The Real Risks of Innovation

My chest tightened, my breathing was too fast and shallow. I was close to panic. Which was bad, because in that environment, panic is a death sentence. I was 30 meters under murky water, inside the upper bow of the Japanese warship Akitsushima. My dive guide was pointing out the human jaw that had remained of one drowned soldier. Apart from his flashlight, the room was completely dark.

As an inexperienced scuba diver, I didn’t know that, if I had turned around, I could have seen the dim sunlight outside. I also didn’t know that one weak flashlight is not enough to dive inside a wreck. Before going underwater, I had underestimated the danger of this dive. Now, I was overestimating it.

Risk is the likelihood of something dangerous happening. Like me in that underwater situation, many companies misjudge the risks associated with bold innovation. When asked, they worry about not having great ideas, producing a limited return on their investment, losing focus, or damaging their brand.

While these are valid concerns, the associated risk is typically overestimated. Other factors are grossly underestimated or even ignored. I want to tell you about them, and suggest a better practice.

1. Jumping in the water without a buddy check

Overexcited divers jump in the water without “buddy checking” their equipment, which means having your dive partner confirm that your gear is working properly. Similarly, enthusiastic innovators (and, in aggregate, organizations) often jump from identifying a “great idea” to the execution of said idea. They start putting pieces together and rush to market… only to find out the hard way that the market is not interested. Even many startups fall prey to this thinking.

There are three very important steps between idea and execution that they miss:

1. Answering the question “why”. A great idea does not mean it’s a great idea for your company when considering its strategy, capabilities, or addressable customer base.

2. Defining the right customer experience. So often it’s not the idea that makes an offer great, but the whole customer experience. “Doing it better than others” is a valid approach, but it’s often hard to make the difference tangible. The process is called design.

3. Testing and iterating the offer in the market. It’s not enough to run a survey of whether customers would like a new offer — a manageable amount of customers need to try out the essence of the offer, so you can iteratively improve on it.

Taking this “scenic” route of innovating is de-risking: it allows you to plot your safe path as you go along and allocate resources in proportion to your confidence in the right offer-market fit.

2. Wearing a pretty snorkel

Some divers buy shiny gear because it’s aspirational, and forget to question how it realistically improves their diving. In business, we are all obsessed with successful tech companies. By offering the newest, hottest personal device or service, these companies have become the hallmarks of innovation.

Unfortunately, not every organization can be (nor should be) a Silicon Valley tech company. And especially not overnight. When the commodities producer pushes hard to offer digital services for consumers, I have to assume that they’re overestimating their own capability for change. It’s a veiled copycat mindset, and can entangle a company in a useless exercise. A pretty snorkel doesn’t make you a better scuba diver — in fact, it’s mostly useless or even gets in the way.

The consequences of this mindset are often disappointing: new concepts make it through many rounds of approval because they’re sexy, and then they fail. Either because someone in the leadership comes to their senses, or — worse — the company learns the hard way that they can’t make it happen. The result is lost momentum and frustration, thus making the most innovative people in the organization lose faith and leave.

To avoid this, leaders should pick an opportunity that they can realistically realize: an adjacent category of the current portfolio, a different but complementary offer to the current business, or going to market with a (beefed up) internal capability.

3. Closing the wrong valve

Making decisions underwater can be a matter of life or death, which is why simple yet effective procedures exist that help divers avoid mistakes. Decision processes in large organizations, in contrast, take on absurd forms. I’ve seen Excel sheets with over 20 criteria on which to rank every innovation activity. People haggle and fight for weeks over the relative rank — only for a senior stakeholder to march in at the end of the process, disregard the list, and pick her favorite for implementation. Everybody’s empowerment is stifled, and establishing a good innovation process seems like a futile effort.

Neither approach (quantitative assessment or management decision) is inherently wrong. What is needed is a simple, repeatable process and a predictable decision making approach. If these are lacking, everyone goes into ass-covering mode when things feel risky, and panicked ad-hoc management decisions abound.

The truth is that innovation always feels risky. Luckily, there are ways to manage that risk:

1. Create a safe environment. A safe, friendly environment helps people bear that pressure — no-one lives up to their creative potential if they are afraid.

2. Encourage a bias towards action. Even if you’re unsure about the direction, better keep your innovators moving. It’s better to take a detour and learn something on the way than grinding to a standstill of indecision.

3. Let your company establish a flexible process. Implementing an innovation process is important, but it shouldn’t look like a poster-sized flowchart. Any good innovation process is a handrail — available when necessary, but not a requirement for using the stairs.

4. Use quantitative and qualitative tools appropriately. Both are great approaches if used at the right time. Generally speaking, quantitative methods make more sense later in the innovation process when concepts are well-described and being validated.

5. Hire courageous, crafty people. Any successful innovation team includes those who can make things tangible and feel comfortable moving into unknown terrain. Typically these are not the people that have been successful in your legacy business models.

Looking back at my first serious wreck diving experience, I’m glad I didn’t panic. I would have tried to get to the surface through 3 inches of steel, resisted aid, and made my situation worse by kicking up so much silt that finding the way out would’ve been impossible. Instead, I requested help from my dive guide, and learned from the experience. I’m now a better wreck diver than before.

I hope this article helps you judge the real risks of innovation better. If it’s too late for advice in your current innovation project, don’t fret. As I discovered underwater, there’s no faster way to learn than a near-miss.