Five Leading Practices for Governing Innovation

Technology is eroding traditional lines between industries and creating opportunities for innovators to disrupt incumbents. Findings from the 2017-2018 NACD Public Company Governance Survey suggest that boards are increasingly concerned about how to navigate technology disruption, with one third of respondents citing this as a trend likely to have the greatest impact on their company in the coming year. The rapid pace of change presents a significant challenge for boards as they look to sharpen their oversight. As such, directors, and the management teams they oversee, are searching for strategies that will enable them to adapt quickly to shifts in the business landscape.

The National Association of Corporate Directors (NACD), in collaboration with audit and tax specialist Grant Thornton, recently cohosted a director’s roundtable in Chicago, Illinois, where directors and industry experts discussed the tactics that have helped them learn at the pace of disruptive innovation. Special guests from Amazon Web Services (AWS) were also present. Nichole Jordan, national managing partner of clients, markets, and industries at Grant Thornton, discussed the following strategies for getting out ahead of disruptors based on her engagement with clients.

1. Utilize leading technology conferences and events. There are many reputable conferences and events centered around technology and innovation that directors should consider attending each year. These gatherings bring together renowned innovators and thinkers, providing attendees with an insider view that many outside of the technology industry do not have access to. This year, NACD partnered with Grant Thornton to host a group of directors for the CES Experience, a curated, board-focused tour of the Consumer Electronic Show (CES)—the world’s largest and most influential technology show. Participants were introduced to novel products and services and spoke with their peers about potential disruptions to their companies and industries. Outside of CES, Jordan suggested that directors also attend South by Southwest and The Wall Street Journal’s Future of Everything conference, among others.

2. Visit domestic and international companies at the forefront of innovation. Corporate executives and directors can now access the innovation centers of leading technology companies including Amazon.com, Google, Microsoft Corp., and Apple. Through offerings as varied as tours of innovative hubs, executive immersion programs, and corporate strategy sessions, boards can gain valuable insights into disruptive trends and how these may impact their own businesses.

Geoff Nyheim, director of US central area at AWS, provided an example of an insurance carrier taking advantage of Amazon’s offering. The insurance carrier was particularly concerned with the predicted growth of autonomous vehicles and the potential impact on their industry. The CEO brought his direct reports to AWS, where they spent three days talking through strategy under the premise that insurance claims would plummet due to disruption caused by the safety of autonomous vehicles. According to Nyheim, “when [operating under] that assumption, all sorts of different paths and creative ideas emerged” for the future of the company. Nyheim added that “a lot of other companies are in the same place, [but to their detriment] lack a similar urgency.”

One director commented that it’s just as important for boards and their management teams to get out of the country to visit innovation centers in India, China, and other emerging markets as it is to visit the ones to home. On such a trip to India, the director visited a General Electric Co. factory that produced equipment used to create computerized tomography (CT) scans, and was amazed by the advanced tools and research that he saw. Directors should find ways to experience a similar sense of wonder that’s applicable to their own industries.

3. Cultivate a collaborative business mentality. Though possibly counterintuitive, businesses need to consider building a sustainable ecosystem of partners for themselves. Jordan called out companies in Grant Thornton’s ecosystem, naming, “Amazon Web Services and NACD as partners.” Directors should challenge members of management to consider developing a set of networks, partnerships, or alliances that can be tapped into to generate and implement innovative solutions. One director agreed, citing an internal study at his company which found that “less than five percent of ideas [generated within the company] actually came to fruition.” The company makes large investments in research, leading the director to conclude that part of the problem may be that it is relying too heavily “on [its] own resources and [is too] unwilling to trust others to help in the innovation process,” one director said. He also briefly outlined how companies can leverage networks to collaborate with a trusted supplier. The tactic assumes that a supplier “gets ten percent of revenue from [your company, so you ask the supplier if they would be willing to] take that ten percent and put it towards creating products for [your company].” This kind of thinking can lead to mutually beneficial and innovative engagements that enhance operational effectiveness.

4. Integrate technology briefings into your daily routine. Directors should be purposeful about incorporating reading about technology into their everyday lives, and can do so by seeking out reputable publications that report on the business of technology. The Wall Street Journal’s technology department, Recode, TechCrunch, and Wired magazine are widely considered reliable publications that bridge the gap between management and technology. Following leading organizations and their CEOs on social media—Jeff Bezos, Elon Musk, Shelley Palmer, or Gary Shapiro, for instance—can also enrich directors’ technology diets. One participant observed that maintaining relationships with individuals in late-stage venture capital funds can also facilitate learning. Venture capitalists “evaluate hundreds [if not] thousands of proposals,” she said, and could keep directors apprised of bleeding-edge developments.

5. Monitor your company’s progress on innovation relative to its customers. Effective benchmarking of technology initiatives’ success will vary from company to company. As such, innovation efforts should be wedded to the current and future needs of its customers. Jeffrey Traylor, head of AWS solutions architecture for the US Central area at Amazon, Traylor suggested Amazon’s value of working backwards as a strategy for customer-centered innovation. “Before we [even] write the first line of code, we write a press release for three years from now, then write an FAQ,” Traylor said. “We ask [ourselves the following]: Who is the customer? What problem are we solving? What are the most important benefits to the customer? What does the customer experience look like?” For Amazon, innovation is about high intentionality and requires planning out how any new offering will benefit the end-user’s experience.

The board should also ensure that management views emerging technologies as a means to achieving long-term value creation, rather than an end in itself. As noted by a director at the event who oversees a company in the healthcare and life sciences industry, companies cannot succeed sustainably if they don’t innovate alongside the customer. “When we talk about innovation, it’s the people whose lives we’re going to make better. We innovate around the patients,” she said. For her company, “It’s not just about [developing a different] drug delivery system or [a new] device, [but rather] how can we prevent unexpected events, and connect caregivers and care systems to the patient.”

Jeffrey Burgess, national managing partner of audit services at Grant Thornton, rounded out the conversation, pointing out that innovation should not only be limited to the board and management, but also be instilled at every level of the company. “I think [of] innovation [as] more and more on the front lines,” Burgess said.  “You need a culture [that] embraces change, and you need change management methodologies, procedures, and processes that drive innovation.” To meet these challenges, directors need to ensure that they are surrounded by intellectually curious and well-informed peers who can work with management to develop a forward-looking vision for the company. As Traylor cautioned, companies with boards that do not cultivate this curiosity may leave themselves vulnerable to the “ruthless and unsparing” effect of innovation.