Innovation in the AI Era: How Boards Must Adapt.
As AI redefines the way business works, the challenge now is to govern innovation effectively while balancing risk, opportunity and long-term value creation.
Innovation has long been a business priority. At its core, it is about solving problems, whether responding to market opportunities, or streamlining processes.
For boards, the imperative is how to adapt and work with management to drive innovation in an era where AI is reshaping strategy, talent and decision-making faster than traditional models can adapt.
Boards can support innovation by experimenting with executive pay structures, succession planning or risk analysis and ensure oversight of innovation systems so that they remain commercially viable and systematic. However, as AI feeds its way into every aspect of a company’s operations, the challenge is multiplying. It requires a change of mindset.
Process, people, purpose
Board innovation is particularly important across three overlapping areas: process, people and purpose, i.e. optimising processes, finding exceptional talent and setting the strategy.
The whole board needs to have an innovation agenda, not just a sub-committee,” says a Chair of a listed media company. It’s “too easy to delegate it to a small group.” They added, “There will always be people on the board who have a greater risk appetite for innovation: these people are key – you need people who will be thinking ahead of the curve.”
Boards are ultimately responsible for the long-term success of their organisations. Their effectiveness depends on non-executive directors (NEDs) who challenge assumptions, anticipate disruption and contribute strategic insight, as well as providing robust governance oversight.
Finding breathing space to think about larger issues can be difficult but it is strategic purpose that presents the biggest dilemma. A board's central role is to help shape strategy and test management assumptions. Oversight remains essential, yet boards also play a critical role in shaping long-term direction.
One-size-fits-all does not apply as the board’s involvement will be determined by the context. In unpredictable contexts, a board may need more of a co-creation role.
Private equity-backed businesses can provide an interesting contrast. With a strategy to optimise the value contribution to shareholders, their boards and NEDs play a more active role in challenging strategy, evaluating investment choices and tracking execution against clearly defined outcomes.
Any discussion of board-level innovation inevitably arrives at AI
AI is no longer a single innovation priority among many; it has become the lens through which process improvement, talent strategy and business transformation are evaluated.
The Financial Times recently reported that “four in five boards in the UK are debating which human decisions should be outsourced to AI”, e.g. condensing and summarising lengthy documents. At the same time, the report also highlights that “40% of directors polled believed that boards themselves may only require little or incremental change to their own processes over the next five years”.
All boards, now, are focusing on improving technological literacy. Some are working with management to reinvent the business model fundamentally.
Caught between curiosity and caution
Clarity of the problem defines relevance. Business decisions to date have been based on measurable impacts on individual, board and company performance, before jumping in.
The speed of change makes it difficult to determine a strategic direction and invest accordingly. AI’s inexorable spread has left many boards hesitant around what to do, how fast to act and what resources to commit. Many boards remain caught between curiosity and caution but ‘wait-and-see’ may turn out to be ‘too little, too late’. Strategic indecision is a risk in itself. The scale, complexity and number of possible scenarios compel businesses to use AI, overlaid by human judgement. Boards that fail to adapt may find themselves reacting to the disruption instead of shaping it.
To be sure, responsible caution, at least in the short-term, may be advised. A director who sits on the board of a financial services company that manages share registration, employee equity plans and more, says that its board is “less focused on AI-enabled decision-making and boardroom innovation than with safeguarding its reputation for privacy and trust, especially if the former risks damaging the latter”. The use of AI is about the problem to be solved, not about investing blindly because it is a trend.
Agentic AI and mindset change
If the emergence of large language models (LLMs) has reshaped the conversation around AI in the enterprise, agentic AI could represent a far more significant inflection point. Once deemed a distant concept, its ability to self-learn and scale exponentially will fundamentally impact businesses in the years ahead.
AI innovation is likely to happen faster than most companies can respond. Facilitating a mindset change means fostering the essential mental flexibility to help boards continuously adapt, relearn and rethink. As they strive to address the “what” and the “how” of innovation, their ability to articulate the “why” might be their greatest value.
In the AI era, successful boards will not be those with all the answers, but those creating space to think about the larger issues, capable of asking better questions and making deliberate strategic choices amid uncertainty.
The priority today is building boards that remain adaptable under multiple future scenarios.
Five key areas for boards to focus on:
- Move quickly, but keep options open, flexible and incremental. Legacy innovation models remain useful on the margins, but may soon be superseded by AI.
- The fundamentals. Always ask: ‘what problem is AI truly solving?’ It might offer the wrong solution, or the right solution at the wrong time.
- Prioritise adaptive thinking. Technical expertise matters, but the ability to challenge assumptions, learn quickly and respond to change will become an increasingly valuable board capability.
- Raise standards. Ensure all board members have a basic grasp of how AI actually works, its weaknesses and its potential. An external course could encourage NEDs to ask tough questions.
- Embrace uncertainty. Boards do not need complete clarity before acting. They do need a disciplined approach to innovation, governance and continuous learning.
CAROLINE DEVER
Partner, Board Asia Pacific, Public Sector and Health
Australia
www.odgers.com