36,240 Their role is to help the innovation teams or any other team 234 00:14:36,620 --> 00:14:39,750 to control the expense, not to control the people. Together, 235 00:14:40,510 --> 00:14:45,430 they try to figure out ways to reduce the cost while keeping the operations 236 00:14:46,060 --> 00:14:50,950 flowing measures in this level are things like how 237 00:14:50,970 --> 00:14:52,530 many ideas have we invested in? 238 00:14:52,790 --> 00:14:56,410 How long does it take to get idea from stage A to stage B, 239 00:14:57,310 --> 00:15:00,410 how many hours does it take or raw goods, 240 00:15:01,050 --> 00:15:03,050 whatever additional services, et cetera. 241 00:15:03,230 --> 00:15:05,970 You're not trying to go into too fine details, 242 00:15:06,150 --> 00:15:09,680 but you need this granularity of different type of activities, 243 00:15:10,150 --> 00:15:14,640 because that feeds both into the top level and the bottom level of innovation 244 00:15:14,880 --> 00:15:18,560 matrices, because this in between, you are really looking at two things, 245 00:15:19,760 --> 00:15:22,520 how much does it cost us to develop an innovative idea? 246 00:15:22,780 --> 00:15:27,160 And how long does it take us to develop that idea? That's the middle level? 247 00:15:27,161 --> 00:15:28,710 What's it all about? 248 00:15:28,850 --> 00:15:33,350 If you can master measuring these two then later on when 249 00:15:33,420 --> 00:15:36,190 returns come, because for in really innovative idea, 250 00:15:36,191 --> 00:15:40,030 returns are five plus years. You, you're not really looking some, 251 00:15:40,031 --> 00:15:41,550 getting something back in two years, 252 00:15:42,370 --> 00:15:45,350 but if you spend this five years to actually get the really, 253 00:15:45,550 --> 00:15:48,700 really good overview and control of, you know, 254 00:15:48,850 --> 00:15:51,620 cost of innovating and speed of innovating, oof, 255 00:15:51,840 --> 00:15:56,580 you are already ahead of the pack and now trickling down all the way 256 00:15:56,920 --> 00:15:58,980 to actual innovation teams. 257 00:15:59,730 --> 00:16:03,780 This is where metrics really explode. And unfortunately, 258 00:16:03,781 --> 00:16:07,410 people don't like hearing that, but I must say it because it's reality, 259 00:16:09,020 --> 00:16:13,810 every innovative team has to have their own set of metrics. 260 00:16:14,920 --> 00:16:18,850 It's their responsibility to actually identify those metrics, 261 00:16:19,430 --> 00:16:23,810 but it is CFO and the top management that has to approve them. 262 00:16:24,140 --> 00:16:26,280 And I'll give you a few practical examples. 263 00:16:26,940 --> 00:16:29,960 Let's say that you are in financial services, 264 00:16:30,310 --> 00:16:33,680 kind of you're providing all the financial services in your country. 265 00:16:34,380 --> 00:16:36,160 And let's say that you set up three teams. 266 00:16:36,380 --> 00:16:40,400 That's quite not enough, but just, 267 00:16:40,401 --> 00:16:41,920 just for the sake of conversation. 268 00:16:42,300 --> 00:16:47,110 So let's say that you have a team that is trying to come up with a new consumer 269 00:16:47,460 --> 00:16:48,293 loan. 270 00:16:48,970 --> 00:16:53,150 You have another team that's trying to come up with a specific security product 271 00:16:53,570 --> 00:16:54,750 for business customers, 272 00:16:55,050 --> 00:16:59,030 and you have a third team that's trying to come up with a specific product for 273 00:16:59,100 --> 00:17:01,420 very, very wealthy citizens. 274 00:17:02,870 --> 00:17:04,619 Those three have nothing in common. 275 00:17:05,240 --> 00:17:10,180 How could we possibly have the same measures of success for each of these 276 00:17:10,181 --> 00:17:14,780 three teams? That's why I say, when you actually come to the specific teams, 277 00:17:15,170 --> 00:17:19,890 they need to identify what are the relevant measures of success for their 278 00:17:20,210 --> 00:17:25,050 specific idea. I'm here not talking about MVPs, discounted cash flows, 279 00:17:25,051 --> 00:17:29,050 return on investments, return on equity. Those are all premature. 280 00:17:29,850 --> 00:17:33,650 You cannot use that set of metrics to evaluate any of these ideas. 281 00:17:34,359 --> 00:17:39,320 What the team needs to come up with in terms of generic language is they 282 00:17:39,321 --> 00:17:44,280 need to come up with what is specific signal that the customer is 283 00:17:44,281 --> 00:17:45,240 interested in this, 284 00:17:45,900 --> 00:17:50,640 and what is the best proxy we can measure for market size 285 00:17:50,820 --> 00:17:54,359 and market response. And yes, 286 00:17:54,360 --> 00:17:56,160 this is the most generic we can make it, 287 00:17:56,260 --> 00:18:00,040 but that will differentiate between district teams. So for consumer loans, 288 00:18:00,590 --> 00:18:04,080 they might say, okay, we are actually in B2C market. 289 00:18:04,430 --> 00:18:08,510 Therefore we are actually looking at quite significant market share. 290 00:18:08,940 --> 00:18:09,770 Therefore, 291 00:18:09,770 --> 00:18:14,550 we are looking at a turnaround of an average citizen that's interested in 292 00:18:14,551 --> 00:18:18,030 getting a consumer loan. What type of specific consumer loan, 293 00:18:18,180 --> 00:18:20,070 what type of behaviors lead to loan? 294 00:18:20,220 --> 00:18:24,150 What are the characteristics of citizens that may get a loan and still paid back 295 00:18:24,170 --> 00:18:25,003 on time? 296 00:18:25,740 --> 00:18:29,820 They would look at completely different set from the team that's trying to 297 00:18:30,060 --> 00:18:33,100 innovate a new security product for a corporate customer. 298 00:18:33,330 --> 00:18:34,980 They would then go need to look okay. 299 00:18:34,990 --> 00:18:38,180 We're now talking about a corporate product. We are in B2B. 300 00:18:38,560 --> 00:18:41,340 We need to understand how are decisions made. 301 00:18:41,640 --> 00:18:45,290 Do we need to reach out to CFOs of businesses? 302 00:18:45,310 --> 00:18:47,170 Do we need to reach out for different roles? 303 00:18:47,560 --> 00:18:52,210 What do they react to completely different set of innovation metrics and the 304 00:18:52,211 --> 00:18:54,330 same would go for the third team? 305 00:18:55,350 --> 00:18:59,369 The good news I have for you is what I said just few minutes ago. 306 00:18:59,790 --> 00:19:03,210 That's the job of actually innovation team. Don't, 307 00:19:03,211 --> 00:19:04,760 don't try to use your business, 308 00:19:04,761 --> 00:19:08,400 controller's accountants or somebody else to go and tell the team. 309 00:19:08,550 --> 00:19:12,880 This is what you should measure. Put the ball in their court. 310 00:19:13,720 --> 00:19:17,480 Ask them, Hey, what is the signal that this is worth doing? 311 00:19:18,500 --> 00:19:22,430 Go and measure it, and then bring me back the measure. You know, 312 00:19:22,490 --> 00:19:25,430 you make it so much easier for you at the same time. 313 00:19:25,530 --> 00:19:29,350 You are empowering people and developing their skill as innovator, 314 00:19:29,800 --> 00:19:33,990 which is important for your long term success as an organization. 315 00:19:34,609 --> 00:19:37,150 So kind of, as you're talking through that, 316 00:19:37,590 --> 00:19:42,540 I like circling back to the accountant and the accounting team when it 317 00:19:42,541 --> 00:19:43,540 comes to innovation, 318 00:19:44,160 --> 00:19:48,020 it seems like what you've been saying is that the controller shouldn't be the 319 00:19:48,021 --> 00:19:48,900 controller, as you said, 320 00:19:49,280 --> 00:19:53,180 but they almost need to come in as what we've been saying a lot in the industry 321 00:19:53,200 --> 00:19:56,420 is the business partner that the controller of the CFO needs to be the business 322 00:19:56,421 --> 00:19:58,930 partner with, you know, with the rest of the C team. 323 00:19:59,270 --> 00:20:01,930 But also if there's an innovation team that's happening, 324 00:20:02,520 --> 00:20:07,490 some subset of the accounting team needs to be a part of some of those 325 00:20:07,491 --> 00:20:11,730 meetings to be that business partner, to be the, the reality check at times, 326 00:20:11,750 --> 00:20:15,290 and also to sit there and say, oh, let's see what we can do. Am I, 327 00:20:15,310 --> 00:20:17,240 am I hearing you right when you're saying that? 328 00:20:18,010 --> 00:20:22,440 Absolutely. I have few things that I would suggest based on my experience. 329 00:20:22,750 --> 00:20:26,000 This is mostly your European businesses, but I think, 330 00:20:26,880 --> 00:20:30,680 practices are similar across the Western business area, 331 00:20:31,830 --> 00:20:36,270 your comparison to having a controller or accountant as a sort of a business 332 00:20:36,271 --> 00:20:39,270 partner is a good one. What I've noticed, 333 00:20:39,500 --> 00:20:44,030 some of the habits that they shouldn't use with innovation teams that are good 334 00:20:44,100 --> 00:20:48,400 with mature teams. First forget spreadsheets. 335 00:20:50,770 --> 00:20:52,280 Don't try to build a business case. 336 00:20:53,200 --> 00:20:57,400 This isn't a mature project that you are trying to build the business case that 337 00:20:57,401 --> 00:21:01,640 you need to use sophisticated spreadsheet. There is too much uncertainty. 338 00:21:02,220 --> 00:21:07,070 The only thing I can say you for certainty is that any hour you spend on that is 339 00:21:07,071 --> 00:21:11,369 going to be a wasted one. That doesn't mean that your spreadsheets are bad. 340 00:21:11,390 --> 00:21:14,050 It just means that now is not the right time. 341 00:21:14,830 --> 00:21:19,609 If you are meeting with a team to help them in their first three months of an 342 00:21:19,610 --> 00:21:23,170 innovation project, forget about using spreadsheets like that. 343 00:21:23,480 --> 00:21:28,359 What they need is just your help in understanding how to do quick market 344 00:21:28,640 --> 00:21:32,640 sizing, quick and dirty, not specific conversion rates. 345 00:21:33,140 --> 00:21:35,760 They might need your help in terms of understanding, 346 00:21:35,761 --> 00:21:40,359 because people forget that regular employees in a lack of better word, 347 00:21:40,360 --> 00:21:45,150 regular don't really have complete financial picture of the organization. 348 00:21:45,740 --> 00:21:48,150 They understand their part of the organization, 349 00:21:48,170 --> 00:21:53,070 but not necessarily how the whole organization actually makes money or spends 350 00:21:53,071 --> 00:21:57,150 money. This is again where you are very helpful where business controller is an 351 00:21:57,151 --> 00:21:59,750 accountant. Basically forget that they have much, 352 00:21:59,751 --> 00:22:03,220 much bigger picture of the organization's business. 353 00:22:03,930 --> 00:22:07,900 This is very, very useful information for any innovator. Why? 354 00:22:07,901 --> 00:22:11,660 Because it helps them basically tweak the idea. 355 00:22:11,680 --> 00:22:14,220 So it's even more useful for the organization. 356 00:22:14,600 --> 00:22:18,859 So a business controller can be a business partner in a lot of stuff that isn't, 357 00:22:18,980 --> 00:22:23,450 let's say hard numbers, or immediately going to financial modeling, 358 00:22:23,600 --> 00:22:26,170 financial modeling should come much, much later. 359 00:22:26,950 --> 00:22:30,850 Second thing I would suggest any business controller or accountant helping an 360 00:22:30,851 --> 00:22:35,609 innovation team is forget about spot estimates. 361 00:22:36,109 --> 00:22:40,560 If you're helping a team, do estimates, make sure use range estimates. 362 00:22:41,300 --> 00:22:43,240 So if the team is asking, you know, 363 00:22:43,840 --> 00:22:47,720 what kind of pricing should we have or kinda what's what's the break even point 364 00:22:47,859 --> 00:22:52,280 or something similar first it's okay to say it's too early to discuss that. 365 00:22:52,540 --> 00:22:56,630 And second, if it's not start looking at ranges, don't say five, 366 00:22:57,560 --> 00:22:59,580 say from three to 10, 367 00:22:59,880 --> 00:23:04,619 and that is 70% probability for that range. That's much, 368 00:23:04,620 --> 00:23:05,453 much better. 369 00:23:05,640 --> 00:23:10,060 You're very unlikely to miss by a magnitude of a hundred or a thousand. 370 00:23:10,160 --> 00:23:12,500 You might miss by a magnitude of 10. But again, 371 00:23:12,650 --> 00:23:15,530 because of all the practices I told you before, 372 00:23:16,291 --> 00:23:19,130 release funding in trunches, think about this option. 373 00:23:19,430 --> 00:23:21,530 You will never over invest. 374 00:23:21,720 --> 00:23:24,490 It's very difficult to over invest in such a system. 375 00:23:24,950 --> 00:23:26,810 So that kind of protects you. 376 00:23:26,950 --> 00:23:31,170 But this range estimation is a skill that is very, very important and 377 00:23:32,680 --> 00:23:36,800 controllers I worked with. They all know that they just need to be reminded. 378 00:23:37,060 --> 00:23:38,720 So kind of the skill set is there, 379 00:23:39,260 --> 00:23:43,680 but because their daily job is working with daily operations and making sure 380 00:23:43,681 --> 00:23:44,800 daily operations are efficient, 381 00:23:45,430 --> 00:23:47,920 sometimes they forget their own part of the skillset. 382 00:23:48,020 --> 00:23:52,400 That's more useful for more uncertain ideas and projects. 383 00:23:53,010 --> 00:23:56,600 Again, if it's an innovation project, you can assume it's uncertain. 384 00:23:56,869 --> 00:24:00,320 Otherwise it wouldn't be an innovation project. 385 00:24:01,920 --> 00:24:05,550 And the third thing for business controllers as business partners, 386 00:24:05,750 --> 00:24:09,869 where they're really useful is actually connecting people within the 387 00:24:09,870 --> 00:24:14,390 organization. Again, someone who is, let's say working in a, 388 00:24:14,450 --> 00:24:16,550 we have a example of consumer loan. 389 00:24:16,690 --> 00:24:21,590 So an employee that's working in consumer banking will probably not know 390 00:24:22,480 --> 00:24:26,140 all the connections inside the organization for the support roles, 391 00:24:26,330 --> 00:24:27,380 support functions, 392 00:24:27,670 --> 00:24:32,140 accountant or business controller is actually quite likely to work across the 393 00:24:32,141 --> 00:24:34,980 whole business unit and maybe even broader business. 394 00:24:35,640 --> 00:24:39,859 So this is where they can really go from gatekeeper to kind of 395 00:24:40,200 --> 00:24:44,490 networker to the connector. And again, this might sound so mundane, 396 00:24:45,109 --> 00:24:49,570 but this is so valuable because when we think, when we talk about ideas, 397 00:24:49,571 --> 00:24:52,210 people like talking about, I think, outside of the box, that's 398 00:24:53,851 --> 00:24:58,730 all nonsense. The best ideas come from connecting the dots. And if you, 399 00:24:59,150 --> 00:25:03,400 as a business controller can help the teams that are coming to you for help to 400 00:25:03,401 --> 00:25:04,280 connect the dots. 401 00:25:04,980 --> 00:25:09,520 You increase their likelihood of success and therefore increase the likelihood 402 00:25:09,619 --> 00:25:12,320 of your company's success. And not only that, 403 00:25:12,420 --> 00:25:14,920 but then the social thing starts happening. 404 00:25:15,020 --> 00:25:19,710 People start reaching out more to you instead of being afraid like, oh man, 405 00:25:19,711 --> 00:25:23,350 now we have to go to call the Tony the business controller because we need his 406 00:25:23,710 --> 00:25:26,869 approval to go with this. You move from that to, Hey, 407 00:25:26,920 --> 00:25:29,950 let's have a quick chat with Tony. He has some really good, you know, 408 00:25:30,109 --> 00:25:32,950 perspectives, and he always knows who we need to talk with. 409 00:25:33,450 --> 00:25:37,660 So kind of then you really start fulfilling that business support 410 00:25:38,460 --> 00:25:41,900 role. And you know, these three things I just shared with you, 411 00:25:41,901 --> 00:25:43,100 they're all from practice. 412 00:25:43,210 --> 00:25:48,060 I've seen them all applied with great success and they don't take anything. 413 00:25:48,580 --> 00:25:52,780 All the know how you already have now is the difficult thing of actually doing 414 00:25:53,100 --> 00:25:53,933 that. 415 00:25:56,000 --> 00:25:57,290 This has been Count Me In, 416 00:25:57,920 --> 00:26:01,890 IMA's podcast providing you with the latest perspectives of thought leaders from 417 00:26:01,891 --> 00:26:04,650 the accounting and finance profession. If you like what you heard. 418 00:26:04,790 --> 00:26:07,690 And you'd like to be counted in for more relevant accounting and finance 419 00:26:07,800 --> 00:26:11,450 education, visit IMA's website at www.imanet.org.