December 15, 2015
December 15, 2015
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 intellectual property (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:
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 Corp. 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.