Developing a new framework for risk and innovation.

Innovation & StrategyI believe we need a new way to manage risk within our innovation activities. It needs to be treated differently from the general ‘risk management’ criteria applied within our business organizations.

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 up numerous reasons why we should recognize and treat innovation risk differently, so as 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 foreseen in 2018. With technology disruption, business model disruption and growing competition, social and customer engagement challenges 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.

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Treating Innovation Risk Differently, Dealing with Uncertainty

risk innovationWe need to open up our 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, 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 to 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.

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The Pressing Need to Link Risk into an Innovation Strategy- part one

Road to InnovationI 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 the management of 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 need 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 boardroom level to relate too and take a different risk-related profile position that many take today.

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Sinking the unthinkable

Innovation and the TitanicThe days of simply having ideas moving through a pipeline and coming out the other end as finished product and services seems part of our great past.

I believe Innovation is becoming overwhelmed by all the changes we are applying into innovation activity and its management.

I would say the IM system is under even greater strain from the shifts coming from  the multiple applications of technology, new  approaches to design and modelling as well as all the necessary engagement and touch points.

Yet we are still expecting this deluge of change occurring to happily move our innovations through those past established, often manual processes, we have presently in place. I think not.  We are deluding ourselves, that all is well.

There are such changes occurring.

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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.

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The four framing technique for critical innovation questions

Often we do get a little muddled on  our framing assessments for any innovation activity we are considering, and we then often don’t ask the appropriate questions at the right time.  I think there is a neat four box approach to this which hopefully you might see has value to your rating and judgements of the innovation opportunity.

The four framing criteria

  •        Formulation Principles
  •        Formulation Risks
  •        Execution Principles
  •        Execution Risks

So the need is to ask critical questions in given boxes of enquiry.

The four frame methodology for asking the right questions for new innovation activity

Short Descriptors of what makes up the questions within the different boxes

Let me provide a short description of each framing blocks briefly. I feel you can expand within these for your own four-framing approach.

Formulation Principles

These deals with a range of questions that should be asked at different stages of any innovation activity but are set out to establish the guiding approaches and scope.

  1. The Boundaries– how often do we set the boundaries for the way innovation should proceed, this question seeks the potential scope that can be explored.
  2. The Big Picture– often we miss the bigger picture as we delve straight into the problem or solution, having one can really help others see the potential and draw encouragement to expand on their ideas and contributions.
  3. Existing Demand– questioning what is currently available, getting a feeling for its present demand and what additional demand will be gained by you participating, if any
  4. Sequence and Clarity– the understanding of the sequence that innovation initiative should run through and providing the clarity as best as one can early makes for a more effective project.

Formulation Risks

These deal with the different stages of risk investigation so it is better understood early enough.

  1. Search Risk– the amount of time, energy and commitment needed to undertake any search
  2. Plan for Risk– the robustness of risk, outlining the minimum and tolerant points of any risk
  3. Scale Risk– addressing the additional cost of any subsequent scaling highlights issues early
  4. Business Model Risk– what impact does it have on the existing business model, what might need to be changed and the effect this can have

Execution Principles

These deal with the execution guiding structures and beliefs

  1. Overcome Diverse Hurdles– within any innovation there is complexity and diversity and knowing the possible options available to you early on allows for structuring the rules and governance
  2. Resolve Inhibitors– these need to address resources, time and clarify how the approach should be conducted
  3. Clarify Fit– if we don’t know the potential fit then we can make some real mistakes in execution
  4. Build execution into the thinking– knowing how you are likely going to execute can often determine the way you set about the task of innovating your solutions. Knowing the market capacity, channels, customer’s tolerances all come into play here

Execution Risks

These focus upon the risks associated with the different aspects of execution

  1. Organization Risks– the what are they as best as we can antiscipate and ideally updated as we learn more.
  2. Personal Risks– often we stick our necks out but it is sometimes wise to pause and reflect first
  3. Combined Risks– be this with a team group in loss of time, energy, reputation or in the partners you want to engage with for developing any innovation
  4. Lack of Uptake Risk– the downsides are often ignored as innovation is hyped up. By making a ‘reasonable; assessment of the risks of the effect of a poorer uptake and a range of scenarios’ allows for some deeper reflection and need to attempt a better forecasting range early enough.

So within each of these frames you are askng for a clarity on different critical questions that need clear seperation. I think it makes sense to ‘frame’ your questions from these different perspectives. What do you think?