December 16, 2019
The ability to innovate has long been the standard for high growth businesses, but technological advances have made it possible for companies of all shapes and sizes to innovate faster and more holistically than ever before, if they choose to. In a time of rapid change, corporate boards must evolve to embrace and support innovation and agile thinking. Responsible and sustainable governance around the ethical and cultural impacts of transformative change and the ability to balance the risks and opportunities of digital transformation has become more important than ever before. Boards must be forward thinking, values driven and change enabling to support their organizations in the information age. It’s not just the rules of the game that are changing, it is the game itself.
Innovation & Ethics
The convergence of digital technologies such as Artificial Intelligence (A.I.), robotics and IoT promise tremendous opportunities for innovation and growth. However; any disruption to the way in which an organization operates must be viewed with a wide lens given the speed in which an ethical incident can become an ethical crisis in a fast moving digital world.
Digital ethics is also tied closely to data protection and privacy. Once a by-product of operations, data is becoming the single most important asset an organization can own and directors need to view data in new ways, how to protect it and how to utilize it to create new opportunities. Understanding this asset to create the most value and eliminating risky data security practices requires fresh and proactive governance practices. Recent laws, such as the General Data Protection Regulation (GDPR), highlight the key responsibility of board members to be aware of secure communication options and privacy and data protection requirements to uphold the trust of all stakeholders and ensure that the core values of their organization are not compromised through the process of innovative change.
Innovation governance — a holistic approach to steering, promoting and sustaining innovation — is becoming a new management imperative.
Jean-Philippe Deschamps, Emeritus Professor of Innovation Management at IMD
Innovation & Risk
Topping agendas for some time in the wake of targeted ransomware attacks, a significant cyber event is a leading and growing threat to corporate leadership. CEO’s are opting for cybersecurity operations that mitigate the risk of having social media, internal cybersecurity systems and internal and external communications compromised. This is in addition to the threats to operations and facilities that could impede production or supply chains. These concerns are magnified by fears that organizations may need to face the reputational damage created by telling the world that they have been hacked. An effective board should take all needed actions to minimize risk and to understand the security strategies being implemented and monitored by the organization and close the knowledge gap between IT leadership and the board.
Giving the CIO an opportunity to view cyber security and digital innovations as not merely technical issues, but as business issues, is an important start. In addition to understanding the current climate of cyber threats, directors need to understand the nature, progression and process of the organization’s digitization strategies. Innovation requires agility and the freedom to try, fail and iterate quickly and the culture of an organization, and of the boardroom, may need to adjust to support this process. A better understanding of the digital interconnectivity of operations and potential impact to the business model in order to respond in times of crisis or failure will help the board to support a culture of innovation.
The performance engine is constantly in conflict with the innovation engine. One of the directors’ critical tasks, therefore, is to ensure the innovation engine is served.
Michael Hartmann, Professor of Human Resource Management and Executive Director EMBA in Digital Transformation at the DeGroote School of Business and Principal, The Directors College
Innovation & Opportunity
Emerging technologies are pushing businesses to review and refresh business models and explore new ways to create, deliver and capture value. Technologies thought to be ‘on the horizon’ are already making impacts and the value of traditional assets are being surpassed by the value of proprietary data sets and algorithms. Boards seeking to advance an organization’s innovation agenda, explore new strategic approaches, models and tools to unlock value in a fast-paced digital world are embracing changing roles and responsibilities, aware of risks and open to new possibilities that impact overall performance.
According to a recent MIT Sloan School of Management study, boards with three or more digitally conversant directors experienced 38% higher revenue growth, 34% higher return on assets, 34% higher market cap and 17% higher profit margin compared to other boards. These boards have a deeper understanding of the opportunities and risks of innovation and are creating the cultural and ethical standards to drive success. The right board doesn’t need to re-write the rules – They have the power to be game changers.
In 2018, The Directors College pioneered a 2.5 day program led by Dr. Michael Hartmann and a team of global faculty designed to help directors adopt a more proactive role in supporting and occasionally challenging their company’s innovation agenda and its response to new and potentially disruptive technologies: Innovation Governance for Directors. In response to the ongoing need to better understand the impact of innovation on the boardroom, this program will be offered again in Fall 2019.