Risk, failure and innovation

John W Lewis's picture
Chat Date: 
Thu, Apr 24, 2014

In some ways, it might seem that innovation is a gamble, like buying a lottery ticket, although hopefully with rather more knowledge of the odds available. In another way, a model of the risk of innovation is like an inverted insurance policy: an investment might pay out and, in this case, we hope that it does.

In general, any risk implies that failure incurs costs. And there is the well-known saying that the biggest risk is not taking any.

So how do we think about the risk of innovation: in different areas; and when considering different options in the same area?

What aspects of innovation organisation (administration, management, leadership and collaboration) are important especially when people have different dispositions to innovation (including representing different categories of adopter)?

Success and failure

We hear a lot about innovation in terms of success vs failure, "business as usual" vs doing something different, and conflicting suggestions that it is better to fail more.

Let's be clear that, it is fairly obvious that, to be successful, it is important to succeed more. So, while understanding failure is important, focussing on failure is likely to distort one's perspective somewhat!

Conquering the air

When the Wright Brothers learned to build an aircraft that they could fly, they did not set out to fail a lot. Nor did they set out to generate ideas for the heck of it.

They were directing their efforts in a specific direction, by studying the history of attempts to build aircraft and understanding the opportunities and the problems. They understood that there were a variety of aspects which were in various stages of being solved.

The generation of lift (using wings) and of thrust (i.e. propulsion, using engines and propellors) had largely been solved and mainly needed to be quantified. But the primary unresolved area related to the control of the aircraft, and even their eventual solution continued to display significant issues of lack of stability.

They were not throwing ideas into a pot and hoping that some of them might come up trumps.

Balance and flow

Failure need not be a problem. It is not necessarily important how many attempts fail, it is important how many succeed. So the important measure is not the percentage success rate, it is the number of successes.

While exploring a flow of opportunities, it is important to maximise the number of successes, rather than proportion of successes. Of course, the failures cost something not only in effort but also in opportunity cost, however, as we know, we often learn more from failures than from successes. So it is a matter of balance and the important measure of effectiveness is the overall return on the successes and failures vs the total cost.

Anyone who has not read the little, but powerful, book: "Who moved my cheese?" might like to read it as a primer on innovation thinking, the psychology of risk, the preparedness for change and the propensity to change.

In general, each of us have different levels of risk that we are prepared to tolerate or which we relish, and no doubt all of us have stories to tell on this theme. 

We tend to expose ourselves to the risks that we think that we understand and to insulate ourselves from the risks that we do not.

Questions

Let's consider these questions:

  1. What determines someone's enthusiasm for innovation and risk in specific areas?
  2. What determines someone's overall selection of areas in which to innovate?
  3. How does more or less knowledge influence the number and magnitude of successes?
  4. How does monitoring and timely termination of innovative initiatives allow benefits and costs to be managed?
  5. What would be a more holistic approach to the discussion of failure?

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