Date posted: 1/12/2016 4 min read

Governance for transformation

In a world of open information, governance needs to embrace innovation and transformation

In brief

  • The exponential development of information technologies means businesses must consistently innovate
  • Organisations have embraced “open innovation” where they source innovation and ideas externally
  • If governance slows transformation or is dysfunctional it will destroy the company

By Ross Dawson

The world is opening up. The exponential development of information technologies over the past two decades enables not just data, but also business processes and even R&D to readily flow across organisational borders.

This creates massive opportunities for companies to build on their existing capabilities and relationships, yet it also means they must consistently innovate, often significantly changing their structures, business models, and even cultures to succeed.

There is no question that more open flows of information and value generate very real challenges to organisational productivity, reputation and security. Effective governance is required to constrain those risks. Yet that governance must be designed to enable, rather than constrain, innovation and organisational change.

The shift to open business

Today the majority of value creation happens within business ecosystems that span many companies or people.

This is not just the case for technology companies such as Apple, with its army of app developers, or global payments companies, such as American Express. Westfield prospers when its mall tenants flourish so it provides them with extensive resources and data to assist effective store management. Supermarkets such as Wal-Mart, Sainsbury’s and Coles actively share information across their supply chains to create efficiencies for all participants. 

Many of the world’s largest organisations, such as the US Department of Defence, Procter & Gamble and IBM, recognise that they do not have the resources they need internally to be innovative fast enough and have embraced “open innovation” where they look outside for the ideas that will drive their businesses forward.

Adelaide-based Hills, best known for the ubiquitous Hills Hoist clothesline, is building collaborative innovation centres and tapping start-up entrepreneurs to build the next phase of its success.

The rise of social media over the past decade has been at the heart of a fundamental shift in how people communicate, access information and share their opinions. By now, most of those companies that were initially reluctant have started to engage in social media because that is where their customers are spending their time and attention. 

Moreover, the majority of organisations are now using social media internally in some form with many larger organisations such as Telstra and Deloitte Australia making it a mainstay of their internal communication.

This world of open business in which information flows immensely faster and more broadly than it did in the past impacts and often challenges existing organisational structures and business models.

Executives must consider the implications of external and organisational change.

While there are always risks in change, it is a fact that an organisation that does not change in a changing world will be left behind.

Real and perceived risks

Many executives immediately see the potential risks of open information flows and social communication.

Some of these are real and cannot be ignored. Intellectual property can be lost. Reputation can be damaged swiftly and powerfully on social media.

However, it is important to recognise that some concerns, such as increased sharing of opinions of management among staff, are not risks but an inevitable consequence of personal connectivity.

Benefits

The potential benefits of embracing the shift to open business are dramatic: productivity through efficient coordination, agility by immediate connection to relevant resources, innovation through broader access to ideas and ultimately superior competitiveness.

One of the most important implications of an organisation’s attitude to open business is its ability to attract exceptional staff. The most talented young people will invariably choose to work for an organisation that acknowledges and embraces social information flows and innovation over one that limits them.

Risks of not taking action

What is often not explicitly on the executive or board agenda when discussing change is the risk of not taking action. While there are always risks in change, it is a fact that an organisation that does not change in a changing world will be left behind.

This engages a vicious cycle of the organisation finding it increasingly difficult to attract talented staff, offerings not keeping pace with the market, reduced competitiveness and, ultimately, failure.

Governance for transformation

Governance is essential, arguably even more so in a world in which rapid technological and social change is increasing uncertainty. Yet if that governance stops or slows organisational transformation it is dysfunctional and will destroy the company.

This means that governance, in addition to its role of framing and minimising risk, must enable organisational transformation. This is quite different to the traditional approach to governance, which focuses on the risks of action rather than those of inaction.

There are five basic steps to making governance an enabler of transformation.

1. Board and executive team involvement

The board of directors, with its ultimate responsibility for organisational governance, must understand and engage with the concept of governance for transformation. Yet the executive team must also be actively involved. Ideally, one key person in each group will drive the new governance agenda.

2. External provocation

Bringing in provocative external perspectives on industry shifts, challenges and opportunities is critical. Every organisation has blind spots, which can be brought to light by credible third parties, acknowledged and taken into consideration.

3. Explicit recognition of risks of not taking action

Governance focuses on risk. The risks of not taking action or not changing current practices must be explicitly addressed. The board and executives must take responsibility for their organisation’s failings — or missed opportunities — through inaction.

4. Acceptance of risk

The US military recognises that leadership today happens in a world of increased volatility, uncertainty, complexity and ambiguity. There is no such thing as a risk-less strategy. Trying to minimise risk will doom any organisation. The issue is in taking intelligent, considered risks in an increasingly uncertain world.

5. Leadership

True leadership is required to establish governance that will enable rather than stymie innovation and transformation. Today, it is a fundamental leadership capability to be comfortable with ambiguity and uncertainty. Those leaders who embrace the risk required for success can guide their colleagues through a structured process of establishing governance for transformation and organisational success.

Ross Dawson is an author, futurist and entrepreneur.

This article was first published in the February 2015 issue of Acuity magazine.