March through books, articles and blogs and all of them will tell you how risky innovation is. After all, if you are doing something new, how can you know how it will turn out?
Let me state straightout that for a plurality, if not a majority, of innovation projects I've run across, things aren't very new. You can use standard approaches and standard measures to get a standard answer. This sort of day-to-day innovation is absolutely valid. It cuts costs, opens up similar (but untapped) markets and incrementally improves the products and services the firm offers. Again, not only is there nothing wrong with this, but it is healthy and beneficial. And this kind of innovation must be project managed and measured in traditional ways. (When looser, more forgiving approaches are used, you are asking for trouble.)
Most people understand this about day-to-day innovation, even though some of its innovators work hard to be given more freedom. The problem is that this kind of innovation will never provide leadership and competitive advantage. (Well, almost never. After all, leadership depends on what your peers are up to.) This means that if you want competitive advantage, you, your social network and your organization must assume some risk. How does that happen, exactly?
In an ideal world, we have used the many tools of risk management (which everyone understands, of course), come to a consensus decision and headed off toward our collective goal with our milestones set out before us. We know the trade-offs, we have done the analysis for unintended consequences and we have contingency plans for different scenarios. If you live in a world that looks like this, please let me in!
In the real world, some of the above may have been done, but an awful lot is driven by gut feelings. It is ironic in a world where industrial devices are riddled with sensors, six sigma discipline governs manufacturing and even lawyers account for their time in quarter hour increments that gut feelings play such an important role in innovation. Actually,it's more tragic than ironic. Many executives can't stomach much risk. And needless to say, the risk of not innovating is rarely part of their abdomenal calculations.
Effectively, we have the same problem that keeps slot machines humming and roulette wheels spinning. Very few people have a natural affinity for statistics. It's much easier to believe in luck and a sixth sense than it is to accept the validity of a bell-shaped curve. We don't even have a decent popular vocabulary for inherently statistical risk/benefit trade-offs.
Oh, there is one: calories. Most of us have a sense of the caloric hit of a candy bar (about 200 calories). And many people actually count calories or "points" in popular weight reduction programs. (Yes, I know that the benefit isn't really accounted for, but we have good sensory experience of candy bars.)
Now, calories have mixed success, but I suspect they point more toward the solution for our risk-assessing executives and innovation sponsors than gut feelings. So let's think about this. Without getting into scary stuff like Black-Scholes equations, how do we help decision makers weigh risks and benefits for innovations that promise competitive advantage?
Peter
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