Boards and Organizational Innovation

By Les Wallace, PhD

Many modern day businesses declare innovation as a goal. Yet, few if any, measure and track innovation in their organizations. Most boards not only don’t track innovation, they frequently misunderstand what it means in today’s business environment. Some less informed boards tend to fear innovation means taking risks that could harm the organization and its constituents. Is it time for your board to enhance their understanding of innovation and how a board might drive innovation in their credit union?

The business literature typically refers to innovation as a “big leap” in products or approaches to the marketplace—a leap significantly different than what preceded it. Innovation is different than simple creativity in that creativity may look at solutions from a novel angle yet only achieve small iterative improvements on a process or idea. Innovation instead tends to provide leaps in significantly different approaches and improvements that create measurable value for the business and its customers.

Disruptive, Radical and Routine Innovation

Apple, Amazon, and Google are all known for large-scale innovation, frequently referred to as “disruptive” innovation because it disrupts the prevailing business models. Tesla is currently disrupting the automobile and industrial battery marketplace. FinTech (the application of technology to financial services) is disrupting the financial services industry.

Another form of innovation is referred to as “radical” innovation. Most radical innovation is going on in the pharmaceutical / healthcare marketplace. Personalized medicine (molecular biology based genetic treatments), ingestible cameras and sensors, telemedicine and single organ hospitals are all radical to the traditional health care clinical and institutional marketplace.

Other than the Tesla disruptive innovation, most of the major auto manufacturers are dealing in “routine” innovation by trying to speed up the use of driver technology interface in their cars, using lighter automotive materials and building longer lasting engines and parts. It’s most likely in the “routine” innovation category that most organizations will find their innovation mojo. Many boards are not in the financial position to pilot test lots of big idea changes unless they have specifically established a “research and development budget.” However, every board can instill a culture of innovation that avows routine innovation and sometimes achieves disruptive innovation.

Enter Your Board

A board of directors has responsibility for defining the values and characteristics of the organizational culture they expect their enterprise to demonstrate. Ethics and leadership development are common values as are good community citizenship and member centric focus. A board and CEO who desire the organization to be more innovative must assure that this gets stated among the desired characteristics of the organizational culture—the way the organization goes about it’s business. Setting this in motion involves developing an “innovation strategy”—a coherent set of principles and processes the board expects the CEO to execute within the organization.

As part of their business model boards and CEOs must set goals to become more literate on how businesses and especially ones in their domain innovate. There are many corporate conferences and publications from which to learn (Fast Company, TED, Finovate).

There is no reason an executive team or board should be ignorant of how innovation can help their organization’s performance and how it can be executed. Once everyone is more literate as to how innovation may benefit the enterprise and how other organizations go about innovation, boards can translate that knowledge to setting target areas for innovation that can be tracked by the board. This entire process should be a CEO, Board partnership in learning and setting goals.

Tracking Innovation

So how does a board know if “innovation” is actually occurring in their organization? First, innovation does not flow from a spigot with predictable pace like a faucet—that is unless you’re built on an innovative platform like Amazon, Apple, Google, and others. Innovation occurs throughout the year or years in observable and measurable events that can be reported to a board. Observable in that the board can see how an innovative approach is different from the previous approach or fills a vacuum where no approach existed. Measurable in that CEOs and management teams can report out innovative achievement on a regular basis that makes sense relative to the strategic goals.

Innovation efforts frequently result in pilot tests that don’t pan out. Innovation can also create big changes that require budgetary and investment decisions. A board must be sensitive to both. I recently met with a CEO who has from 5-10 innovation projects going on at any given moment. They also frequently kill projects for lack of promise. All of this is reported to the board in an “innovation dashboard.”

How many innovation pilot tests occurred in your organization over the last three years? Any in the last year? How many innovation efforts were implemented? Innovations don’t generate like rabbits, however, once a culture does begin innovating it is predictable that it won’t simply be one here and there over a five-year period.

Because most innovative efforts are targeted to areas of the organizational business model where constituents and the financial health of the organization will benefit, pre- and post innovation metrics can track impact. For enhancement of a business model a board can track cost savings, increased revenue, customer adoption, and new customer acquisition. For process innovation a board can track measures of increased process speed, quality improvement, cost reduction, and customer and employee satisfaction?

Take an Innovative Step

A board should expect their CEO to discuss innovation and how it applies to their organization and it’s mission. It may take a year or two of study for a board to determine what they wish their innovation strategy to be and for the executive team to fully learn how to target and execute innovative efforts. Larger organizations can afford more aggressive innovation strategies. Whatever your size, the message is, innovation can be scaled for any organization if you study and learn about what it can mean to you.

Interested boards might also wish to look at “The Eight Essentials of Innovation,” McKinsey and Company April 2015.

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