To Increase Innovation: Help Your Team Take Smarter Risks22 March, 2016 / Articles
Most senior managers agree that taking risks is important for innovation, but in far too many cases, they don’t act like they believe this. For example, one global organization, where one of us conducted a culture survey several years ago, considered itself to be highly supportive of developing new products, services, and practices. Yet when several hundred professionals were asked what would happen if they developed and tried “new and untested ideas,” only 17% said that such behavior would be rewarded or approved – 47% said that the reaction from their superiors would be “unpredictable.”
In other words, the reality in many organizations today is that despite the public emphasis on innovation, the underlying culture may be strongly risk-averse. As one senior manager in a large financial institution said to one of us (only partially tongue-in-cheek), “The key to success here is to never make the same mistake once.”
Unfortunately, this kind of attitude is anathema to successful innovation, which does indeed require a tolerance for risk-taking and learning from periodic failure. So how can you break out of this mode and create an environment that is more conducive to innovation? In our experience, one of the starting points is to be more explicit about what risk-taking really means, and what is acceptable and what is not. Here are four tactics for doing this:
Publicly define a smart risk. The better innovation companies distinguish the areas where risk is encouraged, and where it is not. One of our clients, for example, makes it clear that there should be minimal “execution risk” regarding customer commitments and financial results, but encourages “discovery risk” in developing new solutions to customer problems. These guardrails define the “safe zone” for innovation, and they should include specific parameters such as time (must show progress after x months) or financial impact (has the potential to generate xx revenue or costs no more than xxx).
Use the right words to encourage the right culture. Language drives behavior and creates a mindset around what’s acceptable and what’s not. For example, using terms like “experiment” or “scouting mission,” instead of “successful vs. unsuccessful project,” will signal a more open attitude toward risk. Centering innovation activities on the concept of “exploration” eases the tension associated with trying new things. That’s why Amazon’s Jeff Bezos encourages an “explorer mentality” rather than a “conqueror mentality” in his teams, so that their focus is on forging new paths rather than just doing better than their competitors. The beverage company Pernord Ricard established a division called the “Breakthrough Innovation Group” to experiment with new ideas. The group has a similar spirit to a Silicon Valley start-up, in that it brings an entrepreneurial, exploring mindset into the larger company.
Keep it nimble and small. Size matters, and when it comes to innovation risk, smaller – and faster – experiments are often better. Tesla keeps teams small, so they maintain an entrepreneurial mindset with a higher tolerance toward risk than older firms in the automotive industry that rely on larger teams. A similar example comes from the Defense Advanced Research Projects Agency (DARPA). Unlike other government agencies, it is a lean organization with only two management layers, which enables them to move ideas and decisions with speed, because as they say, “urgency inspires greater genius.” DARPA also employs small teams on projects that move quickly and have clear autonomy – which has led to incredible innovations.
Establish clear phases and criteria for funding projects. If you currently have risky (and expensive) innovations in your pipeline, stop providing blank checks. Instead, fund each project in clearly defined phases. If it passes one phase, give it additional funding. At Google, teams have timelines of three to four months to prove a concept’s viability. If the idea they’re working on doesn’t prove itself sufficiently in that timeframe, teams are disbanded. Teams are expanded only if ideas have demonstrable potential.
Successful innovation is never guaranteed – it always entails a certain amount of risk. If employees don’t understand the types and amounts of risks that are acceptable, they might not be willing to get into the innovation game. In the long term, that could put your company at even greater risk.