By Richard Eichen, Managing Principal, Return on Efficiency, LLC
In-house new product and innovation teams often fail due to a lack of boldness and self-limited creativity, afraid of damaging their careers when their ideas are shot down by their Board. I just saw this at a car show where everything looked the same.
At the NY Auto Show, every car manufacturer had lots of shiny objects and a powerful combustion engine on display (this is a car show, after all). The sizzle-dollars went to pitching their claims to innovation – hybrids and a few electric vehicles. Since the Prius was first introduced in 1997, hybrids are now “me too”, not innovative. Even Toyota, with its full range of hybrids, is refining this now standard technology while innovating with fuel cells.
Electric vehicles are still an evolving art and here is where the innovation lesson is learned. Earlier in the week, Tesla announced their $35K+ Model 3 with 200-300 mile range, depending on the configuration. At the show, we took a test drive in a Ford Focus Electric, which was very comfortable and priced very attractively, but with only a 76-mile range at best. It is as if the engineers were striving for a Tesla killer but were pulled back from the brink of a breakthrough by the New Product Process Police. The Focus Electric is a nice car with a powertrain replacement, not anything new and exciting, i.e., not innovative. It’s what you would expect to see in the far corner of a dealership. It will not make your brain hurt, but won’t excite you either. This car reminded me of the famous US auto industry quote on innovation, “give them leather, they can smell it”, and yes, it had leather-trimmed seats. Ford’s Board could see the car pre-production and immediately gotten it and smiled. It fit their world view. I don’t know when the Focus Electric was announced, but I suspect it didn’t gather the more than 270K pre-intro deposit reservations Tesla received for the Model 3 in less than a week.
When we look at innovative companies, even larger ones such as Apple and Alphabet, there is one noticeable differentiator between the experience-repeaters and innovators. Innovative companies have a healthy mix of a high percentage of Independent Directors on their Boards, and a significant proportion of those independent directors are experienced in fast moving, innovative and creative industries. Sure enough, Morningstar lists Ford as having 1 Independent Director whose bio points towards innovation experience with the remainder having slower product refresh cycle – big organization backgrounds. Alphabet has almost half of its Board in the innovation and creative category and Apple has more than a third of its Board with direct innovation and creative backgrounds.
The combined innovation-obsessed Board and CEO, both with forward vision, are essential to creating the necessary innovation culture and excitement. Apple has a creative and dynamic Chairman, who repeatedly lobbied a resistant Steve Jobs to open the iPhone SDK for independent app developers. The first iPhone was not that innovative, there already were smartphones around in various flavors; the innovation and excitement came later with ‘there’s an app for that’. Alphabet has a similar Chairman and CEO. Tesla’s Board is a mix of backgrounds, but it’s really Elon Musk’s company, as is Bezos’ Amazon. Similarly, you can argue Apple without Steve Jobs is less innovative and more derivative.
What role does the Board play in innovation? Innovation flows from outsiders unshackled to past decisions and investments. The Board and CEO have to grant a company-wide ‘License to Innovate’ for those ideas to be heard, potentially obsoleting their own previous decisions, and only a Board can set that tone.