Throttling innovation

Daniel Taylor examines the crucial relationship between innovation and governance

Innovation isn’t a nice-to-have, it’s a way of driving impact and effectiveness, building legitimacy and trust, and delivering value creation. If you aren’t innovating and staying ahead, you are falling behind. If you fall too far behind, you can soon find yourself facing existential questions.

However, these are difficult times for many public-purpose organisations. So many of the people we work with are facing challenging financial positions, increasingly complex regulatory conditions and expectations and a growing set of risks to achieving their strategies.

In the face of this kind of pressure and challenge, innovation is sometimes instinctively throttled as non-executives lean in and governance systems tighten and grow to exert—often counterproductively—greater control.

At the same time, risk appetite contracts, boards are less likely to sanction innovative projects and more likely to shy away from fresh approaches to delivery with little precedent or assurance of impact and success.

But it is precisely at these times that innovation is needed the most—both to delivery and to the approach to governance.

Governance failures often arise either when innovation outpaces a board’s control over risk management or when governance constrains innovation too much. This tension between innovation and control can lead to a paradox: organisations may instinctively stifle innovation in the face of uncertainty, leading to a decline in performance.

So, what is the answer? We’ve been working with hundreds of public purpose organisations to navigate this challenge.

Risk appetite

The bedfellow of innovation is control. Innovation must be enabled, but controlled. It’s a fine balance at the heart of which is how the board and wider leadership shape, monitor and work to an agreed risk appetite, and beyond that the performance monitoring and oversight arrangements around significant transformation and change projects and programmes. My colleague Sue Rogerson has written more about this crucial balancing act.

Clear and flexible governance systems and structures

• Agile governance: adopt agile governance principles to adapt to changing circumstances.
• Risk-based approach: focus on managing risks that could derail innovation, rather than micromanaging every aspect of projects.
• Transparent decision-making: ensure that decision-making processes are transparent and inclusive.

Culture of innovation

The culture and mindset towards innovation need to come from the top and be continually reinforced by the board and the executive. But how? Here are a few pointers.

• Embrace failure: create a culture where failure is seen as a learning opportunity, not a punishment.
• Encourage experimentation: foster a mindset that values experimentation and risk-taking.
• Empower staff: give staff the autonomy to make decisions and take initiative.
• Stakeholder engagement and input: foster an approach of working with stakeholders to think through and identify ways to dealing with organisational challenges and improving delivery mechanisms.
• Training and talent recruitment: look at the approach to recruitment and whether it delivers individuals with a mindset for innovation and how training supports and equips staff to deliver innovative work and ways of thinking about problems.

To dig a little deeper into this crucial aspect of innovation, read this blog by my colleague Peter Allanson.

Effective oversight and monitoring

The board and its committees need to set an agreed way with executives for monitoring that isn’t too constraining or burdensome but does deliver effective assurance and a means by which non-executives can contribute their ideas and expertise. It’s about:

• Robust oversight mechanisms: implementing strong oversight mechanisms, such as board committees, to monitor innovation initiatives.
• Performance metrics: developing clear performance metrics to track the progress and impact of innovation projects.
• Regular reviews: conducting regular reviews to assess the effectiveness of the governance framework.

It’s often said that innovation isn’t an end point; it’s a means of operating. And it must sit harmoniously alongside good governance.

By adopting these principles, organisations can create a governance system that fosters innovation while mitigating risks, enabling them to navigate difficult periods and thrive in better times.