A culture of innovation sustains reinvention and breathes life into the organization itself. As high-speed, ever-connected networks and maturing digital technologies enhance ties between organizations and their stakeholders, opportunities to innovate processes, products, and services emerge that were unthinkable a few years ago. With such unmistakable mega-trends in the business environment, the board of directors has a role in ensuring that the organization it serves is not missing out on opportunities to innovate and, as a result, running the risk of getting swept aside by the forces of disruptive change. In this context, the often-referenced adage of “disrupt or be disrupted” gives way to the harsher specter of “innovate or die.”
For organizations that make innovation a priority, the process has traditionally involved designating responsible individuals, setting performance expectations linked to entity objectives, allowing designated innovators to operate in a risk-free environment, monitoring their progress using appropriate metrics, and then holding them accountable for results. However, for most organizations, innovation has been opportunistic and ad hoc.
For innovation to reach its full potential in the digital age, a culture that emphasizes innovation must also encourage diversity, collaboration, empowerment, continuous learning, ingenuity, change enablement, and team performance. Accordingly, it is important to the board’s oversight of the innovative culture to understand how the organization should position itself, even if it has little appetite for competing as a front-runner.
Given that every organization is different, the board should ask management to consider whether the organization is a digital follower, expert, or leader:
- Digital follower. The organization has developed a digital strategy and has a proven track record delivering on digital initiatives, which are typically focused on discrete aspects of the customer journey.
- Digital expert. The organization has a proven track record of adopting emerging technologies, has achieved high levels of process automation, and quantitatively manages digital aspects of its strategy enterprisewide.
- Digital leader. The organization has a proven track record of disrupting traditional business models; digital aspects of strategic plans are continually improved based on lessons learned and predictive indicators.
The approach to innovation is very different for these distinct classes of organizations. Leaders disrupt. Experts aspire to be leaders. Many companies are content to be agile followers, meaning that they frequently reassess and adapt their digital strategy as the market changes. Most businesses are not where they want to be. Many that desire to be followers are in fact beginners. They have multiple digital initiatives underway with objectives that are well-understood, but they lack fully developed digital plans. And many companies that want to be leaders are in fact followers.
Even though they may not know it, some entities are actually skeptics (or observers) because they do not fully buy into the digital revolution and its impact on the business. Usually, these organizations lack formalized digital plans, and their management of digital initiatives is ad hoc. Also, their leadership team may view digital business as mere hype and their business as immune to change.
Neither the skeptic nor the beginner is likely to foster the culture necessary for sustained innovation in the digital age because, at best, they are digital on the edges but not at the core. Therefore, moving beyond these two levels of digital maturity—whether a skeptic or beginner—is desirable.
The challenge for management and the board is to decide the level of digital maturity they desire for the organization. In this context, the digital follower can be a relatively high-performing business. Effective followers play the waiting game, monitor the competitive landscape, and react quickly when necessary to defend market share by enhancing the customer experience. Followers, to succeed, must be agile enough to respond quickly as an early mover, even if they aren’t first movers.
Regarding the assessment of digital maturity, Protiviti’s original research has identified more than 30 empirically supported competencies arrayed across six core disciplines at which digital leaders excel. These competencies consist of capabilities and structural characteristics that can be used to benchmark the organization to identify its strengths and weaknesses.
For example, one of the core disciplines of Protiviti’s digital maturity assessment framework is “organization, structure, and processes.” Within that discipline is the innovation and research competency, which is useful in distinguishing between digital leaders and followers. The point is that competencies can be used to assess an entity’s resilience and likely innovation performance in creating new markets and eventually disrupting existing markets and displacing established incumbents, products, services, and alliances.
These are the real stakes of the innovation game in the digital world. Everything else is small ball.
Companies committed to innovation are confident in facing the future because they know they are playing the right game: viewing innovation as a continuous process rather than a dramatic event. Understanding whether the company desires to be a leader, a follower, or something in between is important, as management’s digital appetite provides directors with the context they need to focus their oversight of the innovation process. If the enterprise is a skeptic or beginner, directors may need to strongly encourage management to assess the organization’s digital readiness and review the results of that assessment with the board. When changes to the corporate culture are needed, the required investments should be made to forge an environment that empowers and rewards employees to test new ideas and take the appropriate risks to make those ideas a reality, without the fear of repercussions or reprisals if they don’t succeed.
Jim DeLoach is managing director of Protiviti.