Innovation is Creativity x Risk Taking

Innovation is impossible to achieve without taking a necessary amount of risk. In a world where the success rate of new product entries in the grocery business is 1 in 100, it is inevitable that every success sees failures along the way.

An effective innovation leader should encourage creativity and risk taking, while also practicing a tolerance for failure.

To foster initiative and innovation, ask yourself these questions.

• Do you allow free research and development (R&D) time?
• Do you invest in innovation: money, people, resources?
• Do you celebrate failure and risk taking?

In a tough economy the willingness to take risks can wither, so it’s critical to let team members know that failure will not result in punitive measures.

A strong leader practices failure management by setting and agreeing on the risk taking bandwidth or budget. It is ok to fail but that failure should be seen and recognized as a learning experience.

Fear of failure is an innovation killer, so here are some simple steps to develop a failure management plan that will lead to a culture of sustainable innovation.

1. Clearly communicate the risk profile you are asking your people to adopt and state why it is important to the organization’s success. This limits your potential loss, while opening up the floor for creativity and risk taking.
2. Never allow an unsuccessful risk to hamper a team member’s opportunities and advancement. A culture of innovation depends on trust.
3. Create and communicate the results of an award program created with a high intraorganizational profile. It should, ideally, reward risks that pay off and “gee, nice try’s” that don’t.
4. Establish a formalized, non-accusatory process for harvesting key learnings from unsuccessful risks. Distribute these lessons learned. The key here is that all risks, whether successful or not, contribute towards the end goal.
5. Give your people the situational risk assessment tools they need to help them improve their risk-taking decisions. This can include risk scoring systems to identify different levels of risk, and ways to deal with adverse situations as part of a preventive strategy.

New guide to Examining Business Risk published by the Institute of Directors (IoD)

A new guide to business risk, published by the Institute of Directors (IoD) in association with Airmic, Chartis, PwC and Willis, urges UK Board members to improve their understanding and management of risk in order to successfully deliver growth and prevent future crises.

“Business Risk – A practical guide for Board members” lays out in detail the roles and responsibilities of the board in assessing and managing business risk, the risk challenges currently facing UK businesses and the structural, personal and strategic solutions which can be used to address these challenges.

The full report can be downloaded in PDF format here.

Comments about the guide:

Simon Walker, Director General of the Institute of Directors, said: “If companies and the economy as a whole are to grow in today’s environment, it is vital that directors put risk management at the heart of business strategy.

Understanding risk helps you to become more enterprising without jeopardising your business. On the other hand, take the wrong kind of risk and you are heading for disaster, whilst avoiding risk altogether means you are condemned to stagnation. This guide will help directors get this crucial balance right.”

Alpesh Shah, director in PwC’s Actuarial Risk Practice, said: “There are few aspects of a board’s functioning that are as crucial to long-term corporate success as risk management.

Organizations that understand the risks they face and can articulate their risk appetite and define their risk strategy accordingly can have better decision-making, greater agility and a sharper competitive edge.

The practical points in this guide will be invaluable as Board members strive to achieve this.”

Daniel Wilkinson, CEO of Willis UK, said: “Unpredictable emerging threats like cyber, reputational and supply chain risks require Boards to take a long-term focus on building resilience throughout their organizations rather than having a traditional risk management policy based solely on anticipation.

The resilience approach will help companies respond quickly and dynamically to threats by ensuring that the right expertise and processes are in place.”