Innovation in and of the Board Room

By: Innovation Management

Innovation and more of it has become the mantra of top management. The ability to innovate and thereby sustainably create value for the business is becoming the defining competitive advantage for companies which want to thrive in a globalized economy. So obviously, driving innovation is a key job for top management, the CEO and the C-Suite. But what about the Board? What role should it play in the innovation game – if any?

The traditional role of the Board – according to Wikipedia – is to

• Govern the organization by establishing broad policies and objectives;
• Select, appoint, support and review the performance of the CEO and the executive committee;
• Ensure the availability of adequate financial resources;
• Approve annual budgets;
• Account to the owners and other key stakeholders for the organization’s performance;
• Set the salaries and compensation of company top management.

Innovation? Not a priority for the Board – this is a job for the C-suite

But I think that the Board can and should play a pivotal role in innovation. Innovation has many facets and involves all parts of the company in one way or another. So it is in the realm of the Board. Typically, innovation has several faces: a strategic one (where to innovate and versus what business objective), an organizational one (how to structure the organization and how to resource innovation activities), an operational one (how to run the innovation processes), and a cultural one (does the company culture encourage innovation).

In order to optimally manage all these often competing vectors the Board and the C-Suite need to work in tandem. Their different strengths profiles and priorities provide the broad managerial competence needed to master the complex innovation challenge. In particular the outside perspective non-executive, external directors bring to the Board together with its longer term time horizon complement in an ideal way the shorter term, internal operations focus of the C-Suite.

A Board working in synergy with the C-Suite on innovation creates the organizational ambidexterity needed for innovation to prosper.

This competence is often called organizational ambidexterity – a company’s ability to run successfully today’s business while developing tomorrow’s opportunities. A Board working in such a synergy with the C-Suite on innovation thus creates the organizational ambidexterity of a company many innovation experts have identified as a key factor for successful innovation in many industries (cf. “Balancing Innovation Via Organizational Ambidexterity” by Frank Mattes and Ralph-Christian Ohr).

It helps the company to create a high value innovation portfolio balancing short-term low risk/low return projects with longer term, high risk/high return initatives. The C-Suite is good at and will identify the typical projects risks in the usual areas like finance, operations, and regulatory constraints. The Board having a broader perspective on the wider context in which the company does business will simultaneously spot emerging big opportunities like new trends and break-through technologies and business models as well as approaching threats from the fringes of the business.

There are four areas amongst the Board’s governance duties which have a strong impact on innovation:

• Strategy review
• Performance review
• Risk management
• CEO and top management nomination.

For all four the Board can and should assess the innovation vector with particular emphasis on the broader context of the opportunity, the way risks are assessed and managed, and the strategic fit with the company’s overall business objectives.

But the most relevant area as far as innovation competence and capability of the company is concerned is the appointment of the CEO and other critical top executives. Generally speaking there are two broad classes of top executives: fixers and growers. A “fixer CEO” naturally focuses on what needs to be done to preserve and incrementally grow the current business. You can tell a “fixer” from his language. He loves to use terms like continuous improvement, relentless cost cutting, zero defect quality, downsizing and reengineering… The “grower CEO”, in contrast, wants to move beyond the current business. His language is dominated by terms like endless opportunities, creating new markets, breakthrough business models, seismic industry changes, disruptive innovation… The successful grower advances the business dramatically; the successful fixer keeps it afloat in difficult times. More on this concept in the book, Bigger Isn’t Always Better: The New Mind-set for Real Business Growth, by Robert M.Tomasko, published in January 2006.

Each executive class has its merits and can create value for his organization. But here is a big watch-out for the Board to look into: By his nature a fixer will not innovative beyond incremental moves and a grower will not watch like a hawk over the company’s state of health and fix diseases before they become fatal. So the Board needs to ensure that the right class of executives is in charge at the appropriate moment of the company’s innovation journey.

The business environment in which the company operates can change very quickly, faster and more dramatically than ever in the past. And this may mean changing the CEO if the Board wants to drive innovation to the next level or just keep it humming in the new business environment, irrespective of how successful the current CEO has been managing the company in the past. This is the moment of truth for the Board to seize and take the lead on innovation.

Acknowledgement: I was inspired to write this blog by and used some of the concepts published in the article “Governing Innovation in Practice – The Role of the Board of Directors” by Jean-Philippe Deschamps, first published in July 2012.

By Joachim von Heimburg

Photo : Thinking different creativity by Shutterstock.com