Risks in Innovation Leadership Talent

You don’t need to look far to see risk in innovation leadership. Yet many entrepreneurs lack a sufficient understanding of how to judge and deal with risks. In this article we introduce a model for classifying risks in innovation leadership. In turn, we discuss how some of these risks can be reduced or averted, and in some cases even embraced and reframed to mean something positive.

According to some statisticians, more than half of all startups fail within their first five years of existence; figures on innovative startups are even bleaker. A first round of investment is no guarantee for success, either-  the generally accepted figure is that roughly three-quarters of venture-backed firms won’t ever return their money.

One of the inherent virtues of innovation leadership is that the excitement of the opportunity outweighs the perceived risks of loss and failure.

Low probability – low impact risks: to be ignored

Risks that have a low likeliness to occur and low potential impact are not worth spending much, if any, time on. 

Low probability – high impact risks: to be insured

Risks that have a high potential impact but a low probability can often be averted through insurance. This is desirable when the benefits of insurance are likely to outweigh the costs.

High probability – low impact risks: to be averted

These risks, due to their low severity, are as inconvenient as they are avertable. Examples of risk in this category are: a key team member becomes ill just before an important deadline; a computer crashes with all the customer data information.

High probability – high impact: to adapt to

The risks in Quadrant 4 are of key concern for innovation leadership (and any existing business), as they are too costly to insure and cannot simply be ignored or averted due to their severity.These risks are the real company killers, often tapping into the core beliefs and (informed or non-informed) assumptions that businesses have built their product or services on. All elements of the enterprise (market, competition, leadership, operations, legal, finance) are exposed to such risks.

Read more about Risks in Innovation Leadership Talent at Innovation Management

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Four Tools to Support Creativity and Innovation

There are four different types of innovation tools that we’ll describe here, including the design of the work place itself, practices that encourage and even enable effective collaboration, open innovation approach to connect inside innovation teams with outside partners and experts, and online learning tools that constitute the virtual work place. Separately and especially together, these can make a tremendous enhancement in the performance and the satisfaction of individuals, teams, and your entire organization.

The last element of the innovation formula is the tools that enable you, or support you, to produce better innovation outcomes more quickly. This is often a sensitive topic for small businesses, which generally don’t have the resources to provide innovation teams with big work spaces, generous travel budgets, and fancy prototyping tools.

As we were wrapping up the tour, however, one of the facilities leaders who had been our tour guide, and who had been with the company for decades, mentioned that while the new labs were certainly lovely, he noticed that something had been lost over the years. He remembered the early days of the company, which was started in left over Quonset huts from World War II.

The work place

The qualities and characteristics that make Quonset huts and skunkworks so useful is that they’re open, flexible, and no one is inhibited about messing around in them and trying something new.

Unfortunately, the architecture profession and office furniture manufacturers have standardized on this utterly drab and uninspiring concept of what “the physical space” ought to be.

Tom Allen and Gunter Henn address this issue in their lively book about the design of offices: “Most managers will likely acknowledge the critical role played by organizational structure in the innovation process, but few understand that physical space is equally important. It has tremendous influence on how and where communication takes place, on the quality of that communication, and on the movements – and hence, all interactions – of people within an organization. In fact, some of the most prevalent design elements of buildings nearly shut down the opportunities for the organizations that work within their walls to thrive and innovate.

Effective collaboration

To create innovation requires that people engage in exploring new topics, understanding, diagnosing, analyzing, modeling, creating, inventing, solving, communicating, and implementing concepts, ideas, insights, and projects. These attributes are all facets of “learning,” and any organization that thrives in a rapidly changing environment has surely encouraged its members to learn and to apply active learning results to keep up with external changes. Read more at >>

Elements of The Innovation Formula

In the first chapter of The Innovation Formula for small business leaders and entrepreneurs, Langdon Morris explained the importance of questions and maps that describe competition, change, the future, innovation and strategy that are intended to help you understand the significant forces that are shaping business today, and to harness the ones that are already shaping tomorrow. In the second chapter, we look at a third core element that this book is organized around, which is the innovation formula.

Yes, we do believe that there is a formula for success at innovation, and we have found over the years that it doesn’t matter whether you’re running a garage, a sandwich shop, or a multinational auto manufacturer, success in each case relies on your performance in the same five areas. Whether you’re the CEO of GM or the chief cook and bottle washer, you have to think about the same problems, study, learn, research, experiment, engage in some risk, and manage it closely. How you do these, of course, is entirely different depending on the size of your business, but nevertheless the actual elements seem to be consistent across all businesses.

The formula consists of the six major topics: complexity and change, risk, speed, engagement, leadership, and tools. Here is a quick summary of the key ideas and the reasoning that you’ll find throughout the rest of this serialized book.

Complexity and Change

The external environment is an unyielding and unceasing source of change, and your organization must adapt to it if it’s going to survive. Hence, complexity and change literally define the context in which innovation and its close cousin, strategy, are relevant. It is to external change that drives market needs and preferences, and hence it is a critical role of leadership to be attuned to the rhythm, character, and specifics of what is happening out there in the increasingly wild world. The other critical role is of course leading the process of responding to those changes.

Risk

When we understand what’s happening in the external environment we can organize the pursuit of innovation, correctly targeted, so that we produce the right innovations to meet current and future market needs. But if only it were so easy. In fact, it is intellectually and operationally challenging to figure out what’s the right thing to do, the right products and services to create.

Furthermore, having a clear vision of the future products and services is not at all the same as actually having them in hand.

Hence, there is a double risk. First, anticipating future needs correctly is by no means an easy task. What if, for example, you see clearly what the needs of the future will be, but in the end it turns out that you’re wrong? This, of course, is the story of countless failed companies, which aimed for a target in the future market that the actual market itself never selected?

Second, even if you do get it right, there’s still the many problems associated with developing the right products and services to meet the anticipated needs. Can your designs and plans actually work? Can you complete the development work in a timely way? Does your organization have the internal talent and the right external partners to master the many challenges?

Risk, then, is inherent in the innovation management problem, and it is inescapable. So the right amount of risk is essentially the least possible risk.

“Least possible,” however, is trickier than it may at first sound. Least, after all, is really none, but of course the point of competition and change and all that is that taking no risk means making no innovations at all, which is actually a very risky approach, because it leaves you entirely vulnerable to those very changes. Consequently, “least possible” really means the least you can take on while still remaining viable, but even knowing exactly how much risk that is, is actually unknowable.

And so the problem now becomes one of information, because you probably don’t know what innovations your competitors are working on, nor everything about the new and innovative technologies that may be coming, etc., etc., which means that while you cannot afford to do nothing, to just wait for the future to bury your business, you are obliged to act, compelled to act, to act proactively yet with incomplete information.

This is the character of the risks you must take. Taking them well, thoughtfully, strategically is what’s necessary. Achieving this, navigating through this difficult but fascinating landscape will take some thought and a lot of effort.

Speed

Despite the many risks you plunge ahead, thoughtfully, to create your organization’s future. You are now engaged in the depths of the innovation process itself.

That process is not such an easy one, as it must be thorough and thoughtful, of course, but above all it must be fast. Again, the premise here is that your information is incomplete, and you just don’t know how fast your competitors will move, nor do you know exactly how the market will respond to their new ideas, nor to yours. So the best way to deal with the compounding of uncertainty is to go fast, to learn fast, to learn what works and what doesn’t work through techniques such as agile sprints, rapid prototyping, minimum viable products, a-b testing, and related techniques (which we will discuss in chapter 5). We express this in the innovation formula as speed, and of course there is a lot of value in getting solid results fast, faster than your competitors.

Engagement

The next element of the formula relates to the culture of your organization, for you and your partner are the ones who are going to develop ideas, figure out which ones are great, and turn them into something useful, test them, and bring the very best to the market.

Theoretically, you could find the smartest person in your organization, set them to the innovation task, and achieve good or even great results. Practically, though, the issues that have to be dealt with are probably deeper and broader than a single individual can master, because today’s innovation projects integrate knowledge across multiple domains, each of which itself runs quite deep.

Hence, we know that innovation is not an individual activity, but a team sport. The optimal innovation process is one in which your organization is engaged, one in which all of the strengths, thoughts, and talents of everyone, and also those of the broader ecosystem in which your organization participates, are fully engaged.

Leadership

It’s also true of organizations that deep and thorough engagement comes about only when there is superbly focused leadership. We know that innovation can happen in organizations where the risks are understood, and where the ambiguities and uncertainties that are inherent in the process are known and acknowledged, and where there is willingness to engage in the necessary levels of risk taking.

We also know that in organizations where people are punished for making intelligent mistakes, for thoughtfully trying new things that fail, for thinking about how to do things better, and differently, the spirit of innovation is swiftly and decisively stifled. Hence, leaders must embrace and promote the critical elements which enable an innovation culture to emerge, or it will not emerge.

Tools

The last clause of the formula concerns the tools and methods that we use to manage the entire innovation effort. All other things being equal, better tools and methods are likely to support better results, and while this does not necessarily mean that you have to invest a lot of money in new technology, you do need to think through carefully and invest appropriately in methods, processes, and organizational structures that enable and promote innovation efforts, and which set the tone and context in which innovation can thrive.

So these are the six elements in the innovation formula; here they are expressed in pseudo math:

(Complexity and Change) > Innovation
Innovation = f (Risk) (Speed) (Engagement) (Leadership) + (Tools)

Or in English, Complexity and change means that Innovation is essential for survival. Achieving innovation a function of Risk, times Speed, times Engagement, times Leadership, plus Tools.

In previous books, I and co-authors have examined many aspects and facets of this formula in considerable detail, and in our work with enterprises large and small all around the world we’ve worked with them to implement it, to make innovation real, important, and effective for their organizations.

And as I mentioned above, we believe that exactly the same innovation formula works for GM and Toyota as it does for the local restaurant and the auto garage, and that it will probably work for your small business too. So while nearly all of the nuances and details or its implementation will certainly be different from the Fortune 500 firm to the local business in Peru, China, New York, or Auckland, we are convinced based on many years of practice that the actual thinking process, that the critical questions and the guiding maps, will be nearly the same.

This book is the fifth one in a series that explores all of this in a lot detail. It was preceded by Permanent Innovation, The Innovation Master Plan, The Chief Innovation Officer, and Agile Innovation, and you may be interested in checking these out if you’re the sort of person who likes to absorb a lot of detail and wants to study the deeper reasoning.

If you’re not the person who wants to read a lot of detail, then hopefully the concise contents of this book will help you to understand the challenges, and design the right responses.

In each subsequent chapter we will explore the formula one element at a time, beginning with a quick look at the broader context of complexity and change, followed by the remaining five elements, with a particular focus on what they mean for you, the small and medium sized business leader or entrepreneur, and also with focus on action and implementation.

This is not intended as theoretical exercise, but rather an entirely practical guidebook. We hope it helps you to arrive at the right destination, namely an innovative and thereby successful firm.