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The mandate for innovation: Setting the stage for success
In the first in a series of articles looking at the complexities of corporate innovation, the authors consider why a clear innovation mandate is crucial to create an environment where creativity can flourish, and innovation consistently delivers tangible value.
One of the key reasons large corporations struggle to succeed at innovation is that teams don’t have a clear mandate to innovate from their board. They’re paralyzed by internal ambiguity. The innovation mandate, a concept developed by co-author Stephen Parkins, founder of Culturedge, is the cornerstone of successful innovation governance. It outlines strategic objectives, resource allocation, risk tolerance, and expected outcomes and provides a roadmap for innovation teams to navigate the complex landscape of corporate innovation.
The need for an innovation mandate
Innovation teams often receive vague directives like ‘be innovative’ or ‘disrupt the industry’ without clear guidance on how these goals align with company strategy. What’s more, budgets can fluctuate based on short-term concerns, creating resource constraints. This ambiguity leads to misaligned efforts, with teams pursuing interesting projects that might not support strategic priorities. Risk aversion is also common, with both innovation teams and leadership defaulting to overly cautious approaches. There is often asymmetry between the company’s ambitions and cautious approaches, resulting in a disconnect between ambition and execution. Additionally, the lack of defined goals and metrics makes it hard to determine whether innovation efforts are delivering value. Co-author Stephen Parkins draws a parallel between innovation and his background in derivatives trading, where it’s normal practice to be granted a mandate that delegates authority and defines goals, risk appetite, expected returns, boundaries, and constraints. This mandate answers critical questions about rules and expectations. Parkins notes that innovation is like trading in that, while you can’t look into a crystal ball, you can create internal clarity. This clarity is essential for overcoming the contradictions of corporate innovation, where there are often expectations for the creation of billion-dollar businesses, but little appetite for risk.
“It represents an explicit delegation of authority from the board of directors to innovation professionals to manage the portfolio according to their expert judgment.”
What is an effective innovation mandate?
An effective innovation mandate is a foundational document that aligns expectations and provides innovation teams with the necessary autonomy to pursue potentially disruptive ideas. It represents an explicit delegation of authority from the board of directors to innovation professionals to manage the portfolio according to their expert judgment.
The mandate framework encompasses five key components:
- Direction: Strategic objectives and scope of innovation
- Risk-reward: Resource allocation and risk tolerance parameters
- Governance: Terms of reference and stakeholder engagement guidelines
- Portfolio execution: Partnership and scaling guidelines
- Impact and reporting: Success metrics
A crucial insight is that it’s unreasonable to expect significant innovation outcomes from minimal investments and low risk tolerance.
Drawing inspiration from other industries
In developing an innovation mandate, companies can draw valuable insights from industries experienced in managing risk and uncertainty. The financial trading sector, for instance, has long used clearly defined mandates to guide trading activities. The same applies to venture capital and private equity. Applying this financial thinking to innovation can create a more structured approach to corporate innovation governance.
By adapting this approach to innovation, companies can create a framework that supports creative exploration while maintaining strategic focus and managing risk. As René Herrewijnen, Head of Business Innovation at Dutch touring club, ANWB, the largest mobility association in The Netherlands, explains, “Corporate innovation is maximum uncertainty in a structured environment. So, you have a lot of freedom, but you also have to show sharpness to the investment committees.”
“A well-written innovation mandate gives confidence to both the board and the innovation team, effectively serving as a contract between the company and the innovation department.”
The critical role of a clear innovation mandate
A well-written innovation mandate gives confidence to both the board and the innovation team, effectively serving as a contract between the company and the innovation department. This clarity is crucial for managing the tensions inherent in corporate innovation over time and for managing expectations about realistic outcomes for innovation efforts.
While many companies excel in certain elements of innovation, it’s unusual to find a corporation where all the elements of an innovation mandate have been consolidated in one place. This highlights the importance of a comprehensive approach to innovation governance. Companies should strive to create a holistic mandate that addresses all key aspects of innovation, from strategic alignment to risk management and performance measurement.
Herrewijnen shares his experience of working with a clear mandate: “Our assignment was inspired by the mission/vision of ANWB, a clear financial target and focus areas. But for the rest, we were allowed to see what we could find. That was the right starting point and eventually led to ANWB Energie, our first big success story.”
Energy innovation: ANWB partners with EnergyZero to deliver true-cost green power
ANWB, the Royal Dutch Touring Club, has partnered with EnergyZero to launch ANWB Energie, offering green electricity and gas to customers at cost price. This collaboration aims to provide sustainable and affordable energy solutions while promoting clean mobility in the Netherlands.
ANWB Energie offers a unique subscription-based service with dynamic pricing, allowing customers to benefit from hourly electricity rates and daily gas prices. This innovative model encourages energy consumption during periods of abundant wind and solar power, promoting sustainable practices. Key features include:
- Certified green power from Dutch solar and wind sources
- CO2-compensated gas
- No profit margin on energy consumption
- Monthly cancellation option without penalties
- Potential for cost savings by shifting power usage to off-peak hours
By providing transparent pricing and flexible terms, ANWB Energie aims to create a premium experience for its members while supporting the transition to cleaner energy solutions.
Looking ahead to 2030, ANWB anticipates a significant shift in the Dutch automotive landscape, with projections of 1.9 million electric vehicles on the roads. This transition presents a unique opportunity for integrating electric cars into the energy ecosystem. The partnership between ANWB and EnergyZero envisions electric vehicles serving dual purposes:
- Acting as energy storage units for individual households
- Collectively forming a decentralized power station comprised of millions of ANWB members’ electric cars
This innovative approach not only supports the growth of sustainable transportation but also contributes to grid stability through smart charging and potential vehicle-to-grid technology. By leveraging the storage capacity of electric vehicle batteries, ANWB Energie aims to create a more flexible and resilient energy network that can better accommodate the fluctuations inherent in renewable energy production.
Implementing an innovation mandate
To implement an effective innovation mandate, companies should consider the following steps:
1. Align with business strategy. Ensure that the innovation mandate is in line with the overall business strategy. As Lysander Weiss points out, “Innovation should at least be aligned with the business strategy and have a clear strategic framework and goals with a portfolio of innovations.”
2. Define focus areas. Clearly articulate the areas where innovation efforts should be concentrated. This helps in prioritizing initiatives and allocating resources effectively.
3. Set clear metrics. Establish concrete metrics for measuring the success of innovation efforts. These should go beyond simple financial metrics to include strategic impact and learning outcomes. Leading indicators are more useful than backward-looking KPIs.
4. Allocate resources. A fixed budget should be agreed upon, e.g., a percentage of turnover, to ensure commitment, learning, and risk-taking within a framework and long-term thinking.
5. Foster a culture of innovation. The innovation mandate should not only set guidelines but also enable a culture that supports risk-taking and learning from failure.
6. Regular review and adaptation. The innovation mandate should be reviewed periodically to ensure it remains relevant and effective in the face of changing business conditions and in response to real-world feedback.
It’s important to go through the process of setting the mandate multiple times, similar to when companies set OKRs (Objectives and Key Results), as companies and leaders get better at it with each iteration. This iterative approach allows for refinement and improvement of the innovation mandate over time, ensuring it remains relevant and effective.
Lysander Weiss, Senior Research Fellow at HHL Leipzig (Germany), and Partner at venture.idea, emphasizes the importance of “Defining innovation focus areas and then debating whether you have enough initiatives going on in those areas. Those are the right discussions, because then management understands the portfolio.” This approach helps in creating a balanced and strategic innovation portfolio.
Alexandre Janssen, founder of innovation consultancy Minkowski and former Head of Innovation EMEA at Deloitte, highlights the importance of a dedicated innovation budget: “Discussing separate innovation initiatives with the board for funding is not the way to go. A fixed budget should be agreed upon, e.g. a percentage of turnover, to ensure that you can pursue a long-term perspective and learn from mistakes and experimentation.” This approach ensures that innovation efforts have consistent resources and can take a long-term view.
To assist companies in developing their innovation mandates, Parkins has created an Innovation Mandate template.
The Innovation Mandate template
To assist companies in developing their innovation mandates, Parkins has created an Innovation Mandate template. This framework provides a structured approach to establishing a clear mandate, covering all the essential elements covered in this article. It serves as a valuable tool for organizations looking to formalize their innovation governance and align their innovation efforts with their strategic objectives.
The template ensures that companies go through the process of defining each aspect of their innovation mandate, from strategic alignment to risk tolerance and success metrics. By using this template, organizations can ensure they’re addressing all critical elements of an effective innovation mandate, reducing the likelihood of oversight or inconsistencies in their approach to innovation governance.
This hesitation often stems from a lack of understanding about the nature of innovation and its inherent risks.
Challenges in implementing an Innovation Mandate
While the benefits of a clear innovation mandate are significant, implementing one is not without challenges. One common obstacle is the difficulty in getting executive leadership to commit to specific parameters for innovation efforts. For instance, when asked about the percentage of revenues that should be allocated to explorative innovation, many executives struggle to provide even a range.
This hesitation often stems from a lack of understanding about the nature of innovation and its inherent risks. It’s crucial for companies to educate their leadership about the importance of setting clear guidelines for innovation efforts, even if those guidelines need to be adjusted over time. It’s also preferable that companies address these challenges early on, rather than after three years while debating why the output of innovation has been disappointing.
Another challenge is maintaining a sustained commitment to the mandate in the face of short-term challenges and resisting the temptation to change the mandate abruptly due to temporary financial pressures, as such decisions can be detrimental from an investment perspective. Significant changes to the innovation mandate should only occur in extreme circumstances, such as when the company is facing existential threats.
Aligning innovation efforts with strategic goals
As companies strive to stay competitive and drive growth through innovation, the innovation mandate serves as a crucial bridge between strategic intent and practical execution. By implementing a comprehensive innovation mandate, organizations can create an environment where creativity flourishes, risks are managed, and innovation efforts consistently deliver tangible value to the business.
Ewout Bolhuis, Director of Deloitte Innovation and Deloitte Corporate Incubator, underscores the importance of board-level commitment to innovation: “If innovation within a company is just a file and that file is reduced to investments when results are disappointing, then you are simply not at the right level between the ears of the board.” Patience and understanding at the highest levels of the organization are crucial for fostering a culture of innovation and enabling potentially game-changing ideas by giving them the time and resources needed to develop and flourish.
A well-crafted innovation mandate is more than just a document – it’s a two-way commitment for aligning innovation efforts with strategic goals, managing risk, and driving meaningful change within an organization. By implementing a clear and comprehensive innovation mandate, companies can set the stage for innovation success and stay ahead of the competition.
The path to successful innovation begins with clarity, commitment, and a well-defined mandate that empowers teams to explore, create, and deliver value in ways that drive the business forward
In our next article on innovation, Joep de Caluwé will explore the importance of breaking down silos between M&A, in-house innovation, and partnerships.
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