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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Describing the future by using the business narrative

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In business the future narrative is becoming vital. We all should care about the future and it becomes so important for us all to identify or not, as this gives us our identification.

I have found that narratives are becoming increasingly important to explain ‘things’. I’m re-learning this ‘art’ to tell a compelling story.

Our stories can combine much, communities can identify or reject, we can begin to explain complex stories by presenting a well-designed narrative that presents the arguments. It can explain the connections and outline the issues, both in terms of risk and opportunity. I think business narratives will become essential for our organizations to use to explain where they are and what they see as their future.

A good business narrative should fill a real knowledge gap

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The yin yang of innovation

Recognizing its dual force

Scholars tell us that there are two natural complementary, yet contradictory forces at work within our universe. The Chinese call these ‘Yin Yang’. Yin is regarded as more passive, receptive, more outside-in, whereas Yang is more active, creative and inside-out. These are seemingly opposing forces but interconnected and interdependent, one gives rise to the other, they actually reinforce each other. Yin & yang seemingly have the following characteristics: they are opposing, yet equally rooted together; they have the power to transform each other and eventually are balanced out.

Yin Yang in Idea Management

As a good example of these opposite forces we often are required to both generate a large number of different ideas, and apply the countervailing need of selecting from among those that best can meet the organizations objectives. It is critically important to have this ‘flow and balance’ and allow it to constantly evolve.

So by this example we see that ’ Yin and Yang’ are both dynamic,  sometimes opposing forces, constantly interacting with each other balancing conflicting needs (and aims) but also recognizing that one determines the other and you need them both to strengthen innovation. We need these two opposing forces in all we do to manage the ideas for innovation. These often do conflict with one another in their needs and actions but they both need to be in force to bring out all that is needed to be evaluated in the idea process so real innovation occurs for ‘something new that gives additional value’.

This balancing of yin and yang needed in the above idea management example in effect follows a constant changing course but there is also a natural order. Equally though this seemingly is always within a constantly evolving innovation system that reflects the constant change going on around us. We simply cannot get ‘fixed’ in our ways, and it is this constant flow that system engineers have often never fully understood within managing the innovation process. Often they want to separate the parts of the system attempting to take out the ‘conflict’ innovation truly needs to have on a constant basis.

Yin Yang in risk and opportunity

‘Risk and opportunity’ are yet another of those two opposites for the yin yang of innovation, that also need that constant balance for innovation to thrive. We need to arrive at our own point of “chi” to balance these. To arrive at this balance we should look for the right interactions between the two sides, for instance:

  • Recognition that on each side of the coin (risk/opportunity) will enable better decisions
  • You seize better opportunities with confidence if you can quantify the risks
  • Recognition of the two can help you allocate funds more wisely
  • You achieve a better delivery on an improving scale of understanding both aspects
  • You anticipate problems far earlier

Moving the organization from being risk-adverse through experimental to seeking opportunities needs a constant force and attention. Managing its tension is essential to gain greater innovation effect. Effective risk management depends equally on good quality of information- the same as “seeing” opportunity; it simply needs a good framework that provides suitable scope for sensible risk-taking and exploring opportunity.

Yin and Yang of Creativity

Being creative has both a yin and a yang aspect also. Creative people tend to be smart and quick yet naïve at the same time and need often reminding of the whole system and how their ideas can or cannot fit into this. Creativity as we are aware needs a fun and a relaxed environment yet a large measure of professionalism. The need for having an open brainstorming environment needs to be balanced with ensuring this is well-structured to capture what the purpose of the brainstorming was about. We all have ‘unconscious skills’ that needs stirring and awakening as we are asked more and more often  to connect all the often conflicting ‘pieces’ to see a new possibility or resolve a difficult problem. Having different perspectives available that provides diversity, opens up our minds yet equally allows for placing these random pieces into new order. So the ‘yin and yang’ are needed in the creative process of innovation where you need the two opposites of managing differences and harnessing diversity, so as to be actively be in conflict but equally complement each other to bring out better results .

Yin Yang for designing positive tension into innovation

Finally we actually need to build a greater ‘tension’ into our innovation processes. Finding the balance or appropriateness to achieving the goals of innovation are not natural tensions, they need to be designed in. Within innovation understanding the context is critical, it needs to be fully understood, equally coordinating the outcomes are critical as well. Both create tension and need to be explained. Context gives us the purpose, the bounds, the outline in structures and capabilities, roles and commitments to achieve the result that is being required. The coordination is what leadership is concerned with, to keep bringing the parts back to the whole as the outcome needed. The pursuit of operational excellence is another example it often becomes an end unto itself and gets somehow disconnected from the mission of generating growth and creating value. So yin yang is used to describe how polar or seemingly contrary forces are interconnected and interdependent, often in conflict but needing to be complementary opposites within a greater whole. Successfully managing the natural tensions should be viewed for innovation as not conflicts to be avoided but as opportunities to be managed and converted. This gives a greater coherence and consistency from ‘open’ participation and engagement. Leadership has the role of getting the right balance, the right design tension into the innovating system, so as to bring out the best from this participation of all the opposing forces for greater innovation opportunity.

Recognizing yin yang evolves.

Finally, we also have to recognize evolution and by extension that innovation is constantly moving on. As the universe is changing every day, it is not easy to find a common method to discover the unchanging rules in any activity as they all are constantly changing and we have to somehow recognize this in our appreciation of supporting innovation. The ‘fluidness’ in innovation makes it hard to manage. How do you get the balance right in managing the innovation activity? It is not an easy one to solve and needs constant management and causes consistent concern. Looking at innovation in a different way, more adaptive in nature might help. The opposing forces of yin and yang are important to consider within this.

Recognizing the power of ‘yin yang for innovation’ can give you the order of things and how and why they relate to each other. Complementary and conflicting opposites do contribute to a greater innovation understanding but they do need consistent attention to manage.  Whoever did say managing innovation was easy?