Simon Devonshire OBE is a serial entrepreneur, the chair of Ploughshare, and a NED at the Student Loans Company. Here, he shares his thoughts on why large organisations struggle to innovate, and how boards and executive teams can catalyse innovation by recognising its true value.
Why do large organisations struggle with innovation?
The book The Innovator’s Dilemma, by Harvard professor Clayton Christensen, explains why corporates suffer innovation paralysis. It’s very simple: if your business turns over billions, why should you divert resources to innovating something that will only turn over a couple of million? Innovation is often regarded by corporates as a distraction that dilutes attention and risks equally diluting the value of the core business, and therefore shouldn’t be done.
The problem, of course, is that corporates are measuring the wrong thing entirely. They are typically fixated on short-term revenue. But the value of innovation isn’t in the short-term revenue generation in a new product line: it’s in the notoriety, the reputational gain, and the column inches that drive revenue in the core business. Why is Tesla the most valuable car business on Earth? It’s not because they produce EVs that are fundamentally better than their competitors’; it’s because they have an amazing reputation for innovation. Tesla out-innovated an entire industry, and that’s why so many consider it a compelling stock to buy.
“Right now, the biggest risk for corporates is the risk of being boring — although it’s not something you see in any risk register.”
Corporates invest considerable effort in contemplating, managing, and mitigating risks. As an entrepreneur, my view is that corporates invest too much in governance focusing on the wrong risks. Right now, the biggest risk for corporates is the risk of being boring — although it’s not something you see in any risk register. Innovation is the one remedy to that. But to embrace the opportunity, you have to do things differently. As Christopher Columbus said, “You can never cross the ocean until you have the courage to lose sight of the shore.”
What structures have you seen organisations adopt to promote innovation?
Fundamentally, it starts with everyone at the top owning the problem. The last thing you want is an “innovation officer” or any one person being accountable for innovation. Instead, you need a CEO who has innovation through to the core and a vision for it, alongside a great chair and non-executive board who can contribute to that vision — both by supporting and challenging it. Without those, you will never achieve progress.
“The last thing you want is an ‘innovation officer’ or any one person being accountable for innovation.”
Then, whilst innovating should be a shared duty, I’m an advocate of a simple organisational structure where responsibilities and remits are well-defined — with a CEO, CFO, COO, someone accountable for legal, and so on, but avoiding the contemporary job titles that tend to be confusing and create unnecessary complexity. And I encourage these leaders not to point fingers at one another but to focus on their bailiwick. Otherwise, everybody ends up having a view and opinion on what, say, marketing’s doing, which makes it harder to maintain momentum.
An example of what that looks like in practice is the approach we took at Telefónica, where I led an internal business accelerator. We focused our role on deciding which ventures to fund, not how to run them. By doing so, we avoided smothering them and gave them the space they needed to deliver.
What is the board’s role in driving innovation?
A board’s role is to focus on the single Most Powerful Action (the MPA) that will drive the business forward furthest. And, in my view, that’s innovation.
So, it’s the board’s job to challenge the executive team, asking progressively harder questions to get them thinking about new ways of doing things.
Take, for instance, moving away from plastic packaging. Why is it impossible to buy blueberries in anything other than a plastic carton? If I were working with a retail business, I’d start by asking, “When are we going to eliminate plastic packaging from our products?” If I didn’t get a coherent answer to that, I’d dig deeper: “What’s the first product we can do this with?” And just keep going until, eventually, you get a satisfactory answer.
“History is littered with examples of what happens when board members don’t ask the right questions, or don’t do it with the right mindset.”
That questioning process may sound like “Non-Executive 101”. But a crucial part of it is often left unsaid, and that is the need to show compassion, kindness, and what I call “graceful intolerance” throughout. To expand on my example: I’m completely intolerant of plastic packaging, but I try to be graceful and helpful in how I express that intolerance. Rather than finger-wagging, which doesn’t really work, I focus instead on asking questions such as “How can I help you achieve this?” And that helps us move forward.
History is littered with examples of what happens when board members don’t ask the right questions, or don’t do it with the right mindset: if you fail to innovate, eventually you just get replaced by new incumbents. And that’s one of the reasons I appreciate the work of Board Intelligence, because it lets directors focus on the forward-looking discussions that matter — rather than wrestle with overly long, backwards-looking board packs.