Good morning. It can be challenging for companies to stay ahead in a hyper-competitive market. But prioritizing innovation can make all the difference.
That was the topic of Fortune’s Emerging CFO virtual event on Wednesday, presented in partnership with Workday (a CFO Daily sponsor). David Duncan, advisor, speaker, and author of "The Secret Lives of Customers,” told Fortune’s Geoff Colvin that there’s a universal challenge every big, successful company faces.
“It relates to the need to balance investing in the core business with investing in new disruptive innovation that might look quite different from what made them successful up to this point,” Duncan said. And for companies that forgo the path of disruptive innovation and technology, it can wind up being a costly mistake. In a recent article by Colvin, he compared the diverging paths that made Microsoft a $3 trillion powerhouse and flatlined Intel.
CFOs have the “power to decide to prioritize innovation if they have the right setup in their companies,” Duncan said. In a reference to the famous Clay Christensen book, he also noted that avoiding “innovator's dilemma” requires having the right set of conversations around the table, he said. The CEO and CFO have a critical role to play in assessing where the company is today and aligning everyone on a strategy of where you think the future is headed. And that gives you the conviction to start making investments in that direction, Duncan said.
Another piece of advice from Duncan: “Once you have that strategic clarity on the direction you want to go, it's important to set up mechanisms in the organization to pursue different types of innovation with different rules and metrics, give them labels and also have accountability.”
Partnerships can also foster innovation and help companies stay competitive. During the session, Claire Rauh McDonough, CFO of Rivian, explained that the electric vehicle manufacturer and Volkswagen Group launched their new joint venture. It's known as Rivian and Volkswagen Group Technologies, with a total deal size of up to $5.8 billion. Rivian is contributing its software development team and core software stack, as well as its electrical hardware, McDonough said. There’s a “really exciting innovation roadmap that's yet to come as we work now on the development and utilizing those proven technologies today in their vehicles,” she said.
Antonio Carlos Garcia, EVP and CFO of Embraer, said the Brazilian aerospace company is “quite successful right now with all of our business units.” For example, it delivered 59 jets in Q3, representing a 37% increase year over year. Embraer, currently the world’s third-largest aircraft manufacturer, has been powering ahead, while competitor Boeing has been facing serious headwinds.
Garcia said that at big companies there can be a lot of innovation, but CFOs have a central role in determining what creates value—and what doesn’t.
Have a good weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
