Governance and Global Responsibility

-
The Role of the Board in Innovation: committed to
innovation by setting bold aspirations, making tough
choices, and mobilizing resources at scale

Birmingham Business School

MSc International Business

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Zero Avia – a green start-up Unicorn

Zero Avia is British/American green tech start-up Unicorn company

• The purpose is to enable scalable,

sustainable aviation by replacing
conventional engines with hydrogen-
electric powertrains,
- the key mechanism that transmits the
drive from the engine of a vehicle to its
axle, with zero-emission and lower
noise; the ambition is to become the
Tesla of civil aviation.
• The case illustrates how to build a
business that grows at scale at the
same time as deliver the company’s
transition to net zero aviation, the
aviation industry’s target of achieving
net zero carbon emission by 2050.
• Bing Videos

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ZeroAvia's Mission: A Hydrogen-El
ectric Engine in Every Aircraft (yout
ube.com)

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Comprehend the group assignment and how it is evaluated

Group Assignment – How to build a green Unicorn at Scale

• Launching and scaling a new business is no easy. When you add the objective of solving
some of the world’s greatest challenges, like climate change, the stakes are even higher. Your
group task is to choose a tech start-up Unicorn and then:

 Describe and critically analyze how the start-up company has become a Unicorn.

 Provide managerial recommendations for how it can continue to grow and accelerate
towards Net Zero - a target of completely negating the amount of greenhouse gases
produced by human activity, to be achieved by reducing emissions and implementing methods
of absorbing carbon dioxide from the atmosphere.

• Use theory from appropriate literature ONLY from this module. However, data on your
case company you need to collect outside this module. Assessment should be written as an
essay.

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Comprehend the group assignment and how it is evaluated

The artificial intelligence top 50 companies in the UK

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Introduction: assignments

How to build a green unicorn at scale – guiding questions

1. How has technology fundamentally changed how value is created in the industry? (Huber et al.,
2021a; Huber 2021b). What will the future look like in the industry, why?...any scenarios?

2. What and how much is the green business building opportunity? …the value pool? (Bland et al.,
2022)

3. Which strategic play(s) explain how the company has become a Unicorn? Which conditions have
been fulfilled? Any that have not been fulfilled? (Baroudy et al., 2021)

4. What strategic building blocks or practices used so far for scaling the business and deliver the
company’s transition to Net Zero? (Bland et al., 2022; Bowcott et al., 2022)

5. How to launch repeatable successful innovations that can build promising ventures into growth
businesses? Does it have a dedicated growth engine? (Hillenbrand et al., 2022)

6. How to launch new businesses? What is the right approach and what are the conditions and criteria
for success? How can the board have a clear understanding of the value of these innovations when
scaled-up and penetrating a significant portion of the targeted market? (Dreischmeier et al., 2022)

7. How can the board add value to the company’s digitalization with an eye on risks and ethics in the
age of digital and AI? (e.g. Huber et al., 2021; Cheatham et al., 2019: Lund et al., 2023; Lamarre et
al., 2023; McLoughlin et al., 2024) 6
Today will help you to:

1. Comprehend the group assignment and how it is evaluated

2. Define a Unicorn and distinguish it from a Decacorn
3. Gain insight into the winning formula how British tech start-ups have
transformed into Unicorn companies and who they are
4. Organize the presentation according to the model of Henfridson & Lind (2014)
that explains how start-ups grow at scale and accelerate towards Net Zero
5. Gain topic knowledge about the green business building opportunity
6. Gain topic knowledge about building blocks of strategy to grow at scale and
accelerate towards Net Zero
7. Gain topic knowledge about how repeatable innovations can build promising
ventures into growth businesses
8. Gain topic knowledge about three approaches that work for launching a new
business

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In addition, today will also help you to explain the role of the board in
innovation by

•defining innovation from a strategic perspective and

why it is important
•identifying why boards struggle with innovation
•introducing the concepts of ‘the 8 essentials -
strategic and organizational factors that separate
successful innovators from their peers – ‘the
innovation commitment’ to accomplish net growth
value
•…which is related with:
•how repeatable innovations can build promising
ventures into growth businesses
•three approaches that work for launching a new
business

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Learning objectives

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Defining innovation from a strategic perspective and why it is
important
When you think about innovation, what then comes into you mind?

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Defining innovation from a strategic perspective and why it is
important
Successful innovation requires answers to each of these questions

• An unmet customer need (the ‘who’):

Who is the customer and what problem
do they need to solve? Are macrotrends
such as automation driving changes in
customer needs?
• A solution (the ‘what’): Is the solution
compelling and can it be executed?
• A business model that allows for the
solution to be monetized (the ‘how’): How
will the solution create value? What is the
business model?

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What is a business model?

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Defining innovation from a strategic perspective and why it is
important
Innovative companies perform better enabling them to generate higher
economic profit than their peers

• Some companies do succeed at

innovation, such as Apple, Google,
Amazon, Microsoft, Tesla
• Research considered how proficient
183 companies were at innovation
and compared that assessment
against a proprietary database of
economic profit (the total profit minus
the cost of capital).
• It was found that companies that
harness the essentials of innovation
see a substantial performance edge
that separates them from others—with
evidence that mastering innovation can 7 Most Famous Entrepreneurs of All Time | Innovative Zo
generate economic profit that is 2.4 ne (innovativezoneindia.com)
times higher than that of other players
(McKinsey Company, 2023).
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Defining innovation from a strategic perspective and why it is
important
Mastering the 8 essentials is an essential part of the role of the board in
innovation

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Defining innovation from a strategic perspective and why it is
important
Innovative growers drive a four-percentage-point higher cumulative total
shareholder revenues* (TSR) growth versus other outperformers

Total Shareholder Return (TSR): Definition and Formula (investopedia.com) 16

Learning objectives

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Why do boards struggle with innovation: an outdated innovation and risk agenda

Most board members attend innovation towards…

• …improving the organization’s

capacity to execute its current
strategy—that is,
• innovation to sustain the core:
– developing product line
extensions,
– reducing cost structures to
maintain healthy operating
margins,
– improving customer-intimacy and
-centricity to address rising
customer expectations,
– responding to new regulatory
regimes and
Source: Hill, L. A. & Davis, G. (2017). The Board’s New Innovation Imperative
– cybersecurity threats.
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Why do boards struggle with innovation: an outdated innovation and risk agenda

…but are frustrated with that

• …doing the same things

better, faster, and more
cheaply is not enough, for
instance, to make
improvements that reduce
costs in the supply chain
because
• digital supply- and retail
chains that will allow them
to offer different value
propositions to customers
and even create new
business models, such as What is the business model of Sephora?
Sephora
Sephora’s business model creates, captures
and delivers value through combining ‘digital’
Source: Hill, L. A. & Davis, G.
(2017). The Board’s New
and ‘innovation’, providing technology options
Innovation Imperative to the target customers as tools for customer
experience that meet their needs
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Why do boards struggle with innovation: an outdated innovation and risk agenda

The voice of two board directors

“Significant disruption is taking place,

and whatever company is at the top
today will not be at the top in 10
years. [We] must differentiate
ourselves.”

My board’s “bias for short-term results”

was stifling innovation; instead of
pursuing breakthrough initiatives, the
company was focused on evolutionary
ones.

Source: Hill, L. A. & Davis, G. (2017). The Board’s New Innovation Imperative

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 Why do boards struggle with innovation: an outdated innovation and risk agenda

And not easy to support CEOs making bold moves esp. given growing
demand of activist investors, and how to take bold transformative initiatives

Shell directors personally sued over ‘flawed’ climate strategy | Oil | The Guardian

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Learning objectives

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Introducing the concepts of the 8 essentials and the committed innovator

What innovation leaders say they do right

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Introducing the concepts of the 8 essentials and the committed innovator

The eight essentials - a set of crosscutting practices and processes to

structure, organize, and encourage innovation

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Introducing the concepts of the 8 essentials and the committed innovator

Testing for innovation: Do you really innovate? And underlying elements

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Identify tech enabled strategic building blocks and how they have been used to scale up a start-up company.

Start-ups like ZeroAvia are drawing on five building blocks to win in tech-
enabled sustainability…the social strategy is then the strategy

Bowcott et al., 2022 28

2. Critically reflect on tech enabled strategic building blocks used to scale up a start-up company.

Seven keys to scaling green businesses (Bland et al. 2022)

1. Lead with game-changing ambition means aspiring to produce a zero-carbon product

at a competitive cost, which enables a competitive price, compared with a less
sustainable alternative, and scale new capacity fast with significant market share in five
rather than 15 years and then engineer backwards
2. Secure a cost advantage by identifying and understanding the scaling break point
for any new technology not yet commercialized to understand the cost competitiveness,
so business viability can be reached as quickly as possible.
3. Sign up captive demand before scaling for their output before starting to physically
scale as a way to tackle the commercial side of investment risk
4. Build capacity with parallel scaling, i.e., initiate addition growth waves before
completing the first by creating a modular, replicable standard for production based on
the first business deployment rather than a tailor-made, on-off pilot, and incorporate key
lessons from each growth wave into the next to help manage costs and keep ambitious
deployment timelines on schedule

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2. Critically reflect on tech enabled strategic building blocks used to scale up a start-up company.

Seven keys to scaling green businesses (cont.) (Bland et al. 2022)

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Introducing the concepts of the 8 essentials and the committed innovator

Testing for innovation: Do you really innovate? And underlying elements

(cont.)

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Comprehend the group assignment and how it is evaluated

Group Assignment – How to build a green Unicorn at Scale

• Launching and scaling a new business is no easy feat. When you add the objective of solving
some of the world’s greatest challenges, like climate change, the stakes are even higher. Your
group task is to choose a tech start-up Unicorn and then:

 Describe and critically analyze how the start-up company has become a Unicorn.

 Provide managerial recommendations for how it can continue to grow and accelerate
towards Net Zero - a target of completely negating the amount of greenhouse gases
produced by human activity, to be achieved by reducing emissions and implementing methods
of absorbing carbon dioxide from the atmosphere.

• Use theory from appropriate literature ONLY from this module. However, data on your
case company you need to collect outside this module. Assessment should be written as an
essay.

32
Introduction: assignments

How to build a green unicorn at scale – guiding questions

1. How has technology fundamentally changed how value is created in the industry? (Huber et al.,
2021a; Huber 2021b). What will the future look like in the industry, why?...any scenarios?

2. What and how much is the green business building opportunity? …the value pool? (Bland et al.,
2022)

3. Which strategic play(s) explain how the company has become a Unicorn? Which conditions have
been fulfilled? Any that have not been fulfilled? (Baroudy et al., 2021)

4. What strategic building blocks or practices used so far for scaling the business and deliver the
company’s Net Zero? (Bland et al., 2022; Bowcott et al., 2022)

5. How to launch repeatable successful innovations that can build promising ventures into growth
businesses? Does it have a dedicated growth engine? (Hillenbrand et al., 2022)

6. How to launch new businesses? What is the right approach and what are the conditions and criteria
for success? How can the board have a clear understanding of the value of these innovations when
scaled-up and penetrating a significant portion of the targeted market? (Dreischmeier et al., 2022)

7. How can the board add value to the company’s digitalization with an eye on risks and ethics in the
age of digital and AI? (e.g. Huber et al., 2021; Cheatham et al., 2019: Lund et al., 2023; Lamarre et
al., 2023; McLoughlin et al., 2024) 33
34
Introducing the concepts of the 8 essentials and the committed innovator

Strong innovators have extended their lead over the past years—especially
their ability to aspire and choose

• Setting aspirations and making

tough resource-allocation and
portfolio choices also are areas
where a company’s top leaders
(read: the board) play a unique
and disproportionate role in
creating change.

• Thus, the role of the board in

innovation: being committed to
innovation that delivers net-
growth value by setting bold
aspirations, making tough
choices, and mobilizing
resources at scale

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How to launch new businesses as repeatable, scalable innovations each one
better than the other?...form a growth engine!

• Across industries, digital attackers and an accelerating pace of change have increased
the pressure on incumbents to innovate quickly and create new avenues for
growth,
• This is possible by developing the muscle to build multiple businesses and to build each
one better as repeatable, scalable innovations
• To explore the most effective growth models, Hillenbrand et al., (2021) drew on their
experience helping clients build more than 200 new businesses, best practices
observed in venture-capital-backed start-ups, and proprietary research.
• These insights suggest companies can achieve sustainable success by forming a
“growth engine”—a dedicated team established to manage the building of multiple
businesses from launch to scaling to maturity.
• This growth engine facilitates the free flow of new ideas and focuses support along
each stage of a venture’s growth, helping to accelerate the journey from promising
idea to mature company. (cf. ideation and commercialization)

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Driving innovations from concept to maturity requires a dedicated ‘growth
engine,’ focused across three broad maturity phases

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Each approach to business building has unique conditions and criteria for
success (Dreischmeier et al., 2021)

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Each approach to business building has unique conditions and criteria for
success (cont.) (Dreischmeier et al., 2021)

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 Deliberate strategy
(to increase demand for sustainable
commercial aviation)
Strategy process Realized
initiation Strategy
(to grow at scale with
Building blocks
good practices
(Frame, Diagnose, Forecast, Search,
Choose, Commit, Evaluate)

Perceived
opportunities Emergent Strategy
(surging Candidate(s) outcome
demand for (for value creating (economic and
zero-carbon practices at scale) sustainable
technologies, values in the
material, and eyes of the
services in the customers
hydrogen value compared to the
pool valued competitors –
Good practices ‘green’ distinctive
650-850 billion (embodying (i) tech-
US dollar) capabilities)
enabling sustainability
practices and (ii) for
scaling repeatable
innovations (iii) at
Contextual conditions accelerating pace
in an institutionalized setting
(the commercial aviation industry)
building blocks as practice content of strategy

Source: adopted from Henfridson & Lind (2014)

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Learnings from today’s lecture, ‘what I take away’

• Today I learned something I did not

know before, which is…
• …but also…
• …as well as…

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Introducing the concepts of the 8 essentials and the committed innovator

Examples of successful innovators

• Mercedes-Benz Group invested extensively in digitizing its product development

system. That allowed the company to shorten its innovation cycles significantly, and its
capabilities for personalizing cars have improved, even as assembly efficiency rose by
25 percent.
• Gavi, a public–private partnership founded to save children’s lives and protect their
health by broadening access to immunization, used nonfinancial targets to help drive its
innovation efforts—and this helped the organization broaden its aspiration for impact in a
way that was bold, specific, measurable, and time bound.
• Lantmännen, a large Nordic agricultural cooperative, faced flat organic growth.
Leadership created a vision and strategic plan connected to financial targets cascaded
down to business units and product groups. Doing so allowed the organization to move
from 4 percent annual growth to 13 percent, on the back of successfully launching
several new brands.

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Explain the role of the board in innovation

Innovation leaders outperform their peers with strategies that set on

achievable aspirations supported with clear resource allocation choices

• New research shows that innovation leaders are rapidly ascending beyond their peers
by comprehensively committing themselves to delivering net new growth at scale, and
• in particular, the practices setting high but achievable aspirations and supporting them
with clear resource allocation choices, distinguish committed innovators from
companies at earlier stages of the innovation journey (Furstenthal et al., 2022).
• Research further shows that leaders who delivered growth outperformance pursued on or
more of the following six strategies (see next page), such as
– Relentlessly foster an innovation culture and mindset to accelerate growth
– Boost outperformance with an unwavering commitment to sustainable and inclusive growth
• Based on analysing the performance of the 10,000 largest global companies from 2016
through 2022 (Banholzer et al., 2023).

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Explain the role of the board in innovation

Outperformers choose total shareholder return (TSR)* growth

Total Shareholder Return (TSR): Definition and Formula (investopedia.com) 46