August 28, 2020
August 28, 2020
How is your board balancing governance and oversight with the speed and agility that keeps innovation competitive?
Most attendees at a recent virtual roundtable hosted by Grant Thornton in partnership with NACD said that innovation is a top-ten priority and more than half (56%) said that they are now more involved with management in innovation priorities. However, 60 percent indicated that there are definite skills gaps on their boards. While this was certainly a problem prior to the pandemic, the rapid and massive shift to virtual working environments and the need for pivoting business models has necessitated deeper board engagement with innovation.
“Innovation is increasingly becoming a topic in the boardroom, but nowhere near the audit, risk, or succession planning conversations,” Chris Smith, the national leader of Grant Thornton’s growth and transformation strategy practice and a member of the firm’s partnership board, said to start the conversation. “When you think about what high-performing boards are doing to stay on top of technology, what do you see being done? And what should the board consider when balancing governance and oversight with speed and agility?”
One attendee recommended following major research universities, such as the Massachusetts Institute of Technology (MIT), to maintain a sense of what is happening in the landscape and how new technologies might be deployed. “In leveraging research from MIT, we are seeing case studies of both the successes and failures of the deployments of technology and how they fit into the evolution of business models,” he said. “We then ask: How does it apply to our company and our environment?” The same director also shared that his board mandates director education, and offers board members opportunities they can pursue.
And perhaps that ongoing effort to remain informed is the key to success. While many directors approach the problem through board composition, appointing directors who have depth of expertise in a technological area, they also rely on outside experts to keep the full board on top of developments in the technology and innovation space. Directors don’t necessarily need a nuts-and-bolts understanding of how the technology works. They do, however, need to know what management is learning and how technology is being applied.
Here, conversation began to shift to how the onset of COVID-19 necessitated the agile implementation of technology as companies reworked their business models. “From a governance standpoint, it raises the question of what the best way is to get up to speed in this environment,” said Nichole Jordan, regional managing partner, central region, at Grant Thornton. “It is using technology that will increase your agility, your speed, and your accuracy.” Specifically, Jordan suggested how companies can use artificial intelligence (AI) technology to improve how they do business. For example, on the customer end, Jordan referred to how MetLife has commented publicly that they used this technology to streamline call centers so that customers can get their answers quickly and without navigating multiple menus or working with agents for simple concerns. In addition, Jordan noted that AI can be used to better understand the employee experience by monitoring behaviors and emotions so that managers can better spot signs of stress, anxiety, depression, and burnout.
But even then, the board’s aperture on innovation may be far narrower than it should be. “Innovation is tech-related, but a lot of the innovation that’s needed does not involve technology,” one director observed. “I think current circumstances are forcing us to innovate on a more granular level—including the use of technology. It has forced us to look at the business model differently—more so than what we felt like we could before. Everybody is being forced to look at things with a clean sheet of paper.”
“In the end, technology is just the enabler of the [business] models,” another director said in agreement. “This crisis can bring into perspective that we don’t really talk about innovation, we talk about new-value creation. New-value creation can take place by reviewing the current business model and asking if we can evolve this for greater value delivery. From the boardroom, when we talk about possibilities, we’ve revisited our risk appetite for investment. In these times how do you encourage the innovation? It’s culture, but part of that culture has to be increasing your risk appetite.”
Innovation oversight is not exclusively concerned with technology. Rather, having the right culture in place can be what best drives innovation efforts within a company. “Even if there are experts on the board, there will be resistance to change, experimentation, and innovation” one director observed. “Learn fast. If the initiative fails, acknowledge that fast and move on. That needs to be culturally accepted within the company.”
“The companies who made innovation a discipline know that you can hit a lot of singles before you hit a home run,” Smith said. “Failing fast on an incremental, internal project might not be as devastating as failing fast externally. Make sure management is treating innovation as a discipline and not a buzzword.”
“Board members should do a lot more in requiring self-reflection,” another director added. “It’s easy to say the market wasn’t ready as opposed to analyzing the why. I’m all for failing fast if we can learn from it.”
NACD: Tools and resources to help guide you in unpredictable times.