How the board fosters innovation

A meeting of Victoria-based LinkedIn members recently discussed the role of the board in innovation. Juliet Chandler reports.

Innovation has been a topic of much discussion in our Member Group on LinkedIn, with one central theme being the need for greater awareness among directors of what constitutes good practice.

In response to member feedback and to delve into the issues, we invited seven Victorian members to join us for a facilitated discussion. With an agenda based on the LinkedIn conversations, we explored ideas around the meaning of innovation, governance frameworks, strategy and culture. A summary of the discussion follows:

Context

To open the discussion, we presented a definition of innovation from Innovation and Business Skills Australia (IBSA). IBSA defines innovation as “the conscious exploitation of ideas leading to a new or modified product, process or service which adds economic and/or social value”.

Alan Coller GAICD agreed with the definition, but noted that innovation was also very contextual within firms and different markets. He suggested the director’s role started around the external view. It should provide foresight on what was driving the marketplace and build a link from what was happening today.

“Directors define whether they are going to go after big, disruptive components of innovation or oversee management’s incremental components of improving performance – and the fundamentals – [to ensure] the business is still there next year,” said Coller.

Danny Davis MAICD supported the view that every organisation had its own path, with there being a range of roles that boards could take as appropriate to their circumstances.

The role of the board

According to Davis, boards needed to have the visibility to be able to control their organisation’s investments in their own future.

“Innovation is all about investing in the future,” he said. But Davis warned that boards were currently blind to scale, balance and status of their innovation investment portfolios, as there was no single instrument that provided the required visibility. “There needs to be a mechanism for boards to govern the current state of their portfolio of investments.”

Victor Perton GAICD suggested the role of individual board members was to ask questions such as: “Have you thought of a new way of doing this?”

“That’s the role of an individual director; it’s why boards pick provocateurs,” he said.

Doug Gould MAICD agreed. “Some boards are interventionists and some are very dry governance-review bodies. As an engineer, I want to engage with, challenge and stretch the CEO and executive team.”

When dealing with innovation as a non-executive director, Robert Weller FAICD suggested several areas where directors needed to ask questions, including about patents and the percentage of income spent on R&D. They also needed to be able to detect when someone presenting an idea was lying by omission and to demonstrate leadership, he said.

Strategic approach

Gould, who completed a thesis on “systems of innovation” in 2000, said innovation was not an end in itself, but a tool available depending on strategy. “The only reason we want innovation is to get better business results.”

Company Directors’ Paul Geyer GAICD said directors could consider innovation in terms of where long-term growth and profitability was going to come from. “The question I would pose is: What does innovation look like on a three-horizon model?”

Dr Megan Fisher MAICD agreed that using the three-horizon growth model was useful because boards could help balance the short- and long-term and incremental and radical approaches to innovation.

“Boards need to ensure there are frameworks in place to help their organisations manage the complexity and ambiguity between the short and long term,” she said.

To demonstrate his views on achieving results, Gould shared stories of competing in aerobatics, being appointed a chairman and undertaking an acquisition. Returning to the issue of intervention, Gould said directors needed to ask what they could do to foster innovation without “messing” or conflicting with the executive. One example he gave was the budget process. “If you tighten the budget so there is no ability to experiment, then there’s not going to be an experiment,” he said.   

Frameworks and culture

Is it about creating an environment to get the right outcomes or do directors need to develop a formal structure to govern innovation?

Vivien Gardiner MAICD said there could be too much emphasis on process in big companies and that limited innovation. “It just stops it dead ... A director’s role is to foster that culture of collaboration.”   

Davis agreed directors needed to create an environment where ideas could thrive and be supported, but suggested there was a great deal of frustration from staff seeing their ideas being ignored, and opportunities wasted. “It reflects on the need for a link between capturing innovative ideas and the decision-making processes.”

Weller warned that people became frustrated if they were never listened to. “And then, what happens is anger, which leads to cultural issues, bad-mouthing and depression,” he said. 

Fisher said having a framework to recognise current activities as well as how future business would be built required considered thinking. The ability to think about both ends of the spectrum encouraged new metrics and supported portfolio-based decision-making. “Thinking about culture underpins and supports all of that.”

Skills for innovation  

Perton, who attended the 2012 Global Innovation Summit, quoted The Rainforest: The Secret to Building the Next Silicon Valley on so-called “keystone” influencers to emphasise his concerns regarding board composition. Certain individuals and organisations “have the special ability to integrate disparate people, influencing them to act in ways that affect the entire system”.

Perton noted that the word “keystone” might not work in Australia, but believed it was one of the most important concepts from the summit. “It’s that connecting person,” he said. It was the people who could share ideas with others and connect the right people in the right organisations. 

Weller argued that Australians shouldn’t be focused on Silicon Valley, but agreed there was an issue of monoculture. “How many people have got science backgrounds and know how to challenge somebody?” He added: “With respect, if you have a board loaded with accountants, lawyers and commercial people, you’re going to have a problem.” 

Engaging with government

We also asked the group whether government policies were hampering innovation, as posed within the LinkedIn group. Perton said a better question was whether directors were engaged with government innovation organisations, such as the CSIRO.  

Dr Fisher agreed. “It’s really important for Australia to strengthen those connections, because innovation is all about exploring uncertainty,” she said.

“Scientists are great at resolving technical uncertainty, but we need to strengthen the dialogue so we can better understand the market.”

Drawing from his experience in discussing strategy with boards, Geyer stressed the importance of engagement as a mechanism for generating ideas and the need for directors to expand their ideas on growth prospects.

Continuing to Talk 

It was clear the group could have spent a whole day talking about the issues raised, as there were many other threads to the conversation, including: the need to educate directors on good governance practices; government grants and tax policies; risk aversion; transparency; the innovation ecosystem and industry clusters.

We hope our participants and fellow members will continue the conversation on LinkedIn.