How boards can foster an innovation-driven culture

Directors have traditionally focused on financial oversight, risk management and strategic planning. Now they must have an innovation mindset and knowledge to support it.

Innovation is moving at such warp speed, it has become the defining factor in an increasingly competitive global business landscape. It drives advantage, growth and resilience. It underpins a company’s pursuit of its sustainability goals. It is a central governance priority.

“Artificial intelligence (AI) is growing in the wild,” says Katherine Boiciuc GAICD, EY Regional chief technology and innovation officer (CTO) for Oceania. “With the pace of tech advancement, particularly in areas like cyber and AI, we’re seeing boards really struggling with the mismatch between the pace of business innovation and the pace of tech innovation. Boards are finding it a challenge to keep up.”

Lindsey Hershman GAICD, managing director of consultancy AI Access, says the fast-moving landscape has brought a focus on renewal at board level. An historic predominance of corporate services skills such as legal and financial must now be complemented by an ability to integrate technology, strategy and people.

“We’re seeing a greater renewal in terms of appetite to think about how to disrupt what are often successful, long-standing organisations before a startup actually disrupts them,” says Hershman.

“We tell execs and boards that you want to be working at the speed of a startup, but with the scale of the enterprise. That becomes a compelling notion for boards. Often they have the capital and systems and structures to deal with strategy and risk. It’s about helping them to move faster.”

Risk and readiness

Boiciuc notes that a high appetite for tech is yet to be reflected in readiness on the ground. A recent EY survey of more than 500 senior government executives (See breakout box) found that while 64 per cent of respondents acknowledge that AI adoption could lead to significant cost savings, only 26 per cent have integrated AI across their organisation.

“Risk is interesting, because innovation without trust is just noise,” says Boiciuc. “It comes down to leadership in the AI era actually being about getting comfortable with ambiguity, while still making progress that’s meaningful and creating value for the organisation. Innovation at the heart of governance isn’t about having all the answers. It’s about asking better questions, especially when tech is moving faster than the governance cadence.”

In the age of AI, says Boiciuc, every C-suite executive has a responsibility for technology, from the chief people officer to the head of marketing. Getting executives up to speed — and keeping them there — will naturally help usher in the next generation of digitally capable directors.

Imagine the possibilities

The rise of AI startups in Australia is a signal for Boiciuc that can’t be ignored. The National Artificial Intelligence Centre recorded 544 AI start-ups in 2023. Abi the robot — created by Dromeda to engage with and enrich the lives of aged care residents — is a Boiciuc favourite, showing what can be achieved when innovation is at the heart of boardroom operations.

“We need to stay open to the art of the possible,” she says. “The most surprising thing about what GenAI disruption has done over the past three years is to force us to think of the art of the possible again. It’s forced us to reimagine how we do things, and that can only be an exciting thing for Australia.”

Tips for an innovative boardroom

1. Think big

In his AI Access consulting work guiding boards to empower their organisations while linking and integrating strategy, technology and people, Lindsey Hershman GAICD cautions directors not to be distracted by the latest technology. Start with strategy and objectives but make those objectives big. “We talk to organisations about setting the ambition to be as large as possible, so there’s a materiality consequence for getting this right.”

2. Pass the feasibility test

He has an overarching consideration. “There’s no point having great ideas that can’t be done.” Before committing, he would expect to see a high-level tech assessment of any proposal taking in terms of complexity, risk, architecture, data and security.

3. Start small

Boards are constantly contemplating risk appetite, never more than in the constantly changing landscape of technology. “How do you navigate that risk component?” asks Hershman. “Identify how you can demonstrate a pilot of the vision. If you’re thinking about your risk appetite, you won’t end up crippling the organisation in terms of finance, operations and people.”

4. Set your guardrails

As with any proposed change, strategy and risk appetite are foundational. “We want boards to identify whether this has a material value proposition to the organisation and if it is safe,” he says. “It’s ensuring you have the right road map, ensuring you have a competition for capital and that the governance guardrails are set at the front end so the board can trust and verify that operational readiness evidence is in place.”

5. Scale fast

Hershman advises partnering early with experts who are focused on execution and value — not treating innovation like standard enterprise resource planning that might be implemented over multiple years. “You want to be dealing with these opportunities on a quarterly basis, and to essentially be running a startup within an organisation. You need to show within a quarter that you’re still on track for the value prize. And if not, just like a venture capital, you kill that product and move to the next most viable opportunity.”