Thursday, October 7, 2021


With each flavor of "innovation," the risk is involved. The more disruptive or radical the innovation is, the greater the risk would be.

Innovation comes with the foresight to envision a need that others overlook or ignore and a willingness to forge ahead to satisfy visions, in spite of a risk of failure. Risk is part of innovation, but you can manage parts of these risks. 

It’s important for corporate boards to make an objective assessment of the corporate innovation appetite, attitude, and aptitude, the varying innovation success factors such as talent, processes, resources, investment, etc, cultivate strong innovation leadership and management discipline to improve the overall innovation success rate.

Review exogenous drivers of innovation risks:
Nowadays innovation could happen anywhere across the organization and its ecosystem, especially at the intersection of people and technology; customer and process, etc. In order to drive successful innovation in today’s fast-changing business world, harnessing the power of ecosystems is critical. Innovation is simply too important to delegate to the management, corporate board needs to play a significant role in gaining the interdisciplinary understanding and review the exogenous drivers of innovation risks such as financing, marketing understanding, competitor analysis, identifying the space of opportunity, defining the scalability of the products/services, capital investment, etc.

It takes a teamwork of the board to clarify the goal, co-develop or review a comprehensive innovation framework with all necessary components to structural innovation with focus, set the right policy, allow information exchange and participants involvement, understand the complexities of varying components of innovation, capture emerging trends in the macro-environment, ensure interdependencies and loyalties between partners, predict, identify and manage related risks, to improve the innovation competency of their company.

Scrutinize the endogenous driver and innovation risk management cohesiveness: Internally, people, process, technology, culture, leadership, etc, are all crucial components of innovation. Innovation impediments include hard issues such as systems, processes, and technologies many organizations are using to manage innovation has become inefficient or outdated in this rapidly changing world; as well as the soft facts such as the soft ingredients such as miscommunication, cultural inertia or silo management, etc. The differentiation between a good innovation and bad innovation is the people’s attitude toward risk, and the management’s ability to ensure risk management cohesiveness. The majority of organizations are not fertile ground for ideation because they fear taking risks, and seldom learn from their mistakes; their internal politics and fears discourage creative people and downgrade innovation efforts by means of overly rigid processes or senseless performance evaluation.

Corporate boards scrutinize innovation risk management resilience by stepping away from the accepted “best practices” and pondering tough questions: Is the overall workforce innovative enough - have the right dose of risk appetite for generating abundant ideas as well as transforming ideas into valuable solutions? What’s the failure rate of innovation? Do innovations fail because folks fear innovation with a risk-avoidance attitude or because there are too many disconnects that occur in innovation management? Can you predict risks? Is the company functioning more as an adaptive, organic organization or a technical, mechanical system? Does the organization have the risk-tolerant attitude, pulling enough resources for managing innovation, and is it resilient to fail forward? Etc. The corporate board’s oversight of endogenous drivers in innovation helps the management, set good policies for encouraging innovation, scrutinize processes and capacity of business innovation risk management, and enable the business to reclaim the right balance of creativity and process, standardization and flexibility; competition and collaboration, etc.

Oversees capital investment for innovation and assess the health of innovation portfolio: Organizations have limited capitals and resources, forward-thinking businesses spend significant amounts of capital on doing innovation related activities. Innovation comes with a risk of failure, usually not well tolerated in a market governed by a risk-allergic mindset. Without the corporate board’s oversight, the management without the right dose of innovation appetite often cannot ensure they would get expected return on investment as innovation has a very low success rate.

Effective boards assess portfolios of innovation investments, continually evaluate individual and aggregate investments in terms of value, risk, and reward, map the strategic objectives into performance indicators and then determine what capital investments of innovation will accelerate the changes you want to see, and make the evaluation based on financial metrics and estimated future revenue. Visibility into each investment is established to provide ongoing investment health information as well as enable understanding overall portfolio health with the balanced flavors of both incremental innovations and breakthrough innovations.

Innovation involves new ways of bringing together ideas and resources to create something novel. With each flavor of "innovation," the risk is involved. The more disruptive or radical the innovation is, the greater the risk would be. Risk is inevitable, but can be managed. Identification of the novel is only the beginning, the heavy lifting starts as an organization can align talent, resources and executes, the firm can manage innovation lifecycle and executes in a manner that provides sustained competitive advantage.


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