Risk and Reward of Innovation

by Brennan McEachran

At Soapbox, we work with some of the largest brands to help with part of their innovation strategy. While “Try fast, fail fast” is the mantra in Silicon Valley, it’s not something you typically hear in the hallways of large, complex organizations.

The concept of risk often carries an inherent bias for an established company and for valid reasons. Risk can disrupt a healthy revenue stream, a stable customer base, and upset shareholders who like predictable results. Risk is something you manage. It’s something that you mitigate, not embrace.

It’s this mentality that causes companies to invest millions of dollars each year just to avoid risk.

There is no such thing as “risk-free” innovation. Without taking some much needed risk, we’d be forever stunted and static rather than curious and dynamic. In today’s market where innovation is driving success in every industry, there really isn’t much tolerance for risk averse cultures.

What follows is a few insights about where risk comes from and its benefits, drawing from my experience at SoapBox and conversations I had with other leaders regarding the topic. In part two of this article, I will discuss how to embrace risk so organizations can become more innovative.

Where risk aversion comes from

Interruption of revenue flows

One of the things about being CEO is I get to hear amazing stories of innovation from our clients and our broader network of contacts and friends.

I recently spoke with Steve Woods, the co-founder and CTO of Nudge (who previously, as co-founder and CTO at Eloqua, led the company from its inception in 1999 through its IPO and acquisition by Oracle in 2012.). He suggested that it’s impossible to compare a large organization with a startup when it comes to risk.

Large organizations operate in a completely different world. Unlike a startup where you begin with a revenue stream of zero, large companies must consider how risk would affect their existing business. It’s not easy to take risks, no matter how calculated, when there are millions of dollars on the line. When a large organization interrupts a revenue stream, it can be very significant and much more noticeable than when it occurs at a startup. The stakes are simply much, much higher.

When you’re a large successful business with a broad set of customers and you try to do something new and different but unproven, Steve explains, the large successful business is going to suck up all the oxygen in the room. The innovative, unproven idea will never survive.

How are you going to hit this quarter’s revenue targets with this little business idea when all it is is just an idea? And all it’s doing is consuming more resources than it’s generating? You have to hit the numbers first to keep the street happy, then you can worry about how you’re going to do exciting things. But this often leaves little or no time to focus on these exciting things.

The paradox of accountability

Accountability is another factor that contributes to risk aversion at large organizations. If you’re the person who spearheaded a risky venture that failed, you may be thrown under the bus. Your name will likely carry the legacy. When a risk results in a positive outcome, that success is often shared among the team. Everyone wants to say they had a piece of it. Not many people would buy into that level of responsibility. As an individual, risk is exponential while the upside is fractional.

The potential of breaking a well-oiled machine is terrifying. But it’s the nature of the beast. Often times breaking something is the only way innovation, true innovation, can take place.

Conway’s Law

Conway’s Law explains that over time, a company’s offering will begin mirroring the company’s organizational structure because its governance structures, problem solving routines, and communication patterns influence how the organization looks for new solutions. There’s a great Harvard study called “Exploring the Duality between Product and Organizational Architectures: A Test of the “Mirroring” Hypothesis” that looks at this phenomenon in more detail.

The issue is less about large companies and their inability to innovate, and more about the result of their innovations. Many large companies innovate in ways that are specific to their current offering, and struggle when it comes down to taking their offering into new directions.

The upside of risk

Ted Graham, the innovation leader at PwC and author of “The Uber of Everything“, is passionate about disruptive innovation and what large companies can do to become higher performing and more innovative.

One of the things Ted does is spend time with leaders and managers consulting them on the positive outcomes of taking risks. Double digit growth is an obvious benefit, but there are others that are equally as important.

Risk helps you develop and keep your best people

You might not see the benefits in the marketplace right away, but by taking risks, you will attract talent. As Ted said, talent wants to work for organizations that will allow them to take some risks. Top performers achieve personal growth and development by pushing new boundaries and taking calculated risks. I’ve heard it 100 times in interviews with potential candidates, too. The reason why talent want to work at a startup is because startups take risks. Candidates see this as an opportunity for growth.

You learn more by doing than analyzing

Finally, taking risks is one of the most meaningful ways that organizations learn. The best way to learn is by doing. Organizations like PwC, for example, make a point to challenge the status quo by piloting projects at least once a year. Taking risks is what helps keep the organization high performing and cutting edge.

image credit: soapboxhq.com

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Risk and Reward of Innovation - Innovation ExcellenceBrennan McEachran is CEO, Co-Founder at SoapBox, an Innovation Management company that enables organizations to capture, manage, and execute new ideas by connecting employees with each other and leaders using intelligent and intuitive technology. Brennan is passionate about creating a high-performance workforce, believing that employees at every level should have the opportunity to shape the future of their organizations. He also contributes to #belikeastartup.