Weekly Business Insights from Top Ten Business Magazines | Week 310 | Strategy & Business Model Section | 1

Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 310 | August 18-24, 2023

Rethinking Governance for Digital Innovation

By David L. Rogers | MIT Sloan Management Review Magazine | Fall 2023 Issue

Listen the Extractive Summary of the Article

Designing repeatable processes for innovation is essential for growth in the digital era, yet it is incredibly hard. In too many organizations, new ventures are green-lit based on a single executive sponsor. Once started, ventures move slowly, managed by teams that sit in traditional silos. Resource allocation is slow too, as promising projects wait weeks or months for their next round of approvals. Because each project is backed by an influential executive, no one wants to shut it down, even if it shows little promise.

Meanwhile, risk aversion leads businesses to fund only their low-hanging fruit — incremental improvements in the core that bring a guaranteed, quick ROI. This path will never lead to transformation. Instead, you need governance that embraces uncertainty and supports growth both within and beyond the core.

How to design governance models to drive digital innovation across any enterprise?  Digital transformation requires that governance be carefully designed to address several issues. The first is oversight. Who approves new projects? To whom do they report? And who shuts them down? Next is funding. How will you allocate resources across a portfolio of ventures to maximize opportunities for success? Equally critical are people. Who will staff new ventures, whether inside or outside your organization? How will teams be formed with the right mix of skills? Governance must also include metrics. How will you measure the progress of new ventures? And, crucially, how can you bring discipline to regularly shutting down ventures, a practice so often neglected at large enterprises?

Consider the folloinwg in design a governance model:

1. Great innovation teams are:  small, multifunctional, single-threaded, autonomous, and accountable.
2. Establish Oversight With Growth Boards. The most successful model for sponsoring corporate innovation is the board. In the board model, a small group regularly convenes and deliberates to decide whether to sponsor various possible innovation ventures — much like a group of VC investors listening to pitches from startups. One innovation board will sponsor and support multiple teams working in parallel.  When a board green-lights a new venture, it should allocate just enough resources (in the form of time, money, and people) for the team to conduct a first round of testing to validate the initial questions about the business model. The key to effective green-lighting is to minimize the initial investment made in each team and maximize the number of ideas that are approved to be tested.
3. The next critical process for managing innovation is iterative funding, which is how boards allocate resources to teams after their ventures have been green-lit. Iterative funding is designed to be extremely agile, based on the VC approach to financing startups. 
4. For innovation to deliver results, companies must be ready to exit projects that prove unsuccessful or are insufficiently aligned with strategy.  Shutting down ventures systematically and regularly is a critical job for growth boards. Every time a board meets for an iterative funding review, the question must be, “Do we fund this venture further or shut it down?”

3 key takeaways from the article

1. Designing repeatable processes for innovation is essential for growth in the digital era, yet it is incredibly hard. 
2. How to design governance models to drive digital innovation across any enterprise?  Innovation governance requires three key building blocks: (1) Teams must be empowered to move fast and experiment to discover what works in the marketplace; (2) boards must be empowered to oversee and advise portfolios of teams, allocating resources where most needed; and (3) both must follow regular processes for green-lighting new ventures, funding them iteratively, and shutting them down to free up resources for the next emerging opportunity.
3. With the right governance in place, established companies of every kind can unlock the potential in their own employees to drive transformation and growth at every level of their business.

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Topics:  Strategy, Transformation, New Ventures, Digital