Rethinking Risk to Build a Culture of Innovation: A 2017 Outlook on People & Change

For more decades than perhaps even the most adept business guru can attest, companies have been conditioned to believe that “risk” is a very, very bad word. So terrible, in fact, that countless hours and resources are spent developing policies and processes dedicated to minimizing the potentially high price (financially or otherwise) of a preventable risk impact. Companies reach a point where they seek operational excellence over growth, looking to minimize risks. Conventional business wisdom teaches that risk avoidance is key – thus, management teams follow suit by prioritizing a myriad of risk “best” practices focused on identifying, assessing, strategizing, planning for, managing, monitoring, and more.  And as a result, individuals and teams are routinely praised for taking swift, effective actions that embrace safeguarding the business and maintaining the status quo. Culturally speaking, companies traditionally normalize and reward behaviors that comply with deflecting risk.

Fast-forward to the present age of innovation. Technology, social media, and the momentum of entrepreneurial leaders have given rise to new companies providing consumers fresh ideas and exciting offerings. To stay competitive, many existing companies have transitioned into product and service development powerhouses. They have gotten so good at continuous improvement that periodic reinvention has become part of their organizational DNAs. Once considered a “trend,” innovation has become so much more.  To be innovative is to stay relevant, thus paving a way to propel future growth and market share.  With more companies reflecting on what innovation means to and for them, many of our clients come to us seeking a partner to help build their paths to innovation. We hear questions like: Where do we start? What strategy makes sense? What structures and processes need to be in place? How do we encourage new ideas? And, perhaps most significantly, how do we evolve into an organizational culture of innovation?

Lesson #1: Successful innovation cultures navigate organizations away from innovation dead-ends and redefine the value of risk.

What if we flipped the traditional risk mitigation model upside-down? What if companies are wrong about rewarding heavy-handed risk mitigation and the real negative impact is the hindrance of an organization’s innovation potential? In many industries like energy and utilities, there is an undeniable need for risk management. Preventing and resolving risky situations saves lives. However, when it comes to product and service innovation, a company culture that emphasizes risk avoidance is a one-way ticket to irrelevance. Stifling ideas and opportunities considered too “risky” moves a company further and further away from fostering innovation.

 Lesson #2:  Innovative companies understand that the cost of innovation is the acceptance of “healthy” risk in thought leadership and action.

Moving from the traditional perceptions and fears of failure or losing money is critical to getting into the innovation “game.” Innovation requires a carefully considered threshold for both risk and failure -- it is the price of playing. Shifting the paradigm to view smart risk-taking as valuable is much of what embodies a culture of innovation. Innovation thrives when employees are able to present ideas (both simple and grand) and green-light new projects – the culture positively expects, enables, and rewards such behaviors.  Companies are then able to make smart investments that can move ideas to concepts to minimum viable products to be tested in the marketplace.

Lesson #3:  “You can’t win if you don’t play.”  Innovation requires a stake in the game, even if it feels risky.

On a casino floor, for example, two groups of people generally occupy the room: the Gamblers and the Observers. Generally, the Observers are content to watch the action, reluctant to play, keeping their money safely in their pockets. Think of Blockbuster as the Observer. The Gamblers (think of Netflix, Red Box, etc.) are all over the map – some win big, others win (or lose) small amounts, and a few lose everything.  While the dream is to win big, there can be great satisfaction and value with the small wins. Even losing within an acceptable risk threshold can bring valuable insight and feedback that result in better ways to play the game. Netflix didn't start out as a high-growth mega hit of a company, but it kept refining its model and offerings over time, learning from playing the game. The Observers, however, continue to watch from the sidelines while conceding to the biggest risk of all – becoming irrelevant. Blockbuster filed for bankruptcy in 2010, and has an estimated 12 stores remaining in the US, down from a peak of nearly 9,000. Though gambling is an oversimplified analogy to the business world, it is intended to illuminate the cost of doing nothing.

The path to a true culture of innovation is a long one, starting with risk acceptance. Here are a few considerations to get you started on the journey:

  • Value Storytelling. Have senior leaders actively engage and share experiences with failures (large and small), lessons learned, and how past failures helped fuel the innovation engine

  • Reward Failure. Give kudos and formal recognition (i.e., performance review, incentives, etc.) for idea generation and testing, even if they aren’t considered traditionally accepted “successes” or “wins”
  • Be Intentional, with a Process. Formalize an idea stage gate process that enables green-lighting and ensures multiple initiatives in each pipeline stage (idea / concept / minimum viable product)