Innovation, Strategy and Risk (Part 1)
The recent turbulence of our market has a well-established ruthlessness in decimating long loved institutions. Brands once considered to be indomitable, such as Kodak, Nokia and Australia’s automotive industry, are disappearing faster than the Amazon; whilst Uber, AirBNB, and, somewhat ironically, Amazon Inc, are exploding in scale, dominance and profitability.
In a world of radical change, the biggest risk any organisation can take is to stick rigidly to the things it’s always done; yet in many of today’s leadership teams and boardrooms there is a disconnect between strategy, risk and the role of innovation to navigate turbulence.
The traditional understanding of strategy and risk is well entrenched.
Strategy is a vision of the future that leads to the development of business plans and the aligning of execution.
Risk refers to anything that can go wrong; a practice that seeks to identify things that are not controlled so that they can be minimized, accepted, avoided or transferred.
All of the above makes sense provided the markets we occupy remain faithful to the assumptions from which our plans are derived. However, in a world steeped in radical change, they don’t, which is why the ability to innovate is so important.
Simply put, strategy and risk is the development of plans, actions and questions predicted to have future relevance; whilst innovation is the active capability to bridge the gap between ambition and precedence.
As an example, an organisation has a strategy to achieve 10% growth and a realisation that 5% growth is currently deliverable. Investment is then made in innovation to fill the 5% shortfall.
In this context, the risk is observable, so investing in innovation is a no brainer. However in many situations, where risks are obscured, innovation investment often gets neglected or misconstrued.
A client of mine went to conference recently where a major hotel company got on stage to talk about their digital activities. The speaker started by rubbishing the fear that exists around disruption and talked about how they had used digital to rework their online customer journey. As a result, they were now planning to expand their capacity by an additional 1,800 beds in the following year.
The very next day, at the same conference, AirBNB took the stage and announced they were currently adding around 7,000 new beds per week.
Risks are rarely observable when facing the wrong direction.
So whilst many organisations work diligently to minimize observable risk, they fail to realise that innovation is the ultimate insurance policy for mitigating risks yet observed. Through this error, innovation usually gets seen as something optional, that can be kicked down the road – it can’t.
The trick is to make innovation top of mind, and an activity that receives the requisite amount of leadership attention. To do this we suggest a simple change in thinking around the relationship between innovation, strategy and risk. A change that moves innovation from being optional to being part of everyday business.
This important change can be achieved by adding a single question to the strategy and risk process, being:
‘What is the question you’re most afraid of being asked?’
This simple question applies to leaders, boards, teams and individuals. It turns attention away from the niceties that currently occupy our time, toward those activities that are important but are too hard, scary or complex for us to deal with now; so they get kicked down the road.
In a rapidly evolving world, a company’s survival is completely dependent on its ability to ask tough questions; to reconcile the gap between aspiration and reality, and to adapt.
It’s no longer fair for strategy and risk alone to carry the expectation of future prosperity – our market is simply too volatile and the risks too great to trust an assumption that hasn’t been true for some time.
Innovation is the missing ingredient. It’s our key to the future and the springboard that enables us to draw insight, define the situation and drive meaningful action toward a state of heightened prosperity.
Ignore it at your peril.