Can Boards Positively Impact Innovation?
08/10/2019 11:41 AM
CAN BOARDS POSITIVELY IMPACT INNOVATION?
Recently, the Australian Institute of Company Directors (AICD) and University of Sydney Business School collaborated to undertake a study into the approach of Australian boards to innovation. In summary, it identified that directors are struggling to prioritise innovation and adapt to a rapidly changing and uncertain environment.
Directors have indicated a strong appetite for innovation, often having it included in the organisation’s strategic planning, as they consider it creates real value for an organisation.
Yet for all the interest and possibly commitment from the directors – 75%, evidenced by its integration into the organisation’s strategic planning, there is a significant gap, with over 50% of the boards lacking any real follow through.
What Is Innovation?
So, what is innovation?
Innovation is a spread of things including new ideas, devices, products, processes, or methods; as well as a continuing adapting to changes which leads to achieving better products and/or services. In other words, innovation is more about how an organisation goes about identifying, connecting, communicating, and adopting of doing things differently on an ongoing basis.
Innovation and/or Creation?
Sometimes when dealing with innovation, it can be confused with creation.
Creation means “the action or process of bringing something into existence”.
While innovation means “the action or process of innovating”; and innovating means “make changes in something established, especially by introducing new methods, ideas, or products.”
McKinsey simply and succinctly defines “innovation as creativity plus delivery”.
Innovation is critical to growth; and growth is critical to organisations successfully operating in a dynamic marketplace. Yet even though most leaders know just how important innovation is; there is a real failure by leaders in getting innovation to effectively work within their organisations.
The irony is that this is not new. Unfortunately, over the last decade or longer, organisations have struggled to be truly innovative. They have consistently failed, and it seems always in the area of execution.
The Innovation gap
In a McKinsey Global Survey, Innovation and commercialization, 2010: McKinsey Global Survey results (August 2010 Survey), “… 84 percent of executives say innovation is extremely or very important to their companies’ growth strategy. The results also show that the approach companies use to generate good ideas and turn them into products and services has changed little since before the crisis, and not because executives thought what they were doing worked perfectly. Further, many of the challenges—finding the right talent, encouraging collaboration and risk taking, organizing the innovation process from beginning to end—are remarkably consistent. Indeed, surveys over the past few years suggest that the core barriers to successful innovation haven’t changed, and companies have made little progress in surmounting them.”
Yet despite that only 6 percent are satisfied with the outcome of their organisation’s innovation performance.
Importantly innovation includes continuous improvement as this ranges from simple changes in the day-to-day workings of your organisation to significant changes which can impact products, processes, or methods.
What continuous improvement does is it challenges the comfort zone of the organisation and its staff. “The limits of the possible can only be defined by going beyond them into the impossible.” – Arthur C. Clarke. Or better still maybe – “Whether you believe you can or not, you’re right.” – Henry Ford.
Why continuous improvement is important
First and foremost, organisations cannot maintain competitiveness by continuing with a status quo approach in their operations. All organisations need an effective continuous improvement strategy and the reasons are simple:
1. The organisation, as a whole, is better equipped if clear as to what is meant by innovation and what is “open” to applying innovative solutions too. in other words, is everyone open to introducing new methods, ideas, or products into their own work areas?
2. Having a well-known recognition among staff that everyone ought to embrace continuous improvement teaches people that it is “how we do things around here”. In other words, it is not optional or an add-on nice to have. It is an important part of what gets done day-to-day.
3. Being whole of organisation means it is truly everyone’s job to be a part of the continuous improvement evolution/revolution.
4. Being everyone’s responsibility means everyone is equally accountable for the continuous improvement experienced within the organisation.
5. It is important to ensure that continuous improvement is expressed consistently across the organisation in common and shared language. It needs to become second-nature for all staff to include it as part of their role and responsibilities; and become sufficiently formalised but not to the point of being stifled.
What is the board’s role?
Firstly, the board needs to ensure that the organisation has the correct innovation strategy; and then secondly, it nurtures the momentum to sustain the innovation life as part of what gets done operationally.
As part of how this might best be achieved, it is suggested that the board will receive regular reports on what has occurred, maybe every quarter, from innovation actions.
Earlier the AICD report was mentioned. This report specifically examined the role of boards in driving organisational innovation; and the AICD’s Managing Director and CEO Angus Armour and the Chair of the Technology and Governance Kee Wong said – “It also presents a challenge for the AICD – how can we help directors put innovation onto boardroom agendas across the nation…Our continued prosperity depends on it”.
The AICD Report disclosed some key findings. Worrying, however, was that the report found “that directors are struggling to prioritise innovation and adapt to a rapidly changing environment”.
The summary of the key findings are noted below:
1. 75% of respondents indicated their organisation had an innovation vision/innovation featured in their strategic plan.
2. Only 39% of boards have innovation as an ongoing agenda item; while 57% of respondents said that innovation has never been or was only an occasional board item.
3. 57% of respondents said they did not know how much their organisation spends on research and development and innovation.
A disturbing aspect includes the finding that Australian boards lag their international counterparts.
So why might this be so?
Some core barriers to innovation were identified as follows:
1) shortage of human talent – 31%
2) limited financial resources – 28%
3) a focus on short term financial performance – 19%
4) boardrooms have low innovation and digital literacy levels – 35% of respondents said their boards had the right mix of skills and experience to assess both the ethical and practical implications of modern technology and 3% of respondents had science/technology expertise.
Five (5) key recommendations for boards to consider
AICD suggest 5 practical steps:
1. Directors become more digital and technological savvy, even to having innovation become part of directors’ program of continuing education.
2. The board communicating a “clear permission to learn from failure” – maybe revisit the organisation’s risk appetite.
3. Develop a shared language and a clear narrative around expectations with all stakeholders.
4. Regularly address innovation as part of the board’s agenda. Innovation needs to be monitored for implementation and reports of obstacles to implementation.
5. The board to assign time and a budget for innovation, which may include elements of performance and remuneration frameworks.
Innovation is …
1. Board approved and openly monitored on implementation and achievements
2. Leadership engaged and implemented
3. More than digital only
4. Engaging with all staff and confirming that each has a responsibility for innovation as part of their role
5. A journey that is effectively operationalised for the longer-term having a customer-centric focus
To be successful the organisation needs to ensure that the following elements are operating:
1. The focus of all innovation is customer-centric
2. The whole of organisation works cohesively as one, and there are no areas which continue independently or in a silo and
3. There exists a clear and easily implemented risk appetite.
As the AICD CEO and Managing Director, Angus Armour, said, “this study comes at an important time with Australia experiencing low productivity growth. … We need to strike the right balance between regulatory and compliance obligations, and growth and innovation as core goals essential to our national prosperity,”.
The clear message to all boards is that boards can positively impact innovation; but they need to do a lot more in monitoring and engaging with it for it to make a real and lasting difference.
DISCLAIMER: This article is general ONLY in nature and is not advice
For more information contact Damien Smith on firstname.lastname@example.org or 0418 325 781.