Page 75 - Harvard Business Review (November-December, 2017)

FEATURE THE BOARD’S NEW INNOVATION IMPERATIVE

The challenge OF LEADING INNOVATION IS BRINGING

ABOUT A SEA CHANGE IN CORPORATE GOVERNANCE. BOARDS, ONCE THE DEPENDABLY

CAUTIOUS VOICES URGING MANAGEMENT TO MITIGATE RISK, ARE INCREASINGLY CALLING

FOR BREAKTHROUGH INNOVATION IN THE SCRAMBLE FOR COMPETITIVE ADVANTAGE. WE
SEE THIS SHIFT PLAYING OUT ACROSS INDUSTRIES—NOTABLY AT SUCH COMPANIES AS

FORD, COCA-COLA, NESTLÉ, AND UNILEVER, WHICH ARE ALL STRUGGLING TO ADDRESS

SLOWING SALES IN THEIR CORE BUSINESSES.

Embracing innovation and its inherent risks re- WHY BOARDS STRUGGLE WITH INNOVATION
quires that boards and senior management develop Boards increasingly believe that to fulfill their ob-
new ways of working together. As Mark Ganz, the ligation to ensure the long-term well-being of their
CEO of Cambia Health Solutions—a company at the companies, they have to support management in
forefront of innovation in the health care space—told developing a compelling innovation strategy. And
us, board meetings no longer consist of PowerPoint that means learning to embrace risk while continu-
presentations by management followed by a few per- ing to mitigate and manage it as much as possible. In
functory questions from the board. “The model has this inverted risk paradigm, boards are discovering
changed,” he explained. “We now bring the board that avoiding risk is the riskiest proposition of all.
IN BRIEF ideas that are not fully baked and say, ‘Help us with Paula Price, a director at Accenture, Dollar General,
this.’” It took some time for the board to realize that and Western Digital Corporation, told us that boards
THE SITUATION
As firms scramble for management was asking not for the answer but for should aim to develop the organization’s “capacity to
competitive advantage, engagement, he said, but “once they got used to it, it pivot” into uncharted territory with new products,
boards—once the cautious dramatically improved the board–management part- services, business models, or ways of organizing or
voices tempering nership and the value board members bring to the getting work done. Standing still or waiting to see how
management’s—are now work of the company.” things turn out are not considered serious options in
calling for breakthrough
innovation. The desire to create new and different ways of today’s often tumultuous environment. A member of
working is not always accompanied by the ability to one automobile company’s board confessed that they
THE CHALLENGE do so, however. Adopting new roles and norms feels had discouraged management from making the leap
Directors face four uncomfortable—even unnatural—to most people. To to electric cars for years; now he feared that the com-
concerns in governing help address this knowing-doing gap, we spoke with pany was playing catch-up.
innovation: an outdated directors and CEOs from a range of industries about CEOs and top management appropriately have
risk agenda, insufficient
time, lack of expertise, their boards’ capacity to support innovation and risk more power than board members over corporate af-
and a relationship with management. The results were sobering, though the fairs and major decisions. But without the full support
management that needs tide seems to be turning. A few of the directors in our of the board, management is unlikely to take the big
retuning. study were clearly laggards, even going so far as to bets required to innovate. What frustrations do board
argue that innovation was irrelevant in their very ma- members report when asked about fulfilling their
THE SOLUTION ture industries. A handful were trailblazers, like Mark growing obligation to govern innovation? We found
To bolster out-of-the-box
thinking, boards should Ganz. The majority were just beginning to work their four main concerns:
promote diversity among way through the challenges of governing innovation, An outdated innovation and risk agenda. Most
members. They should some more deliberately and successfully than others. board members report that the lion’s share of their
foster “creative abrasion” Through our research, we identified the common attention around innovation goes toward improv-
to keep ideas flowing and obstacles most boards face and gleaned insight into ing the organization’s capacity to execute its current
rethink traditional methods how boards can reshape their roles to effectively fos- strategy—that is, innovation to sustain the core:
of governing. And they
must learn to embrace and ter and support the kind of innovation that leads to developing product line extensions, reducing cost
encourage risk. substantial growth. structures to maintain healthy operating margins,

104 HARVARD BUSINESS REVIEW NOVEMBER–DECEMBER 2017