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Risk versus innovation: Do you have the right balance?

05 / 06 / 2018
The Apples, Amazons and IBMs of this world have built their reputations on a bedrock of innovation. Constantly pushing new boundaries and delivering products and services that consumers crave day to day is what enables these industry giants to dominate their respective fields. 

You only have to look at the fortunes of Blockbuster, Kodak and General Motors to see how a lack of innovative thinking can make even the most well-known brands redundant in a relatively short space of time. 

But innovation is hardly a risk-free endeavour. Businesses can just as easily go bust shooting for the moon as they can from sticking to tried-and-tested methods. It's unsurprising, then, that many organisations opt for an approach somewhere in the middle of these two extremes, which often means adopting innovative practices once other companies have bedded them in. 

Understanding your appetite for risk 

While more conservative tactics mitigate risk, they also remove any competitive advantage you could gain by spearheading the innovation charge. This is by no means a bad thing; the majority of businesses perform well without taking major risks on new technology, processes or systems. Nearly two-thirds of businesses focus primarily on line extensions rather than game-changing breakthroughs, according to a recent Accenture study. 

Whatever your risk appetite, there are likely several ways you could improve your internal approach to innovation without sacrificing strong governance. Let's take a look at how some of the best-performing businesses remain at the forefront of their industry. 

1. Reward failure (within reason!) 

Fear of taking risks isn't just a commercial concern; humans are inherently wary of sticking their neck out if the downside is damage to their reputation, financial security or health. Organisations must therefore look to reward creativity rather than punish employees for thinking outside the box - even when a project fails. 

For example, marketing agency Grey Advertising Global has an annual Heroic Failure award that the company bestows on workers whose brilliant ideas perhaps didn't quite pan out as planned. Grey also has a No Meeting Zone between 2pm and 5pm every Thursday - a time when employees are given complete freedom to do something challenging, new or unexpected. 

"Better to attempt something astonishing and go down in flames than to gingerly hold back," the company proudly states on its website.  

Of course, you must also have the systems in place to recognise projects that are destined for failure and decisively close them off, but don't be afraid to double down on ventures that look ripe for success. 

2. Embed innovation risk management throughout your firm

Many large organisations tackle the innovation conundrum by establishing dedicated innovation units, either within the business or as a completely separate entity. These units can approach innovation like a venture capital fund by taking a less conservative outlook on risk in the knowledge that one major breakthrough could eradicate previous losses without impacting the main business. 

Accenture claims this model is hugely successful for many brands. Pharmaceutical company Novartis set up the $2 billion wholly owned subsidiary Novartis Venture Funds for this purpose. Intel Capital is a similarly constructed organisation that reports directly to CEO Brian Krzanich. 

But Accenture claims companies could benefit from taking a more integrated approach to innovation risk management, where professionals are embedded better throughout the organisation.   

"That would help fuel innovation from the bottom up, while ensuring that everyone in the company understands what's being funded, how, when and why," the strategy consultancy stated. 

"It could also bridge the gap (common in big organisations) between a risk-averse finance unit and those operating units - whether marketing, operations or product development - on the innovation front line."

3. Find the right talent to support your innovation needs

Achieving the right balance between risk and innovation requires governance professionals who have a broad range of skills. 

An excellent understanding of your business and industry are expected, but risk professionals now require a solid grounding in how emerging technologies can impact an organisation. This knowledge is especially important for innovation-focused firms, as risk managers will be required to contribute to any discussions where technology is the focus of development. 

Professionals must also leverage technology to assess innovation risk, whether it's predictive analytics, enterprise risk management software or other pioneering tools.

But technical skills aren't enough for many businesses now. It's likely you need risk managers who have the interpersonal capabilities to communicate complex innovation hazards to the wider business, including the C-suite. 

Our latest market report found that only 52 per cent of risk departments feel adequately resourced, with one-quarter struggling to source people with the right interpersonal skills. This was only ten percentage points lower than the proportion struggling to find technically adept candidates, which is perhaps surprising given the fundamentally technical nature of the discipline. 

Taking the next steps


Innovation and risk may at first appear to be conflicting forces working against each other in your business, but they can complement one another under the right circumstances. 

By rewarding failures, taking a more organic approach to innovation risk and employing the right talent, you can build a more supportive environment for progress. At Barclay Simpson, we can help you find risk managers that fit your innovation appetite, so please contact me on 0207 936 2601 or via email at  ph@barclaysimpson.com to start your search. 

Image credit: AndreyPopov via iStock
 
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