July 1, 2021
July 1, 2021
Agility is an important driver of success in a mercurial environment—and for many companies, digital maturity and future readiness correlate with the ability to innovate.
A facilitated discussion with active, tenured directors at a recent NACD event focused on these issues in the context of the COVID-19 pandemic. Below are key considerations from that discussion.
A crisis can be the ultimate determinant of who is resilient—and who isn’t. In many industries, the pandemic turned the fundamentals upside down. But future-ready companies with digitally enabled capabilities and tools for innovating processes, products, and services were prepared. Remote and flexible work arrangements, “click and collect,” online channels, 24/7 video health care, online shopping, home delivery, and automation in all its forms are just some examples of digitalization in action. These are not cutting-edge concepts, but the COVID-19 pandemic led to them being deployed more broadly.
The COVID-19 crisis has spawned an openness to new ideas and approaches and a willingness to fail. During the crisis, companies adopted a start-up mentality—a mind-set typically embraced when organizations are at their most disruptive. There’s a willingness to fail, largely because there isn’t much to lose. Often, it’s about cutting costs. But the pandemic forced many companies to rethink, even reinvent, how they do business. All industries should keep a watchful eye on whether the forces of innovation will be unleashed in the post-pandemic new normal. Companies that innovated the most during the crisis may outperform.
A crisis spotlights innovation, but innovation should also shine in less turbulent times. When a business struggles, it is easier to wade through change; but change is often harder for companies when the seas are calm. Boards should not allow reluctance to pursue change to stifle innovation during good times. Regardless of a company’s current successes, the business environment is rapidly changing and organizations should think big and set bold, audacious, innovative goals. Boards need the right skill sets and experiences to understand their organizations’ market opportunities so that they can add value to the strategic dialogue around innovation.
If everyone is thinking alike, then someone isn’t thinking. In a dynamic world, it’s essential to challenge the status quo continuously and think outside of the box. Companies should strive to rethink industry business models and not merely copy their competitors. The board should encourage management to empower talented people throughout the company to ask tough questions and constantly seek and achieve better outcomes. Continuous improvement and innovation are a mind-set.
A strong customer focus is where it starts. Innovation stems from thinking about how to change the customer experience. This is about more than just monitoring the data and analytics around evolving customer preferences, needs, and wants. It is also about recognizing that technological advancement is the primary driver of rapid change in today’s marketplace. The innovation process should consider how fresh applications of technology in the industry will transform the customer experience. If the company doesn’t advance its processes, products, and services, its competitors will.
An innovative culture is more likely to complete the cycle and get results. The process of coming up with ideas is relatively easy for many organizations. The full end-to-end process, however, includes not only up-front ideation but also filtering, prioritizing, nurturing, and developing those ideas into an implementable design. Having the skills to act on that design to get measurable results is also a must. The board has an important role to play in strengthening and nurturing the organizational culture and mind-set that ensure skills are continuously refreshed to sustain transformative innovation and reinvention as technology changes.
The board’s role is to push for a sustainable, innovative culture that’s aligned with the strategy. As the market changes, directors may need to encourage management to bring in the necessary skills to support needed innovation. Directors should inquire about the organization’s incentive structure. Does it reward innovation? Does it accept failure? Who is being rewarded and promoted—the people driving the business forward and creating the future, or those riding the wave created by someone else? Board members should understand the company’s innovation plans and road map for the business and whether those plans consider how customer preferences and pain points may shift in the foreseeable future. Dashboard reports linked to those plans should inform the board periodically as to progress.
Understanding the digital economy, emerging technologies, and relevant megatrends affecting an industry—and the ability to relate this understanding to the business and its strategy—are now critical boardroom skills. The board needs digital-savvy members and can benefit from greater diversity; millennials, for example, tend to experience technology differently than their older peers. Organizations should be giving a voice to and relying more on the perspectives of a younger, more diverse group of leaders and employees as they navigate societal changes.
A more complete discussion on this topic, including examples, is available here.
NACD: Tools and resources to help guide you in unpredictable times.