The Hidden Risks of Innovation

As noted by Harvard Business Review, “the bottom line is that all innovations change the trade-off between risk and return”. However, many organisations struggle to identify and respond to the hidden risks in their innovation pursuits.

Many organisations start and stop with the visible risks of innovation. This will typically involve the choice to embark on one innovation project over another being determined on the basis of its risk exposure. In making such a decision, there are a couple of standard tools which are used. The first of these tools is the use of a standard risk assessment matrix which accounts for risk over the entirety of an organisation’s innovation portfolio. The second is the use of some simple screening questions of ‘is it real?’, ‘can we win?’ and ‘is it worth it?’.

Although these models are great for guiding the choice between and commencement of innovation projects, many organisations fail to manage risk throughout a project. Such risk may be better understood as the hidden risks of innovation. To best identify and combat these hidden risks, I’ve compiled some of the most predominant risks here for you.

Risk #1: Customer feedback

If you’re familiar with the design thinking process you’ll know the importance of taking customer feedback onboard. What you’ll also be familiar with is the importance of watching what customers do, and not just what they say.

One of the greatest examples of this was Aeron’s office chair, a design success which piggybacked off the dot com boom. The designers of the chair initially observed people at their desks. They saw some users slouching forward, some slouching back, and some semi-reclined. The chair they designed accommodated to the habits of those they observed. However, when it came to user testing with the chair’s focus group, verbal feedback criticised and ridiculed their project. The verbal feedback itself essentially claimed the designer’s work as redundant and useless, with those providing the feedback saying that they’d never buy the Aeron chair.

To a similar extent, when Oral B came to create its infamous Squish Grip toothbrush, their design team didn’t sit in a boardroom and think about what such a product would look like or how it would work. They also didn’t talk to a focus group of parents and children and ask them what the ideal children’s toothbrush would look like. They went out in the field and actively observed users – children – brushing their teeth.

Now, while we know that customer feedback is critical to informing the way forward for a project, we need to be cautious about what that feedback actually is. If Aeron had listened to their focus group’s feedback alone and scrapped the project altogether, they wouldn’t have gone on to create and sell one of the most successful office chairs of all time. Just as well, if Oral B hadn’t observed their users in the field, they wouldn’t have discovered that children lacked the fine motor skills and dexterity that adults have, and as a result needed a toothbrush tailored to their physical abilities – not a smaller version of an adult’s toothbrush.

The lesson here? Know which of your user’s feedback to listen to. Also know to watch what users do, not just what they say they would do. Failure to do so can be a significant risk to the success of your innovation project.

Risk #2: Innovation for the sake of innovation

Initial risk assessments for innovation projects are great for determining what the intention of the project actually is. This intention will more often than not be linked to organisational goals relating to market growth or strengthening the brand’s reputation. It’s foundational to keep an eye on how the project is progressing in reaching this intention, otherwise you may find yourself purely innovating for the sake of innovating.

Consider the ‘Google Glass’ project. This was a novel project where Google created a pair of head-mounted eyeglasses which essentially worked as a hands free smartphone with its key functions operating at the direction of the user’s voice command. What Google quickly learnt about this project was that there was no actual feasible or viable demand for the product, despite how novel it was. As a result, they cut the project and moved on.

Knowing when to shut down a project is key to preventing its costs outweighing its benefit. You’ll notice that organisations sometimes have a hard time doing this because they’re caught in the glamour of innovating for the sake of innovating. Getting caught in this trap can come at a significant cost to your organisation’s resources and reputation, so it’s critical to know how to experiment fast and how to experiment cheap. It’s much better to back out of an innovation project early on with the knowledge that it won’t work, rather than to push it through to ultimately fail. These are abilities which are supported by a positive innovation culture, of which we’ll touch on shortly.

Ultimately, the key message here is to know when to stop flogging a dead horse. Don’t just innovate for the sake of innovating.

Risk #3: Innovation culture

Not having the right organisational structures and frameworks in place can hinder your innovation efforts. This presents itself as a significant internal risk. The good news here is that as the risk is internal, it can be controlled.

There are a few common risks which you may encounter in this sense. One may be perceiving innovation project failures as a shortfall of your team’s talent. Such an attitude can negatively impact their attitudes towards innovation and as a result reduce their investment and attitudes towards future projects. Another may be an inability to stop projects from progressing despite knowing that they will fail (as we discussed earlier in this article), which ultimately wastes organisational resources. Another may be your team lacking the candour for honest feedback on the project itself because they’re too afraid of being seen as negative or unsupportive of their colleagues. These factors together can either make or break the health of an organisation’s innovation culture, and as a result pose as internal risks.

To ensure innovation projects perform to the best of their ability, and to combat some of the above mentioned risks, Harvard Business Review offers a neat and tidy framework for doing so. This includes (1) tolerating failure, but not incompetence; (2) being willing to undertake highly disciplined experiments; (3) creating a psychologically safe space but allowing for brutal candour; (4) fostering collaboration but relying on individual accountability; and (5) ensuring flat but strong leadership. All taken together, building positive cultural frameworks to support these factors can greatly enhance not only your organisation’s capacity for innovation, but also minimise the risks of innovation as a result.

Although innovative cultures which are in accordance with this framework can be difficult to craft and difficult to maintain, they are highly effective at minimising internal risks associated with innovation projects, present and prospective.

Ultimately, innovation is risky business which can have high returns if done right. It’s important in this sense to know how to identify these risks not just as part of the selection process for your project, but throughout the project itself as well.

If you have any stories – good or bad – about the risks you’ve encountered while innovating, I would love to hear them.

If you’re looking at incorporating risk management into your innovation practices and projects and would like some guidance or a conversation to help you on your journey, please contact me. I’m more than happy to guide you.

About the author

Peter is the Founder and Director of Holtmann Professional Services, a global provider of executive coaching, business excellence consulting and career path development. Peter has 20 years of experience in executive roles and has been the President and CEO of a global non-profit. Peter has written for many journals and blogs, is a keynote speaker and is a champion of prosperity through excellence of leadership.

If you are interested in working with Peter, please contact me