In today’s world of constant technological advancement, being innovative is one of the most important traits any business can have, to both survive and thrive. But what does innovation specifically look like for finance teams? And what are the different types of financial innovation?
In this article, we discuss how to create a more innovative finance team and look at the impact this can have on your company’s success. We also highlight some factors that can impede financial innovation and explain which digital systems make it easier to be more innovative.
What is meant by financial innovation?
Innovation is the pursuit of advancement through improved processes. It’s completing a task more effectively than you were able to before, by using a different strategy or a completely new invention. By continuously innovating you avoid becoming complacent or stagnant. In the digital age, technology has seen the rate of improvements increase exponentially. Due to constant changes in the corporate world, businesses must be more innovative than ever before. Failure to do this could see them left behind by competitors.
Innovation has been a mainstay in finance. Historically, there was the idea of borrowing, which allowed more businesses to get off the ground and therefore provided consumers with a variety of options on the market. More recently we’ve seen inventions like mobile banking, which has allowed individuals to take control of their personal finances. There’s also the current shift towards cryptocurrencies, a digital and decentralised method which may transform the way companies buy from one another.
Innovations can arise through necessity, in reaction to a dire situation (such as the 2008 financial crash). Or they can simply come about out of the blue, when perhaps someone stumbles upon a niche in the market (or has a moment of pure inspiration).
Why is financial innovation important?
Innovations within the finance realm can have a profound impact, not just for those directly involved, but for wider society too. At the lowest level, smarter tools allow finance teams to perform better, by harnessing data to understand their financial health, for example. At the very top level, the economy becomes stronger if more businesses can flourish. Healthy competition is good for the market.
With the right tools finance teams can spot risks more easily and avoid detrimental pitfalls. By staying up to date with the latest industry trends they can adapt to the ever-changing market and keep up with the competition. The rise of FinTech has put companies in a much better position to deal with unexpected outcomes. Those that embrace it are essentially future proofing their business.
What are the types of financial innovation?
Evolution of best practices
Every industry has some widely known best practices that companies will try to conform to. These are usually tried and tested methods that have garnered good results over many years. But sometimes a new and improved strategy will be uncovered by a business, which will then be replicated by others throughout the financial sector.
The relevant governing bodies will sometimes impose new regulations/legislation within the finance sector to mitigate risks or to make processes more efficient. This may be in reaction to environmental or political pressure. One example is the way Brexit has impacted legislation around financial services. There’s also the ‘Making Tax Digital’ initiative, which demands all tax submissions to be completed via approved digital platforms.
New software and apps are constantly being released and improved. Sometimes, a new update may send ripples throughout the financial world, perhaps offering an unprecedented way to achieve certain results. In recent times we’ve seen breakthroughs relating to automation, cloud technology, security, AI forecasting, and much more, many of which improve the lives of those in finance-based roles.
Finance managers within specific companies can, over time, find better ways to organise their employees (and more efficient ways to deploy their resources). They may also make changes around which partners to work with, and how to best communicate with these partners. This restructuring may be centred around a shift to more digital ways of working.
What are the benefits of embracing financial innovation?
- Getting ahead of competitors
- Improving reputation within the industry
- Gaining new partnerships with cutting edge businesses
- Improving customer satisfaction
- Increasing efficiency
- Achieving optimal productivity
- Increasing revenue
- Remaining adaptable
- Keeping employees happy
What are the challenges of financial innovation?
Zero buy-in from management
A company’s willingness to innovate starts from the top. Those in management can lead by example and influence others with their actions. If the finance manager, the CFO, or even the CEO show no interest in embracing new ways of working, this philosophy will probably prevail. After all, these stakeholders are the key decision-makers, so the finance team will never feel the benefits of innovation if those higher up don’t subscribe to such an approach.
Lack of innovative culture
If a company is rigid in its methods, and there’s no room for experimentation or deviation, then it’s likely they’ll fail to keep up with the times. If an employee is penalised every time they make an error or try something different, there comes a point when they’ll stop trying. Mistakes are a big part of innovation, as it normally involves a lot of trial and error. If mistakes aren’t tolerated, transformative results will never be achieved.
It can be difficult for employees to demonstrate the benefits of innovation to their superiors, as the expected outcomes can be somewhat unclear or abstract. CFOs, for example, generally like to make decisions using numbers and cold hard facts. If the specific financial rewards can’t be presented, it’s unlikely they’ll make the investment. However, using software as an example, many providers will now give you access to an ROI (return on investment) calculator, which allows you to show them the exact financial benefits.
Not enough time
Finance workers may not have the capacity to be innovative due to their day-to-day schedule being full. If their daily routine consists of endless data entry and manual number crunching, they’ll never have a spare moment for creative thought or more complex data analysis. This can be somewhat of a catch-22; if they had the time to implement an innovation such as accounting software, they would have even greater capacity as a result.
How to make your finance team more innovative
Create an appropriate environment
Finance managers should create an environment that actively encourages innovative behaviour (rather than stifling it). Those in the finance team should feel comfortable trying new things without the looming threat of punishment. They could even be rewarded for finding better methods (which would further encourage this behaviour). Employees should be given the resources they need to innovate and a clear framework for what is expected. This provides structure for these activities and helps to guide the direction of results in relevant ways.
Dedicated learning time
Employees should be given dedicated timeslots to pursue innovative endeavours as well as any relevant learning/training. This helps to put this pursuit into action, rather than it just being a pipe dream. This time could be used to research competitors, or to read about the latest industry trends (which could help to shape strategy). The workplace should be a place of continuous learning. Finance managers should ensure employees are given the necessary training if a new technology is implemented. And time could even be spent shadowing people in other departments, as this helps to provide a well-rounded view of the whole business.
Have a change management strategy
There should be a predefined strategy in place that governs proceedings once a change (such as an innovation) has been adopted. This helps to reduce any turbulence that might occur as a result of this new system. It also provides clarity around which employees are accountable for implementing the change. Additionally, it can be wise to have a leader for all innovation-related projects to serve as a central point of contact. And there could even be a designated system for employees to submit any ideas they have around change or innovation.
Businesses should hire cleverly when adding to their finance team, as it’s this process that will ultimately dictate how innovative the team becomes. It’s still ok to look for individuals with the appropriate expertise and experience, as well as those best aligned to the company’s values. But the finance manager should be looking for more nuanced characteristics too. It may make for an easier life to hire people that fully conform to the current processes, but the best results will be achieved by employing those that challenge the status quo. Any team that is assembled should be diverse too, because a variety of skill sets are more likely to lead to innovation.
As we mentioned previously, not only is technology itself an innovation, but using it also facilitates further innovation. By automating some of the data entry and other manual tasks, it liberates finance workers to focus on more creative problem solving. Employees have greater satisfaction in their roles too, and more of their potential is harnessed in impactful ways.
Which technology can help with financial innovation?
At Advanced, we provide a cloud-based accounting solution called Advanced Financials, which increases the efficiency of finance teams. It helps to decrease human error, and improves the accuracy of data, with dedicated fields for accounts payable, accounts receivable, sales invoicing, credit management and bank reconciliation. With purchase management capabilities too, there is an interconnectedness between all these separate functions, which enables a level of automation.
This accounting software has thousands of customisable reports, as well as built-in dashboards. Therefore, finance teams don’t have to spend hours compiling data and building reports from scratch. As the accounting software is also cloud-based, work can be completed at any time, and from any location. This makes it far more likely that new transactions will be recorded in real-time, which in turn ensures reports are fuelled by up-to-date data. This ultimately leads to a clear and correct picture of financial health, as well as powerful predictions that guide strategic business decisions.
If you’re looking to adopt a more innovative culture within your finance team (and want to use technology to facilitate this), then be sure to read more about our Cloud-based accounting software, Advanced Financials.