Adapting Governance to Your Innovation

Journey
Published: 13 November 2019 ID: G00451438

Analyst(s): Peter Skyttegaard, Darren Topham

As innovation leadership becomes an important part of the CIO’s job,

employing proper innovation governance will optimize value potential against
investments and inherent risk. CIOs should adapt their governance to their
innovation journey to balance risk and reward.

Key Challenges
■ Traditional governance frameworks are typically not tailored to cope with the looser, more
exploratory nature of innovation activities. As a result, innovation is often overlooked or is not
properly balanced in the governance.
■ Governance that is too tight or rigid can stifle innovation efforts and jeopardize the opportunities
for innovation to create value for the organization.
■ On the other hand, governance that is too relaxed — or no governance at all — can lead to
wasted resources or unacceptable risk.

Recommendations
CIOs leading the design and implementation of an innovation governance framework that balances
risk and reward should:

■ Create an adaptive governance model by leveraging a broad palette of governance styles and
mechanisms for your innovation initiative.
■ Create a solid outcome-focused governance foundation by defining and communicating goals,
context and principles in the early stages of organizing the innovation initiative.
■ Increase governance agility by adapting governance through the phases of your innovation
journey with a light governance in the ideation and a gradual transition to regular governance as
innovation initiatives progress through experimentation to value realization.

Table of Contents

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 Introduction............................................................................................................................................ 2
Analysis.................................................................................................................................................. 4
Create Adaptive Governance Styles and Mechanisms...................................................................... 4
Create the Foundation for Your Innovation Governance.................................................................... 5
Adapt Governance Styles and Mechanisms to the Innovation Journey............................................. 6
Gartner Recommended Reading............................................................................................................ 8

List of Tables

Table 1. Governance Mechanisms.......................................................................................................... 4

List of Figures

Figure 1. Governance Through the Innovation Phases............................................................................ 3

Introduction
For many CIOs, leading innovation initiatives is becoming an important part of their job. To succeed,
CIOs must govern the innovation initiatives so that they create value and support the business
strategy while also balancing risk.

Innovation governance is a set of mechanisms that aligns goals,

assigns decision authority and allocates resources to innovation
activities with the aim of creating maximum value potential at
acceptable risk.

However, the topic of innovation governance is often met with skepticism and CIOs often find it
challenging to apply governance frameworks that properly balance risk and reward in innovation.
Governance that is too relaxed — or no governance at all — can lead to wasted resources or
unacceptable risk, while on the other hand, governance that is too tight can stifle innovation efforts
and forfeit business opportunities.

Traditional IT governance mechanisms that CIOs are familiar with, such as review boards and
project steering committees, are typically designed with a desire for control and predictability in
mind. This easily leads to conflict with the exploratory nature of innovation and its relatively high
(and necessary) failure rate. As a result, innovation leaders and their teams often see governance as
frustrating overhead.

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 For innovation to be successful, it is vital that some of the normal processes and operational
expectations be lifted or relaxed in order for a creative and exploratory environment to flourish. But
this cannot be at the cost of reckless pursuit or high-risk behavior.

A key challenge is that a one-size-fits-all governance approach is not suited for innovation. Early
ideation needs a more flexible approach, while later scaling to value needs increasingly tight
controls as resource demands and risk increase with scaling of ideas.

To satisfy these seemingly conflicting needs, CIOs and other innovation leaders need to implement
an adaptive governance model with a broad palette of governance styles and mechanisms that can
be applied selectively throughout the innovation journey (see Figure 1).

Figure 1. Governance Through the Innovation Phases

A well-designed innovation governance establishes a solid governance foundation in the early

stages of the innovation initiative where direction is set, goals are defined, and context and
principles are understood. This will allow the early ideation and evaluation to run with a light
governance until the ideas approach value realization and more governance is again needed to
verify value potential, transfer ownership and scale the solutions.

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 Analysis
Create Adaptive Governance Styles and Mechanisms
Gartner’s adaptive governance framework identifies four different governance styles. It starts with
traditional “control-based” governance focused on controlling assets and meeting compliance
requirements. “Outcomes-based” governance adds aspects of strategy and value to the
governance, while “agility-based” and “autonomous” governance accelerate decision making by
distributing decision rights and accountabilities closer to value realization.

Across these four styles, governance is designed and implemented as a set of mechanisms in the
form of rules, roles, structures, processes and culture, as listed in Table 1.

Table 1. Governance Mechanisms

Mechanisms Description

Rules Policies, compliance, technical standards, architecture principles, mandates and other enforceable
business rules

Roles Roles that are leveraged to achieve governance outcomes across the enterprise, such as executives,
product owners, risk managers, auditors, architects, compliance officers and other roles with mandate
to approve business decisions

Structures Organizational structures that promote good decision making, such as review boards, executive
committees and risk committees

Processes Processes that drive decision making, such as business case process, architecture design review
process, portfolio management process and risk management process

Culture Values as drivers for good decision making through behavior, ways of working and beliefs

Source: Gartner (November 2019)

For more on governance styles and mechanisms see “Succeed With Digital Business Through
Adaptive Governance.”

Traditional governance is often designed as governance by process with operational process

control in mind. It starts with a control approach and then relaxes style in response to demands for
agility and flexibility.

Innovation needs governance by exception: Let the innovators do what they need to do, but make
sure that you have the boundaries in place to catch the derails. Therefore, you should consider a
“reverse” approach — starting with agility or autonomous style governance as the default choice
and then working your way across outcome- or control-based governance only when deemed
necessary by your business goals and risk profile.

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 The appropriate governance style and mechanisms will differ across the different phases in an
innovation process from idea generation and evaluation through experimentation to value
realization.

Create the Foundation for Your Innovation Governance

To lay the foundation for innovation governance framework, identify the few key factors that
determine the need for innovation governance in the enterprise. By understanding the key
outcomes that your innovation initiative must deliver as well as the boundaries that you cannot
cross, you can select and implement governance mechanism tailored to these only and, thus, avoid
a bloated governance framework. Assess your goals, context and principles to determine these key
factors:

Objectives and Goals

The first step is to understand the business objectives of your innovation initiative. If your objective
is to address challenging goals in your existing processes or operations, you will need a governance
model aimed at close coordination between your innovation team and the other parts of the
organization. If your objective is to come up with entirely new, innovative business models, you will
need a more independent governance structure without the close ties to your existing structures to
cater to faster iteration. If it is imperative that your innovation initiative meets certain tangible and
time-bound goals, then this also should be factored in.

Ask yourself: “What are the key outcomes that our innovation initiative must deliver?” If possible,
limit the initial list to no more than five objectives or goals.

For more on goals, see “Successful Innovation Begins With the Business Strategy: Use Business
Objectives and Goals to Start Your Innovation Journey.”

Context and Principles

The second step is to assess your context and principles to understand the guardrails that will
shape your innovation governance. Context includes your organizational climate, such as the risk
appetite and the willingness to accept change in your organization. It also includes considerations
about the resources that are available for your innovation initiative, such as your organization’s
willingness to invest in innovation, as well as limitations imposed by other scarce resources.

Principles are fundamental beliefs that reflect the values of the

organization and guide behavior and decision making.

To determine the contextual factors and principles that you will factor into your innovation
governance model, consider things that you will never do, as well as things that you must always
do.

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 Context and principles are specific to your organization and enterprise, and must reflect the specific
conditions that shape your innovation governance. As an example, certain industries — such as,
pharmaceutical manufacturing — are subject to strict external regulation, requiring high degrees of
compliance and accountability. These must be maintained in all circumstances and, therefore, must
be “baked in” to any associated innovation governance for that industry. If your enterprise is going
through financial turmoil, your governance will likely be designed with strict financial controls in
mind.

Ask yourself: “What are the boundaries that we will not cross in our innovation efforts — the things
that we will never do?”

For objectives and goals, seek to limit the initial list to no more than five items.

For more on context and principles, see “Your Context and Principles Are Key When Starting an
Innovation Journey.”

The list of key outcomes and boundaries determine your need for your subsequent innovation
governance; but agreeing on the list is also subject to governance. The governance style at this
stage is outcome-based focusing on alignment with strategy and value objectives. We recommend
that the outcomes and boundaries are explicitly agreed on at a senior level of decision authority in
the organization. Those involved in subsequent governance activities — that is, existing governance
structures like executive boards and other senior level governance committees — should also be
involved in decision making. Governance time and resources at this stage are well spent as they
provide a shared understanding of your innovation initiative’s characteristics, which allows you to
tailor the rest of your innovation governance.

Adapt Governance Styles and Mechanisms to the Innovation Journey

With an understanding of the desired outcomes and boundaries for your innovation initiative, you
can select and apply appropriate governance styles and mechanisms through your innovation
journey. In doing this, it is useful to consider a list of questions that the governance framework must
answer, such as:

■ How do we verify that innovation initiatives are aligned to goals?

■ How do we verify value potential?
■ How do we allocate resources and approve investments?
■ How do we measure performance?
■ How do we decide to stop an experiment?
■ How do we determine if risk is acceptable?

For each of these questions, decide who is responsible, when they need to be involved and what
they have to do when they are involved.

To make the innovation process more “governable,” treat the innovation as a series of small steps
where the governance decisions can be made using different governance mechanisms along the

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 innovation journey. In order not to stifle innovation, you should select the “lightest” mechanism to
satisfy the key factor determined by your goals, context and principles — especially in the early
phases of idea generation and selection.

As an example, the decision on how to allocate resources and approve investments in the early
phases can be governed by simple rules, such as:

■ Managers can approve experimentation with ideas up to a certain financial level without the
need for a quantitative business case if the idea is within the desired outcomes and boundaries
defined in the innovation program. This would be an example of a role-based governance
mechanism.
■ Any employee can spend a full day every month working with colleagues from other parts of the
organization to come up with new ideas within the outcomes and boundaries defined in the
innovation program. This would be an example of a culture-based governance.
■ As the innovation progresses, the governance can then be more formalized. In the example of
how to allocate resources and approve investments, this could be through a rule that initiatives
require an approved business case to progress past the first proof of concept. This is an
example of a process-based governance mechanism.

When you design the innovation governance, consider where, how and when you can use
mechanisms from your existing governance rather than designing an entirely new governance
model from scratch. Review your list of key outcomes and boundaries for your innovation initiative
against your existing governance to identify alignments and conflicts:

■ What are the key elements in your existing governance that must apply to your innovation
initiative?
■ An example could be mandatory compliance review boards in pharmaceutical
manufacturing that need to be factored into your innovation governance — you will have to
agree with the existing board on how and when you submit innovation initiatives for their
review.
■ What are elements from your existing governance that must be adjusted to cater to your
innovation initiative?
■ An example could be a rule in your existing governance that new initiatives will only be
approved if they can demonstrate a positive ROI. Such a rule will likely need to be relaxed
or delayed to a later stage in innovation since the inherent uncertainty in innovation makes it
impossible to calculate ROI for early ideas. Governance bodies accountable for the existing
rules will need to agree with these adjustments.

As the innovation initiatives progress toward value realization, you can gradually apply more and
more of your existing governance mechanisms.

Think of the innovation governance as a flight path. Governance is for the flight planning, preflight
check and take-off. Done right, you can have a relaxing flight until you again need more control for a

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 safe landing. At the end of the innovation journey, ownership is fully transferred and “normalized,”
and the regular governance takes back control.

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.

“Jump-Start Your Innovation Journey With a Customizable Innovation Framework”

“How to Scale Innovation Beyond Pretty Prototypes”

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