In a three-part series, part one outlined the implicit need to align innovation to the corporate strategy, and through this we can determine ‘acceptable risk’.

In part two I offered numerous reasons why we should recognize and treat innovation risk differently to allow it to perform closer to its promise of driving growth and achieving real advantage.

This post here is the third and last part, part three, where I lay out different mechanisms and framing of risk and innovation. These need to be evolved to fit your own risk appetite, not one size fits all. I hope it helps.

Risks are certainly shifting. In a recent piece of work by Deliottes called “Risk sensing:the (evolving) state of the art, the risks of most concern are changing each year. Interestingly, the pace of innovation stands among the top three risks in 2015 and tops along with regulatory risk, the list was foreseen in 2018. With technology disruption, business model disruption and growing competition, social and customer engagement challenge the ability to manage innovation is growing as a concern and in risk management.

We need to formulate a more robust risk innovation framework.

Risk management for innovation needs to evolve to keep pace with the changing demands and pace of change we are undergoing in business challenges. Risk is becoming an evolving capability.

Mark Johnson of Innosight wrote a great article some time back that still holds true today, in its observations, on how poorly the relationship between risk management and innovation is understood. To quote the specific parts

1. Risk management isn’t the antithesis of innovation; it’s the essence.

How an organization conceives of risk management will in large part decide how effectively innovation is pursued.

2. Risk management isn’t the brake on innovation; it’s the accelerator.

Risk management, treated as a learning process, not only propels innovation forward but can also speed it up.

3. Real discipline in innovation risk management means a more relaxed approach to the financials.

In genuinely new-business innovation projects, it is critical to release the leaders of the effort from the norms and metrics of the core business.

Mark made some clear observations and statements on viewing risk management as a core competency.

As Clark G.Gilbert and Mark’s colleague Matthew J.Eyring argued in Harvard Business Review, the core competency of the most effective and successful innovators is risk management. To repeat: Risk management is their core competency. For these innovators, whether in new ventures or in a corporate setting, the ability to identify, prioritize, and systematically eliminate risks is what drives innovation forward.

They approach risk management not as a safety procedure but as a learning process. They know that no new-business model is perfect from its inception. So they test its various components and their combinations—its customer value proposition, profit formula, key resources, and key processes—in controlled experiments in tightly circumscribed markets, learning as they go and making adjustments.

It is (clearly) more prudent and ultimately more productive to get the value proposition right and judge it in terms of how fast it converts assumptions to certain knowledge. While experimentation speeds the time to viable business innovation, it does not necessarily lead immediately to the kind of large-scale growth or increased market share that are usually the barometers of performance in the core business.

The relevant financial measure during this stage is whether the new business can be made profitable in its foothold market. Profitability confirms the strength of your fundamentals, allowing you the patience to scale up in a measured way. That is the real financial discipline in innovation risk management: the unswerving ability to resist applying the wrong kind of financial metrics at the wrong time and so unwittingly choke off growth potential before it can reach full fruition.

He concludes ” one of the biggest risks in innovation is to see risk management as a framework to be superimposed on new-business creation rather than as an inseparable part of the process itself.

Lets look at the mechanics of risk management for innovation.

There is no reason it cannot relate to existing risk frameworks. We can adapt to the accepted practices of risk management but innovation risk needs to have its own risk management framework

For this I went in search of a broad discussion in understanding risk and its management. I found a series of articles written by Peadar Duiffy, as founder and chairman of Risk Management International (RMI) on risks in relationship to insurance and this series can be found through http://insurancethoughtleadership.com/risk-and-strategy-how-to-find-the-links. These I found to be especially useful to ‘translate’ into the make up of a risk management framework.

I’ve adapted these on how they might work or be used as a guiding group to build risk management and innovation in some depth. I think it works but you might advance these from your own perspectives.

Firstly lets establish some observations:

1. Directors and senior managers need a globally accepted guide on the attributes of an effective risk appetite framework to manage innovation, independent of their corporate risk guidelines but they dovetail into them..
2. Emphasis is shifting globally from risk management to building resilience and as we learn and explore about managing risk in innovation and each innovation can have different variances we need to ensure the risk optimization is achieved when risk and strategy are aligned with corporate objectives. Achieving this comes through the use of the three horizons framework for aligning where innovation fits and its (risk) horizon and place, pushing to encourage a greater scope of innovation, of building a validation, proofing and testing mentality.
3. “Strategic risks” are those that are most consequential within the innovation activities that have a potential impact to the organization’s ability to execute its strategies and achieve its business objectives. Having a clarity of strategic risk, those must be material to have impact on the organization. These are the risk exposures that can ultimately affect shareholder value or the viability of the organization growth. Strategic risk management is focused on those most consequential and significant risks to shareholder value, an area that requires  the time and attention of executive management and the board of directors. More radical innovations, disrupting positions or new business models would form part of this risk assessment.

Then we need to strengthening the strategic planning process

1. Increasing rigor, formality and consistency in the strategic planning office which derives its authority from the board and  the CEO’s office, needs engagement within the risk management of innovation. It at least needs ongoing awareness of the direction and impact any more radical innovation might have, to evaluate its impact.
2. Aligning strategy, risk and audit board subcommittees (through cross-representation) in a manner that largely feeds into the board risk oversight, reporting and monitoring on innovation that might have material impact.

Embedding risk management and innovation competence within the structures developed.

1. Explicitly articulating corporate and organizational objectives in relationship to innovations contribution and need.
2. Testing the alignment of group, corporate and organizational objectives through development and review of risk appetite statements that bring the innovation efforts together. Who is responsible for what.
3. Establishing an effective risk appetite framework, which includes:
4. Statement of purpose and values of the organization towards innovation’s position of value and growth contribution
5. Explicitly stated board risk assurance requirements; factors to consider and these would include:

• Mapping objectives to a risk appetite continuum, articulated and discussed
• Qualitatively expressed risk appetite statements to help in reassurance (reputation etc),
• Quantitatively expressed risk criteria related to both risk tolerance and risk limits
• Acknowledging these evolve but in a measured process that is dynamic and evolving from learning.

Understanding and improve progressively the organizational level of risk maturity

RMI had developed a five-level Risk Maturity Index, which provides a road map to risk optimization,  it has merit for innovation to also follow. The index scores risk maturity capability requirements, etc. In summary, it describes:

• Level 5: “Value-Driven” — Optimizing value through aligning risk and strategy with corporate objectives,
• Level 4: “Clearly Managed” — Gaining value through aligning risk and strategy in pursuit of corporate objectives,
• Level 3: “Providing Insight” — Gaining insights into how to better align risk and strategy in pursuit of corporate objectives that evolve as innovators and the board gain growing confidence they are on a similar track,
• Level 2: “Gaining Awareness” — Developing awareness  into how to align risk and strategy in pursuit of corporate objectives relating to innovation and its development
• Level 1: “Basic Learning” — Seeking awareness of the links of risk and strategy in pursuit of corporate objectives relating to innovation.

Establishing clear governance, setting policy and monitoring performance: In the context of the relationship between risk and strategy,good governance means accounting for the type of risk culture that encourages and manages innovation.

• “Risk culture” is a term describing the values, belief, knowledge and understanding about risk shared by a group of people within a common innovation purpose, in particular the employees of an organization or of teams or groups within an organization to relate too
• Risk culture, as an aspect of culture, can be practically described thus:
  • Culture: The way we do things around here!
  • Risk culture: The freedom we have to challenge around here!
  • Risk culture is capable of being demonstrably and credibly evidenced and discussed.

First we need to explore: do boards express clearly and comprehensively the extent of their willingness to take risk to meet their strategic and business objectives in encouraging the innovation activities?  Second, do they explicitly articulate risks that have the potential to threaten their operations, business model and reputation?

How are risk appetite, risk tolerance and risk limits related to one another? 

The RMI Risk Maturity Index correlates and again, serves well for innovation and risk:

1. Level of alignment of risks to strategy, objectives and execution of the innovation portfolio,
2. Risk role affirmations at each maturity level (shown above),
3. Risk culture affirmations (practices confirmed by internal and external attestors), who periodically check
4. Risk defense affirmations (practices confirmed by internal and external attestors), in discussions
5. Board and organizational processes that bring innovation continuously into the boardroom, in clear line of sight.
6. Value realized at three levels: a) the customer, b) the organization and c) stakeholders.

As a particular Risk Assessment Strategy (RAS) is devolved down through an organization, its content will change based on the intended recipients as well as their relationship to innovation For example, a RAS at:

• Group executive level will be high level and inclined toward expressing appetite for risks to objectives that deliver value and increase performance, that show potential and promise. The RAS will clarify the innovation objectives, risks tolerance levels, escalation procedures, expected returns across a broader range of measures and how the  control(s) to manage risk and innovation apply, looking for:
• Middle management level will articulate levels of tolerance that, if breached, will require escalation and “circuit breaking” reports, with priority given to immediate interventions and a review of internal controls but having a dynamic process of knowledge, learning, risks and opportunities to convey these to the board, if necessary or in a regular reporting format
• Business unit level and the team within these responsible for innovation, will have a more detailed and expanded RAS explanation, inclined toward expressing risk limits and internal controls that enable greater innovation understanding, spelling out risk tolerance, appetite and linking this into the articulated innovation strategy

The various components among the numerous risk maturity models tend to overlap considerably. Here’s one generic set of attributes of maturity:

• Risk is managed to specifically defined appetite and tolerances that relate to innovation need and strategy.
• There is management support for the defined risk culture and direct ties to the corporate culture
• A disciplined risk process is aligned with other functional areas to integrate innovation
• There is a process for uncovering the unknown or poorly understood risks of innovation and an evolving path to clarify, test, explore so a continued learning process is in place to build innovation capabilities & capacity.
• Risk is effectively analyzed and measured both quantitatively and qualitatively, both in hard terms and the softer potential seen at that point of time, to be determined and validated for improving quantification.
• There is collaboration on a resilient and sustainable enterprise, building on the knowledge and learning gained, shared and ‘factored into’ the risk management framework to keep it dynamic and evolving.

In summary

Innovation has many unknowns, but it is the learning and evolving that can give growing confidence. Constructing a risk innovation framework that grows as confidence is ‘found’ and a process to alert and inform gives the ability to constantly quantify these unknowns, constantly searching to find ways to measure and provide returns.

We need to relate risk and innovation in clearer ways, to give a greater confidence and encouragement to pushing for the new.

***Again, I certainly have to acknowledge, that I found the series of articles written by Peadar Duiffy, as founder and chairman of Risk Management International (RMI) on risks in relationship to insurance. as really valuable in framing innovation and risk as outlined here.

The post Developing a new framework for risk and innovation. first appeared on Building Your Innovation & Ecosystem Intelligence.

We should aim for a really healthy construct that does help all involved or associated with innovation and managing risk, that gives a better chance of pushing beyond the incremental innovation that avoids most risk and disappoints those seeking real growth.

In this post two, within a three-part series, I build the argument on why we need to treat innovation differently within any risk assessment. Part one focused on linking risk into an innovation strategy that needed to align with the corporate one.

Each organization finds its own level of risk appetite. Regretfully innovation, often by default, gets swept up in this generalization of “risk management” that is corporately driven and the serious message of “risk” dampens exploration. There is a real need to make a clear argument that innovation should be treated differently. It can still come under the broad risk umbrella but judging innovation risk is utterly different from organizational strategic risk.

Innovation is a learning process not to be confused with a safety procedure, both can be effectively managed and different in their treatment. No new business model or innovation new to the market, or even service enhancement, is perfect from its inception, it improves with learning on what is valuable and needed, what can be ‘dampened’ down, switched off or reduced through market exposure.

Equally, we have learnt innovation evolves due to this learning process and how ‘it’ interacts with customer needs. We make an effort to get it as right as possible, as close to the launch, but there are often so many unknowns that only through exposure to the market and the customers do we learn to adapt, adjust, modify and improve the offering. This ‘adaptive’ process scares the board as it has implications on reputation, on the brand and on its abilities to get innovation right. This iterative process is felt should be left only inside the organization as some feel it conveys vulnerability and failing. How wrong this is.

So we tend to go to default. Risk mitigation kicks in. We strive to minimize the risks, reduce the learning and opt for a more incremental approach.

As Accenture in one of the few reports discussing risk and innovation, “The art of managing innovation risk” state:

“Few decision makers want to take responsibility for a failed experiment, so extreme caution usually prevails when new ideas are assessed. Opportunities tend to be defined narrowly.

Moreover, the tools commonly used to support the process exacerbate the problem. Based on retrospective analytics—Net Present Value (NPV) models, for instance, are built on market projections that are calculated using past trends—they tend to skew innovation decisions toward optimizing existing product lines rather than pursuing new ones.

As a result, promising ideas are often smothered. And while many of the innovation initiatives that do gain approval are low risk, they offer only low returns—incremental improvements that usually do little more than maintain market share”.

They go on to suggest with product lifecycles across industries shortening, successful innovation often hinges on speed. And that, in turn, requires a risk management process that can shorten learning cycles, recognize failures early and make timely course corrections—a process that facilitates a company wide dialogue around which risks are acceptable and how much risk is appropriate, based on potential returns”

They are quiet rightly suggesting “with risks well-managed, companies can then use rapid experimentation and the techniques of agile development—an iterative process closely linked to customers and markets—to boost their chances of coming up with a truly profitable innovation portfolio.”

Yet tell me how many our organizations have a clear, robust risk management framework for innovation? Is innovation even fully aligned into the corporate strategy?

Our obsession begins and ends with the search for numbers.

Clayton Christensen has argued that organisations’ agenda begins and ends with the “search for numbers”. Organizations have been focused for far too long around the importance of financial capital. It determines and drives organizations’ destinies. We are caught in a constant focus upon our achieving a return on our (financial) capital as our measuring criteria and innovation gets totally caught up in this mistaken measurement, it stifles ‘great’ innovation to emerge and provide truly differentiating advantage. Why do organisations stay locked into far too much “me too” innovation?

At a time when capital is not scarce, it is abundant and cheap, we still see a lack of bolder investment in game-changing innovation. Organizations are hoarding capital or passing it back to the shareholder. Both admirable but they don’t build the future, they only keep you in the present. When financial capital is the final arbitrator it totally fails to tell us in numbers alone where and what creates the value, it simply reports the end result, it is always backward looking, never conveying the future unless capital investment is being made.

Today our balance sheets hides or can’t report the loss of opportunity value, if only innovation had been treated differently. We are caught in a time that most of our business organizations are in a period of risk-aversion where the innovation ‘bets’ are more incremental, more short-term pushing for greater utilization of existing assets. The longer-term health of organizations seems to be kicked down the road for later generations to tackle, if they are still in existence!

We need to that prompt more on risk and innovation, reflecting why and how it should be treated in different ways and this might encourage a greater top management engagement. We need to encourage a shift and seek out the dimensions, criteria and thinking that can be applied to encourage more risk-taking, more radical and breakthrough innovation.

Can we walk a different innovation risk path?

The understanding of risk will always have associated with some fear, discomfort and resistance and for many can be an uncomfortable place to go. The whole ‘act’ of letting go is never easy. It is the ability to manage risk that reduces the fear. It is through experimentation we gain our best learning, we actually are forward learning as we are accelerating our knowledge.

Surely the more we attempt something different, proving or disproving it, does make for exciting work? We move towards a leading edge perspective, we evolve more towards a pioneer, an experimenter and this can be contained and managed within a radically different risk management framework. We all can be encouraged to raise our risk appetite with establishing clear guidelines and parameters, so we all become more motivated and engaged, excited about a different future, curious to explore, wanting and  encouraging an environment to experiment but this ‘signal’ and risk appetite guidelines must come from the top. If it is left unsaid, radical innovation will never naturally happen, what a pity.

We need to recognize that allowing greater risk and investigation encourages us to see change differently, to offset the growing disruptive aspects swirling around us. Recognizing we are mostly operating  in markets with slower growth, higher volatility and potential for disruption needs pushing risk in innovation. Risk needs to be proactive not reactive.

Equally the sentiment reinforced by this demand for clear, demonstrative ROI measurements from innovation tends to send the clear message that we cannot disrupt our core, yet others are working purposefully at doing this, knowing your weakness is not taking risk and wanting to disturb the present equilibrium..Risk comes from not knowing and experimenting outside the core. When you are not restless, someone else certainly will be, seeing opportunity.

Achieving a growing certainty of return needs to be paramount in our minds as innovators.

We need to manage the ‘certainty of return’ by making the knowledge that comes from many incremental steps, of experiment to validate an idea, that eventually builds into a new innovation, that needs managing differently. That can come from steady ‘readiness-based decisions’ that prototypes or pilots that are put into the hands of the consumer or customer to explore around, will advance our knowledge, each time clarify the potential value and ‘seen’ worth of this concept over the existing ones in the market place or require us to re-evaluate our assumptions.

We need to develop those risk-mitigation steps to constantly increase confidence. We need to find a real space for uncertainty, for a risk-tolerance so as to allow the shaping ideas, exploring and learning in taking controlled risks, encouraging experimentation, providing tolerance (of failure or expecting stronger debate), exploring the unknowns, all should be an integral part of innovation in any new risk management framework.

Stage-gates is also not the innovation panacea to manage innovation.

I would argue we should stop regarding the Stage-Gate as the panacea for managing all of the innovation needs. Stage-Gate handles the incremental product cycle fairly well, but when you are on a more open innovation platform collaboration or more radical design, it struggles to be flexible, agile and fit the different challenges presented by the collaborating parties. We need something significantly different to handle the other types of innovation, those more radical, distinctive and breakthrough.

True innovation goes through much of an iterative process

We need to adopt a more flexible and adaptive process, one where learning, looping back, iterating constantly, that promotes and encourages an experimenting environment for innovation that is more new to the world. As we iterate, we learn, as we learn we can improve our understanding of its growing value.

This needs to be in a more dynamic ‘management of the portfolio’ concept, from concept to commercialization process.

A place where risk-mitigation needs to be built-in all the way, to search for and then build new knowledge as it ‘reveals’ itself. In innovation, it is never apparent, you have to ‘tease ‘ it out on its value and contribution, in providing concepts, pilots and prototypes. Everything simply cannot be available when you often just don’t know, you take small steps often to feel your way and build that knowledge up. This comes from engaging with your customers, in the market place not your own premises.

How about approving some pilot projects and providing resources to have unfettered six-month periods with no rules and no reviews? At the end of this agreed period ‘something’ that shows promising value and clear advancement on the past position that has been seen and tested with customers gives confidence, reduces the risk fear. Then you embed the learning and further scale it, if it shows the promise and shows a ‘interesting business case’ for more investment.

It encourages increasing the risk of spending funds, dedicating resources that lock up assets but by setting these in clear time frames and with a definitive result that the outcomes not just advances knowledge but it can show that the concept does takes you closer to its future value.

Progressive in building risk management for innovation

Over time progressively learning increases our risk-tolerances, we become progressively more creative in this risk-taking orientation to seek out and push for more innovation.

Equally allow those who are willing to take risk, as their more natural position that head room to explore, to push boundaries that often reveals different innovation. By sitting down and outlining the risk acceptable within evolving guidelines, those that are not ‘well-set in stone’ but will evolve and loosen as we learn. We should expect them to be broken on a few occasions but work with this if it was an informed risk, learn on why, talk with those that overstepped the limits, to see what was right and what everyone can learn from this.

Equally, leaders need to stay totally engaged and constantly talking about what innovators are doing where-ever you can, through face-to-face discussions, dedicated meetings where risk assessments being clearly known to be up there on the agenda, to be evaluated and determined for the next steps. Also being prepared to step back to bring the risks that seem uncomfortable back into alignment with the risk tolerance levels, allowing the engaging in the ‘healthy debate on why this innovation might be different and needs different criteria. Innovation needs to be a dialogue and risk management can become its friend not its inhibitor.

Through this more enlightened approach to risk and innovation we do allow-in that greater desire for the capacity to be innovating and how we all want things we are working on to improve, to give us a greater meaning within our lives. More purpose, more satisfaction, greater identification. More value, greater growth and impact.

Fostering risk tolerance designed specifically for innovation does need treating differently, to grow and thrive. You can push innovation beyond the ordinary, back into the extraordinary and that enables innovation to deliver far more on its true purpose. There is a strong case to be explicit on the risk profile for innovation to be different.

Part three of this series looks more at the mechanics for improving risk maturity for innovation.

The post Treating Innovation Risk Differently, Dealing with Uncertainty first appeared on Building Your Innovation & Ecosystem Intelligence.

I feel we spend less time on managing risk within our innovation initiatives.

We so often simply measure risk on established risk/return lines of known existing business criteria, treating it as part of our existing ongoing business, and that is plainly wrong.

Risk assessment within our innovation activities needs a different, far more distinct framing that reflects the nature of the unknowns we are working with, in my opinion.

Our organizations need to relate to the differences far more, to allow this ‘innovation risk assessment’ to play an increasing role in ‘advancing’ innovation and its understanding at the boardroom level to relate to and take a different risk-related profile position that many take today.

So in a three-part series, I want to set risk in a better strategic and operational framework but to begin with, until we address the alignment issue between a firm’s strategy and the linkage of the innovation activities, innovation fails to make the essential boardroom connections and risks always surface, as they have no referencing framework to revert too.

To start this series, I decided to quote Gary Pisano, someone I have admired in his work and thinking for many years. The part I have extracted here sets the frame for having an innovation strategy aligned to the strategic objectives, it is then through this we can focus more specifically on where risk needs to be, the focus of this series of posts. I just didn’t feel the need to add more here, I absolutely identify with his thoughts, so let him deliver the right words.

You Need an Innovation Strategy for it to really be seen as a critical resource of an organization.

Gary Pisano had an excellent article, “You Need an Innovation Strategy” on HBR. He comments:

“I have found that firms rarely articulate strategies to align their innovation efforts with their business strategies”.

The post The Pressing Need to Link Risk into an Innovation Strategy- part one first appeared on Building Your Innovation & Ecosystem Intelligence.

In a recent report called “Radical Innovation and Growth: Global Board Survey 2016 ” (link opens the pdf) we have results from a survey jointly conducted by Deloitte Denmark and Board Network – The Danish Professional Directors Association, that opens up much that can concern us about the current boardroom and its great difficulty with managing more radical innovation.

It seems within our boardrooms they are ill-equipped to managing in today’s world, grappling with the past, holding on, perhaps too tightly, to the present and certainly being unsure of the future. It is struggling to adjust to all that is entering their world.

In this report, they surveyed 614 global board professionals from a total of 50 countries during the period covered from November 2015 through to February 2016 and then published in February 2016.

I quote extensively from the Executive Summary and Introduction and urge you, the reader, to delve into the report which I found an easy read to understand and grasp the magnitude of this present boardroom discomfort.

It comes as no surprise to me, or many out there working to disrupt the incumbent but it makes for difficult reading that this is not addressed far more head on. This is a more than timely report in my view.

Corporations are under increasing attack and are really struggling to become more radical in how they can defend, secure and achieve growth. A lack of understanding innovation in all its forms is coming back to haunt them. They can’t seemingly handle radical innovation and there is even more of an imperative to learn.

The Survey wanted to understand the current mood within the boardroom

The survey set about understanding the current boardroom thinking about how to address  the exponential technology is affecting growth (and indirectly competitiveness) in international companies and organizations, they have gathered insight on how global corporate boards address and work with radical innovation and to what extent they see growth stemming from their efforts. Radical innovation is defined here as:

The report dug into the boards’ appetite for growth; how high is the bar? It looked at their risk profile and tolerance of failure. It examined the role of innovation in company strategy and its strategic importance on the board’s agenda. Is radical innovation a bulleted point at board meetings?

It questioned whether there is a clear alignment of innovation and growth goals. Do boards spend enough in terms of man hours, consultants or other expenditures on new initiatives? It asked if companies actually own a Division-X and if yes, to what extent they are successful.

It wanted to address the skill-set at board level to handle digital disruption and the urgency to act proactively. It set about the identifying of board barriers to handle radical innovation and finished with a set of recommendations based on their quantitative findings topped with first-hand experience and opinions from a number of selected global board chairs.

The respondents describe that competition and technology are among the four most important external challenges their companies are facing now. The issue was on how are the boards taking on the challenging responsibility of overseeing their companies’ radical innovation efforts?

It concludes: “At board level, what we are seeing is the beginning of a shift among board professionals’ responsibility. As if oversight of company strategy, risk management, succession planning, budgeting and forecasting, sales and marketing, operations, auditing, IT, remuneration and tax was not already a fight.

Now corporate governance includes overseeing new business development with its itchy elements of experimentation, demand for scalability, risk of failure and navigation in a fully digitized and unpredictable new business world. On top of this new business today is developed at a pace that leaves little time for thorough analysis and precise risk mitigation”

 The Common trends they found were:

• The two dominant barriers for boards working with radical innovation are lack of insight (47%) and lack of organizational design to handle radical innovation (46%).

• 40% of respondents have no director with sufficient knowledge about digital disruption and 43% feel their management invests too little to achieve their long-term growth goals.

• The boards’ failure tolerance is low as seen 18% try to avoid failure in all their dealings.

• The financial risk scenario is also conservative, 34% of respondents characterize their board’s risk appetite as one where they try to avoid big financial risk.

• There is a clear tendency towards expecting radical change coming later (in five years) rather than sooner (this quarter).

• A staggering 75% of companies with the highest growth expectations for the coming 24 months (above 10%) also own an actual Division-X (or equivalent). We see this result as a clear indication of Division-X actually driving growth. (Note: only 22% have a so called Division- X, with 58% of these starting this in the last two years)

• Radical innovation is still a new idiom at board level with 65% not having it as a formalized item for discussion or action at the board meetings. (Note: Understandable but not forgivable in this disrupting world)

Welcome to the era of disruption, it is a tsunami of issues being grappled with.

The report suggests that while global boards are taking action now, there is room for improvement. Especially when it comes to the need for greater insight into the area of innovative initiatives, grappling with organizational design, dealing with risk and failure, and sheer experience in working in the huge discomfort zone driven by accelerating technology.

“If work has become steadily more demanding for the global board member recently, at least there was a predictability associated with that work but it is all about to change.

Now, in light of massive technological disruption, the new workload for a board professional revolves around a risky, failure prone and unknown innovation territory as they can start seeing themselves as largely inexperienced new business development leaders”

I do recommend reading this report.

I certainly do recommend this report, it confirms much, it conveys much, it certainly helps to frame many of the issues the boards are less than certain about; of the uncertainties they are facing, of where their business will come from in the future.

Indeed how they are presently ill-equipped to fight on these new battlefields of future business creation in this disrupting world, as these are “largely inexperienced new business development leaders,” in a radically changing world of radical innovation.  With lots of uncharted waters entering the boardroom they need to become far more radical within themselves or will be drowned from not navigating this at all well, the worry is who and what else sinks with them?

It does seem the board members need a lot of help and it needs to come from well beyond the usual advisors but are they prepared to take different advice? It does not auger well as there does seem a real stubbornness to make real change and perhaps a belief that these disruptive forces are not knocking on their boardroom door. How wrong they so are!

The post Uncharted Waters Disrupting the Corporate Boardrooms first appeared on Building Your Innovation & Ecosystem Intelligence.

Partly a niggling health issue finally got resolved with a ‘delightful’ week in the hospital, a couple of operations later, with a reasonably speedy recovery now thankfully underway.

The plan of course was for me to really use this confinement period as one of those opportunities to catch up on an awful lot of reading around innovation, planning out some areas to focus upon in the coming months and year ahead.

My logic was at the time, well this is similar to a long train journey or flight, you use this time and climb into a number of areas that have been quietly ‘festering’ away in the back of my mind, sitting on my desk or tucked away in my computer.
Of course, it never works out as planned, those ‘pesky’ interruptions checking your vital signs, wanting to know “are you in pain” or in this case for me, that firstly, a rapid realization of the effect of two operations leaves you fairly sore, popping in pain killers and making sure you can quickly walk off the effects of the surgery and the need for two full anaesthetics.

Then all the wriggling and reworking of the hospital bed at all its angles to get myself even comfortable for the job on hand to read and catch up.

Let’s not even talk about all the bruising giving me a rainbow effect!

That time was not as well spent equally on trying to keep to my optimistic plan, as I was only armed only with a tablet taken into the hospital realizing that this never- ever makes up for my ever-faithful laptop, driving me mad in its slowness and lack of robustness in the normal programs I use. Blood pressure pills came in handy here also.

Still I came away with a 50% achievement mark which was not so bad on the overall innovation intent I had set myself but one area was very frustrating to move forward upon- the subject of risk and how it is treated in innovation management.

Risk and innovation has frustrated me in this recent period.

One area that has been really bugging me is risk and innovation management. I just can’t seem to have achieved a decent ‘lock down’ on this.

I’ve collected different articles, have browsed through different books and have a few of my own views but in all honesty this was only a 30% achievement on my framing this in the way I wanted to take forward. It is going to be tougher than I initially imagined.

Most of the specific innovation books I have laid my hands upon have a notional one page or one paragraph on risk – taking, leaving it as simply ‘ticked off’ but certainly (really) badly covered.

The only notable exception I have found so far to this is Bob Cooper, who does explore different aspects of risk within his books. The one on my desk “Winning at New Products” has some decent references and approaches to begin to think risk within our innovation management

Why are we not discussing risk management and innovation in deeper ways? We should be. 

In my searches I was expecting more, does anyone have something that they can point me too, to kick-start my thinking into a deeper dive I need to do?

I would have equally expected the auditing firms that have internal innovation practices to have given this a more ‘decent’ airing of their expertise. All the ‘biggies’ have risk advisory services yet I struggle to find anything specific about managing risk in innovation.

I did get one comment back when I started to ask in my own network which perhaps pointed to a dearth of risk and innovation and that was: “the organization will not treat innovation risk as being greater or different as the unknowns are not seen as higher risk but as the norm, and the teams within that organization will have the capability and flexibility to adapt to change and continually incorporate learnings”.

I’m not sure the teams involved in innovation do have this capability to adapt and change to continue to incorporate learning if managing risk within innovation is not clarified. It will be highly dependent on each organizes accepted norms for risk but I valued the point. It does seem risk and innovation are bundled up into general risk management or are they?

One glimmer of research yielded some decent insights

Accenture provided the best view I have gleaned to date in a paper “The art of managing innovation risk“. They nicely sum up the risk dilemma as:

“Few decision makers want to take responsibility for a failed experiment, so extreme caution usually prevails when new ideas are assessed. Opportunities tend to be defined narrowly.
Moreover, the tools commonly used to support the process exacerbate the problem. Based on retrospective analytics—Net Present Value (NPV) models, for instance, are built on market projections that are calculated using past trends—they tend to skew innovation decisions toward optimizing existing product lines rather than pursuing new ones.
As a result, promising ideas are often smothered. And while many of the innovation initiatives that do gain approval are low risk, they offer only low returns—incremental improvements that usually do little more than maintain market share”.

The view within this report helps me, in that it points to changes in some companies:

“Leading players recognize that far from stymieing innovation, sophisticated, state-of-the-art risk management tools, techniques and models, including small-scale experimentation and portfolio management, can actually help encourage it. They know that by fusing such a risk management approach with innovation, they can create a powerful, value-driving partnership.

In this Accenture report they go on and argue “risk management groups could work as standard setters, providing a common language the business could use to translate strategic challenges into specific, measurable risks, and providing such risk governance expertise as oversight committees and assessment procedures“.

So I turned to someone I greatly value around Governance, Professor Jean-Philippe Deschamps book “Innovation Governance“but I was sadly very disappointed that such a small space was set aside for risk within innovation governance. I find this hard to understand. I will need to approach him on this to delve into his thinking a little more on this.

Then Accenture within this one ‘decent’ report went on in suggesting: “by continually assessing value against multiple variables and scenarios, predictive analytics can help guide these complex decisions. Risk scenario (or simulation) analysis, for example, is a structured, forward-looking process designed, unlike traditional SWOT analysis to discover how multiple factors combine to create both vulnerability and opportunity”

Yeah, I liked these but it left them as dangling out there, needing more work from my perspective and need.

Then Accenture went further and into this “with product lifecycles across industries shortening, successful innovation often hinges on speed. And that, in turn, requires a risk management process that can shorten learning cycles, recognize failures early and make timely course corrections—a process that facilitates a company-wide dialogue around which risks are acceptable and how much risk is appropriate, based on potential returns”

They are quite rightly suggesting “with risks well-managed, companies can then use rapid experimentation and the techniques of agile development—an iterative process closely linked to customers and markets—to boost their chances of coming up with a truly profitable innovation portfolio”

The conclusion within this Accenture report I liked but it left me really wanting more.

The conclusion of this Accenture Outlook report was:

“Most companies today have come to recognize that sophisticated risk management is a key enabler of long-term growth and profitability. What’s more, some companies have put in place advanced capabilities to manage their innovation risks successfully. Few, however, have developed the agile, iterative approach that can drive breakthrough innovation rather than drowning it—or have created the risk-tolerant, organization-wide governance structures that allow such capabilities to flourish”

Stepping over the risk marker drawn in the sand
Accenture has drawn a mark in the sand with their article but that is already two years old and we really should step over this and advance this set of ‘generalizations’ where innovation risk is not so much bundled up, as broken out.

Opening up on managing risk in innovation needs to happen
We need to open up our collective thinking about risk and innovation management. We should aim for a really healthy construct that does help all involved or associated with innovation and managing risk, a better chance of pushing beyond the incremental innovation that avoids most risk and disappoints those seeking real growth.

We need to encourage a shift and seek out the dimensions, criteria and thinking that can be applied to encourage more risk-taking, and radical and breakthrough innovation. Something the vast majority of our organizations are not encouraging when the short-term mindset dominates.

There does seem this poor recognition of how to manage risk within our innovation management, often it seems in just piecemeal ways to slip under the risk radar, or avoid addressing it specifically under the corporate umbrella that would most likely kill off most ‘speculative’ innovation, simply as the established corporate risk criteria can’t be determined for innovation unknown until ‘decent’ investment is made.

So I’m not advancing at the rapid pace that I wanted to on risk and innovation.

Do we treat this specifically, differently or allow it to evolve on an ad hoc basis or define how it is differentiated from ‘normal’ risk assessments or criteria to encourage a greater innovation top management focus, something we certainly need? .

I think if innovation is not seen or treated any differently, perhaps then it will be treated badly, getting often the low-level of top management focus. While there is no established innovation risk management practice then this must be a prime reason innovation is being held back in what it can deliver.

We need to that prompt more on risk and innovation, reflecting why and how it should be treated in different ways and this might encourage a greater top management engagement.

I need to keep working on this, now it is time for me to pop another painkiller to keep going. Managing my pain takes precedence over managing innovation risk at the moment but I must come back to this poorly represented side of risk and managing innovation.

The post Risk and Innovation frustrate me first appeared on Building Your Innovation & Ecosystem Intelligence.

Actually it is heard a fair amount if you ask about risk and innovation. This is often never stated in earshot of others within the same organization, it comes in a sudden burst of honesty, perhaps over drinks, and always outside their ‘normal’ working environment.

Sometimes you have a rare exception, especially if you have been called in to help, when someone has just been appointed into the position to simply “do something about innovation, we are dying as an organization”

We all need a meaning but we don’t like the risks associated with it

I was reading an excellent article by Teresa Amabile and Steven Kramer on “How leaders kill meaning at work” and they offer the insight about the lack of recognition that everyone within any organization requires as the single most important need,that is the feeling they are making progress in meaningful work.

Managers often undermine the meaningfulness of work to us as individuals; it is too often dismissed or not thought as relevant to the work at hand.

In the article they suggest four traps to avoid and one of them ‘Mediocrity signals’ triggered this blog.

The organization they used as the example within this trap drove new-product innovation into the ground as the top management was so focused on cost savings they no longer were a leader in innovation, they simply became followers.

One comment made by an employee was “mediocre work for a mediocre company”, yet it was not previously like that.

Risk aversion had become dominating and the organizations leadership was signalling “they were really more comfortable being ordinary”.

How do we arrive at this point of being just ordinary?

Human being have always been risk takers, otherwise we would not be where we are today. As a species we survived because we took risks, but was this because we were threatened?

There is a strong argument that we really only innovate when we are in crisis, being threatened, either with our jobs, within our organizations when we feel under attack.

So do we only feel we can take risks to survive? It is often amazing how the barriers are unlocked to innovation, within those deadlock meetings when someone signals “we can break the rules, we can go beyond our normal comfort barriers, into uncharted waters, it is acceptable, it will be supported”. We can change in seconds; it becomes liberating, exciting and risky.

The argument goes that risk-taking enables growth.

We have all heard the mantra “without risk, there is no reward”. Yet the very opposite occurs more often than not. Those that do take a risk, often find their ‘reward’ is in being fired, demoted or being warned “this behavior is not something we encourage in our organization”

So if you want to be an average manager or an average employee, then you need to find the average organization were little risk-taking is required. Does that fill our lives with meaningful work? I think there are better ways to go through life than hating the very thought of getting up and going into work.

If we lack fulfillment, and being in an environment where work begins to have, each day, less meaningful purpose then we have taken out one of the major factors of life surely? If risk is being progressively taken out of the equation I think innovation suffers, let alone us as human beings having to live with this feeling of working in such a mind-numbing environment.

How often do we hear managers quantifying more on all the downsides of risk, looking at the possibilities of loss and less at the probabilities of success?

Risk-taking becomes threatening to them, their tenure, so they work the downsides wherever they can, rework the product so it can still be innovative but is simply ordinary as against the original idea where it was potentially extraordinary. Risk aversion took hold and we are left with this “no appetite” and being ordinary.

We need a shift in risk thinking to help innovation.
Organizations need to work at ways to reduce fear, discomfort and resistance. To allow for opposing views, seeking out a diversity of opinion and establishing that one thing we all would love to be part of, this is an authentic culture that matches the promise with the reality .

One that shifts away from conventional thinking to embrace risk and not try to always control but to seek actively experimentation. It is through experimentation we gain our best learning.

Equally, experimentation should be at the core of every organizations drive to innovate, we accelerate our knowledge the more we attempt something different, proving or disproving is exciting work.

Shaping ideas, taking risks, allowing experimentation, providing tolerance, exploring the unknowns all should be an integral part of innovation. Innovation is risk-taking.

Kouzes and Posner back in 1987 suggested that individual’s be encouraged to keep trying despite failures, and focus more on on the learning from this than just simply from the outcome alone.

They suggested three points as a way forward to improve risk tolerance:

1. Choose tasks that are challenging but within the person’s skill level to build a sense of control
2. Encourage people to see change as full of possibilities and to build an attitude of change
3. Offer more rewards than punishments.

Over time this increases our risk tolerances, we become progressively more creative in this risk-taking orientation to seek out and push for more innovation.

We allow in a greater desire for the capacity to be innovating and how we want things we are working on to improve, to give us a greater meaning within our lives. More purpose, more satisfaction, greater identification.

Equally allow those who are willing to take risk, as their more natural position, the head room to explore, to push boundaries. Outline the guidelines, expect them to be broken on a few occasions but work with them, talk with them and talk about what they are doing where ever you can.

Work towards expecting more positive surprises through your engagement than fire fighting the negative ones because you were unaware.  Do also make sure others above you or alongside you are party to the risks.

There is a certain thrill in any ride if it has a little edge to it but equally it is in a successful finish. Risks always need active but positive managing, keeping them within a certain tolerance.

Building environments that encourage risk-taking should be sought.

If we can provide environments that encourage risk-taking and they are consistent in what is expected this becomes a big step to change our present thinking about innovation.

If the leaders within organizations lay out what they want to achieve, breakthrough innovation for example ,and this is clearly articulate and laid out in the governance, the culture and in the environment and linked to the purpose of the organizations goals, then risk becomes better managed and valued.

Risk-taking can come through experimentation, through more open learning and discussing, through testing and pushing for greater innovation alters the tolerance levels. These tolerances change over time as more confidence seeps into the way we evaluate and make the betting on the outcome more risk-rewarding. We begin to move back into truly innovating.

As I suggested earlier: “innovation is about risk-taking”.

We look for a meaningful contribution as Teresa Amabile and Steven Kramer suggest. It boosts the “inner work life” and as they equally suggest “inner work life affects the bottom line” if employees are allowed to be engaged, part of something that allows them to be more creative, productive, committed and collegial in their jobs.

I would add fostering risk tolerance can push innovation beyond the ordinary back into the extraordinary.

Nothing is better than being associated with extraordinary moments, we all need them, and they give us real meaning and purpose, just make sure you add a certain spice of risk into the mix.

If you can’t live with risk, risk may come and live with you.

The post Risk aversion is just making us all feel ordinary first appeared on Building Your Innovation & Ecosystem Intelligence.