Innovation is not invention

The article in the Financial Times titled ‘Innovation is all about the customer‘ is certainly true, but what must not be forgotten is that innovation is also all about governance.

We must remember that innovation has nothing to do with invention – most innovations are transactional, and a series of progressive steps to ensure better governance and working practices.

A fundamental block on British innovation is a governance issue: boards are delegating too much of the ‘follow-through’ or application of governance to management and in an age of austerity where cost control is king, innovation and Corporate Social Responsibility (CSR) get sidelined.

Good governance requires scrutinizing possible blockages to governance and execution all the way down the company structure, and from my experience, there seem to be three sticking points where governance, and therefore innovation and CSR, get blocked.

These sticking points are:

1. At the level of divisional heads, who are the point of interpretation of the corporate level strategy (or not as the case may be);

2. At the middle management level where cost and sales targets have to be interpreted in terms of what will be fed up to division, and then up to the corporate centre. Bonuses, payments and staff’s ability to keep their jobs all depend on how this level handles their work;

3. At the team level, which should reflect the company’s innovation and CSR policies in practice. There could be a very clear CSR and innovation policy at the top level of the company in terms of training, targets and measurements, but by the time you have gone down five or six levels to the team, they may not know that the policies were ever in place.

These three blocking points all call into question the role of the board, which should set policy, then set discipline follow through and discipline the management team if protocols are not being adhered to. What we are finding is that there is no pattern as to whether or not boards are accepting this responsibility.

Increasing numbers of boards are passing on governance responsibility to the management team – but why then have a board? The purpose of the board is to set governance and discipline, and to enable the management to make things work, and they have a responsibility to mentor and audit at the same time. What I have found is that many boards relish the mentoring aspect of governance, but avoid the discipline aspect of their role, which is of concern.

So what does this mean for the UK? As this recent article in the Independent says, the UK is bottom of the innovation league, which sadly does not surprise me at all.

In a climate of fearing about jobs, hyped up security fears, cost cutting and meeting sales, the energy that is put into CSR and innovation campaigns ends up getting lost.

There is a different approach in Europe – what you find is a philosophy and approach geared towards innovation, and companies who work very hard on this – and in the USA, where some of the most high-performing companies are those who have given credence to the ‘soft’ factors (creating a motivating environment and an enabling atmosphere for CSR and innovation) and have been very honest about where their ‘blocks’ are. A much more sensitive and sensible governance regime has been set up in those countries.

The solution to this would be to focus on the link between innovation and governance and board responsibility, at least at identifying what is happening in our corporate structures and where the blocks to innovation are.

To be more innovative there is actually a greater need for board involvement. For example, one company, which is both innovative and has a very active board, worked with the management team to introduce a policy where any board member could visit any site with no warning and ask to be taken round by the management, despite any criticisms that board member may have about local management. This hands-on approach may not seem the most practical. But is absolutely necessary if the UK is to compete globally.

When looking at board structure and hiring new members, it is important to identify what the role of board members should be and how the new addition will fulfil this role, rather than getting someone who ‘fits in well’ with the rest of the board.

Innovation should be key, and embedded within working practices, and Britain is not there yet.