Innovation Governance – How Well Does it Work?

By: Jean-Philippe Deschamps

This series of articles has explored the definition and scope of innovation governance as well as the different organizational models that companies typically choose to allocate responsibility for innovation. This last article will discuss questions linked to the perceived general effectiveness or inadequacy of innovation governance endeavors, and it will characterize the managers’ level of satisfaction or dissatisfaction with the various organizational models that their companies have adopted.

The first article in this series defined innovation governance broadly by clarifying its scope, i.e. identifying the range of issues and questions that an innovation governance system should address. These questions deal with the nature and content of the company’s innovation efforts, i.e. why, where and how much to innovate? They also cover the processes that contribute to making innovation effective and sustainable, i.e. how and with whom to innovate? And who should be responsible for what?

The second article listed a number of organizational models that companies typically choose to allocate responsibility for innovation, thus exercising their innovation governance mission. We listed ten ways for top management to assign overall responsibility for innovation in the company, i.e. (1) to the top management team itself or a subset of it; (2) to the CEO or divisional president; (3) to a high-level, cross-functional steering group or board; (4) to the CTO or CRO; (5) and (6) to a dedicated innovation manager or chief innovation officer; (7) to a group of champions; (8) to no one; (9) and (10) to a duo or complementary two-person team consisting of either the CTO/CRO and a BU manager, or of a CXO and BU manager team.

This last article will discuss questions linked to the perceived general effectiveness or inadequacy of innovation governance endeavors, and it will characterize the managers’ level of satisfaction or dissatisfaction with the various organizational models that their companies have adopted. The data in this article comes from an online survey answered by 113 US and European companies, half of them large multinationals in a variety of industries.

Does innovation governance work satisfactorily?

Not surprisingly given the broad variety of companies that responded to our survey, the general level of satisfaction with innovation governance varies greatly.

• 13% of respondents declared that they were very satisfied with their company’s innovation governance system. They generally felt that all aspects of innovation – both hard and soft – have been taken care of and the results are positive.
• 44% expressed their relative satisfaction with the way their company steers innovation at the top, although they recognized that some aspects of innovation still remain unaddressed or unclear.
• 38% stated that they are rather dissatisfied with their innovation governance system. They recognized a need for better coordination in the way functions work together and for a clearer allocation of responsibilities.
• 5% confessed that they are very dissatisfied with the way their company handles innovation. They saw a need to start with a clean sheet of paper and establish an overall innovation governance system that really works.

These numbers show clearly that, for a significant proportion of companies across all types of industries, the innovation governance system that has been put in place by management is not yet working satisfactorily. This correlates with the often heard comments that management devotes little time to assessing and improving the company’s innovation governance effectiveness.

Are certain models more effective than others?

Given the fact that many managers are rather (or very) dissatisfied with the way their company exercises its innovation governance mission, it is interesting to ask whether their frustration is linked to the governance model they have chosen. In other words, do some organizational models work better than others? The answer to this question conveys a mixed signal. On the one hand, yes indeed, the degree of satisfaction of respondents in our survey varies quite substantially according to the organizational model they have chosen, as Figure 1 shows. This chart shows that some models seem to work better than others. The two models that receive the highest satisfaction marks are those in which the overall responsibility for innovation is entrusted either to a high-level, cross-functional steering group or board, or to the chief technology or research officer (CTO or CRO). On the other hand, none of the models scores a perfect 100% of satisfaction. Even the more popular models maintain a significant proportion of users who are relatively or very dissatisfied. And, hardly surprisingly, companies that have not appointed anyone to oversee innovation are unanimously dissatisfied with their (lack of) innovation governance.

These mixed results, even for the most popular models, require some comments and raise a number of questions.

Why aren’t the most “empowered” models always the most effective?

As indicated in the second article of this series on innovation governance, the most frequently found models for the allocation of overall responsibility for innovation are either to the top management team (or a subset of it) or to the CEO – or, in diversified and decentralized corporations, to a division president acting as CEO of a business unit. There is obviously no more powerful way to indicate the importance of steering innovation in a company than to mobilize the top level of the hierarchy. For this reason, one would expect it to be the most effective governance model.

It does indeed work well in a number of companies that have chosen the top management team as a model, for example at Corning, Nestlé Waters and Lego Systems, among others. In these companies, which have achieved a high level of satisfaction with their innovation governance results, the involvement of top management is most probably intense and this mobilizes the rest of the organization. In the same way, most of the innovative companies of the new economy that were founded and are led by charismatic CEOs are likely to feel well guided in their innovation activities.

However, as the numbers in Figure 1 indicate, the level of satisfaction with either one of these models is seen as problematic for a significant proportion of companies that have adopted them. There are probably as many reasons for this as there are companies.

To be effective, innovation needs leaders with a high degree of consistency in their priorities, messages and actions, which external pressures can easily endanger.

Experience shows, however, that the allocation of innovation governance responsibilities to the top team requires a willingness to break down silos and for its members to work as a cohesive team across functional and business turfs, which may not be easy to achieve. It also demands a combination of individual and collective commitments, particularly when the company is facing turbulent conditions. To be effective, innovation needs leaders with a high degree of consistency in their priorities, messages and actions, which external pressures can easily endanger. When managers rely on their top management team to promote innovation, they often rapidly notice the slightest change in priorities or level of attention at the top, whether these are triggered by external or internal crises, and they naturally adapt their own priorities to these changes.

CEOs who see themselves as the ultimate innovation czar of their company are, by definition, highly motivated and they can be expected to maintain their commitment even in periods of crisis. But CEOs come and go, and when this happens, will the new CEO be as motivated about innovation as his/her predecessor? And even if new CEOs accept that mission as a matter of fact among many other duties, many of them are bound to find themselves too thinly stretched to fully exercise their governance mission, despite their original good intentions. This is why it is so important, when the CEO takes on overall responsibility for innovation governance, to appoint a dedicated manager, group of managers or organizational mechanism in a direct supporting function. The combination of responsibilities that seems to work best, according to our survey, next to the CEO in full charge, includes either a subset of the top management team or a group of identified innovation champions straddling the organization.

When does relying on the CTO or CRO make sense?

Many technology-, science- and engineering-based companies have naturally entrusted the overall management of their innovation efforts to the head of their technical function, whatever his/her title.

As shown in Figure 1, the results of this model come on top of all other models, reflecting the fact that it concentrates a lot of power in the hands of a single, fully dedicated leader, and one who is most likely to have the knowledge and resources to decide on and supervise all projects – at least the technical ones. This, of course, puts a lot of pressure on the CTO or CRO, which explains why the model does not work satisfactorily in all companies. Success is highly dependent on the credibility and leadership talents of the specific high-level individual.

The applicability of this model is optimal in technology-intensive industries where innovation and markets are driven by technology, and where technology choices and deployment issues are complex and critical.

The main condition for the success of this model is linked to the breadth of capabilities of the CTO or CRO. In all cases, they must have a strong business orientation because ultimately all innovation efforts turn into business creation challenges. This is why they are often supported by competent staff departments capable of exploring the market potential of new technologies and linking technology and product roadmaps. This also means that they must develop a strong sensitivity to innovation commercialization and adoption issues to avoid the risk of sterile “technology-push” initiatives. And this of course implies that they maintain excellent relationships with their colleagues in business management.

The main limitation of this model is its primary and sometimes exclusive focus on technology deployment issues. CTOs and CROs usually have limited involvement in upstream and downstream marketing activities. In addition, their focus tends to be mainly on content, which means that their interest and involvement in non-technical processes and on softer organizational culture improvements is often limited.

What makes high-level cross-functional steering groups or boards effective?

Of all the innovation governance models in use, another one comes out among the best in terms of its perceived effectiveness, i.e. the creation of an official innovation steering group or board – some companies refer to them as an innovation board, innovation process board or even innovation governance board. Whatever their name, these mechanisms include members representing some of the company’s innovation-relevant functions and businesses.

In describing this model in the second article of this innovation governance series, I emphasized that it is different from the top management team or a subset inasmuch as it enlists managers from lower levels of the organization, even though the chairperson of the steering group or board is often a member of the top management team. I call it a “high-level” steering group or board more for its high-level mission and visibility than to reflect the hierarchical position of its members.

Whereas the subset of the top management team may be comprised of no more than 3 or 4 members, this cross-functional steering group or board may number 6 to 12 members, depending on the company. They will generally be selected not only on the basis of their functional or business expertise but also because of their intrinsic motivation for innovation and their personal drive. The composition of this mechanism and the motivation of its members provide a first possible explanation of why this model is perceived as more effective than most other models.

The main advantages of this approach, compared with other innovation governance models are threefold:

1. 1. It allows a comprehensive representation of the relevant parts of the company in the decision body for innovation. This diversity of technical, functional and business expertise, and hence of perspectives, is likely to enrich the conversations and lead to more effective decisions. In addition, the size of the board (in terms of number of board members) makes it easier to allocate specific responsibilities to individuals, for example for the supervision of processes or the coaching of project teams.
   2. It offers a high degree of flexibility, allowing management to modify the board’s composition to reflect changes in environmental conditions or company strategy, or simply to instil new spirit by taking out less productive members and bringing in innovation enthusiasts. Experience shows that some companies have also used this mechanism to test the leadership qualities of younger, high-potential managers.
   3. It is possible, because of the board’s size and composition, to entrust it with a broad range of missions and not just the selection, launch and supervision of projects. Even when this board focuses only on “process” (rather than “content”), its mandate can cover two major tasks, i.e.

Stimulate/supervise innovation process development efforts, for example:

• Appoint, support and review the work of process owners and coaches;
• Allocate and monitor the use of innovation process development budgets;
• Set up and monitor innovation benchmarks and performance indicators;
• Set up and supervise an “innovation online” platform.

Take action to sustain innovation performance, for example:

• Identify/build innovation-critical competencies;
• Identify and develop high-potential innovation leaders;
• Promote an innovation mindset and assess/improve the climate;
• Build a communication platform to mobilize the organization.

However, this model has also some limits that need to be fully appreciated before choosing it! The most important ones, in my experience, are:

• It may lack clarity regarding the scope of its mandate and provide for an inadequate representation of critical parts of the company. The main question that needs to be clarified is about its focus. Is the innovation steering group or board empowered to discuss and advise (or even decide) on content issues – specific innovation projects and ventures – or is it only allowed to deal with innovation process issues? The staffing of this mechanism is clearly dependent on the answers to this question. Ambiguity in this case is dangerous as it will quickly disqualify the steering group or board in the eyes of non-members, generally from line management.
• It may suffer from a lack of sustained empowerment and resources, particularly when the company is exposed to severe market, financial or operational pressures. This lack of empowerment may reflect its membership – are members of the steering group or board sufficiently credible in the eyes of the top management team? But it may also indicate a weak long-term commitment to this type of innovation governance. In my experience, this may happen in companies where the top management team sets this kind of mechanism to relieve itself of its own responsibilities and rapidly ceases supporting it.

Why is having an innovation manager or CIO less appreciated?

The appointment of a dedicated manager to carry the innovation flag across the company, or one of its divisions, is sometimes chosen as a solution because of its apparent advantages, i.e. by concentrating accountability for innovation in the hands of a single, dedicated individual, it avoids overloading other senior managers with additional responsibilities.

… it is an impossible job given the magnitude of their responsibilities, their low empowerment level and their lack of resources.

Our experience shows that the effectiveness of this model is highly dependent on the intrinsic qualities and drive of the manager in question and of his/her reporting level. A lack of recognition of these two factors may explain why this model scores so poorly in the ratings in Figure 1. The difficulty of the job, if it is carried out by a middle manager reporting two to three levels below the CEO, is apparent when you interview those who inherited it. For some of them – and I had several in my innovation management classes – it is an impossible job given the magnitude of their responsibilities, their low empowerment level and their lack of resources.

The situation is completely different when top management chooses one of its members to assume this dedicated responsibility and appoints a chief innovation officer (CIO), as DSM, the Dutch life- and materials science company, did earlier in this decade. Figure 2 highlights the differences between a middle-level innovation manager and a high-level CIO of the type found at DSM with a broad range of responsibilities notably in new business development.

Although it is not specifically mentioned in our survey, the chances are that the more satisfactory models in this category belong to the most empowered ones, i.e. that the high-level CIO model is more likely to ensure effective innovation governance than the lower-level innovation manager model.

In both cases, success is dependent on at least three conditions:

1. 1. 1. The company must have developed a strong process management culture to ensure that everyone understands that innovation is a cross-disciplinary and cross-functional process that needs to be managed as such.
      2. The leaders in question must have built strong personal credibility and social skills to be able to influence a wide range of managers who will not fall under their direct hierarchical responsibility.
      3. They need to be strongly supported by the CEO and the top management team, in words and deeds, particularly in case of turf conflicts with operational or functional managers.

Is it realistic to rely on a network of champions to govern innovation?

A number of companies noted that they rely on a network of champions as their primary innovation governance model. This probably implies that these companies define innovation governance rather narrowly, with the main focus on process issues. Identifying, empowering and mobilizing a network of champions can be an effective way to stimulate innovation, for sure. But it will not be a proper way to address more strategic content issues, which always call for the direct involvement of line management.

Not surprisingly, this model is perceived as unsatisfactory by a majority of companies. For many of them, this may be due to the limitations in scope inherent in this model. Given champions’ middle-management position, there are only a limited number of things they can do on their own to stimulate and steer innovation. This model is indeed more effective when it is supporting another model rather than being the primary model of allocation of innovation responsibilities. In our sample, networks of champions are used as a supporting model in three instances, i.e. when the primary responsibility has been entrusted either to the CEO or the top management team; or to a high-level cross-functional steering group or board; and/or to a dedicated innovation manager.

But irrespective of their scope limitations, networks of champions are complex organizational mechanisms. They are not easily created and keeping them productive over time remains a challenge: First, because their effectiveness is highly dependent on the quality of the motivation and drive of the individual champions being selected; and second, because, as with all networks, they will slowly see their energy level fade away unless they are strongly supported and reinforced by management. They will need direct access to their high-level sponsor, adequate support in terms of resources and training, and the guarantee that some of their most important recommendations will be implemented.

In summary, why are many of these governance models deemed unsatisfactory?

A number of criticisms can be levelled at all these innovation governance models, at least in the way they have been implemented. I have personally observed the following problems:

Problem #1. Whatever the model chosen, management has not defined the scope of its innovation governance activities broadly enough. Some companies focus mainly on content (basically projects), others on process – they rarely focus on both! Similarly, most companies have developed a strong bias for developing product or process innovations. Rare are those which look equally seriously at other forms of innovations (i.e. business model, service and/or marketing innovations).

Problem #2. In some companies – managers complain – innovation strategies are rather fuzzily defined or at least are poorly communicated, implying that these strategies and communicating about them are not included in the list of primary innovation governance topics.

Problem #3. Almost universally, some domains remain poorly covered despite the fact that they are critical for sustaining innovation. Questions associated with the development of values and a culture that are conducive to innovation – which often requires a change management program – are often left aside. The same is true for programs linked to the development of management and leadership competences. The problem is not so much that management considers these issues secondary, but the fact that these “soft” aspects are difficult to address in a meaningful way.

Problem #4. Finally, and this also happens quite frequently, responsibilities and empowerment levels often remain unclear or keep changing due to:

• A lack of management consistency and commitment over time;
• Short-term pressures diluting management’s attention and long-term efforts;
• A misalignment between rewards and incentives and innovation objectives.

Many companies would do well to consider this rapid overview of governance models and their mediocre current level of effectiveness as a wake-up call. With any luck it will spur management teams on to react and finally put innovation governance at the top of their agenda.

By Professor Jean-Philippe Deschamps