I want to bring together some thoughts on risk and innovation. This is the opening part and sets the scene.
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”.
He goes on to say: “Without an innovation strategy, innovation improvement efforts can easily become a grab bag of much-touted best practices: dividing R&D into decentralized autonomous teams, spawning internal entrepreneurial ventures, setting up corporate venture-capital arms, pursuing external alliances, embracing open innovation and crowdsourcing, collaborating with customers, and implementing rapid prototyping, to name just a few. There is nothing wrong with any of those practices per se.
“The problem is that an organization’s capacity for innovation stems from an innovation system: a coherent set of interdependent processes and structures that dictates how the company searches for novel problems and solutions, synthesizes ideas into a business concept and product designs, and selects which projects get funded. Individual best practices involve trade-offs. And adopting a specific practice generally requires various complementary changes to the rest of the organization’s innovation system. A company without an innovation strategy won’t be able to make trade-off decisions and choose all the elements of the innovation system.”
“Diverse perspectives are critical to successful innovation. But without a strategy to integrate and align those perspectives around common priorities, the power of diversity is blunted or, worse, becomes self-defeating.”
He provides this view:
“The root of the problem (will be) that business units and functions had continued to make resource allocation decisions, and each favored the projects it saw as the most pressing. Only after senior management created explicit targets for different types of innovations—and allocated a specific percentage of resources to radical innovation projects—does the firm begin to make progress in developing new offerings that supported its long-term strategy. Innovation strategy matters most when an organization needs to change its prevailing patterns”
Gary Pisano suggests there are four essential tasks in creating and implementing an innovation strategy.
“The first is to answer the question “How are we expecting innovation to create value for customers and for our company?” and then explain that to the organization. The second is to create a high-level plan for allocating resources to the different kinds of innovation. Ultimately, where you spend your money, time, and effort is your strategy, regardless of what you say. The third is to manage trade-offs. Because every function will naturally want to serve its own interests, only senior leaders can make the choices that are best for the whole company”
“The final challenge facing senior leadership is recognizing that innovation strategies must evolve. Any strategy represents a hypothesis that is tested against the unfolding realities of markets, technologies, regulations, and competitors. Just as product designs must evolve to stay competitive, so too must innovation strategies. Like the process of innovation itself, an innovation strategy involves continual experimentation, learning, and adaptation.”
Leading on from this need to have in place an innovation strategy, we will look more specifically at risk in the next couple of posts
For me this excellent article from Gary leads into what I want to write about, the relating and linking risk and opportunity, so we can manage innovation on an increasingly level of risk.If innovation involves continual experimentation, learning and adaptation then we need a clear well – defined and explicit risk management process.
What should a risk management process contain, what does it need to address? So up next in this three-part series, this being part one to get the context right, will be some of my thinking and hopefully a contribution into establishing a far more ‘robust’ risk management framework.
The successful management of risk will enable great innovation opportunities that can lead to the chances of greater growth in our organization’s future, ones to be more value-building, beyond the current reliance mostly dependent on incremental innovations.
Part two within this series follows – discussing the different ways to build risk into innovation.
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