Innovation is a risky business
All forms of innovation bear risk: mind the people who are telling you otherwise
In recent years it emerged a line of thinking centered around the notion that firms can pursue innovative paths without assuming any risks. This assumption is wrong. And paradoxically, life-threatening for any company.
Innovation and innovativeness happen on a scale: from innovators to laggards. In the first bucket belong the companies not only developing new products and new categories, not only creating ecosystems and harnessing the power of services embedded in products, but also able of reinventing themselves, changing their business and operating model to adapt to change. Among those stand out Apple and Amazon – the first two companies whose market cap surged above the one trillion dollar mark – which are now a galaxy away from where they started as businesses, and they are embracing challenges in new industries – namely movies production, healthcare and automotive – which are even further away from their original products and sectors. These corporate innovators and masters of business model transformation, take enormous risks in innovating in the way they do it. And by doing so, they also challenge the common sense of what they do: we often speak about the Amazonification of retail, as the war between the online channel and the traditional brick-and-mortar. Yet Amazon is innovating in physical stores, even buying retail those chains failing under the increasing pressures of online channels. That’s taking an innovation risk.
On the opposite end of the spectrum are the innovation laggards, the ones that decide to embrace an innovation only when it’s a standard they cannot afford to ignore any longer. These companies take the risk of being a moment too late, and going bankrupt for deciding that self-evident change in their landscape, does not impact them (have you ever heard the expression: “this does not apply in our industry”?). They take the risk of becoming the Blockbuster, Motorola, and Kodaks of this world. The risk of non-innovation, which is still an innovation-related risk.
What about accelerators and incubators?
Accelerators and Incubators are a fashionable, but very useful approach to innovation. In particular, they serve the purpose of making happen the innovation which lies on the fringe of the traditional boundaries of a company; and/or innovation powered by a tech-engine often too remote for a company to manage. For example, the emerging new space fuelled by the convergence of healthcare and connected cars, this is a perfect example of fringe innovation that traditional healthcare companies and automotive firms, might be not capable of developing. Fintech and Insurtech are great examples of boundary conditions for the banking and insurance sectors. Accelerators and incubators become a risky business when they are the only source of innovation for a company. The risk is that we are creating a legacy business, with a clear – yet unknown – expiration date on it, and a new, emerging, tech business, which is going to take over from it. And this risk is that the old will fight the new, by reducing the focus on the final customers, competitors’ moves and the landscape changes.
Is there a risk in open innovation?
The biggest risk of open innovation relates to the “not-invented-here” syndrome, embracing tribalism, the fear of not understanding external work, the unwillingness to credit external organizations for achievements that could have been internal, or simple fear of becoming obsolete. Of course, there are also some risks embedded in the emergence of open source and crowdsourcing. For example, the emergence of IP free zones, just like in the example of Linux and Open Source software might create a risk of clashing between specialized firms protecting their IP and integrated open-source firms gaining market share. Likewise, crowdsourcing can be infringing someone else IP, and that risk is as real as it gets.
Innovation is a risky business. And while the lack of focus on innovation is as risky, no one should assume that there are ways of innovating, which are risk-free. As Harvey Wade wrote in 2003
“Innovation cannot be made risk-free or fear-free, otherwise, everyone would be at it”.
But why understanding that innovation is risky so important? First and foremost because to be innovative and successful in the innovation game, a necessary – not yet sufficient – condition, is to understand what innovation means. In addition to that, understanding the risks related to innovation, highlights the risks derived by depriving an organization of any innovation effort: how long can you hold your breath? And how healthy is it?