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Asking the right questions from the top down is fundamental to effective innovation

The accelerating rate of churn within the S&P 500 over the past six years points to the next decade being the most turbulent in modern history, with current trends pointing to half the S&P 500 being replaced.

Businesses that are not reinventing themselves are simply not surviving.

Innovation needs to be on the board agenda.

 
The exponential rate of change in the world has elevated the strategic importance of innovation for every organisation. Some countries have responded aggressively with innovation to the challenges created by this change . Unfortunately Australia is not one of them.

In the past three years, the US has moved from tenth to fourth on the Global Innovation Index. The UK from fifth to second. Australia however has gone backwards, slipping from seventeenth to nineteenth.

Digging deeper into what this actually means raises some serious concerns for Australia. We are tenth in the world in Innovation Inputs (ie idea generators), but ranked number 72 out of 141 countries in Innovation Efficiency (ie converting ideas into business and social benefit). That gap between 10th and 72nd provides objective evidence of the ‘brain drain’ that is seeing Australia’s ideas and talent going offshore.

This has implications for corporate leaders today — and tomorrow. Based on the accelerating rate of churn within the S&P 500 over the past six years, the next ten years is shaping up to be potentially the most turbulent in modern history, with half of the S&P 500 expected to be replaced. Businesses that don’t reinvent themselves are simply not surviving. The decisions around whether to invest in innovation, how much to invest, and what to actually channel the investment into, have become arguably the most important sustainability decisions every organisation is faced with.

But this is just the beginning. Once an innovation strategy is agreed and funded, it must then be executed well – fast and efficiently – if the organisation is to capture the benefits anticipated when the decision to invest was made. The outcomes need to be monitored closely, and used to continuously improve the innovation program to maximise the return on investment, and ensure the innovation program evolves with and supports corporate strategy.

These strategic and operational prerequisites for effective innovation throw up some fundamental governance considerations. For example, if the organisation is not innovating, or not innovating well, is this in the best interests of shareholders? If the return on innovation investment is poor or not even being monitored – would this be acceptable for any other investment the organisation makes? Or if the organisation is merrily carrying on with its business, oblivious to something brewing in its industry – a new business model, process or technology with the potential to decimate your customer base (think: Kodak) – does this represent good governance?

Coming back now to the question “How involved does the board need to be in the organisation’s innovation program?” The answer is probably at least enough to be able to make an objective assessment of whether the organisation is innovating effectively, supported by key performance indicators (KPIs) for improvements in efficiency, growth and sustainability defined in the Innovation Strategy.

But is it realistic that the board be across the strategic and operational aspects of innovation to this degree, without adding significantly to the workload of directors?

The answer is yes, made possible by the evolution of innovation management technology and processes in the US and EU over the past 15 years. These innovation solutions systematise the design, implementation and monitoring of full lifecycle enterprise innovation programs. The board just needs to specify the content and frequency of the innovation board report to govern the Innovation Strategy. To do this, directors need a basic understanding of the enterprise innovation process.

Below are some examples of questions directors might ask in order to be across the strategic and operational aspects of the organisation’s innovation program, and the typical information and data that would be required in the innovation board report to answer them objectively and transparently.

Board Question (BQ): Are we innovating?
Innovation Board Report (IBR): A schedule of the innovation campaigns scheduled or completed, and a summary of the outcomes of them including the number of participants, number of ideas generated; shortlisted ideas; approved projects.

BQ: Are we innovating efficiently and effectively?
IBR: A schedule of the active projects, budget and target completion date. A schedule of completed projects, time and cost project performance data, and financial and non-financial measures of the benefits from the innovations in terms of the KPIs defined in the Innovation Strategy.

BQ: Are we innovating the right things?
IBR: A schedule of the campaigns completed and proposed, and the active and completed projects, sorted into the Strategic Innovation Areas and the innovation horizons (quick wins, short, medium and long term innovations) identified in the Innovation Strategy.

BQ: Are we including the right stakeholders in our innovation program?
IBR: A schedule of completed or proposed innovation campaigns for each stakeholder group in the organization’s innovation ecosystem that was identified for engaging with in the Innovation Strategy.

BQ: What was the decision process for this major innovation project?
IBR: An audit trail for the idea-to-project lifecycle, showing the processes and people involved from the original idea, through evaluation and concept development, to the decision criteria, business case and ultimate decision.

BQ: What return are we getting on our innovation investment?
IBR: A rolling analysis of current value from projects implemented, and future potential value of each idea in the innovation portfolio as it builds through the incubation funnel, divided by the costs of the innovation program, and the investment in project implementation.

BQ: Are we investing enough in innovation?
IBR: Having transparency around innovation ROI (see previous Q&A) provides the board with the data required to debate whether more or less investment in innovation is justified.

BQ: Are we at risk of disruption? What are we doing to mitigate this?
IBR: The Innovation Strategy should define and quantify what ‘disrupted’ means for the organization, and include a Disruption Plan specific to the industry the organization is operating in, with both proactive and reactive measures to address the opportunities and threats. The IBR should report progress and findings at intervals defined by the board.

Innovation starts with asking questions. Asking the right questions from the top down is a powerful catalyst for effective enterprise innovation. Having the systems and processes in place to be able to objectively answer these questions will enable the board to govern the innovation program and support management in innovating effectively.

ABOUT THE AUTHOR
Tim Murray BEng FAICD is the Managing Director of CSP Innovate. He has been leading digital innovation for business and government for the past 26 years. Read more

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