Innovation is a must-have for delivering growth and competitive advantage, but as corporate initiatives go, it also has one of the higher risk profiles. One of the most powerful enablers of innovation is information technology (IT)—especially with the rise of social media, collaboration software and trends such as “crowdsourcing.” For companies that want to innovate more—or more effectively—the practices underlying the governance of IT risk can be a very useful way to approach innovation. The pay-offs are increased stakeholder buy-in, few surprises in cost or timeline, and greater predictability about whether the outcome will be usable.
Ken Vander Wal
The economy’s gradual climb toward recovery is pushing innovation back up to a top spot on corporate agendas. It was certainly a dominant topic in the 2011 State of the Union address, with President Barack Obama calling for increased spending on research, technology, and education and the spread of high-speed Internet capabilities to the country’s remotest corners. In his words, innovation doesn’t just change our lives. It’s how the US makes its living.
This renewed interest is backed by what I consider to be a key indicator of a healthy innovation economy: venture capital (VC) funding. Annual VC spending rose for the first time since 2007, and a survey by the National Venture Capital Association shows that more than half of venture capitalists expect it to pick up in 2011. They are particularly bullish on consumer Internet and digital media, cloud computing and mobile/telecom. These technologies can be a key driver in a company’s ability to innovate.
Social Media-Powered Innovation
Consumer Internet technologies, for example, are making a phenomenon called crowdsourcing or open innovation possible by providing greater interaction with stakeholders and a fast, direct feedback loop on ideas and projects. Companies as diverse as Starbucks and Best Buy use the Web to develop and solicit ideas that customers can then share with peers and evaluate. A consumer electronics manufacturer recently crowdsourced the naming of its next digital camera. P&G took it a step further, using the Internet to publicize a formal program that invites innovators to license or sell their next big idea to P&G. Businesses that want to keep innovation within their four walls are using technology, too, especially collaborative software enabled by cloud computing and broadband connectivity.
Common Risks and Barriers
Yet technology cannot solve all of our problems or create all of our opportunities. Innovation, by its very nature, poses a conflict between blue-sky experimentation and the certainty of creating usable results. Missteps are legendary. In fact, some of this country’s most frequently repeated stories about innovation revolve around products that were invented by accident (e.g., Post-It notes), took a long time (as Thomas Edison said, “We now know a thousand ways not to build a light bulb”) or just plain failed (e.g., the Apple Newton).
The most frequently encountered risks associated with innovation initiatives are project failure, excessive cost, time overrun and insufficient value. Cost and time are straightforward issues, but the notions of failure and value are more complex for innovation. Unlike most initiatives, failure of an innovation initiative is not only likely, it can be healthy. Organizations can still discover usable information or develop skills even if the outcome is not what was expected. Similarly, defining and agreeing on value must be approached differently than other company initiatives and needs to be agreed upon among key stakeholders at the project outset.
Closely related to these are the barriers to successful completion. These include:
- Low appetite for risk: Low capacity to absorb loss, whether it is financial loss or reputation damage, and a corporate culture predisposed to be cautious
- Highly siloed organization, which stifles collaboration and makes it hard to aggregate the overall risk posed by innovation initiatives taken as a whole
- Inadequate funding
- Lack of commitment from stakeholders, who are often either formal investment decision makers or indirect influencers
- Non-existent or inadequate metrics
Despite these challenges, the risk of not innovating is potentially much higher than any of the risks outlined. For every example of an innovation that does not succeed, there are countless innovations brought to market year after year by companies that range from start-ups to consistent innovators such as Apple, IBM, Toyota, GE, or Virgin Group.
Manage Risk, Don’t Stifle Innovation
Board members and senior executives should focus on managing risk, not stifling innovation. This is an area where lessons from the IT discipline, specifically management of IT-related risk, can be instructive. Today most business leaders do not see strong parallels between managing innovation and managing information technology. In fact, a recent IT Governance Institute survey on the governance of enterprise IT (GEIT) shows that only 9 percent of non-IT executives cite the need to achieve a better balance between innovation and risk avoidance for improved return as a driver for this activity.
But there can be tremendous payback on innovation initiatives for companies that apply proven governance methods to the business of innovation. A risk governance framework, such as Risk IT, provides an end-to-end view of all risks related to the use of IT and a thorough treatment of risk management, from the culture at the top, down to operational issues.
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