What is risk?
“Risk is the potential of gaining or losing something of value.”
Wikipedia
This definition speaks to me because it highlights that risk can be to the upside or the downside. Innovation is the path to change. Change can be for good or ill. And thus all innovation involves risk.
Dealing with risk, mitigating it and rewarding it, therefore, is a vital skill set for any innovation culture.
Mitigating risk
Startup culture
“What would you attempt to do if you knew you could not fail?”
Robert Schuller
A startup culture asks, what would you attempt if you could keep the cost of failure far below the rewards of success?
That doesn’t mean being reckless. Productive risk will have an upside even if the result is failure because it will validate at least some of the assumptions that the experiment started with.
It means identifying a minimum viable experiment, testing it early and often against initial assumptions. If the innovation is not meeting the goal, does the idea need a tweak or should it be discarded altogether?
The reason we started with F1 isn’t because I’m passionate about launching small satellites, but because I want to make mistakes on a small scale and not a large one.”
Elon Musk
Manage your innovation portfolio
When keeping the cost of failure to a minimum, the term “minimum” is relative. It depends on how ambitious the innovation is. Be clear about your innovation ambition.
Core innovations involve changing existing products for an existing customer base. Adjacent innovations are trying something new, but at a relatively humble scale. Transformational innovations change the organization.
A portfolio approach means keeping the balance of these types of innovations in check. While many core innovations can take place simultaneously, multiple transformational innovations compound risk dangerously.
To keep risk at a minimum, an organization can use core and adjacent innovations as building blocks to transformation innovations. For example, Toyota built a single hybrid car, the Prius, and built on its success with a larger family of Prius models. This experience positions Toyota well for the likely electric-only future of automobiles, placing a transformational innovation in reach.
Involve the right people, the right way
Making changes to products, processes and systems without consulting those who know them best can have disastrous results.
When others in your organization, particularly those who report to you, it is vital to identify why they are being involved. In the absence of clear communication, the reaction could be cynical and suspicious. I talk about this in my post titled “When Innovation Happens to You”.
