The pace of change in today’s business environment is unrelenting, and it’s imperative that all of us adapt quickly. Companies survive by creating a competitive advantage and delivering sustained value for customers and owners. Accounting and financial professionals who hold the CMA® (Certified Management Accountant) certification support the strategic management process, enable innovation, and drive value in their organizations by using their business insight skills of planning, analysis, risk management, performance measurement, and decision support.
Yet many companies ignore the fact that it’s necessary to evolve, believing that what they are doing now will enable them to be successful forever. For example, Kodak held a dominant position in photographic film during most of the 20th Century, but as a result of its slowness in transitioning to digital photography, it filed for bankruptcy protection. Companies are failing at a higher rate than in the past, and their average life span is getting shorter. Organizational leaders should be continuously evaluating the risks and opportunities of the changes taking place today, and CMAs are uniquely qualified to help with and support this effort. For example, CMAs can use their decision support skills to model the projected financial performance of a new initiative, such as a new product line, calculating a range of net present values, and testing the sensitivity of critical variables to identified risks.
One very significant reason for organizational failure is the inability to innovate. Not anticipating the future and not adapting to new technologies and markets can quickly disrupt the business model of a once profitable company. Senior management, supported by the skills of CMAs, need to seize opportunities that create value. Innovation can lead to competitive advantage, or it can completely disrupt the business model and put a company out of business.
SECRETS TO SUCCESS
When a company has a competitive advantage, it has attributes that allow it to outperform its competitors. This usually means delivering a unique value to its customers that will lead to profits in excess of the industry average. A sustained competitive advantage is one that lasts because it’s difficult to imitate. Innovation can create this sustained competitive advantage, which, in turn, creates value for customers and owners.
Successful companies focus on the unmet needs of their customers. Meeting these needs with innovative product solutions creates value. To formulate a strategy that’s designed to meet the objective of creating sustained value for both customers and owners, it’s necessary to use a disciplined approach, evaluating opportunities and deciding whether it’s better to develop in-house, which is an organic approach, or through partnerships or acquisitions.
CMAs play a role in many of the stages of innovation from idea generation to building the business case to leading the innovation initiative and up to post-implementation evaluation. One particularly important role for CMAs is to use their strong analytical skills to evaluate the opportunities that innovation creates. Another is innovation governance. Though difficult, measuring innovation is essential to the success of an innovation process. If you don’t measure it, how can you report success, and how can you improve it? Reporting the results of innovation to top management and the board of directors is imperative to gain and maintain their support. Measurement should be done in a balanced way, similar to the balanced scorecard, including both financial and nonfinancial measures.
The finance team must also ensure that enough resources are allocated for innovation and plan for dynamic allocation of those resources. No one can be certain how innovation projects will play out during the year or what new opportunities will arise. In addition, performance measures should be aligned with the goal of supporting innovation. Penalizing too much for failure can stifle creativity and risk taking. CMAs can build robust financial plans and performance measurement systems that lead to goal congruence. For example, at a basic level, management accountants can prepare flexible budgets to account for differences from the plan in volumes and/or prices. This provides insights into the key drivers of change. Taking this a step further, they can create financial plans that account for a range of possible outcomes. That is, there wouldn’t be just one set of projected financials, and not just best, most likely, and worst cases, but a series of possible results. This acknowledges the reality that the future is unpredictable but assigns probabilities to the various outcomes. In support of innovation and value creation, it’s imperative to build a financial plan that can adapt to changing realities in the business environment.
ENABLING INNOVATION
The skills that CMAs bring to the job make them uniquely qualified to enable innovation, facilitate the strategic planning process, and help create value in the organization. Planning, analysis, risk management, performance measurement, and decision support enable an innovative and resilient organization.
Companies must anticipate disruption and build and refine their radar systems to be on the alert for impactful change. CMAs can help a company be adaptive so that it is positioned to quickly recognize a unique opportunity or risk, evaluate options, and seize the initiative to become an early mover. Organizational resiliency is the ability to act decisively on revisions to strategic and business plans in response to changing market realities.
MANAGING RISK
An integral part of the planning process is risk management. In fact, risk management should be built into the plan from the start when senior management and the board of directors set objectives. It shouldn’t be a separate function built onto other responsibilities. Effective risk management is integrated into the everyday work of a CMA in planning, analysis, and decision support, particularly to assist management in setting and achieving organizational objectives. CMAs can help an organization identify what might better enable it to reach its objectives or what might prevent it from doing so.
Anticipating and adapting to change through innovation is imperative in today’s business environment. The CMA program is uniquely aligned with the value-creation activities of an organization. With their strong business insight skills, CMAs enable innovation, build resilient financial plans, and manage risk in such a way that organizations can reach their objective of sustained competitive advantage.
January 2017