MANAGEMENT ACCOUNTANTS must be less “mechanistic” and take a more open-minded approach to innovation, according to the chief financial officer of Royal Dutch Shell.
Writing in a joint report by CIMA and the AICPA on innovation in the finance function, Simon Henry, CFO of oil and gas giant Shell, has urged finance functions to play a greater role in driving company innovation.
Shell has an innovation programme that includes a $1.5bn (£1bn) annual R&D budget and also invests around $4bn on innovation within the business. According to Henry, the role of finance within this is multifaceted.
“A finance function needs to be able to understand the business well enough to know what is a worthwhile activity, but also, in this part of the business, to have a bit more of an open mind. It is less mechanistic, and has the ability to live with ambiguity, to identify risk and to manage it,” Henry said.
“The business is all about proper evaluation of risk, whether it’s technological, market or otherwise. We want to encourage innovation and not stifle it, but not in a totally uncontrolled way.”
Describing Shell’s approach, Henry said the company has a ten stage “gate process” to provide funding for innovative projects.
“At each stage gate you can say, this is going to be funded by Shell through to the next four stage gates, at which point we’ll take another decision. Or we put it into a joint venture and we keep an equity stake. So there are different routes to commercialisation,” he said.
Similarly, Coca-Cola has adopted its own stage gate process to control how an idea gets prioritised and funded,
“We want to see the whole project and we want to budget for it, but those funds are not given at one go up front. Each stage has budgets allocated to it, and targets and metrics. If you get to the first gate and if you’re on track, you pass through that gate and get the funding for the next phase. And if you get through to launch, we can spend many, many millions of dollars,” said Doug Bonthrone, director of global services strategy at The Coca-Cola Company.
Image copyright held by Shell
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