The Best Tools to Derisk Innovation

At the start of the twenty first century the innovation buzz has become deafening. It commands the attention of everything – from the popular media to scientific journals. Innovation is claimed to be the driver of economies and the competitive edge of companies. With innovation being the core of many new management styles, one question still remains for the enthusiastic manager; what are the concrete tools for my employees to build our revolutionary innovations?

At the core of any innovation management technique is a risk management philosophy to lower risks along the development and implementation chain. Whether it is focused on minimizing waste via Lean Thinking, correctly addressing consumer needs via Design Led-Thinking or hedging bets via Equity Style Management, the focus is always on how do we reduce the risk inherent in being innovative? Risk and innovation are inseparable. You cannot have one without the other.

 

“4% of innovation initiatives achieve their internally defined success criteria.”

 

The tools to achieve these goals nowadays are focused around a few enabling principles. They are mostly about connecting the right people to the right problems. And doing this in the simplest and most frictionless way possible. We are seeing this with Crowdsourcing, Crowdfunding, Open Innovation (both ingoing and outgoing), Open Access, Open Source, and many more.

 

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Innovation Management – The Boom – Not Doom – from Market Failure

New Sources of value

While it might seem that the disruption du jour is all anybody is ordering these days, making innovation, growth and new value seem like insurmountable things, businesses should focus on where they can find value most quickly. So why not begin where others have ended in non-consumption, organizational friction or market failure? Such unexpected failures provide opportunities for solutions, and solutions are the source of explosive value.

What do these three common challenges mean in business terms? Simply that the economics are not valuable enough to get folks to focus on them. Often, it seems that the problems are too unwieldy to tackle, the transaction costs are too high or the friction is too great to internalize the costs within a firm. However, understanding these issues can help explain why a vast number of businesses are difficult to franchise or scale, or a segment of a market is perceived to be of insufficient value, and therefore of no benefit or interest.

Take any expanding company and ask: what underlies your growth? Across industries and time, explosive value has come from addressing market failure, organizational friction, and non-consumption head-on, through the development and deployment of new assets and capabilities. These issues create a white space or void – an opportunity – in which an innovative solution can provide businesses with the value and growth they seek.

Across industries and time, explosive value has come from addressing market failure, organizational friction, and non-consumption head-on

Taking on Market Friction

An excellent example of taking on market friction is Uber. The essential value proposition of Uber is ‘convenience’ – get a car when and where you want it and the payment for the service is transparent. Eliminate the frictions of inconvenience and payment transactions and what do you get? Explosive growth.

Market breakdown can be seen in Google and Apple iTunes l with material implications on explosive value creation (for them) and value destruction (for others).

Finding Solutions to Market Failure

The gap between the significant need for innovation in this arena and the meager returns to those who invest in this innovation management which represents a market failure. How so? The typical pharmaceuticals business model is based on price-times-volume equals revenue opportunity, meaning investment focus. However, anti-microbial resistance does not follow this model because the more the drugs are used, the lesser the efficacy of those drugs.

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