The CFO’s dilemma: Fiscal responsibility vs. the cost of innovation

Balancing the demands of fiscal responsibility with the creative mind—which embraces innovation—isn’t easy, especially when there are associated high costs. To successfully walk the tightrope, companies need to have departmental cooperation and managers who can live in both worlds, often spotting issues before they get to the CFO level.

In larger companies, the product review process acts as a good filter. Projects are assessed before they get too far underway and are reviewed regularly to ensure they’re on track. For smaller businesses, though, that’s not always possible.

To see how the problem is approached on both ends of the spectrum, and in different industries, Fortune spoke with the CFOs of a multimillion-dollar video game publisher and a successful regional brewery to get a better idea of how the two, often conflicting, demands are handled.

Managing mad scientists

WeldWerks Brewing Co. technically doesn’t have a CFO. Eric Hashberger instead holds the title of director of finance. Two years ago, the brewer adjusted titles to C-suite equivalents, but quickly learned it just didn’t fit with company culture, making executives feel disconnected from the rest of the staff. So they switched back to familiar titles within a year.

Regardless of what it says on his business card, Hashberger is the person responsible for keeping an eye on the profit and loss lines at a company that made its name by constantly experimenting. While most brewers tend to focus most of their efforts on a few flagship beers, WeldWerks decided a long while ago to be known for its innovation, brewing 100 or more new beers every year. And not just small, experimental batches, either—but full-on production-level brews.

That mad scientist mindset grew as the company did, with WeldWerks introducing more than 200 beers in one year. That number has since receded to between 85 and 90 new beers created last year.

“What seemed to work for us was that brewing style was our identity,” Hashberger says. “It became what customers expected of us. And they were more willing and more forgiving when something didn’t work out. It didn’t turn someone off from trying next thing…Knowing that, we found ways to take risks, but with a lower [financial] risk, since we knew our customers and fans would go on the journey with us.”

Working with the director of brewing and the supply chain manager, Hashberger is able to keep an eye on expenses versus revenue potential. In fact, he says, it’s often one of those two who flag a beer or beer line as not worth the expense before he does.

For example, a beer line called Froot Camp was launched as interest in smoothie-like beers (with lactose and high levels of fruit) were in vogue. Last year, though, both directors came to Hashberger to let him know it might be time to pull the plug, as fruit prices were skyrocketing and interest in the style was ebbing. Since Froot Camp required between 1,200 and 1,800 pounds of fruit per batch, it was an easy call.

“They were recognizing this before I stepped in,” he says. “Luckily, I’m working with folks who pay attention to the costs before it comes to my area. I’ve found in my time here, I haven’t had to stop something from happening. It’s the other parts of the leadership team that are able to identify when the cost is too high.”

Getting ahold of Grand Theft Auto

That’s true for Lainie Goldstein, CFO at Take-Two Interactive Software, as well. The company has many studios, from Rockstar Games (maker of the Grand Theft Auto franchise) to Private Division (which oversees a variety of internally developed and third-party titles), and most of the creative workers are within those departments. Each of the labels has a business and publishing team that works with Goldstein to keep an eye on costs.

It’s not unusual for a game in production to be scuttled at Take-Two or any video game publisher. But, like WeldWerks, typically that happens long before the matter gets as high as Goldstein’s desk.

“If a game gets cut, it usually comes from the label, because they have P&L responsibility also,” she says. “It’s important for us to invest in research and development, but also be efficient at the same time. It’s certainly a challenge, but it’s important for us to do that so the games can perform.”

Studio heads might alert the publisher that the game doesn’t make sense anymore in the company’s overall strategy or is running so far behind that it no longer makes sense. Alternatively, they could propose a new direction for narrative or gameplay or offer a new revenue model, such as micro-transactions instead of a traditional retail one.

Before it gets to that point, though, Take-Two puts ideas through its product investment review process (similar to the green-lighting process at other firms). All products are reviewed on a quarterly basis, looking at where they are in the development process—whether they’re hitting milestones, how they stand in regard to their budget and staffing, how the games will stand out commercially, and what makes them special.

“It can make the corporate types nervous, from time to time,” she admits.

Ultimately, though, that trepidation fades as the freedom given to the creatives translates into games that go on to sell millions of copies.

“I view it as a partnership,” says Goldstein. “They lean on us in terms of supporting them in lots of ways, including promotion and marketing. And we’re able to give them the information they need to do the job they need to do.”

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