Risk and Innovation frustrate me

Managing risk and innovation managementI have been really struggling in the past few weeks. Partly a niggling health issue finally got resolved with a ‘delightful’ week in hospital, a couple of operations later, with a reasonably speedy recovery now thankfully under way.

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

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

The conclusions with 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, more radical and breakthrough innovation. Something the vast majority of our organizations are not encouraging when the short-term mind set dominating.

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 avoiding 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 in the rapid pace that I wanted too 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 upon.

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 pain-killer 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.

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4 thoughts on “Risk and Innovation frustrate me

  1. In terms of an audit perspective, it is a key part of our work at the Wales Audit Office, and the Auditor General for Wales has spoken about it’s importance (https://vimeo.com/76701938) at numerous events, including at the Welsh NHS Confederation conference (http://www.audit.wales/news/good-governance-and-well-managed-risk-taking). We’ve run a webinar on risk management that reflected on this (http://www.audit.wales/events/risk-management-shared-learning-webinar), but recognise that we still have work to do. Look forward to reading more of your reflections on this and get well soon!

    Dyfrig

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    • Hi Dyfrig,
      I still feel innovation should be separated out although many common risks can be addressed but innovation progress goes through such different risk / value / return / move on that it should have its own innovating risk process-

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      • Hi Paul, certainly agree there’s a role for that. Innovation certainly needs to be considered on its own merits (it’s fascinating to see how the Bromford Lab and Dublin City Council Beta are doing that). Think there’s also a role for a generalist approach in order to raise awareness and work with public sector teams. It’s funny how some people are averse to the term ‘innovation’ as it’s something that’s done to them. I think there’s a role for both, though a direct focus on innovation is certainly needed.

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  2. Pingback: Constructing Innovation as Value Management | Paul4innovating's Innovation Views

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