How to Control Spend without Killing Innovation: 7 Best Practices

A Strategic Approach to Innovation Budget Planning During Uncertain Times

2024 is shaping up to be a challenging year for CFOs and finance leaders. Elections around the world, wars, inflation dynamics and other disruptions make for an uncertain business climate.

But there are opportunities ahead amid uncertainties.

Rather than reacting to what goes wrong after the fact, companies leading through business planning and analysis (BP&A) capabilities convert disruptive events into an advantage. Innovation is the engine of growth and competitive advantage. It takes a CFO who is willing to embrace leading budgeting and planning processes to protect it.

Before you put a premature pause on innovation, take a careful look at the factors behind your decision. Growth Operators’ collective experience helping companies with scenario planning offers finance professionals a model for alternative strategies and resource allocations under different sets of macroeconomic assumptions. By providing clear guidance on the optimal mix at different levels, a company can improve profitability. Well-designed scenario plans, balanced with contingency plans that set out actions, address gaps while maintaining agility and flexibility.

The Benefits of Agility and Flexibility for Continued Innovation

There has been a gradual migration over the years from calendar-driven, backward-looking financial management and planning processes to more dynamic, forward-looking processes. Annual budgeting, variance analysis and period-end reporting are being replaced with exception-based reporting, scenario modeling and predictive forecasting.

The current environment provides compelling reasons to take these capabilities to Growth Operators nextLevel. With advances in digitization, data science and artificial intelligence, finance can create richer and more prescriptive analyses more rapidly.

Growth Operators’, Growth Pros, have developed proprietary processes to update forecasts in hours rather than days. We have the tools that provide the necessary visibility into budgeting gaps, so that you can determine how to generate future cash flow projections, identify and correct data errors and optimize control processes to better respond to opportunities while furthering innovation.

High performing CFOs and organizations are becoming more scientific in their approaches to expense management so that they protect innovation and their competitive advantage. Instead of making arbitrary, across-the-board budget cuts and spending caps, they use dynamic tools to tie expenses to the true drivers of business activity. Then, they can align their budgets to the realities of the current operating environment and the need for ongoing innovation and investment.

Pausing innovation during tough times and focusing on what has worked in the past might seem prudent at first glance, but this decision carries hidden costs and missed opportunities. Innovation is more than a line item on a budget, it's an investment in your company's future. Here are ways that innovation provides value, even during economic challenges:

Continuity Over Cancellation-Cautiously Manage Cash and Capital

Innovation takes time. It's often more beneficial to continue developing innovative projects and delay their launch rather than halting them entirely. This approach ensures that projects crucial to your company’s future will be ready to launch when the climate is right. Finance needs to look at a broad range of cash management options to navigate your organization's current environment. The right mix of working capital optimizations, and expense management can increase management and innovation flexibility.

Maintain Your Competitive Edge - Concentrate on What You Can Control

In times of uncertainty, it is tempting to eliminate all but essential investment. This is rarely a successful strategy. Failure to invest in the future of your business all but guarantees that an organization will fall behind competitors who have adopted a more balanced approach to investment and innovation.

7 Ways to Drive Innovation on a Tight Budget

Innovating within a constrained budget isn't about cutting costs indiscriminately, it's about strategic allocation of resources. Here are seven ways to sustain innovation when finances are tight:

  1. Set Realistic Targets and Align with Strategic Objectives: Evaluate existing projects and programs rigorously. Discontinuing those that no longer generate significant sales and can free up resources for more promising innovations.

  2. Invest in Efficiency and Leverage Partnerships within the Business: Technologies that enhance manufacturing efficiency or streamline operations can reduce costs in the long term. Have your CFO and finance team work with a HR consultant to examine potential efficiencies in your workforce to reduce costs and enhance productivity. Such collaboration helps CFOs identify, quantify and address potential threats and opportunities throughout the organization and across the value chain.

  3. Super Charge and Align Innovations with Corporate Goals: CFOs need to lean into more frequent, data-driven scenario planning to enhance agility and resiliency. Evaluate your business plan so that new innovations align closely with broader corporate initiatives. This not only optimizes ROI but also ensures that innovations are timely and relevant to market demands.

  4. Ensure data availability and integrity: Deep dives into sales data and market trends can reveal whether proposed innovations meet current market needs and desires. Using this data, guide data quality, management and governance standards and flexible protocols to adjust to evolving standards. This foundation of data will enable effective and efficient analytics for investment toward projects with the highest potential impact now and in the future.

  5. Incorporate advanced analytics and technologies. Use Forecasting to Offset Costs: Identify outliers and generate forecasts and related budget planning with greater precision. Growth Operators tools can analyze spends to optimize budgets. Consider AI models to help inform demand forecasting for new and existing products. Understanding the potential market impact of your innovations is crucial. Forecasting appropriately for sales and the innovation's ability to offset its development costs can justify continued investment, even in lean times.

  6. Engage Employees and Formalize Performance Metrics and KPIs: An innovation-driven culture that keeps employees engaged during tough times often uncovers its own cost-effective solutions.Establishing realistic targets aligned to strategies ensures the relevance of the entire process.

  7. Risk Management: Review risk management strategies for innovation projects during uncertain times. This includes assessing potential risks, setting realistic milestones and creating contingency plans to mitigate impacts without stifling creativity.

The Value of External Perspective

To generate the insights required to navigate a complex and changing environment, leaders must evolve the capabilities of their organizations. Finance leaders not only must possess the technical financial capabilities required of this increasingly data-driven role, but they also need business partners with a keen understanding of 2024’s trends and risks. An article on innovation killers from The Harvard Business Review concludes that “the root reason for established companies’ failure to innovate is that managers don’t have good tools to help them understand markets, build brands, find customers, select employees, organize teams, and develop strategy.”

An outside perspective is just the tool that leaders need to illuminate alternative paths that will keep the company robust and innovative. This external viewpoint, coupled with deep industry knowledge and experience, can identify untapped opportunities for efficiency and growth that internal biases might overlook. The right financial and HR consulting and advisory team can uniquely partner with your organization to finesse your innovation budget allocation instead of obliterating it.

Innovative Solutions to Your Budget Challenges

Innovation should not be the default victim of budget cuts, even during challenging times. Our Growth Pros at Growth Operators uncover strategic insights that transform these challenging times into opportunities for growth. Schedule a call today.