Innovation is an exercise in risk management. You pursue ideas that you
hope will bring great impact to your company, whether that’s increased sales
& revenue, a change in business model or a more efficient means of
operating. However, that impact is countered by a possibility of failure. The
pursuit of new value is costly regardless, and only certain ideas create the
impact required to justify the process.
Which brings us to the question: Can we afford to take on the risk of innovation?
There are three answers to this question:
Answer 1: Innovation Consultants
The first answer comes from someone who makes their living from selling
advice about innovation, and so the answer is a nice and obvious “of course you
need innovation and innovation systems (and of course you should hire me to help
you with that)”. Innovation has many benefits, from increased revenues to lower
cost operations, from improved customer experiences to radical new ideas for
business models. If innovations could be generated for free, there would be no
reason to not spend a considerable amount of time working on them. However, as
mentioned before, innovation can be costly, which brings us to our second
answer.
Answer 2: Middle-Managers
The second answer comes from a manager of a real business, who is
responsible for ensuring that the daily operations of the business continue. To
keep the current cogs turning, the manager is focused on lean, efficient ways
of delivering tried & tested value to customers. Their job is to exploit
existing ideas and assets to bring about the value that keeps the company going.
There are always opportunities for continuous improvement and the absolute
refinement of existing systems, but these are usually focused on incremental
innovations that move the efficiency needle of the system by a tick or two. To
this manager, the focus is on margins of benefit, and every penny spent needs
to be justified by a clear and quick return on the investment. The options must
be kept at a low risk, because the assets and system have already been
committed to and one cannot afford to jeopardise those existing operations. It
is therefore unlikely that this kind of manager will be interested or
incentivised to pursue true innovation.
Answer 3: Business Leaders
The third answer comes from the most senior leadership in the
organisation. For those who are dealing with strategy development and creation
of long-term value, the incentive is a balance of continued operations for
current revenue and new developments for future value. Here, leaders can take
on more risk because the playing field is inherently riskier. By adopting a
future-focus, the element of risk (in this case, the probability of any scenario
playing out is <100% certain) always exists, regardless of whether
tried-and-tested or new ideas come into play. This is where innovation tends to
thrive. “Can we afford innovation?” quickly turns to “Can we afford not to be
innovative?”. The world around us is changing; customers’ expectations are
fluid (ever-changing) and liquid (spill over from one need to the next), and
the continued offering of a single product is not sustainable in the long run.
Without innovation, your products, ways of working, and approach to business
becomes stale, obsolete, and no longer attractive to customers. Without
foresight & flexibility, you become more susceptible to disruption from
both incumbents and newcomers. Ultimately, the question of innovation is a
question of whether you want your company to still be relevant in ten years’
time.
The value of innovation is tough to question, but this must always be
balanced with the costs and risks associated to it. A robust innovation
management system will help to minimise unnecessary spending by helping you:
- Generate new and relevant ideas quickly
- Incrementally build and test the concepts behind these ideas
- Minimise the waste caused by failed ideas and maximise the learnings gained from
the tests - Provide the framework to focus on value generation
If the process of innovation development is well-managed, then the costs
of innovation are greatly reduced, and the overall appeal of innovation is
apparent to all levels in the organisation. The question is not “Can we afford
innovation?”, it is “How well can we manage innovation?”.
