We’ve all heard the expression, “nothing is certain but death and taxes”. While that may be true on a personal level, I would venture to add two more certainties in today’s business environment: increasing change and increasing competition. These factors put constant pressure on executives to innovate.
Innovation is essential for unlocking opportunities, but it doesn’t come without risks. If not properly managed, those risks can completely undermine your innovation initiative.
If you want to extract full value from your innovation initiatives, be sure to spend a bit of time up front to identify the potential risks. Doing so will increase the likelihood of success and also give you, your team, and other stakeholders the confidence to jump in with both feet.
Here are six situations where it is wise to engage in risk identification before you leap into innovation:
1. New strategic direction. When leaders set a new course for their organization, they tend to focus on the positive elements of their plans. In fact, researcher Tali Sharrot suggests that 80% of us are wired with an optimism bias. Being positive is essential for inspiring excitement and passion. However, unbridled enthusiasm that ignores potential pitfalls can be dangerous. By identifying the key risks that could block the path to your new strategic direction, you can choose a route that avoids the risks or if it’s not possible to bypass the risks, you can ensure you have the capabilities to overcome them. Engaging your executive leadership team in a risk identification of a new strategic direction will help you to build the confidence and agility required to pursue it.
2. New product or market. Launching a new product or entering a new market can present a wide array of risks, at least some of which you will not have faced before. Engaging people from across your organization in a risk identification process will give you the diversity of experience and ideas that is essential to anticipate new risks. Ensuring a high level of participation in uncovering risks pays dividends because the people involved in the risk identification will have a high level of commitment to managing the risks they had a hand in spotting.
3. New project. The larger and more complex the project, the more it will benefit from a structured risk identification process. Using informal brainstorming alone, we tend to focus on risks we are familiar with and think of one risk at a time. This can lead us to overlook the more realistic scenario where multiple risks combine or cascade in new ways to cause a project to fail. By using a structured risk identification process to build a risk model that reflects the reality of your project’s risk landscape, you will build trust that the project will proceed on-scope, on-budget, and on-schedule.
4. New IT systems implementation. IT systems implementation projects are notoriously fraught with problems that can lead to costly overruns and/or failure to deliver on the promised functionality. For example, the landmark ‘Chaos Report’ by the Standish Group found that: only 16% of software projects are completed on budget and on time; a staggering 53% of projects cost over 189% of their original estimate; and projects completed by the largest American companies delivered only 42% of the originally-proposed features and functions. A risk identification process can help your team to identify the IT systems implementation risks before they mature into nasty problems. Anticipating risks is the first step to building your team’s confidence and agility in preventing and mitigating risks to increase your company’s IT project success rate.
5. Mergers & Acquisitions. 70% of mergers and acquisitions fail to achieve expectations and more than half destroy value. That sobering statistic is based on a comprehensive review by Steve Coote of hundreds of M&As from North and South America, Europe, the United Kingdom, and Australia over a 30 year period. Your M&A doesn’t have to be one of the failures. By engaging the new management team in a risk identification process as early as possible, the leaders of the merged entity can stack the odds of success in their favor. Risk Identification can also help to build external and internal stakeholders’ confidence and trust that the company will deliver on the value proposition of the merger or acquisition. It’s also an excellent way to ensure alignment of internal stakeholders with the company’s goals and strategies as you begin the work of integrating the two companies.
Figure 1: In a recent client situation the risk identification process enabled the newly formed senior management team to execute with much more confidence in the early days of their merger.
6. Ongoing operations. Do you feel like you are constantly ‘putting out fires’ rather than focusing on your business objectives? If so, an identification of operational risks will help you shift to a more proactive approach that will free you up so you can spend more time on innovating better ways to conduct your ongoing operations. Getting out in front of your risks will enhance youragility build the confidence required to continually improve your performance.
How are you innovating to handle the increasing pace of change and competition in your business environment? Are you and your stakeholders confident that you have the innovation risks under control? If not, contact Diana Del Bel Belluz at Risk Wise to find out how you can tackle the risks:
Diana Del Bel Belluz is President of Risk Wise Inc. For over 25 years, she has helped management teams and boards to achieve more effective management and oversight of risk. She helps her clients to gain the clarity and confidence that comes from having better conversations about complex or difficult risk issues.