How to embrace risk to create value

Risk has a bad reputation, and for valid reasons. Nothing can negatively impact revenue, pollute a healthy customer base, or disappoint shareholders quite like it. This is why industries spend millions of dollars a year just to avoid risk.

In my last piece, I discussed where risk aversion comes from, its inherent bias, and its upside. Now I want to dive into how organizations can embrace risk when innovating.

When risk is positioned in a positive light, it’s easier to develop a greater tolerance for it. I find this dynamic really interesting. We work with many large well-known brands that are embracing the right kinds of risk to engage their employees on how to innovate some of their most important business priorities.

Focus on incremental not radical innovation

What may come as a surprise is that studies show there are better returns for incremental innovations than there are for big ideas. In “The Idea-Driven Organization” by Alan Robinson and Dean M. Schroeder, the authors highlight that up to 80% of an organization’s performance improvement potential lies in front-line ideas.

The reasons why incremental innovation is generally more successful than radical innovation is because the latter takes much longer to implement, uses more resources, and carries greater risk. On the other hand, small ideas can be turned around quicker and executed in less time, so benefits are realized sooner. Incremental innovation also provides a more sustainable competitive advantage. Disruptive innovation is highly visible and quickly replicated, whereas incremental innovation often goes unseen and is therefore much more challenging to emulate.

Focus on areas where you need to take more risks

When it comes to innovation, one of the biggest differentiators between teams that do well and teams that fail is a clear view on what you’re reinventing. Don’t try and innovate in all areas. In a recent conversation with Steve Woods, co-founder and CTO of Nudge, he said that there’s often a temptation to start reinventing across too many areas. Reinvent the way a service is delivered, but don’t also try to reinvent the technology used to deliver it. Which aspect of your offering is most likely to be disrupted? From there, focus your experimentation and risk taking in this area.

Do it vs. analyze it

In an earlier post on intrapreneurship, Ted Graham, Innovation Lead at PwC Canada at the time, advocated for pushing yourself to learn by doing vs. analyzing. At PwC, Ted pushes for at least one pilot per year. The pilot or prototype can provide you with actual data, which is ultimately the only real way to validate an idea. Let customer experience and feedback inform your decision on whether or not to pursue it further (these can be internal customers too). 

Ask your community

Research tells us that collaborating on ideas improves the quality of ideas. We also know that being insulated from customers and frontline employees can make it easy to miss implications of decisions made solely at the leadership level. You can minimize the risk of investing in wrong ideas by tapping into the opinions of your company, particularly if it affects them. At SoapBox, we believe in the power of communal support. We pursue ideas that are reinforced by the support of our community of employees. By asking our community to vote on plans using our idea software, we can make better-informed decisions about existing and future plans and strategies.

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The bottom line is this: you won’t achieve double-digit growth without taking risks. How can you reap the benefits of reward without risk? Once culture and structure in an organization are set, it’s hard for the organization to change. But it’s not impossible. Lean on your customers and employees to help inform your decisions and don’t be afraid to take calculated risks.