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.

I recently provided a post on a very upbeat PwC report on innovation and its growing importance to growth in the coming years. The PwC report “Breakthrough innovation and growth” was a survey of 1,757 C-suite and executive respondents, on their thoughts on innovation and where the new growth was coming from in approach.

The top line was companies are seeing innovation transforming their businesses and their need to take a more sophisticated approach to innovation, so as to achieve the growth plans they are setting for the next five years.

There was a strong indication that the innovation that was going to be pursued was going to follow a far more radical set of innovation practices that have the potential for offering a real impact on companies future growth ambitions.

Yet I have also been reading another report issued by Corporate Executive Board (CEB), a leading members-based advisory company called “Growth Readiness- prioritizing investments to drive executive commitment” discussing the secret to effective investment prioritization is demonstrating your organization’s readiness to pursue growth. (N.B You need to fill out the form to obtain the report)

Both correlate on the strong need for growth. CEB suggests as the global growth has stalled that in response, companies have planned to boost non-incremental growth investments by almost two-thirds.

The CEB defines non-incremental investment as a large growth opportunity that requires some change to the business.

The PwC report enthuses about innovation and reports

“Growth is a top priority for most (80%) of the companies we interviewed and their plans are ambitious. Executives are planning for 35.4% growth, on average, over the next five years, the equivalent of 6.2% per year. Over a quarter of executives (26%) say that they are aiming for ‘aggressive growth’ over the next five years”

Yet there are dark clouds of concern in the Strategic Office

Yet in a associate blog from CEB written by Marc Austin, who has primary responsibility for research and product research at CEB, he discusses one big if not huge issue that will hold any investment decisions back, and this lies clearly in the board room.

“When I talk with heads of strategy – mostly, they talk about their frustration with the C-suite. Strategists describe the senior executives in their organizations as analytical, tenacious, and gifted in the art of getting things done. Yet the growing trend across boardrooms is indecision, especially when it comes to deciding on big, higher-risk growth bets.

As one strategist explained, “I only had head-nods, not real commitment.” This isn’t just a problem. It’s a big problem… At the end of the day, it’s getting executives to follow through, to defend their decision, to ensure funding and resourcing for the big bets happen and don’t get derailed. Without commitment, there is really no point to strategy.”

There are some serious issues seemingly raised around strategy according to the CEB report..

One of the critical points within the CEB report is suggesting that the lack of commitments to non-incremental investment can cost a company 3.25% less return (above hurdle rate), or a 34% lower profit than they might

So do we sense we might be having a real problem here?

It seems a real tension is occurring between desire and reality? Between strategic intent and follow through? Certainly this will be between how innovation is intended to lead growth through the strategic intent? The CEB report discusses the important changes taking place around risk and talks about risk readiness.

Is innovation riding in to offset risk?

Yet in a further PWC recent study: Unleashing the power of innovation, three quarters(74%) of CEOs regard innovation as equally important to the success of their company as operational effectiveness, if not more. This is the first time in recent history that innovation has been in parity with operations in the C-suite.

The latest PwC report  on breakthrough innovation and growth goes on to mention that “the push to create new value is not so surprising in itself. What is most surprising is that in this challenging economic climate, where many companies still face enormous pressures to reduce costs and become more efficient, many executives are telling us they see innovation on a par with operational effectiveness”.

If these ambitious rates of growth are to be achieved, companies recognise that they will need to look beyond the more traditional options for growth, such as mergers and acquisitions and traditional R&D.

It does seem broader types of innovation might have finally arrived in the boardroom. There seems in CEO’s minds a clear correlation between innovation and growth.

PwC point out “The widespread rejuvenation of innovation should have a profound impact on the way businesses plan for the future”. The leading innovators in their study are targeting a higher proportion of breakthrough and radical innovations, particularly around products, services, technology and business models

PwC does caution companies, “they need to determine whether they should adopt a ‘Play to Win’ or a ‘Play Not to Lose’ innovation strategy. ‘Play Not to Lose’ is a defensive posture appropriate for groups that are risk-averse or unable to be leaders that generate winning innovations. In some competitive environments this makes sense: it is better to play conservatively and avoid taking large risks” (pg24).

Companies are looking across the innovation cycle to get into the right shape to implement this shift in strategy towards a very high organic growth one and be able to execute on innovation.

With acceptance that growth gaps need resolving it seems risk will raise its head.

Will business leaders overcome their current higher concerns for taking risk and will that come from more radical innovation? It seems this is a very open question. There seems a desire to ‘talk up’ innovation, to leverage it more but the reality of managing the risk seems the issue that needs managing.

Yet recent market changes have altered how executives make decisions and develop commitment.Prior to the recession, commitment could be captured on the basis of the opportunity’s inherent attractiveness.Today the basis of commitment to major growth bets has fundamentally changed.

There also seems a shift in strategic approaches.

To prioritize investments based on growth readiness, strategists must consider the three enablers of growth readiness, Risk Readiness, Capability Readiness and Stakeholder Readiness.

Equating the two reports

Although the interview ‘universe’ is different, one  is global (PwC), one more contained in the USA (CEB) I think they justify this need to be brought together as risk readiness and growth through innovation need this equating.

I think reading both the PwC report “Breakthrough innovation and growth” alongside the CEB one on “Growth readiness” needs some narrowing of the dealing with risk, innovation and readiness, if companies  actually determined to really work towards radical or breakthrough innovation.

I think the present mind set of risk mitigation might need some thoughtful thinking through and the discussion about risk readiness needs to take place within boardrooms if they are about to deploy innovation in greater ways.

Otherwise risk will impede innovation and then frustration then grows with innovation failing to deliver the expected results.  The real frustration has actually as its real source the inabilities to quantify ‘acceptable’ risk and not having guidelines.

Innovation is inherently risky from often its inadequate data and market quantification. Clarification at board room level needs to be made on how to treat innovation when it is pursuing more radical, new business model or breakthrough approaches.

Strategic planning for innovation will need different thinking and tools to manage it adequately.

An early board room discussion should be about achieving a consensus over the growing recognition that innovation, at its most powerful, is a driver for rapid and profitable revenue growth but what will be the acceptable risks.

If companies are targeting a higher proportion of breakthrough and radical innovations, particularly around products, services, technology and business models, it can dramatically deliver improved competitive positioning, higher customer satisfaction, and decreased costs with the right innovation solutions, but it has risk.

Risk mitigation needs to equate as much of the uncertainties you find in exploring a breakthrough or radical approach to business. These discussions will have some high tension points, that need clearer guidelines otherwise we continue with growing strategic and innovation frustrations. The board needs to lead here.

Many of the challenges arise from the way innovation is managed and handled. Another early strategic boardroom discussion should be around the operating models and metrics for ‘business as usual’. These will conflict with those needed to drive innovation for ‘new growth business’.

Risk readiness needs to be well thought through, otherwise more radical or breakthrough innovation will struggle to get out of the door, let alone into the board room, if risk is not equated differently going forward. Risk versus opportunity needs to be constantly evaluated.

It will be the ones that can articulate the value, create the right narratives for this innovation growth, by taking these bolder approach decisions to innovation will less than perfect data.

They will succeed in gaining organic growth through innovation by understanding its parts in detail. It is those who can equally manage uncertainty by advocating a new risk readiness pathway to growth will be in better shape to pursue a broader innovation approach.

We will need to ‘marry’ risk and opportunity through our innovation activities far better and prompt some very important board room discussions to enable innovation to take this centre stage for growth.

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The post Risk readiness and innovation growth – board room tension first appeared on Building Your Innovation & Ecosystem Intelligence.