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Friday, November 10, 2020

You Can't Be Innovative and Risk-averse Too

Management Issues recently gave a summary of research by Archstone Consulting on the topic of innovation. The survey was based on results from mostly larger organizations in both consumer durables, consumer non-durables, life sciences and services, half of whom were Fortune 1000 or Global 500 companies, and a third of whom have revenues in excess of $10 billion. Half of these companies say they are unhappy with the return they see on their innovation spending. What's the problem? This was the paragraph caught my eye:
"The survey also found that having a culture that does not foster risk taking was the biggest impediment to innovation," said George Davie, a Managing Director of The Hazelton Group, an Archstone Consulting company.
Surprise, surprise. Despite "calling on the services of a range of consumer research firms, brand strategy and innovation firms, management consultants, advertising agencies and brand and identity design firms," such businesses don't make it in the innovation stakes because they don't foster risk-taking.

Change and risk are joined at the hip. You cannot have one without the other. And the more innovative the change, the greater the risk will be.
You cannot be innovative and risk-averse at the same time; and talking about “risk management” rather than “risk aversion” won’t change anything. Change and risk are joined at the hip. You cannot have one without the other. And the more innovative the change, the greater the risk will be.

Many organizations get risk completely wrong, because they focus entirely on the risk of being wrong. What about the risk of being right—maybe even more right than you ever dreamed? It’s the continual focus on the downside of risk that leads executives to institute whole books of rules to limit their exposure to it, and to punish those who take risks and get them wrong. But much—maybe most—of success in the real world has to do with chance, not design. That’s how evolution works, for example. It puts out changes into the world and sees what happens. What works, survives. What fails, dies. It’s trial and error, not some carefully plotted process of superior design thinking. Hey, if Nature works that way, who are we to say we know better?

Of course it makes sense to avoid mistakes whenever we can. Nature has almost endless resources (and no shareholders to complain) and we don’t. But we can still learn how to make better use of the chances we can afford to take:
  1. Start by encouraging as many ideas as possible, from any source. Innovation needs raw materials, and that’s what ideas are.

  2. Get people together to discuss those ideas and sort out the ones that look most promising. Don’t, whatever you do, make the process competitive or do anything else to make those people whose current ideas don’t make the cut feel they are losers. If you do, they’ll never share another idea again. Encourage them to keep trying with yet more ideas. Praise those who bring forward the most potential innovations, not just those whose ideas are chosen for the next stage.

  3. Start committing resources for studies and small-scale trials of promising ideas. Don’t try to second-guess what will work eventually and what won’t. Try as many as you can. Involve the inventor of the idea in the process. Keep encouraging them to extend, adapt, change, add to their idea to make it work better.

  4. NEVER, NEVER, NEVER criticize, let alone punish, anyone for an idea that doesn’t work out—even if it costs you money. Treat every failure (and there will be many) as a great chance to learn something more.

  5. Run your successes hard and cut your losses fast. Never pour more money into something that doesn’t work in the real world, however attached to it you have become. There is an almost infinite supply of other fresh ideas. Be as quick to forget your last (unsuccessful) love as the hardest hearted Don Juan.

  6. Make innovation and initiative something that attracts praise and recognition, regardless of the outcome. A failed idea is far better than no idea at all. Remember that.
You don’t encourage innovation and creativity by talking about them. You get them only when you make it quite clear that the real “crime” in business is stagnation and a dull mind, not making honest mistakes. Everyone gets it wrong—often—and everyone needs forgiveness, understanding, and support when that happens . . . even (especially?) the CEO and the executive team.

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2 Comments:

Barney said...

Innovation is one of those concepts that business leaders talk about a lot but often don’t take all the right actions necessary to foster it in their organizations. I think this is mostly because there are so many factors that lead to innovative ideas. It’s difficult to state exactly what should be done and I applaud your effort to identify some of the key drivers. I find it helpful to share some examples of initiatives that had the unintended consequence of inhibiting innovation.
The first occurred in the annual performance assessment where all employees are rated on 12 behaviors. One behavior is “Intelligent Risk Taking”. On the surface, this sounds like a good way to encourage people to take some risks. The reality is that by adding “intelligent” to the behavior, we have allowed managers to make a judgment about whether the risk was worthwhile or not. This immediately caused many employees to only want to present ideas and take risks that have a good chance of success. As a result, there is a decrease in the quantity and scope of ideas shared.
The second example resulted from a need to put more controls around how projects are managed. It’s not uncommon when there’s a serious problem with a major, high visibility project for managers to put in place very rigorous project management processes and controls to prevent a recurrence. I have seen this result in a culture where following rules and procedures is the norm. This has the unintended consequence of discouraging outside-the-box thinking and trying new approaches.
These examples are intended to show that creating an innovative environment means understanding all of the things that impact their employees’ work. There’s a balance between risk and control and finding the balance point is dependent on many factors that can vary widely between organizations. What’s right for one organization and its products and services may not work for another.

12:02 PM  
Carmine Coyote said...

Thanks for your comment, Barney. Your examples are excellent and make some useful points.

Leadership always involves walking a fine line between trust and control. Most managers tend to err on the side of control, because it feels safer. The result is over-supervision, too many petty rules, and a culture of risk aversion.

A few lean towards trust, which fosters initiative and creativity. Sometimes their trust is abused, but they gladly pay that price for the benefits they get in return.

Sadly, where those at the top are control freaks, and always ready to blame others for any mistake (which far too many are), it becomes extremely risky to be the kind of leader who trusts his or her subordinates. Over-controlling is often based mostly on self-preservation.

Keep reading, my friend.

1:33 PM  

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