Innovation is, by its nature, a risky activity. The greatest successes can stand on the shoulders of many failures. But, are attitudes to risk skewing the pitch and stopping those blockbuster innovations from making it to market? Unpacking the true nature of risk can help avoid this trap.
Innovation is about dispassionately dispatching the weakest ideas, so the strongest emerge. Having a healthy ‘funnel’ full of early stage ideas is the lifeblood of innovation. Then, innovation leaders’ jobs are to kill as many of them as possible, as quickly and cheaply as possible, through a series of stage-gate hurdles, until only the strongest are left to emerge into the ‘tunnel’.
Innovations in the tunnel are slated for serious spend and development resources, and unlike the funnel, the expectation in a healthy innovation organisation is that most will emerge from the end of the tunnel and launch into the market.
Why do so many weak ideas make it into the tunnel, only to be ignominiously snuffed out before launch, having absorbed significant resources that could have been lavished on stronger ideas? At Skarbek, we have been thinking about the true nature of risk:
• Is our philosophy to pursue a high success rate, i.e. from ten ideas we are only able to tolerate having one failure and report a 90% success rate?
• Or, can we handle 50 ideas and 15 successes and be happy to report a 30% success rate?
We contend that not only are you better off with 15 successes, rather than 9, but that on average those 15 will be bigger and better innovations, having thrived in a more competitive and hostile environment, than the 9 that may have been massaged through to keep the hit rate high.
If you accept this premise, then why are we drawn to the comfort of the 90% success rate? To hit a rate this high implies pre-filtering is necessary and this is where our cultural biases come into play, with many ideas that should be empirically tested not even entered into the funnel. We believe this is because the nature of risk perception in organisations has shifted away from the truly catastrophic (large sunk costs and missed opportunities for market leadership), towards the political costs of failure.
Are organisations mature enough to tolerate the failure of lovingly pitched concepts, committed lab-scale work and consumer screening tests? Or, do even these early stage funnel activities already involve the investment of too much political capital to admit the need to kill them swiftly, dissect the lessons objectively, and pick up the next idea? Or, does the political cost keep them on life support until far too late in the development process and dissuade development teams from any deep analysis of failure? Addressing this organisational maturity in judging what is true risk, versus just the politics and perception of failure, lies at the heart of accelerating innovation growth value.
Risk-taking is essential for a truly creative and innovative process, however the management of that risk is where the art form lies for successful projects. By taking an overall view, identifying where the biggest and smallest risks lie, how one risk may affect another and how teams perceive each risk is important for a cohesive approach. Diversity of thought is key to the production of new ideas and therefore views should be obtained, not only from the project team, but also individuals of differing backgrounds and expertise. Having a leader understand different individuals’ approaches to risk is a necessary element when looking at risk management, as some may be more averse to risk and therefore offer up a more cautious approach and vice versa for the more foolhardy employees. Being proactive, pre-emptive and continuous in risk management means that you can minimize the chance of hurdles in the process. Negative outcomes should not be seen as failures, but the opportunity to develop the understanding of an issue and to produce new solutions from better ideas.
The term ‘innovation’ itself relates to stepping into the unknown and as a result, there are almost certainly going to be unexpected challenges that an organisation will face along the journey to innovation. Companies must learn to accept this prospect and make smart, well-informed decisions in order to mitigate as much of the risk as possible. This should be determined, not only by the choices people make, i.e. having the courage to step in and remove a weak idea from the process, no matter how far along this may be, but also ensure that there is the relevant infrastructure in place, or the ability to implement new infrastructure to achieve the desired outcome.
The relationship between risk and innovation is complex and in a world where there are increasing pressures to innovate and beat the competition to market, companies need to ensure that their company and employee values are aligned for a quality versus quantity approach to innovation.