At NACD’s Master Class this August, directors from companies like Boingo Wireless Inc., Colgate-Palmolive Co., Kimberly-Clark Corp., GameStop Corp., and the Royal Bank of Canada convened in Laguna Beach, California, for peer-to-peer discussions on strategy, risk, and leading through disruption. One common thread ran throughout the discussions: companies expend enormous resources and efforts to mitigate cyber, geopolitical, and other threats, but they have yet to allocate the same attention to technology disruption. Kelvin Westbrook— president and CEO of KRW Advisors LLC, and a director of Archer Daniels Midland Co., Stifel Financial Corp., and T-Mobile US Inc.—framed the issue this way for Master Class participants: “Companies can survive cyber data breaches, but many don’t survive innovative technology disruption. It’s a bigger deal that we need to address.”
A prosthetic hand created using low-cost 3-D printing technology was demonstrated at the 2015 Global Board Leaders’ Summit. Photo by Denny Henry.
This year’s Global Board Leaders’ Summit puts technology and disruption front and center, with a variety of leading-edge speakers and sessions that focus on these themes. But more than just convening discussions, the director community get hands-on experience with emerging trends via Innovation Nation. This popular feature, launched at last year’s Summit, is back once again, featuring an even more robust cross-section of the trends, technologies, and innovations that are disrupting your businesses and shaping your world. This year’s exhibits include opportunities to immerse yourself in virtual reality, experience the sharing economy at work, and see the latest in drone technology up close. Here is a sampling of who will be on hand:
Dancing With the Start-Ups, a new feature modeled after the popular show Shark Tank, builds on popular sessions from past Summits that gave directors a chance to “Meet the Disruptors.” This fast-paced competition will feature 12 companies across three key industries—healthcare, financial services, and energy— to showcase the latest and greatest in emerging business. Both the competition and a booth showcasing the startup talent in Innovation Nation will offer Summit attendees the chance to meet the entrepreneurs who are hoping to be your next competitors in the marketplace. For those who can’t make the Sunday session, or who just want to get to know the companies a little better, swing by Innovation Nation to learn more about innovative new ways to diagnose malaria, the latest in solar energy technology, the intersection of market data with sustainability, and much more.
Dave Meadows is a self-described “lifelong ‘tinkerer’ and inventor”—inclinations that served him well in his former role as a senior research and development executive with Novartis International AG. Several years ago, Meadows set out to solve a problem that has plagued wine drinkers for nearly 9,000-years—adverse physical reactions, especially when drinking reds. Five years later, The Wand™ was born. This invention removes 95 percent of the histamines and sulfite preservatives from wine. The result—a whole legion of wine enthusiasts who had previously learned to avoid wine can once again partake without the fear of headaches and other adverse reactions. You can experience the power of The Wand™ firsthand and talk to Meadows about and his work in the areas of medical diagnostics, sports medicine, and consumer packaged goods.
Big data and analytics are driving the growth of nearly every business, from heavy hitters like General Electric and Alibaba to early stage start-ups and family farms. This new trend is poised to transform industries, power new business models, enable innovation, and create greater value. According to research from International Data Corporation, worldwide revenues for big data and analytics will grow to $187 billion by 2019—a 50 percent increase from revenues in 2014. But Powerlytics Inc. cofounder Kevin Sheetz cautions that, when it comes to data, big doesn’t mean better, and behind the hype are a number of critical questions boards should be asking to ensure their companies are taking full and smart advantage of this trend. Sheetz will be at the Summit to give directors real-time interaction with the company’s platform, which aggregates publicly available consumer and business financial data from sources like IRS tax returns, the U.S. Census Bureau, and the U.S. Department of Labor.
February 15, 2011 became a milestone in both game show and artificial intelligence (AI) history, as the IBM-designed super computer, Watson, bested previously undefeated players Ken Jennings and Brad Rutter to win Jeopardy! The Watson team has been hard at work in the intervening five years to use natural language processing and machine learning to make sense of large amounts of unstructured data. IBM developers will be available to demo this technology and answer questions about the intersection of AI and analytics.
The Internet of Things (IoT) is reshaping the business landscape in ways that aren’t yet fully understood. The U.S. Department of Transportation (USDOT) is one of many organizations harnessing the IoT to save lives. According to data from the National Highway Traffic Safety Administration (NHTSA), there were more than six million police-reported crashes on U.S. roads in 2015. While the number of people surviving car accidents has increased significantly thanks to airbags, antilock brakes, and other technology, USDOT’s Connected Vehicles program aims to stop many of those crashes from happening in the first place. This unique partnership between state and local transportation agencies, vehicle and device makers, and the public, aims to test and evaluate technology that will enable motor vehicles, roads and other infrastructure, and devices to “talk” to one another so every vehicle on the road is aware of the position of other nearby vehicles. Chris Gerdes, USDOT’s chief innovation officer, will discuss the program Monday on the main stage. Swing by the Innovation Nation to check out this technology, learn more about how you can bring the program to your home city, and get inspiration for how the IoT might just help your own business survive and thrive.
These are just a few snapshots of the incredible line-up of thought leaders and emerging technology at next month’s Summit. Want to learn more? View the full list of speakers and sessions at NACDonline.org/summit.
The most compelling obligation of a board is to create shareholder value. The most enduring way to create shareholder value is to create customer value. Creating great customer value is an ongoing process of continuous renewal. In today’s marketplace, most competitive advantages (even seeming monopolies) are fleeting. Great IP is vulnerable to alternatives and to advances in the state of the art. Human talent has never been more mobile. Advances in communication, universal access to information, and the lowering of trade barriers have opened many markets to global competition. Supply chains can be anywhere. What’s a director to do?
I am convinced that the only sustainable competitive advantage is to create an innovative enterprise. To be truly sustainable, innovation cannot be a eureka moment, where a liquid accidentally falls on a hot stove and we have rubber. Further, it cannot be built just on individuals who are innovative. Great individual contributors are necessary but not sufficient. To be truly sustainable, innovation must be deeply imbedded in the culture of the organization and in the collective behavior of its leaders. Sustainable innovation must also be baked into processes that are documented, taught, and repeatable.
Boards must have a broad-based expectation of innovation from management. That expectation must be imbedded in CEO recruiting, in establishing visions and goals, in measurement and reward. This innovation must be pervasive; a critical quality dimension to everything that management does. Innovation can occur in a firm’s products and services, in their business model, in their approach to markets (advertising and sales efforts), in their staff recruiting and retention practices.
How does a board operate, staff, and structure itself to drive innovation?
Circumstances vary so widely. I doubt there is a rigid answer to that question. However, I do believe there are universal success contributors:
Full board engagement. When the very broad functional potential for deploying innovation is laid over the skills’ breadth of a well-diversified board (legal, operational, financial, business development, etc.) it could be limiting to assign the responsibility for innovation oversight to a subset of the board. An alternative is to require that innovation be deeply imbedded in all of management’s plans, strategies, and goals and reviewed by the full board.
External market awareness. Directors who stay aware of best innovation practices across the economy are best able to contribute to continuous innovation on the boards on which they serve. Directors must become students of the discipline of innovation.
External perspective. There are innovation experts. Just as a board equips itself with experts in compensation, taxes, and organizational development, we need to find competent advisors who can help us to stay current and focused on our innovation progress.
Fundamental alignment between the board and the CEO on innovation. CEO position descriptions are usually written to reflect the board’s definition of success within a certain time frame. The capacity to passionately lead innovation must be fundamental to the CEO position description.
Patience. Creating an innovative culture is a longer-term project than is introducing an innovation to an individual product. The history of business is littered with stories of spectacularly successful short-term product/market innovations that were not sustained in subsequent products. One primary reason that the life of an S&P 500 company is now down to 20 years (from over 50 years a generation earlier) is that some firms are innovating in a more effective and sustained way than others.
Final thoughts on innovation and risk: Innovation is a form of change. Some innovations represent disruptive change that can impact the innovator as well as the markets they disrupt. For example, a new-product innovation can disrupt an existing successful product, or even an existing monopoly. Risks of this type can be effectively managed through thoughtful planning, integrated communication, and solid enterprise-wide controls.
The biggest risk in today’s economy lies in not innovating.
Thomas J. Furst served as Senior Vice President and Chief Financial Officer of SRI International for 18 years until 2014. He was a director of the Sarnoff Corporation until its absorption into SRI. Tom currently speaks, and advises management and boards, on innovation and related topics. He can be reached at email@example.com.
If there is a single common denominator to many of the stories in this issue of NACD Directorship it is reason. And in matters pertaining to business disruptors, maintaining calm, cool objectivity is no easy task. Any discussion of this subject oftentimes elicits an emotional response. Disruption is typically considered a negative force, prompting apprehension and, sometimes, outright fear.
Take shareholder activism, which is a potentially disruptive force in any boardroom. Statistics tell part of how this story is playing out: The number of activist campaigns has increased 60 percent since 2010, according to Factiva, and activist funds control northward of $130 billion in assets, per Hedge Fund Research. Not so long ago, passive index investors like Vanguard depended largely on the proxy advisers to inform their voting, but that too has changed.
Corporate attorney Martin Lipton recently described a “new governance paradigm” by which major investors like BlackRock and Vanguard take their activism in-house, making our interview with McNabb ever more timely. “It is not likely that activism and short-termism will totally disappear,” Lipton wrote in a client memo in June and reiterated in a speech at the World Economic Forum in August, “but I’m comfortable that the influence of major investors will be more favorable to shareholders generally and to the nation’s economy and society, than the self-seeking personal greed of hedge fund activists.”
Today, Vanguard owns at least 1 percent of every publicly traded company in the Fortune 1000. What it desires is nothing less than long-term success for those companies. And, what could be more reasonable than that?