Innovation Governance

How Top Management Organizes and Mobilizes for Innovation

Jean-Philippe Deschamps, Beebe Nelson

• Editorial: Jossey-Bass
• Año: 2014
• ISBN:
  9781118588581
• Edición: 1
• Categoría: Business
• Categoría: Management

The business leader's guide to encouraging continuous innovation in any organization

Innovation governance is a hot topic in the business world. In a fast-paced business environment, the ability of corporate leaders to build purpose, direction, and focus for innovation is more important than ever. In this book, the authors provide a framework for encouraging and focusing innovation by explaining what innovation governance is, the various models for governance and their advantages and disadvantages, how to assess and improve governance practices, and behavioral tactics for maximizing the effectiveness of governance. It offers guidance for everyone from the boardroom through senior management, illustrating effective governance models with real case studies from a range of companies in the United States and Europe.

• Addresses an important yet underappreciated skill for CEOs, board members, and top management
• Features real-world examples and case studies from a variety of business from around the world
• Written by an author team with hands-on experience in the subjects of innovation management, organizational learning, innovation leadership, organizational behavior, and individual leadership and teamwork

Innovation governance is a sadly neglected topic in many organizations. This book offers vital guidance and real-world experience for building innovation into any business from the top down.

PART I

Addressing the Innovation Governance Challenge

CHAPTER 1

What is Innovation Governance?

When business leaders hear the word “governance,” they may naturally think of corporate governance, “the system by which companies are directed and controlled.”¹ “It involves regulatory and market mechanisms, and the roles and relationships between a company's management, its board, its shareholders and other stakeholders, and the goals for which the corporation is governed.”²

But what does the concept of innovation governance conjure up? Does it belong to the broader governance mission of the board of directors? Is innovation a sufficiently important challenge to be “governed,” i.e. directed and controlled at a high level? In many companies immersed in today's global product and service competition, the answer is definitely yes. And innovation governance is not just a mission of the board, as we shall see in Chapter 2. It is clearly also a duty of the top management team, as we will emphasize in Chapter 3 and the rest of this book.

But before we try to define it, let us first briefly review current managerial responses to the governance challenge in respect of innovation, i.e. reflect on the way companies effectively stimulate, steer, and sustain a complex cross-functional and multidisciplinary activity like innovation.

The Innovation Management Challenge

Most large corporations are organized around three axes – business units, regional operations, and functions – which management knows how to steer and control effectively. In addition, these corporations have generally gone further by allocating specific responsibilities and setting up dedicated mechanisms to manage cross-functional processes – a fourth dimension – for example, for new product development. Innovation does indeed consist of several cross-functional processes. But there is more to it than processes. Innovation deals with hard business issues like growth strategy, technological investments, project portfolios, and the creation of new businesses. It also includes softer challenges, like promoting creativity and discipline, stimulating entrepreneurship, encouraging risk taking, promoting teamwork, fostering learning and change, and facilitating networking and communications. In short, it requires a special type of organizational culture. Like customer focus, innovation is a mindset that should pervade the whole organization.

The scope of innovation is so broad that few companies appear to have thought carefully enough about what it takes now and will take in the future to stimulate, steer, and sustain innovation in an integrated way, across all its aspects. Many companies do not have an overall frame that integrates all these hard and soft innovation aspects under proactive top management supervision. Management today needs a holistic system that sets and aligns goals, defines policies and values, prioritizes processes, allocates resources, and assigns roles, responsibilities and decision-making authority to key players. And that system has to originate from the C-suite. This is the task we call innovation governance. The word “governance” is appropriate here because stimulating, steering, and sustaining innovation is a mission that cannot be delegated to any single function or to lower levels of an organization. It remains a top management responsibility and preserve.

Of course, the CEO personally or the C-suite collectively can decide to take on the innovation challenge directly, as a top management responsibility, and thus “govern” innovation proactively as a group. This often happens in start-ups – especially technology-based ones – that grow big. But in our experience, this level of top management ownership and direct involvement in innovation is rare in large and traditional corporations. In many cases, in spite of all the risks that it creates – including lack of integration, short termism, and strategic myopia – management has delegated the responsibility for innovation to different individuals or groups, for example to marketing for improvements to existing product lines, or to R&D for exploring new technologies.

Ad hoc organizational solutions to the governance challenge may work well for some aspects, typically those dealing with process management issues and extensions of current businesses and activities. But many such solutions fail to meet other aspects of the innovation challenge, for example those dealing with the sustained creation of radically new growth businesses or simply with culture change.

Given the newness of the term and of the concept behind it, we should first define what innovation governance really means and determine its scope.

Defining Innovation Governance

In a recent management development seminar at IMD business school in Lausanne, Switzerland, on the theme of innovation governance, the participants – all senior managers vastly experienced in the field of innovation – proposed the following list of innovation governance responsibilities:

• defining roles and ways of working around the innovation process;
• defining decision power lines and commitments on innovation;
• defining key responsibilities of the main players;
• establishing the set of values underpinning all innovation efforts;
• making decisions that define expectations;
• defining how to measure innovation;
• making decisions on innovation budgets;
• orchestrating, balancing, and prioritizing innovation activities across divisions;
• establishing management routines regarding communications and decisions.

This list provides a good first description of the scope of innovation governance but it is worth going further and introducing a structure to capture the various facets of innovation governance.

There are two complementary ways to define innovation governance. The first is to equate it to a collective form of organizational leadership with regard to innovation. The second is to compare it to a corporate innovation constitution.

Innovation Governance: An Organizational Form of Innovation Leadership

At the start of the Driving Strategic Innovation executive development program, which IMD offers jointly with MIT, we like to frame innovation in a broad leadership perspective by introducing Jay Galbraith's organizational star model.³ It consists of five elements:

• strategy (including vision, market direction, competitive advantage, and differentiated offerings);
• structure (including power and authority, reporting relationships, and organizational roles);
• processes (including integrative roles, lateral connections, and idea and knowledge flow);
• rewards (including goals, scorecards and metrics, values and behaviors, and compensation); and
• people (including staffing and selection, performance feedback and learning, and development).

It is the role of leaders, we believe, to reflect on each of these five dimensions in order to make them conducive to innovation, and to ensure that they are internally congruent. In other words, each element has a direct impact on the company's ability to innovate, and a single misalignment – for example if management punishes risk taking and failures in its performance evaluation and reward system – can ruin the company's efforts.

This framework reminds managers that innovation has a broad organizational leadership aspect that goes beyond the traditional emphasis on culture and processes. It thrives when leaders adopt a comprehensive perspective and understand how each part of the system influences overall performance; it fails if one of the elements is missing or counterproductive.

Building on this broad organizational leadership perspective, we can define the scope of innovation governance as a combination of five concrete missions for management (refer to Figure 1.1). In the rest of this section we will address each of these missions and reflect on how they define and impact on governing innovation.

Figure 1.1: The Scope of Innovation Governance

Innovation governance starts with a management commitment to promote many types of innovations, i.e. to encourage everyone in the organization to consider opportunities for innovation in all aspects of the company's offerings and in all its internal and external processes. This first governance mission is so critical that we will explore it in more detail later in this chapter.

Besides this missionary call for breadth in perspective, the innovation governance duties of management are fourfold.

Building a Mission, Vision, and Strategy for Innovation

As part of this first innovation governance element, management should reflect on and explicitly address three fundamental questions:

• Why innovate? What benefits can we expect from innovation, or what penalties might we incur if we fail to innovate?
• Where to innovate? In what areas should we focus our innovation efforts to implement or reinforce our business strategy?
• How much to innovate? How much risk can we bear in our innovation drive, and how many resources are we ready to commit to it?

It is critical that management make its expectations explicit regarding why, where, and how much, and that these expectations are widely known in the company. Some companies waste scarce resources pursuing opportunities that, in the end, are sidelined or canceled, not because further research shows them to be less likely to succeed, but because management does not adhere to its own guidelines. Management must also make explicit its own willingness to pursue different levels of innovation. Too often, for example, management pays lip service to radical innovation, but fails to fund the projects that emerge from early stage innovation initiatives.

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Unwillingness to Resource Projects?

A large company that serves the medical industry had grown primarily by acquisition. The executive team decided to launch a growth by innovation strategy and appointed a director of innovation. After several years, despite devoting resources to finding innovation opportunities, the group portfolio management team had canceled every suggested project because it was not willing to resource projects that would not build upon existing pro­duct lines and pay off in the short term.

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It is imperative that management also take the time to reflect on these questions. Different members of the management team are likely to have different mental models or implicit assumptions about innovation, often stemming from their own experiences. Unless they have the opportunity to reflect together, to discover where they agree and disagree, their actions and decisions are likely to contradict the mission and strategy as they have been defined.

Discovering Opportunities for Innovation

One critical capability to be developed as part of the company's innovation strategy is “foresight,” or the ability to track weak signals and sense emerging trends in the market, in customer behavior and preference models, and in tech­nologies. Building foresight is a complex process which requires launching efforts to collect market/customer, competitive, and tech­nological intelligence. It requires a company-wide attitude of openness and curiosity and, possibly, the establishment of small specialist departments to constantly scan the environment for weak signals of change and emerging trends, particularly from outside one's own industry.

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Myopia in Smartphones?

The past decline of Nokia and RIM (Blackberry) in smartphones can be attributed, at least in part, to their inability to spot – or their unwillingness to follow – a radical change in the market. Both sold their smartphones primarily to the professional segment of managers and neglected the consumer market, which Apple targeted first with its iPod Touch^® and later with its iPhone, followed by Samsung and other Android phone manufacturers. Equipped with a user-friendly touch screen and a growing number of applications, these phones became an attractive alternative to the competent but dull professional smartphones of Nokia and RIM. Professional users quickly convinced their IT department to buy the new fun and “app-rich” smartphones, leaving the two former leaders in a difficult catch-up mode.

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Many large R&D departments have set up such a capability, appointing a number of technology gate-keepers to follow the progress of new technologies. In recent years, product management and commercial managers have also begun to dedicate valuable resources to long-term market and competitor intelligence activities.

These activities include gathering ethnographic in...