Innovations in Controlling

It's every controller's duty

Controllers are generally not considered to be innovative. On the contrary, they are often seen to be "innovation killers" rather than innovators, and they have little experience of innovation controlling. Yet it is indeed their duty to support innovation although they don't really know how closely they should follow it up. The effect that innovation can have on controlling is certainly not clear-cut. Our recommendation is that you carry out systematic innovation management for your controlling. We show you how to go about this.

Innovations are often seen as a silver bullet – something to keep companies competitive in the long run. In fact, some companies live by this motto. Take Bayer AG (“Science for a better life”), for instance. The negative connotations of Schumpeter's "creative destruction" process have long since given way to firm conviction: If you don’t innovate, you lose. Yet, innovations are not limited to the area of research and development. On the contrary, they are regarded as a general maxim to be followed by all departments of a company in much the same way as market orientation and sustainability.

Is your company’s controlling innovative? The answer to this question will largely depend on who you ask. A “normal” manager is hardly in a position to make an informed judgment. Yet if he is pushed for an answer, it is more than likely that he will respond with a cliché, “Controllers are the ones that prevent innovations rather than promote them." How many times have ingenious strategic ideas failed to get beyond a controller and his logic of numbers? Aren’t controllers always skeptical about straying from the tried and true? Aren’t controllers by nature averse to taking risks, whereas innovation unfortunately always comes with high risk attached?

Few managers will be aware of the innovations that controllers have introduced. At best, they might notice well known new controlling tools, such as a balanced scorecard or value-based management. But beyond such radical changes, very little permeates out of the controlling department.

And how would you answer the question for the controlling in your company? Would your answer be any different? Let’s take a look at the new controlling tools that we just mentioned: value-based management appeared on the scene in the 1990s and the balanced scorecard a little later, whereas activity-based costing and target costing are even older. You could become even more skeptical when you consider that these “new” instruments enjoyed only limited success. Indeed, in most companies they didn’t measure up to the high expectations placed on them.

Is the controller’s reputation as an “innovation killer” justified? Or, have the tools mentioned above simply caused us to lose sight of much smaller “incremental” innovations, for instance, in the area of business intelligence tools, new planning processes, or new roles for controllers? What actually are innovations in controlling? What do they involve? Is there a difference between innovations and simply improving processes? In order to answer the question of whether or not controlling is innovative, we have to start by defining what we understand by innovations in controlling.

The term “innovation” has frequently been defined in the literature. Although there are minor discrepancies, the popular view identifies two basic characteristics: (1) A good idea alone is not enough. It is only considered to be an innovation when the idea becomes a widespread practice. (2) An idea may not be new in general, but it should be new in a particular context. So, innovations and inventions are completely different kettles of fish.

There is a wide range of possibilities for what could constitute a new idea that is widely used in practice. Let’s start by taking another look at the balanced scorecard and target costing which are two controlling tools that are considered to be rather specialized controlling (service) products. These tools require explanation, which means that managers are given some sort of user instructions, and they also deliver a tangible benefit to management – or at least have always promised to do so. It is relatively easy for managers to recognize product innovations such as these which are the ones that shape their perception of innovation activity in controlling.

There are many innovations, as we mentioned earlier, that are less obvious or even completely invisible to managers, namely those that relate to processes in controlling. If a company introduces a new forecasting method, establishes a "reporting factory", standardizes and automates routine processes, or outsources its processes to a shared service center, then the client "management" is only marginally affected; the main changes occur in the area of controlling itself. However, the distinction is not always clear-cut. The innovation BSC, for instance, not only has the characteristics of a product, it also leads to new or changed processes in controlling. Conversely, a new forecasting method can bring about such major changes that the management also notices and consequently could, or even should, be informed about them.

There are overlaps with two other types of innovation which – according to Tidd and Bessant – should be considered. Both authors define position innovations as changes in the context in which products or services are introduced and marketed (c.f. 2009, p. 21). A good example of this is the new campus approach to the planning process of Deutsche Telekom AG. Contrary to the norm, controllers take on fewer content-related tasks (such as suggesting concrete targets) and instead provide top management with a “mere” platform for discussion where they set targets together. So, controllers have adopted a more organizational and supportive role which is a true innovation if you consider that – according to the findings of the WHU Controller Panel – the brunt of planning activities performed today are carried out by controllers rather than managers.

The fourth and final type of innovation identified by Tidd and Bessant is the paradigm innovation which encompasses changes in the underlying mental models that frame what the organization does (c.f. 2009, p. 21). A current example of this in controlling can be found in the so-called “bandwidth or corridor planning“. This approach to planning goes far beyond the more conventional methods previously used and includes best and worst case scenarios as well as the expected value. Put simply, bandwidth planning marks the transition between planning with individual values and distribution planning. The first steps in this direction have already been taken. However, the real significance of this won’t be obvious until we see an underlying change in the way people think.

Fig. 1: The 4Ps of innovation

Is your company’s controlling innovative? At this point it should be clear that the lack of new “blockbuster” innovations – as the balanced scorecard was in its time – in no way has to mean that controlling opposes innovation. On closer inspection we can see that there are a number of more incremental innovations in controlling practice, but these seldom come under the heading of “innovation”. So, ultimately it’s down to you to answer our question. You could do this, for instance, by organizing a workshop with your controllers in order to gain a common understanding of what innovations in controlling are, and to take stock of the situation regarding innovations in your company’s controlling.

Given this divided view of the situation, there are a number of different ways to proceed. These range from setting specific targets for innovations by agreeing concrete innovation projects and assigning regular time blocks (“every second Friday afternoon“) through to making the subject of innovation a fixed part of your controllers’ incentive scheme. Or, you can choose a cross-departmental approach and seek to collaborate with the R&D department which will you give a better idea of how innovation processes – along the lines of the so-called "Stage Gate Model" – are defined by treading the fine line between enough organization and the necessary flexibility. 

In the end you will be in a better position to decide whether or not your controlling requires some sort of internal marketing. Indeed, it may be the only way for you to dispel the old clichéd image of controllers and to cast them in the role of innovator in the minds of managers. This is – as we know from the WHU Controller Panel – what controllers are increasingly longing for…

Professor Utz Schäffer & Professor Jürgen Weber

  • Tidd, J., Bessant, J. (2009). Managing Innovation: Integrating Technological, Market and Organizational Change (4th ed.). Chichester: Wiley.