Page 80 - Harvard Business Review (November-December, 2017)

Our research indicates that management teams are experience or market-share metrics, which might be
increasingly willing to make themselves vulnerable, better indicators of whether an innovation will bear
embracing the board’s probing questions about their fruit and improve the company’s competitive po-
big-bet ideas and even discussing efforts that didn’t sition in the long run. Rather than rely on outcome
pan out. The more courageous CEOs we spoke with metrics, some boards are beginning to depend more
said they now seek more input from their board rather on process measures when evaluating innovation
than less. One said he encourages dialogue with the initiatives. For example, one board member said that
board by asking management to share not only recom- he frequently asked his team what the company was
mendations but also the other alternatives that were learning about its customers as it experimented. In
considered and rejected. Without this transparency, some cases, boards also track vitality indices—the
he explained, board members get frustrated and feel percentage of total revenue that comes from new
as though they are being “sold stuff” by management. products and services—to measure the organization’s
Getting to a place where management teams feel innovation capacity as a whole.
they can bring forward a portfolio of ideas, some of We know from a deep body of research that many—
which are more developed than others, requires a real even most—innovation efforts fail. So boards must
partnership mindset with boards—a shift in the con- learn to recognize when an initiative should be aban-
ventional relationship between the two bodies. As for- doned. A number of board members said they wanted
mer CEO of Mastercard Bob Selander told us, “Some their companies to figure out how to “fail fast and
people like to think that one big idea will lead to mas- learn fast” so that they can get on with other endeav-
sive change, yet great boards recognize that it takes ors. Some directors said they now make sure to state
ongoing discussions about lots of ideas—the good and aloud in board meetings that some innovation efforts
the bad—to produce breakthrough results.” For one should be expected to fail. Although none of the board
CEO, this meant coaching his executives to expect and members we interviewed reported having discussions
be open to hard questions and criticism, acknowledg- about the difference between “praiseworthy” and
ing that it’s not easy for his team to expose themselves “blameworthy” failures, as Harvard Business School
(and their proposals) to negative reactions from indi- professor Amy Edmondson calls them, they recognize
viduals who often have less expertise about the mat- that you can’t plan your way to an innovation, you
ters at hand. “We had to be very explicit about saying, have to act your way there, and that there are bound
‘We are not asking for your approval; we are still try- to be missteps along the way. Indeed, board members
ing to figure this out,’” another CEO told us. Another say they are wary of CEOs who “play it safe,” as one
said that trust was essential in building a collaborative described. A sizable number of the search committee
mindset. “There’s a sense now that when we get done chairs we spoke with said they are skeptical of exec-
with a conversation, neither side feels beat up. Instead utive candidates who have never experienced fail-
we feel like we got to a better decision.” ure and look for potential CEO successors to show, as
Encouraging risk and living with failure. Boards another director said, “stretch efforts that included
know their companies must pursue not only incre- missteps and learning from them.”
mental improvements but also breakthrough innova-
tion. To foster both kinds of activity, they have to cre- GOVERNING INNOVATION IS not for the faint of heart.
ate a culture that is receptive to risk and the inevitable The journey takes time and determination. It takes
failure that comes with innovative problem solving. the courage to act in the long-term interests of the
However, boards are not—and should not be—inter- organization even when markets are more short-
ested in innovating for innovation’s sake. To avoid sighted. It takes the determination to fight the natural
innovation activity that doesn’t “move the needle,” human aversion to risk and the fortitude to engage in
CEOs and board members we spoke with focused on creative abrasion.
taking risks on efforts that were most likely to create Balancing power between the board and manage-
shareholder value in the long term. ment has never been easy, but our study suggests that
Determining whether an innovation at scale will as more boards are embracing new norms, a new con-
be worth the investment is a very difficult proposi- tract between boards and management is emerging,
tion. One board member told us, “Discounted cash making it possible, at last, for directors and CEOs to
flow analyses won’t help us make a discussion about work together to support and facilitate innovation.
a breakthrough idea.” This is especially the case in HBR Reprint R1706G
large companies where, as one CEO observed, it is
always difficult to make a significant impact on top- LINDA A. HILL is the Wallace Brett Donham Professor of
line growth. Business Administration at Harvard Business School and
Most board members in our study admit that they a coauthor of Collective Genius (Harvard Business Review
Press, 2014). GEORGE DAVIS was formerly the Global CEO & Board
struggle with how to weigh shorter-term financial Practice Leader at Egon Zehnder and is currently the executive
outcomes against other measures—such as customer- vice president of MacAndrews & Forbes.

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