The Role of CEOs and Boards in Fostering Innovation

CEOs in the Not for Profit and corporate space need to play the role of 'sponsor' and 'protector' of innovation in their organisations, writes innovation consultant Dale Renner.

The Prime Minister, Malcolm Turnbull, had some advice for CEOs attending the Business Council of Australia dinner recently: “You’ve got to ensure that you’re always testing existing practices… the old phrase ‘not invented here, we’ve always done it that way’ is disastrous”.

And we might add this addendum to that quote: “We also have to bust the myth that only large organisations or special or creative people can innovate.”

This is sage advice, not only for corporate CEOs, but for CEOs of social service organisations. Large parts of the sector are moving from the ‘block funded’ process of winning multi-year funding contracts to the ‘consumer-directed’ process of winning each customer.

In many ways, the transition to consumer-directed funding for the aged care, disability and community mental health sectors is demanding more change, more quickly than commercial businesses usually face. For example, energy and mining companies have known for years that governments would eventually take action on climate change — this is not a surprise, it is a factor that any strategic planner would have had in their sights at least ten years ago.

In contrast, it is expected that implementation of the NDIS and aged care reforms, moving from block funding to consumer-directed funding, will occur within the next one to three years.

The Prime Minister’s innovation agenda highlights the need for social organisations to test existing practices and build capability to develop new and improved services. Government as the prime purchaser of social services has been so influential that it has sometimes been difficult for social organisations to explore solutions to problems that don’t fit the pre-defined government agenda. This anchoring effect has dampened the scope and potential of social innovation.

While we all know there are many clever and dedicated people in the social sector, innovation has been ‘lumpy’ due to the way innovations have been traditionally funded — often by government or funding decision-makers ‘picking winners’.

Yet even the smartest decision-makers can’t understand all the nuances of individual need and the possibilities at the edges of current practice. This has led to a situation where investments coalesce around service solutions with lower risks, for example programs that have been tried overseas.

Social organisations have had to deliver ‘efficiency dividends’ in their contracts with government as a proxy way to push for better value and lower costs. The effect has been a tight system with very little margin for organisations to invest in innovation and growth.

The emergent consumer-directed philosophy has potential to open new opportunities for innovation. However, this sudden shift to customer-buying decisions has prompted some organisations to focus only on marketing.

While capability to develop socially-sensitive marketing is vital, this approach runs the risk of missing an important step. In a world where word-of-mouth will be critical for brand awareness, superior products and services that are differentiated from other providers is likely to be the foundation for success.

Over time, consumers in aged care, disability and mental health will learn which solutions best meet their needs, and which organisations deliver these in a way that suits them.

Creating those superior services is key — and that will often require developing an organisation’s skills, systems and culture to drive innovation.

So what can CEOs of social organisations do?

First, customer-centric innovation needs to be on the agenda as a priority. Customer-centric innovation is different from the traditional approach to innovation in the social sector — it acknowledges not only that customers (clients) are key to service design, but also that they are making a purchase decision.

This is a subtle but important difference in how we should approach innovation. Not only must the offer improve outcomes, it must also be attractive to buy — from the client or customer’s point of view.

CEOs need to play a role of sponsor and ‘protector’ of innovation work in their organisation.

There are typically a range of internal cultural barriers to risk-taking and working outside the existing practices and systems — only a CEO can provide the authority and protection for seed ideas to take root before they are squashed.

There is also a need for development of innovation as a core capability. As Professor Gary Hamel (London Business School) argues, why should we expect people to innovate when they don't have the skills to do it? We also have to bust the myth that innovation requires special, creative people — in fact, it is a business process that can be undertaken by anyone and everyone in an organisation.

Innovation is a complex and difficult thing to get right. And because of that, many ideas need to be developed and tried. It is not a one-off moment of glory, or a big bang project — innovation is an iterative process that needs to continue, day in and day out. It should be a regular habit for people throughout the organisation, following a business process, but with the freedom to operate outside the existing norms.

This requires an organisation to experiment with the process of innovation, asking ‘how should we make innovation work in our particular organisation?’ It also requires organisations to commit time and some money to the generation of new and better solutions. Good solutions need to receive internal and external seed funds, and CEOs and Boards play a role in enabling or supporting this funding.

In a way, innovation is a learning system for the organisation. It helps us avoid the ‘disaster’, pointed out by the Prime Minister, of being trapped by the idea that things must stay the same ‘because we’ve always done it that way’.

About the author: Dale Renner is a strategy and innovation consultant, and the founder of YouLead.com  –  skills and tools for a consumer-directed social services world.