3 Steps to Manage Innovation Risk

What is Innovation Risk?

Innovation risk is described as the probability of unwanted or unfavorable outcomes originating from your innovation initiatives. This could be attributed to the failure of an initial concept or a specific product not faring well in the market.

Statistics show that as many as 95% of new products never make it, and  11 out of 12 startups fail. Therefore, accepting the inevitability of innovation risk occurring in the innovation process, is a crucial first step to learning how to manage it.

While risk and innovation tend to go hand in hand due to the many unknowns of the innovation process, innovation risk can originate from many sources. While it is highly unlikely for you to identify all of them, they can primarily be attributed to three main areas:

1. Operational risk

This type of risk covers elements needed to turn ideas into a reality. Materials, budgets, and manufacturing issues can all fall into this category.

2. Commercial risk

This type of risk covers issues linked to capital and cash flows, which could include the risk of defaulted payments or other buyer-related issues, and this can have many knock-on effects like damaging brand image and credibility.

3. Financial risk

This covers the threat of the innovation failing to generate a profit or cause monetary problems linked to debt incurred during the process.

It is important to note that the above risks are not the only risks associated to innovation, and that these risks can also occur simultaneously. 

What Leads to Innovation Risk?

The reasons for risk in the innovation process are manifold. While the types of risks that arise can be broadly attributed to the above-mentioned areas, the actions that lead to these risks arising can be even more widespread. Some of these include:

1. Not spending enough time on finding the problem

Problem identification is key in innovation. Without spending enough time on finding the problem, chances are high that your innovation will fail due to a lack of demand for the solution, later on in the process. 

As part of the KICKBOX Intrapreneurship program, innovators undergo a rigorous process to ensure that the problem they have identified is valid and is experienced by many different people, instead of just one individual. Through tools such as the Problem interview, or the creation of a Storyboard, the innovators can spend time on identifying their problem carefully and thoughtfully.

2. Not experimenting enough

Experimentation in innovation, ensures that innovators make informed decisions while rigorously testing and validating their assumptions. By experimenting, innovators can identify potential flaws, adjust their strategies, and ensure their ideas are aligned with real-world needs.

This proactive approach helps prevent the launch of products or solutions that fail to resonate with the target market or address genuine problems. 

KICKBOX encourages innovators to experiment and take an iterative approach to the innovation process. Following the identification of a problem, they begin developing solution prototypes to aid in experimenting and finding the best possible solution.

3. Failing to include external stakeholders or experts in the innovation process 

A fresh perspective has often enabled innovators to rethink their approach or pivot their strategy during solution development. This is important because many innovators tend to 'fall in love' with their solution and become so attached to their ideas that they struggle to recognize potential flaws or consider alternative solutions, even when warning signs emerge. 

On the other hand, innovation does not have to be a solo mission. Incorporating external input through stakeholders will often times result in even better solutions to an existing problem, due to the power of collectivity. 

As part of the KICKBOX program, innovators receive access to a number of experts who can help them along on their innovation journey. Via an online platform, employees can book services in key areas such as design, marketing, and technical support to improve their solution. 

The ABCs of How to Manage Innovation Risk

Innovation risk sounds very daunting, not least because the chances of failure are high. However, with the right strategy in place it is possible to work the odds in your favor. Focusing on three main areas when managing innovation risk, can instantly point you in the right direction.

As stated, 92% of startups fail, and so the "A" (acceptance) has been outlined above.

Now, let’s look at the B and C of managing innovation risk.

(B)rainstorming

Innovation is about finding outstanding ideas, and you can’t expect the first one to always hit a home run. At least not without making a range of tweaks and iterating on the initial concept. On average, it is said that it takes 300 ideas to find a successful one. Even if that figure is lower, taking the time to support an adaptive culture where people feel psychologically safe to bring their ideas forward, despite whether they will succeed or fail, is crucial.

In fact, going so far as to encourage mistakes and actively promote an error culture, enables people to push their limits, learn and grow, and ultimately become more innovative. Beyond this, it also teaches innovators the importance of iterating on their ideas and  

When people are comfortable with failure, innovation risk can be identified far earlier in the process. Whether that means abandoning an idea or working on it, the results for your business will be far better.

(C)ollaborating

Finally, managing innovation risk relies heavily on clear communication. rready's cloud-based innovation tools, for example, will support collaboration between innovators and internal stakeholders, to prevent issues like experimenting too late or focusing on ideas that gain curiosity rather than conversions. More importantly, though, it can facilitate external feedback from potential customers.

65% of high-growth companies collaborate with customers in the early phases. It makes sense too, given that a lack of client interest is one of the key metrics of innovation risk. It can also be useful to connect with stakeholders and other experts who can guide you towards minimized risks.

The Final Word

As a business owner, you must realize that innovation risk cannot be eliminated – nor is risk and failure necessarily something to fear. In fact, facing risk is crucial for long-term success and business growth. However, you can ensure that its impact helps you rather than hurts you by keeping the ABCs of innovation risk in mind. When done well, the road ahead should be a whole lot smoother.