The Modern CFO: The modern CFOs role in investment and innovation decisions

Having held senior finance roles for more than three decades across some of the world's most innovative organisations, from global technology giants to venture-backed growth businesses, Raymond has seen first-hand how the CFO role has evolved. Today, as a Non-Executive Director and portfolio FD, he works closely with businesses of all sizes, helping leadership teams navigate investment, innovation and growth.

We spoke to Raymond about how CFOs are adapting to rapid technological change, managing investment risk, and the vital role of R&D tax relief in supporting innovation.

1. You have held senior finance roles in technology and innovation-led businesses for more than 30 years, from large multinationals to private equity venture-backed growth companies. How has the CFO’s involvement in investment decisions changed during that time?

In large organisations, investment decisions are typically driven less by questions of affordability and more by whether an initiative will work and if it will create ultimate added value. Large businesses have access to extensive data, market research, and sophisticated forecasting tools that help reduce uncertainty and support decision-making. They go through quite a rigid internal process in collaboration with various departments across the organisation to convince and prove stakeholders that this is worth doing. This differs usually greatly for SMEs, where in these businesses cash flow is typically more limited and continuous fundraising is often needed for even basic survival in which leaders are constantly balancing growth opportunities against the reality of their limited resources. For SMEs, R&D tax credits, cancredits can therefore make the difference between a project being funded or not.

In today’s world, I believe the CFO cannot afford to sit on the side lines as perhaps in the past as far as understanding the technology needing to be more fluent  in the “language of innovation” and be able to engage with technical teams as their equals. Finance expertise remains important of course, but today's CFO must look to be skilled far beyond finance and feel more competent when evaluating returns on technology investments.

2.  When a business is considering significant investment in a new technology or product where the eventual return is difficult to forecast reliably, how should the CFO decide whether the investment should proceed and manage the financial risk involved?

One of the biggest mistakes any businesses can make is to assume a certain level of certainty and precision in forecasting for the purposes of deriving an ROI. Investments in innovation are by their very nature are always going to be difficult to predict outcomes.

During my time in tech driven companies, I have also seen first-hand innovations which are developed long before the market was truly ready for them. I have learnt that  exciting innovation in itself does not of course guarantee a clear commercially viable opportunity and for that reason I tend to adopt more and more wherever possible the following approach to help minimise that potential risk

Firstly, we try and break out the investment spend, if possible, into clearly defined milestones with funding being accordingly released according to n a step-by-step approach. At each stage, the business should be able to demonstrate that it has achieved specific pre-determined objectives before moving forward on and committing any further funding. This infers that investment spend should be minimised as much as possible in each and every stage to mitigate against the possibility of overspending at any point in time.

Secondly, implement a formal risk management process from the very outset of the project. I have always encouraged businesses to maintain a highly detailed risk register that identifies everything and anything that could possibly go wrong. The CFO should act as the real conscience of the organisation, establishing risk mitigation measures at all times and ensuring that thorough  research and validation testing has been fully considered at each and every stage.

As we all also know businesses consistently underestimate costs and overestimate revenues, so it is the role of the CFO to always challenge the underlying assumptions. In the world of AI, it is even more important than ever to capture the expected costs of the entire project knowing the increasing expenses of cloud infrastructure, data centres and hiring of highly specialised talent.

3. Looking ahead, how do you expect the CFO’s role to evolve as technology, AI and innovation become increasingly important to business strategy, and what skills, knowledge and relationships will CFOs need to influence those decisions effectively?

Technology is fundamentally and rapidly reshaping the way businesses today operate and manage their expenses. For decades, labour was often the largest item on the P&L but iIncreasingly, we are seeing technology and IT spend becoming by far one of the most significant costs which is only likely to continue as AI adoption accelerates. There will be an increasing trade off between labour efficiencies and growing IT related spend.

Organisations will need the capital to invest, and SMEs in particular may find it increasingly difficult to compete for access to the best tools and platforms. CFOs will also need to have an understanding of these tools for their own finance team deployment to maximise internal efficiency gains. The pace of change means CFOs need to keep up with the latest technologies more than ever in the past and be able to adapt quickly to gain new efficiencies as well as identify inherent risks in the company’s overall strategies. CFOs will need to help weigh up the need to gain competitive advantage and the likely increasing cost of IT investment – a delicate balance!

4. Our recent survey found that 62.2% of R&D-active SMEs had reduced their investment in R&D following changes to R&D Tax Relief. In your experience, to what extent can the availability and reliability of tax relief affect whether a project proceeds, as well as how it is funded?

Across almost every organisation I have worked with, from start-ups to multinational corporations, the positive impacts of claiming R&D tax credits from the Government were plain to see.  SMEs in particular often rely on these incentives as an essential source of funding as a result need to hire a professional firm with the necessary expertise to manage the process from identifying the core innovation to writing up a critical technical report for validation by HMRC .In my view that process should start as soon as possible even within the year of claim as it is important to identify early the key elements of innovation to determine whether it fully meets the strict qualification criteria.

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