Does innovation belong in the scope of a board of directors?
Boards of directors are usually associated with governance issues such as risk management and financial controls. They of course have a major role in strategic direction, either in establishing it, approving, or hiring the right executives who will establish the strategic vision.
But does that extend all the way into such amorphous topics such as innovation?
I suggest it does, as innovation becomes a more crucial capability for continuous regeneration of a company’s strength. Wharton School professor and author of Boards That Lead Michael Useem agrees.
Useem, in his article How Board Can Innovate, states:
All that is true, or least should be so, but companies are also forever having to reinvent themselves — IBM, Nucor, and Wipro bear only the faintest resemblance to their founding forms — and boards ought to be at the forefront of those transformations, not rearguard or resistant. New products are, of course, the province of R&D teams or research partners. But new strategies and structures are squarely in the board’s domain, and we have seen any number of governing boards innovating with, not just monitoring, management.
His suggestion as to how they should engage is through an innovation committee. It certain companies where product innovation is the centerpiece of innovation, I believe this model can be effective. It service innovation is just as core a part of the need to innovate, then perhaps it belongs more to the strategy committee. Useem expands on the innovation committee idea with an example from Diebold:
Diebold’s innovation committee members are on call for everything from brainstorming to networking. When Diebold executives began looking for new technologies it might buy, Crandall and his two colleagues — rooted in tech start-up and venture capital communities — helped the CEO and his staff connect with those who would know or own the emergent technologies that could allow Diebold to strengthen its current lines and buy into the right adjacent lines.
When innovation is specific enough, and big enough, to be presented and reviewed and encouraged, then this can help enable innovation. But it should not be its source. Its source should come from building a culture of innovation.
I wrote about making innovation a core company-wide capability through lean for my IndustryWeek column, in Making Innovation a Capability. So then leads to the question, should boards have a role in building a culture of innovation?
I still believe the answer is yes.
Boards cannot establish the culture, as they engagement points with the rest of the organization are not plentiful enough to initiate such a change. But they can help support the behaviors that lead to innovation. They can do this through the questions that they ask, the focus they provide, the recognition they offer.
Boards can have a greater impact on culture than they often realize. But only if acting deliberately towards a specific culture. And if a board of directors wants to have an impact on innovation, they should focus more on the culture of innovation than any discrete innovation actions.
Interesting question. What about a related question, and its implications?
“Does disruption belong in the scope of the board of directors?”
Causing it, preparing for it, not being an obstacle to it, etc.
If yes, what sort of people are then required on the BOD?
Thanks Jon. Yes, disruption is a key part of strategy and belongs on the board. As far as what kind of members belong on the board to support this, I think there are two ways to answer this.
First, good strategic thinkers. They will always be thinking about disruption, and will bring that into the conversation.
Second, when a source of disruption is specific, seek out the info. For example, KMart should have had an early but ex-member of Amazon’s management on its board. An oil company gets an alternative energy expert. A cable company gets an online media expert. And so on.