How CFOs Can Help Foster Innovation & Creativity In Their Enterprises

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Deloitte recently featured my work in their CFO Insights newsletter. The article is titled, "Unlocking creativity: How CFOs can help cultivate a creative mindset."   CFO Insights draws upon my book, Unlocking Creativity, to examine what Chief Financial Officers can do to help break down the barriers to innovation and creativity in organizations.  Why should CFOs focus on the task of breaking down these barriers?   Deloitte argues:

The case for creativity seems more apparent than ever. One reason may be the current growth shortfalls at some companies. A recent analysis of Fortune 500 companies found that more than one-third (38 percent) experienced a decline of revenue between 2014 and 2016. Another driver may be the looming prospect of an economic downturn, which may force CFOs to look for original ways to boost efficiencies at their already-lean organizations. In Deloitte’s North American CFO Signals™ survey for the second quarter of 2019, nearly all 159 respondents said they anticipated an economic slowdown by the end of 2020. However, a prospective downturn may also be an opportune time to invest in innovation, calculating tradeoffs that need to be made to emerge from any decline—which 80 percent of CFOs expect to be mild, according to the Q2 2019 CFO Signals survey—with a competitive edge over their creativity-challenged peers.

Check out this edition of Deloitte's CFO Insights to learn more about this topic.  In addition, take a look at the tips provided in the article for how to improve competitive benchmarking practices in your organization.  

Overconfident CFOs

Strategy and Business reports today on a new study by Itzhak Ben-David, John R. Graham and Campbell R. Harvey.   They examined the accuracy of predictions by chief financial officers (CFOs).  They examined over 13,000 surveys of chief financial officers in 2011.  What did they find?  "Instead of hitting the right range 80 percent of the time, the CFOs were correct in only about 36 percent of the cases when predicting the market’s point total a year out, the authors found. Even during the least volatile periods in the sample, CFOs had only a 59 percent success rate."  

Psychologists, of course, have long known that human beings are subject to an overconfidence bias.  Interestingly, this study shows that the overconfidence extends to projections about company performance as well.  According to Strategy and Business, "CFOs who erred on market forecasts also tended to provide unrealistic estimates of returns on investment for their firm’s projects. These hubristic CFOs failed to anticipate volatility and risks, even when they could look to benchmarks like their firm’s return on invested capital as a basis for their predictions."  

What I do take away from this study?   In many companies, the senior management team looks to the CFO to be the "voice of reason" or the "force for restraint" in the face of ambitious executives who want to invest, grow, and expand.  This study shows that many CFOs may not be effective forces of reason and restraint. Instead, their overconfidence may add fuel to the fire when it comes to flawed strategies.  Far from being the cynic or the ultra-conservative person watching the pennies closely, some CFOs may dramatically underestimate the risks associated with certain investments.  Moreover, they may support rosy projections for the future.