Your CFE and CMO – Innovation killers or innovation champions?
Here’s how your CFO and CMO combine to destroy innovation at your firm and how they can change to be the champions of innovation.
Not all AE and environmental firms have a strategic plan. But those that do have one thing in common: They each contain a commitment to improve the business through “innovation.” For the most part this is code for the development or deployment of technologies to get closer to clients, deliver better client service, improve operations, and increase profits—or some combination of all four.
Most of these commitments to innovation will fail. Either they will not see the light of day, or they will flounder in the marketplace. They’ll end up victims of two of your firm’s senior leaders—your chief financial officer (aka “King Sunshine”) and chief marketing officer. Innovation won’t fail because of a lack of ideas. Across the industry, talent is surfacing multiple early-stage and beta proposals ready for corporate funding and support. Nor will innovation fail because of a lack of brainpower. The cohort of tech-savvy AE and environmental professionals positions our industry better than most to make a great tech leap forward.
No, most innovations will fail because one or both of the firm’s finance and marketing functions will fail to lead and instead will just manage. They’ll play defense instead of offense. Here’s how your CFO and CMO combine to destroy innovation at your firm and how they can change to be the champions of innovation.
Innovation Killer #1—“We don’t have the money”: This is typically the first obstacle raised. More often than not this objection comes from the office of the CFO. It’s easy to see why. Invest a ton of cash for no immediate return? Borrow money to fund “research” led by 20- and 30-somethings—many of whom have tattoos and piercings and are not even firm owners? In a famously leverage-averse industry (median debt-to-equity ratio of 0.85 per the always useful 42nd Deltek Clarity Architecture & Engineering Industry Study) where the Holy Trinity of KPIs is utilization, multipliers, and monthly profits, these initiatives usually go down like a lead balloon with the firm’s CFO, who usually caucuses with the firm’s more risk-reluctant shareholders. Typically, after the strategic plan moves from the dopamine-hit, feel-good “we are so visionary” phase, it’s more often than not followed by the “look, we have limited resources kid, maybe next year” phase.
Antidote for #1: The capital options available to AE and environmental firms have never been more plentiful. At the cheapest end of the spectrum are the buckets of cash that firms have on their balance sheets at the start of 2022. At the other more expensive, more Selling Sunset end of the spectrum are a cadre of financial sponsors (private equity, family office) that are only too eager to explore investments and partnerships in our highly attractive industry. And somewhere in the middle are multiple affordable debt instruments. Leadership teams (with CFOs playing a lead role) need to recognize that their balance sheets must evolve to realize the business benefits of sustained innovation. For innovation to be successfully monetized, CFOs need to understand—and stand behind—the financial elements of any innovation that the firm commits to support—including cash burn, opportunity costs, and future cash flows. The CFO needs to recommend what funding is required to support the initiative, recommend the preferred option, and make clear the impacts to the firm’s balance sheet. The typical AE firm balance sheet cannot support sustained innovation. The CFO must be the guide to how it should adapt. This way the CFO goes from being an innovation killer to an innovation champion.
NOT an antidote for #1 (it sounds like one, but it’s a cop out): Many firms try the approach of “Let’s wait for a client to ask us for this technology or innovation, that way we can get paid to innovate!” Always sounds like genius. But it’s not. It’s just an abdication wrapped in a strategy to kick the can down the road. We see this all the time—where “corporate” claims lofty goals for innovation—but places the financial burden on the company’s P&Ls. But the P&L leaders don’t want to self-fund innovation as it hits their bonus pool. So, everyone waits for the right “opportunity.” It’s a recipe for business as usual. What’s worse, it indicates a willingness or preference to learn on the client’s dime.
Innovation Killer #2—Marketing misses the mark: AE and environmental industry marketing 101 is “Listen to clients, understand them, and deliver what they want (or think they want).” This is how practically every firm’s marketing department is set up. It’s largely reactive and passive. It places the client in the driver’s seat. It’s driven by KPIs of monthly and annual sales and hit rates on proposals. And it’s completely useless in terms of marketing and selling innovative tech solutions.
Antidote for #2: Marketing 102 is to anticipate what clients will need (even though they may not know it yet!) and deliver it. This is how you market tech and innovative solutions. It’s a totally different marketing approach. Instead of listening to your clients about what they want, it’s more telling your clients what they need. This is a scary proposition for most CMOs. Indeed, it’s an approach more suited to marketing consumer tech products (think Apple’s iPhone) and business tech products (How did you even function before Outlook?). It is the preferred marketing approach for consumer and business tech subscription services (Ever stop to think how much your family pays monthly for iTunes or your firm pays monthly for Office 365?). Taking your innovation from the “idea” stage to market will require your CMO to approach marketing (and sales) in a completely different way. It may require a separate brand. It certainly will require different packaging and pricing than how the firm currently markets its services. Embracing Marketing 102 requires a totally different mindset, but it’s what your CMO needs to do to go from being an innovation killer using the old Marketing 101 toolkit to an innovation champion deploying the Marketing 102 bag of tricks.
One more piece of advice for CMOs: Most AE industry marketing is a set of strategies and tactics that work well in the context of a mature industry. In this type of environment most clients have a good understanding of the services that they are purchasing, the pricing of those services, and the service providers in the market. Essentially, there’s nothing new under the sun in a mature industry. However, bringing a new tech-enabled solution into this mix requires a completely different marketing approach (Marketing 102) that recognizes the characteristics of the “Introduction” phase of the product life cycle, shown in Figure 1.
Figure 1: Product Life Cycle
In the Introduction phase there is little, if any, understanding by clients about the product being offered, let alone its benefits or features. So, there is minimal (if any) demand. Critical success factors to monetize the product include a massive, attention-getting education campaign (via social media, e-marketing, and trade shows) and direct technical sales meetings with prospects. These both require the CMO to advocate for changes to the firm’s existing corporate marketing structure and resource allocation. You’re going to be spending closer to 7% of revenues instead of 5% if you’re going to take those innovations to market and successfully monetize them.
The upshot: Your CFO and CMO play key roles in taking your team’s innovations from just ideas to money-making products in the market. They can either be innovation killers or innovation champions. To be champions, they need to change their mindsets from managers to leaders.
This article originally appeared on Morrissey Goodale’s website. Morrissey Goodale is a CFE Media content partner.
Original content can be found at www.morrisseygoodale.com.