Historically, boards have sought to mitigate risk – we have all sorts of risk templates and board reporting identifying what steps management is taking to mitigate risk. But perhaps the biggest risk in today’s environment is attempting to avoid risk.
In a 2017 survey conducted by Linda Hill and George Davis for HBR the most common obstacles most boards face in governing innovation are: an outdated risk agenda, insufficient time, lack of expertise, and a relationship with management that needs retuning.
Unsurprisingly, embracing innovation requires boards and management to devise ways of working together. My colleague, Graeme Nahkies, has a very useful metaphor – we’re actually both on the same side of the net trying to overcome the opposition. We’re not playing singles in which the board is trying to beat management or vice versa. We need to be able to say, ‘here’s an idea that’s not fully baked, let’s work together to see if we can get it across the line’.
To create the environment that facilitates such an approach requires that the organisation is adaptable to new products, services, business models and ways of organising or getting work done. This environment also necessitates a strategic direction that’s at the forefront of every board agenda. It still surprises me at the number of organisations that, if they do think about the future, think that they only have to do once a year. It’s an every board meeting necessity.
The Hill/Davis research showed clearly innovation requires passionate discussion, debate, even conflict – often among individuals with diverse perspectives. Management may find that when their board digs into the details of an innovation proposal, their tough questioning can be perceived as hostile aiming at management’s performance. Governing innovation requires boards to reconsider their composition and the way they interact.
Coming out of the research, here’s a bunch of thorny questions that need to be asked:
- Are we devoting enough time to innovation in our board meetings?
- What is our risk appetite? Is it aligned with that of management? What message do our leadership and culture send to the rest of the organisation about risk and innovation?
- Have we agreed on metrics to evaluate innovation efforts?
- What is our response when an innovation initiative fails? Are we encouraging or discouraging management to experiment?
- Does our board have the diversity of talent, perspective, and style to make tough choices on innovation? Are we hearing from everybody?
- What are we doing to ensure that we are of the cutting edge in our industry and in adjacent ones? Is it time to create some advisory committees to support the board?
- Are our board meetings about innovation truly a dialogue, or more of a presentation?
- Would senior leaders describe their relationship with us as a partnership? Would management describe us as supportive of its efforts to innovate?
- Are we sending a clear message to management about the need to be bold, not only to protect the core business but also to reimagine the business and move us to a new future?
“Next practice’ governance includes exposing the board to ‘master classes’ run by subject matter experts, it includes creative abrasion – a series of sparks generated through rigorous discourse and debate, it invites management to share not only recommendations but also other alternatives that were considered and rejected, and it also requires, at the completion of the conversation, that neither side feels beat up.
Breakthrough innovation, creative abrasion, next practice governance – is your board ready?