The Board’s New Role in Innovation: Why Embracing Risk is Key to Future Growth

In today’s competitive landscape, innovation is no longer solely a management responsibility; it’s an essential priority for boards of directors. Traditionally cautious and focused on risk mitigation, boards are now shifting their focus to support bold, strategic innovation. According to Harvard Business Review, this “new innovation imperative” for boards requires a departure from the usual governance practices, fostering a culture that values both calculated risk-taking and collaborative partnership with management.

For businesses to succeed in an era marked by constant disruption, boards must play an active role in driving innovation. This article explores the evolving responsibilities of board members and offers insights into how boards can strategically support transformative change within their organizations.

1. The Evolving Role of the Board: From Risk Mitigation to Innovation Champion

Traditionally, boards have served as a stabilizing force, focusing on minimizing risk and ensuring that companies operate within safe boundaries. However, the rapidly changing business environment has underscored the need for boards to adopt a more proactive stance. Today, many directors recognize that avoiding risk is, paradoxically, one of the riskiest paths forward. Boards now have a new mandate: to enable breakthrough innovation that positions companies for long-term success.

This shift in board responsibility reflects a broader industry trend. For companies facing intense competition and disruptive forces, incremental improvements are no longer enough. Boards are increasingly expected to guide their organizations toward strategic innovation by:

• Embracing calculated risk: Supporting innovative projects that might carry short-term risk but promise long-term rewards.
• Encouraging management to pivot: Advocating for flexibility and adaptability to respond to changing market dynamics.
• Investing in groundbreaking ideas: Prioritizing innovations that can reshape the industry and redefine the company’s position within it.

Shift Actions Insight: We see this shift as essential for companies aiming to remain competitive. Boards that actively champion innovation foster resilience, enabling their organizations to thrive in an ever-evolving market.

2. Key Challenges Boards Face in Governing Innovation

While boards are increasingly recognizing their role in supporting innovation, many still struggle with the complexities of this responsibility. Recent research reveals four major challenges that boards encounter in governing innovation:

An Outdated Risk Agenda

Most boards have traditionally focused on minimizing risk, which often leads to a reluctance to embrace disruptive ideas. Many directors report that innovation discussions are still framed around sustaining the core business rather than pursuing new ventures that challenge the status quo.

In this environment, boards need to shift their mindset. Instead of asking, “How can we avoid risk?” the question becomes, “How can we manage risk while pursuing growth through innovation?” Embracing this inverted risk paradigm allows boards to support high-potential initiatives that might otherwise be seen as too uncertain.

Insufficient Time for Innovation Strategy

Directors report that their board meetings are often packed with compliance, financial oversight, and governance topics, leaving limited time for discussions on innovation. This lack of time is particularly challenging in sectors like healthcare, energy, and financial services, where regulatory issues and market shifts demand constant attention.

To address this, many boards are setting aside dedicated time for strategic discussions about innovation. Some boards are even restructuring their meeting agendas, with separate sessions focused solely on growth and disruptive activities. This approach enables boards to maintain their traditional oversight responsibilities while prioritizing innovation as a core part of their mandate.

Lack of Relevant Expertise

A common barrier to effective innovation governance is the board’s lack of expertise in emerging technologies or disruptive business models. Directors without a background in tech or innovation may struggle to assess the risk and reward profiles of novel projects accurately.

To bridge this gap, many boards are bringing in “digital directors” or members with experience in high-growth, technology-driven industries. This diverse expertise enables boards to make better-informed decisions about innovation projects, balancing caution with ambition.

Unproductive Board-Management Interactions

Historically, board-management relationships have followed a “telling and selling” model, where management presents a fully developed strategy, and the board reviews it. However, effective innovation governance requires a more collaborative approach. Today’s boards need to engage with management as thought partners, providing input on early-stage ideas rather than evaluating only fully baked proposals.

Shift Actions Insight: At Shift Actions, we work with companies to foster productive board-management dynamics that support open, honest discussions about innovation. This partnership mindset ensures that innovation initiatives receive both strategic guidance and critical feedback early in the process.

3. Redefining the Board-Management Partnership for Innovation

For innovation to flourish, boards and management must cultivate a partnership that promotes open dialogue and mutual trust. Several best practices can help boards redefine their role as a strategic partner in innovation:

Create a Marketplace of Ideas Through “Creative Abrasion”

Creative abrasion—the productive friction generated by differing viewpoints—is essential for effective innovation. Boards that encourage rigorous debate and diverse perspectives create a “marketplace of ideas” where new concepts are tested, refined, and strengthened. Rather than passively accepting management’s proposals, boards should actively question assumptions, propose alternatives, and engage in constructive critique.

Shift Actions Insight: By encouraging creative abrasion, Shift Actions helps organizations build a culture of constructive debate. This approach fosters innovation, ensuring that only the most robust ideas progress.

Redefine Success Metrics for Innovation

Traditional financial metrics may not fully capture the potential of innovative initiatives. Boards should work with management to develop alternative metrics that better reflect the long-term value of innovation, such as customer experience improvements, market share growth, or time-to-market for new products.

One approach is to use “vitality indices”—measures that track the proportion of revenue generated by new products or services. By focusing on process-based metrics rather than only outcomes, boards can better gauge whether innovation initiatives are advancing toward strategic goals.

Shift Actions Insight: Shift Actions supports organizations in defining metrics that align innovation with strategic goals. These metrics provide a clearer picture of progress and enable more meaningful oversight of innovation initiatives.

Encourage Risk-Taking and Embrace Learning from Failure

Innovation inherently involves risk, and boards must foster an environment where failure is seen as an opportunity for learning. Many boards are now recognizing the value of “failing fast” and “learning fast,” encouraging management to test new ideas quickly, assess results, and iterate as needed.

Boards can support this mindset by acknowledging that not every innovation initiative will succeed, and by distinguishing between “praiseworthy” and “blameworthy” failures. Praiseworthy failures are those that lead to valuable insights, helping the organization refine its approach and improve future initiatives.

Shift Actions Insight: At Shift Actions, we help boards and management teams build resilience by normalizing failure as a component of innovation. This approach encourages bold thinking and continuous learning, which are essential for long-term success.

4. A Blueprint for Boards Embracing the Innovation Imperative

For boards looking to strengthen their role in innovation, the following blueprint offers a practical approach:

1. Prioritize Innovation in the Agenda: Dedicate time in every board meeting for discussions on growth and innovation. Consider scheduling separate sessions focused solely on disruptive initiatives and high-potential ventures.
2. Recruit Diverse Expertise: Bring in directors with experience in digital transformation, emerging technologies, or venture capital. This diversity of expertise enables boards to make well-informed decisions and provides valuable insights for innovation efforts.
3. Define Alternative Metrics: Establish innovation metrics that reflect long-term value, such as customer-centric indicators, innovation vitality indices, or new product adoption rates.
4. Build a Partnership Mindset: Cultivate a relationship with management that values collaboration. Encourage management to present early-stage ideas, fostering a collaborative environment for strategic input and guidance.
5. Foster a Culture of Risk and Learning: Normalize the idea of learning from failure and encourage management to take calculated risks. By fostering this culture, boards empower management to pursue ambitious projects without fear of punitive consequences.

Shift Actions Insight: At Shift Actions, we partner with organizations to implement this blueprint, aligning board priorities with innovation goals to create resilient, forward-thinking companies.

Conclusion: Embracing the Board’s New Innovation Imperative

The shift from risk-averse oversight to innovation champion represents a pivotal change in board governance. Boards that successfully embrace this new role will not only support management in navigating today’s challenges but also position their companies for sustained growth in the years to come.

At Shift Actions, we believe that effective board governance is a catalyst for transformative innovation. Our expertise in corporate innovation and venture building enables us to help boards define their role in this evolving landscape, fostering the partnerships, processes, and mindsets that drive meaningful change.

Ready to redefine your board’s role in innovation? Connect with Shift Actions to explore how we can support your board’s journey toward becoming a strategic partner in innovation.

Read more in the full HBR article: The Board's New Innovation Imperative