3 ways finance can aid intrapreneurial teamsFinance has crucial roles in developing intrapreneurial ventures — from setting guidelines to helping manage expectations and defining success.
Intrapreneurship — or the organised effort to develop creative initiatives within a company — offers many advantages. While companies generally focus on following established procedures, intrapreneurship is about generating and experimenting with new and potentially valuable ideas.
The finance team can play a critical role in ensuring that these efforts begin with a sound foundation and that they have clear goals and milestones. To be successful, these creative projects need to play out within traditional financial guardrails. “An ad hoc approach is what really kills these projects,” said Andrew Goldstein, partner, Deloitte Digital GmbH in Munich.
Many intrapreneurial teams might have expertise in specific technical areas but not in finance. Unfortunately, though, once a prospective intrapreneurial team presents an idea to executives and it is accepted, they are often left to figure out financial considerations on their own.
That’s why the involvement of finance is essential. “In addition to equipping an intrapreneurship team with the financial guidance and support it needs to thrive, a valuable finance team imposes discipline into the effort without crippling it,” said Sihle Ndlovu, ACMA, CGMA, Ph.D., executive chairman, Inzalo Utility Systems, in New Germany, Durban, South Africa.
Taking the lead
Finance can make a difference by taking three key actions:
At the beginning of the process, finance can help calculate potential overall costs for the project, including offering insights on how many people can or should be involved, said Paul Gardner, ACMA, CGMA, the CEO of Fresh Accounting in Hong Kong. To gauge potential profitability, finance can also help estimate proper pricing for the products or services the intrapreneurial team produces, he said.
As part of that process, finance teams can help intrapreneurs develop a budget, perform a risk assessment, and do a return-on-investment (ROI) analysis, said Donny Shimamoto, CPA/CITP, CGMA, founder and managing director of IntrapriseTechKnowlogies LLC in Honolulu, Hawaii, in the US (see the sidebar, “Experimentation Risk”). Finance may need to challenge intrapreneurs and help them brainstorm what might go wrong or to evaluate the likelihood that the initiative will produce the expected return, he said.
As the intrapreneurial team’s plans come into better focus, finance can also provide it with business plan templates to show what the organisation will expect from it. Finance teams can also coach and mentor intrapreneurs who have never created a business case or KPIs before.
Finance can also clearly explain how the organisation will fund the effort, not only in terms of cash but also any internal and external support and other resources it will provide, Goldstein said. “Finance has a real opportunity to make a huge contribution to intrapreneurship,” he said. Instead of taking the role of gatekeepers, who set limits, they can become guideline setters, who help intrapreneurs create a viable road map for their efforts, he said.
To help manage and set realistic expectations, finance can educate management and the intrapreneurial team on how these efforts differ from typical corporate initiatives. For example, intrapreneurial projects typically see their best returns in the medium term or long term, Shimamoto said, while the organisation may be focused instead on getting a short-term return on its investment. The finance team can provide forecasts on the return horizon and identify nonfinancial metrics that can be used to show progress or continued potential for return.
When it comes to funding an intrapreneurial project, Goldstein recommended that organisations follow a stage gate approach, in which the project is divided into funding milestones. The phases should mirror the organisation’s fiscal year, he advised.
Proper milestones and monitoring may be forgotten in some companies. “Too often organisations fund these projects and just let them go on their own without checking on their progress to see if continued investment is warranted or if a project should be cancelled,” Shimamoto said.
Determine what success looks like
From the beginning, businesses should decide how and when a project will be considered successful or when is the time to shut it down. It’s important to remember that “success” may not necessarily be tangible or financial. It may, of course, mean meeting a set ROI; creating a new product, service line, or division; or developing a new prototype. On the other hand, a project may be considered a win if it simply instils an entrepreneurial mindset within the team or throughout the culture. In either case, finance can help companies gain more from a project by quantifying what it was meant to achieve and how well it did.
Even when a project has not been successful, those involved can be celebrated and made into coaches who train others on intrapreneurship, Goldstein suggested. The aim should be to underscore the importance of creative thinking and to leverage the experience the intrapreneurs have gained.
Staying on course
Of the 2,200 companies that have been in the Fortune 500 since its inception in 1955, only 49 have remained on the list every year since then, according to the magazine. Innovation and new revenue streams are critical to ongoing corporate success. The contributions that finance can make are crucial to the success of intrapreneurial efforts as well as the company’s overall health.
According to Ndlovu, finance can help with maintaining solid and consistent records that give the intrapreneurship team a solid foundation for budgeting and planning, as well as identifying and communicating cash flow projections. Finance is also well positioned to help intrapreneurs track financial performance against planned objectives, manage tax considerations, and provide guidance on making smart budgetary adjustments.
“Finance experts pave the road to financial stability,” Ndlovu said. They can help intrapreneurship teams develop a road map, overcome unexpected challenges, and make smart decisions that benefit the business.
While companies focus a great deal of energy on risk management, successful intrapreneurship requires the freedom to experiment — and potentially fail.
“Intrapreneurial projects by their nature are riskier,” said Donny Shimamoto, CPA/CITP, CGMA, founder and managing director of IntrapriseTechKnowlogies LLC in Honolulu, Hawaii, in the US. For intrapreneurship to work, businesses need to realise that it can’t be held to the same standards and expectations as other projects or operations because doing so may hinder its success. Instead, finance teams can counsel businesses on how best to ensure that any failures don’t have an inordinate impact on the overall organisation, he said.
Too much emphasis on minimising risk or conformity can be damaging. As one example of what can go wrong, Shimamoto pointed to a US CPA firm that started a bookkeeping practice as a separate intrapreneurial entity within the larger firm. In a positive step, the bookkeeping practice was given its own separate brand, operating procedures, and technology stack. However, some of the firm’s partners insisted that the bookkeeping business should have the same margins and some of the same operating policies as the larger firm. That became a problem because the bookkeeping business was more forward-thinking, used a digital-first approach, and wanted to take more reasonable risks than the parent firm might have done, he said. Feeling stifled and unable to innovate, the managers of the bookkeeping business finally left the firm and started their own successful practice.
The finance team can help educate intrapreneurs on compliance and risk concerns at the outset. The project will have a better chance of success if intrapreneurs are aware of these issues. “Intrapreneurship is not an excuse for circumventing risk guidelines,” suggested Andrew Goldstein, partner, Deloitte Digital GmbH in Munich.
Businesses should be aware of the risk if they don’t have an intrapreneurship programme, because it can mean losing proactive, creative people. Even worse, because these “dreamers” may prefer working within a large corporate environment, they may jump over to the competition if their current employer doesn’t allow for creativity, Goldstein said.
“Not every idea will be a success, or there may not be an immediate payback on the investment,” said Paul Gardner, ACMA, CGMA, the CEO of Fresh Accounting in Hong Kong. “But in order for companies to continually develop, they have to keep investing in new ideas.”
Anita Dennis is a freelance financial writer based in the US. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.