Most boards face the same litany of challenges when it comes to making a strategic business difference – not enough strategic discussion, too much risk aversion that subverts new ideas, board cultures that are “too nice” and prohibit frank conversation, a lack of transparency in decision making, and an absence of skills and experience with strategy and innovation on the board itself.
Yet according to the National Association of Corporate Directors’ 2017-18 Public Company Governance Survey, industry disruption and business model innovation are two of the top trends corporate directors anticipate will impact their companies in the next year. Innovation is also now a top 5 business priority of CEOs globally, and “creating an innovation culture” is the top priority when it comes to innovation itself.
So how are boards supposed to get ahead of the innovation game if many already struggle to oversee the core business?
Here’s how to nurture a boardroom environment that supports innovation:
- Define Innovation
Create a definition of innovation that aligns everyone around what the organization aspires to achieve. How will you transform your industry, add a step-change in value to customers, and make a truly meaningful difference? While it is management’s role to create this definition, the board can help ensure it’s operationalized.
“The biggest roadblock to innovation is lack of risk-taking.”
For example, the financial services software company, Intuit, defines its goal for innovation as “changing customers’ financial lives so profoundly they can’t imagine going back to the old way.” Everyone, from the board to employees knows this is how they’re driving future business growth.
- Embrace Smart Risk-Taking
The biggest roadblock to innovation is lack of risk-taking. To get business growth, the board needs to be prepared to approve strategic investments and accept failures without casting blame, while still holding the CEO accountable for long-term performance goals.
The board is a pivotal player when it comes to giving the CEO both the permission and mandate to pursue new opportunities that introduce risk-taking into the culture. A few directors of one consumer products company, for example, were concerned that the CEO was rushing investment decisions past them. Rather than bring conclusions to the board for its review, the CEO was encouraged to bring strategic options for discussion. If done in a supportive manner, this can reinforce a culture of strategic thinking and transparency on the board and with management, while increasing the potential for identifying innovative solutions.
- Recruit Innovation Skill Sets
Innovation in today’s turbulent world requires everyone to be comfortable with ambiguity, tolerate different viewpoints, and demonstrate self-awareness. Boards are no exception.
The board of an integrated healthcare system recently changed its recruitment and nominations process to ensure future board members possessed specific innovation competencies. The Governance Committee identified the overall mind sets and skills needed for the board overall, as well as the personal attributes desired of each director. Distinguishing technical skills from soft skills enabled the board to recruit candidates who match the company’s culture and focus on innovation.
- Assess Innovation Performance
Board assessments can be a rich source of information and often reveal valuable insights around new opportunities. One way to determine if a board is successful in helping drive the organization’s innovation goals is by including questions about growth strategies and innovation culture in the assessment itself.
One major US retailer, for example, conducts assessments of its directors that includes a set of metrics specifically focused on strategic thinking. When the retailer looked at the results, this dimension was the lowest rated, which propelled the board chair to reinforce the importance of innovation. Gathering data on the board’s skillset clarifies what is expected of board members and emphasizes the importance of promoting a culture of innovation for the broader organization.
- Use Sub-Committees to Cross-Fertilize Innovation
The board’s sub-committees are an often-overlooked layer of the organization that can drive tangible innovation. Aligning committee structure and goals with strategic and organizational goals is critical.
A board committee structure at a nonprofit performing arts center, for example, had proliferated to include different committees for each business function, which reinforced the organizational silos that were hindering innovation. The board made a bold move to cluster marketing, program, and community engagement into one strategic innovation committee, resulting in a substantial increase in higher quality ideas and faster execution.
Without intentionally integrating innovation into the organization’s DNA, companies stagnate and risk disruption. When the board plays a leadership role focused on strategic growth, it can set a tone, create momentum, and shape culture. While boards have responsibility for protecting the organization from undue risk, failing to support a culture of innovation may ultimately be the biggest risk of all.