If you've ever wondered about how to make innovation work in big companies, you're not alone. In this webinar, we're sharing what we've learned from helping global companies set up their innovation systems. Our focus today addresses the number one question they often ask us: “What does that innovation investment governance model look like?”

In the world of corporate innovation, it's important to know that while 80% of companies rank innovation as a top three priority, up to 40% of CEOs think their companies will not be economically viable a decade from now. Only 20% of those companies are ready to scale innovation. Today, we're honing in on one important part of making innovation work – the growth board and investment panel. These are places where leaders make smart choices based on solid evidence, investing in ideas that show the most promise.

How does innovation work in an organization and where does it live?

It all starts with an idea—be it a technological breakthrough or a market opportunity. Our mission is to explore and find a viable business model, a compelling value proposition, or an innovative solution. This is a phase of exploration, a quest to determine if our idea holds promise.

Once we discover that nugget of potential, the journey shifts to scaling and management. It's crucial to recognize the fundamental difference between the exploration phase and the subsequent scaling and managing phases. Visualizing this as a continuum, we emphasize the distinction between exploration and exploitation.

For corporate leaders on growth boards, grasping this contrast is paramount. In ‘Exploit’, where predictability is high, detailed business plans suffice. However, in the ‘Explore’ realm, marked by low predictability, we embrace higher unpredictability, necessitating a culture of iteration and testing. This distinction also reflects in investment strategies—big bets on the right side, small bets on the left.

The questions directed at innovation teams differ significantly from routine execution queries. It's not about feasibility; rather, it's about learning. Do we have evidence and insights into customer needs, pains, and gains? Is there an indication that we can create value, and are customers willing to pay? These become the pivotal questions in the innovative landscape.

Before delving into growth boards and investment panels, it's pivotal to understand that the focus is on teams rather than ideas. The Bosch Business Model accelerator case study exemplifies this, showcasing how a select few teams, out of over 200 ideas, secured investment. The growth board's role is to evaluate teams that have undergone initial phases, retiring those without sufficient evidence and allowing projects with strong support to continue.

Creating a growth board prompts questions about objectives. The primary one is deciding which teams merit follow-up investments and determining the appropriate next steps. Teams, often eager to secure substantial funding upfront, are encouraged to test willingness to pay before progressing to solutions and product prototypes—a critical aspect often overlooked.

What is the difference between a growth board & an investment panel?

Let's clarify their distinct roles. The growth board stands as a permanent force within an organization, taking on the responsibility of deciding which teams, with their innovative ideas, merit follow-up investments to propel them to the next phase. This is a perpetual role, a steady guide shaping the organization's innovation journey year after year.

In contrast, many companies opt for ad-hoc investment panels, specifically crafted for particular cohorts or innovation projects involving multiple teams. There's no inherent superiority between the two; the choice often hinges on the company's level of innovation maturity. More mature companies tend to embrace a permanent growth board, while those in earlier stages might lean towards cohort-based structures.

The growth board plays a pivotal role in maintaining a holistic perspective, not confined to individual investments but encompassing the overall portfolio balance. This involves evaluating the mix of innovations within the portfolio and monitoring the progress of various teams—a delicate equilibrium, especially when considering different time horizons for various types of innovations.

Efficiency innovations, with a one-year time horizon, revolve around refining processes. Sustaining innovations, with a two-plus-year time horizon, carry more risk and demand additional teams. Transformative innovations, exemplified by endeavors like the Bosch accelerator, require more teams due to their longer time frames and higher associated costs.

A fundamental principle here is acknowledging that not all teams will succeed, especially in transformative innovation, where substantial change is pursued. The rule of thumb suggests that at least 9 out of 10 teams may not succeed, but the impact of the successful one is significant.

For growth boards and investment panels, the emphasis lies not just in investing in the next phase of teams but ensuring a diverse mix of innovation types. This strategic approach maximizes return on investment and contributes to the organization's long-term sustainability and triumph.

Who belongs on a growth board and investment panel?

In some cases, you might have both—a permanent growth board for transformative innovation and a separate investment panel for ad-hoc projects like AI initiatives. It's essential to recognize the existence of two distinct worlds: exploration and exploitation.

In the exploitation world, having the right leaders on the investment panel or growth board is crucial. Why? Without their involvement, ideas explored in the exploration world might end up homeless when transitioning to the execution phase. We firmly believe in avoiding a scenario where a professional innovation team tosses ideas over a fence to an execution entity that lacks ownership. The preferred approach involves teams transitioning from exploration, with members from business units and P&Ls contributing to the judgment. This ensures high buy-in, active contribution, and a deep understanding of the process.

However, a caveat is worth noting: the more transformative an idea, the less likely individuals from the exploitation side may support it. In extreme cases, a new idea could potentially challenge or replace an existing business, leading P&L leaders to resist. Therefore, when involving individuals from the exploitation side, especially in transformative innovation, careful consideration is needed to ensure they don't become blockers due to vested interests in the present rather than the future. This debate becomes crucial when establishing a growth board.

Trigger questions to guide ad-hoc investment board selection

The strategic perspective

You want to have the people on the growth board investment panels that actually make and shape strategy.

• Who is responsible for the business strategy and the portfolio guidance? Consider the architects of strategy. Those responsible for business strategy and portfolio guidance play a pivotal role. Portfolio guidance, stemming from strategic insights, directs our investments in innovation projects—an indispensable element for your growth board.‍
• Who actually leads innovation? It goes beyond those directly engaged in innovation; it's about individuals steering the innovation landscape. These leaders, with their political role, weave alliances across the organization. Empower them with an equal voice in decision-making on the growth board.‍
• Who leads mergers & acquisitions? If your company embarks on acquisitions, ensure those leading these endeavors are part of the growth board. Acknowledge that while M&A fuels growth, it may not always deliver transformative growth, especially in industries grappling with disruption.‍
• Who leads corporate venture capital? For a comprehensive strategy, include leaders of corporate venture capital on the growth board. Some companies consolidate all three growth tools—M&A, corporate venture capital, and innovation—under one roof. If not, ensure they collaborate on the growth board to synchronize strategies. It might seem straightforward, but aligning M&A, venture capital, and innovation under a unified strategy is not always a given in many organizations.

The portfolio management perspective

• Who has portfolio visibility? Firstly, ensure someone with broad organizational awareness, adept at connecting project dots and leveraging institutional knowledge, is part of the growth board. This individual plays a vital role in creating political alliances, particularly in larger organizations.‍
• Who can fund the next phase? While some portfolios receive corporate or CEO backing, others, exemplified by the Bosch accelerator, rely on business unit funding. Identifying and involving these financial backers in the growth board ensures a solid foundation for progress
• ‍Who sponsors the next phase? This transcends mere budget allocation; it's about having advocates who not only offer financial support but also champion the business aspects. Homeless ideas lacking embedded business support flounder. Yet, managing sponsors requires finesse to ensure their investments align with evidence-based decisions in the best interest of the company, not just their business units. Leadership shines when sponsors prioritize the organization's well-being over individual units—a vital perspective for the growth board.

Innovation support perspective

• So who could accelerate the next phase? Consider those who can propel the next phase forward. Leaders with direct customer access, like the heads of sales and marketing, can be instrumental. Surprisingly, many innovation teams lack this crucial connection with customers.
• Which functions matter most for the next phase of experimentation? Does the team require marketing support? Are stringent compliance rules essential, especially in industries like banking or pharma? It's vital to involve the necessary functions for a successful next phase.

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For growth boards and investment panels it's important to keep the big picture in mind. The emphasis lies not just in investing in the next phase of teams, but ensuring a diverse mix of innovation types. This strategic approach will help you maximize ROI and contributes to the organization's long-term sustainability and ROI.”

Alex Osterwalder

CEO of Strategyzer

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Governance and decision-making

For growth boards to thrive, two crucial aspects demand attention:

1. Strategic fit

‍Aligning initiatives with organizational objectives and portfolio guidance. This foundational step ensures decisions align with established strategies.

2. Evidence-based decision-making

‍Growth boards must embrace evidence-based decision-making. It's not merely about funding an idea; it's about supporting both the idea and the team through experimentation into the next phase. This distinction is paramount. We emphasize the need for growth boards to shift their mindset from mere activity assessment to evaluating the evidence a team presents.

In our engagements with growth boards, we stress the importance of scrutinizing the evidence. A spreadsheet alone doesn't suffice; instead, focus on the strength of evidence the team provides. We introduce the evidence-based project scorecard, spanning three phases. Leaders are coached to evaluate evidence for customer jobs, pains, and gains initially, progressing to value proposition evidence, and ultimately, acquisition and retention evidence.

This scorecard gauges the depth of evidence, distinguishing between talking to potential customers and obtaining irrefutable evidence from real markets. Each phase sets expectations for evidence levels, guiding leaders to make informed decisions. This structured approach ensures that funding aligns with the evolving strength of evidence throughout the innovation journey.

Incentive structure

In the realm of corporate governance, a common hurdle surfaces—namely, the incentive dilemma. Imagine a business leader steering a profit and loss statement for their unit; allocating funds for innovation might seem counterintuitive, impacting immediate P&L figures. Recognizing the need not only to invest but also to stimulate innovation, growth boards play a pivotal role.

Consider a case where each business unit faced an EBITDA target, focusing on exploitation. The challenge? Innovation expenditures don't yield immediate revenue, affecting the P&L adversely. Business leaders, naturally averse to denting their profits, find little motivation to support innovation.

Here's where strategic governance comes into play. Collaborating with the CFO, a solution emerged—an EBITDA relief. Every dollar invested in innovation through the internal accelerator didn't factor into the EBITDA calculation. This ingenious move, orchestrated within the investment panel where the CFO participated, created a compelling incentive structure. It showcases how thoughtful governance, coupled with strategic incentives, can steer innovation through its crucial phases.

Making smart choices about where to put your innovation resources is super important. Innovation managers often struggle to form the right group to decide which teams should keep getting money to test their business ideas. But it's not just about money; there's a bigger picture too, and that's where growth boards come in. They aren't just about funding; they help shape the whole organization. Strategyzer is here to help you with tools and insights to not just deal with these challenges but turn them into opportunities for innovation success. Think of us as your trusted guide in the world of corporate strategy and innovation.

We hope you gained some interesting insights from this discussion. Don’t forget to subscribe to our newsletter below to stay up to date on future events.