Rethinking Governance for Digital Innovation

When global chemical company BASF launched its Onono lab in São Paulo, Brazil, its mission was to accelerate innovation through rapid collaboration with local partners and startups. But Onono’s director, Antonio Lacerda, faced an immediate hurdle from corporate governance: He was told that his lab would have to follow the same corporate data policies used to secure BASF’s entire cloud infrastructure — which would have made it impossible to partner quickly and nimbly with new startups. Lacerda postponed the launch until he was able, with significant political capital, to arrange an exception: a “sandbox” of separate data for his team, with special permission to share that data through APIs with new partners.

Lacerda’s experience, and that of so many innovation champions, points to a fundamental problem for digital transformation: In large companies, innovation teams are left to fight for waivers in the face of business rules that contradict their own mandate for change. But innovation will never happen at scale as long as it relies on ad hoc exceptions approved by senior leaders. Instead, we must rethink our approach to governance and design new management practices for innovation at the speed of digital.

Designing repeatable processes for innovation is essential for growth in the digital era, yet it is incredibly hard. In too many organizations, new ventures are green-lit based on a single executive sponsor. Once started, ventures move slowly, managed by teams that sit in traditional silos. Resource allocation is slow too, as promising projects wait weeks or months for their next round of approvals. Because each project is backed by an influential executive, no one wants to shut it down, even if it shows little promise.

Meanwhile, risk aversion leads businesses to fund only their low-hanging fruit — incremental improvements in the core that bring a guaranteed, quick ROI. This path will never lead to transformation. Instead, you need governance that embraces uncertainty and supports growth both within and beyond the core. (See “How Governance Helps or Hinders Innovation.”)