Facing and Overcoming Innovation Uncertainty and Risk

Business growth requires leaders to identify opportunities, evaluate their potential and risks, decide amongst the most promising, and executing for results. Growth strategy options include: organic growth, growth through acquisition, or growth through alliances.  Growth can be achieved through product / market choice (concentrated, vertical/horizontal, diversification), white space, or incremental/substantial/breakthrough innovation.

Uncertainty and risk associated with innovation opportunities are often cited as barriers to growth. The inability to overcome uncertainty and risk when innovating was cited as the leading reason for slow Canadian SME growth as confirmed by the 2009 SIBS study and recently by Deloitte.

The 2009 SIBS study reported uncertainty and risk as the largest obstacle (47% of firms) to innovation regardless of the type of firm. Steps taken to overcome uncertainty and risk as an obstacle were also reported to be one of the least effective (38% of firms reporting uncertainty as an obstacle).

The Deloitte study reported that “Canadian business leaders were substantially more risk averse than U.S. leaders, and more reliant on government assistance to pursue new projects” and that Canadian firms “seem unable to deal with these factors successfully” moreover “as Canadian firms mature, they become less likely to engage in the kind of activities that contribute to rapid growth”. The Deloitte study suggests that to deal with risk “firms have the power to mitigate these obstacles by hedging and compensation tactics”. The study also reported that low R&D spending, poor export intensity, lack of market diversification, low access to market diversification, and attitudinal preferences were also major inhibitors to growth.

Innovation though is a non-linear process where the value of success can be much higher than the cost of failure. Global markets are increasingly uncertain.  What approaches beyond hedging and compensation tactics can be used to deal with uncertainty to improve Canadian business leaders confidence?

Adaptability

An interesting view of how to grow in the face of uncertainty comes from Max McKeown who wrote Adaptability: The Art of Winning in an Age of Uncertainty. In this book the author identifies a number of rules for winning in the face of uncertainty.  Chief among these applicable to Canada is that stability is a dangerous illusion. He defines failure as the failure to adapt and success as successful adaptation to cope or win – defining degrees of adaptation outcomes being collapse, survival, thriving, and transcendence.

The author observes that there are three steps to adaptability:

  1. Recognizing The Need To Adapt – The ability to feel or know something is wrong, timeframe of change depends on the situation and can be long or extremely fast, and some find out too late by missing signals or are simply complacent.
  2. Understand The Adaptation Required – Observing that there is often no agreement on adaption requires, culture/rules/tradition can be barriers, learn what works from failure, imagination is needed to see alternatives.
  3. Do What Is Necessary To Adapt – Sometimes adaption must be provoked, strong action to overcome barriers, need to focus on changing the nature of the game, and build influence to make changes.

The rules for winning in the face of uncertainty organized by the three stages as suggested by the author are:

Recognize The Need to Adapt

  • Play your own game – If losing find a way to change the game – no one way to win
  • All failure is a failure to adapt – didn’t recognize it, didn’t understand what adaption required, did not do what was necessary to adapt.
  • Embrace unacceptable wisdom – speaking opposite to the prevailing wisdom creates opportunities.
  • Know when to break the rules – rules contain knowledge & experience, rules also contain prejudice or mistaken beliefs, rules may no longer be applicable.
  • Stability is a dangerous illusion.
  • Stupid survives until smart succeeds – ‘we were wrong’, biases to remain on course of action.

Understand Necessary Adaption

  • Learning fast is better than failing fast.
  • Plan B matters most – adaptability doesn’t kick in automatically.
  • Free radicals – radicals influence the group – stir the pot – counter complacency.
  • Think better together – collective support important.
  • Get a strong partner – diverse skills and talents increases adaption effectiveness.

Adapt as Necessary

  • Never Grow up – organizations get old, grow up, and lose edginess – remain curiosity driven.
  • Hierarchy is fossil fuel – Locks people in boxes, resists learning, and institutionalizes self-interested behaviours.
  • Keep the Ball – reduce the game down to its fundamental components that captures the most important features of the system to improve – compete outside the game.
  • Swerve and swarm – Combining swerving, avoiding dominance of the obvious idea, and swarming, to bring mass participation to finding non-obvious answers is powerful.
  • Get Ambition on – the future gives direction and unlimited energy to change – ambition is a way of seeing the future – ambition gets us started.
  • Always the beginning – Advantage from adapting first, winners acquire resources and knowledge.

Creaction Method

The creaction (short for creative action) method to move forward in the face of uncertainty was proposed by Leonard Schlesinger, Charles Kiefer, and Paul Brown in Just Start: Take Action, Embrace Uncertainty, and Create The Future. These authors observed that most business leaders have worked in a world where the world was predictable and that the future could be forecasted, plans made, resources gathered, and then execute the plan to make it happen.  The core assumptions being that the future will behave like the past so plans can extrapolate current reality moving forward. The authors suggest that the world that is changing fast will become increasingly unpredictable so business leaders need a new way of thinking to drive business growth.

Borrowing from entrepreneurial behaviours, the authors propose the creaction method to succeed when markets are unpredictable. The creaction method is:

  • Act (with a modest goal as a guide);
  • Learn (from the action); and
  • Build (off learning) and then act again.

Creaction starts with a desire to achieve a goal with a purpose no necessarily a passion. The authors suggest acting quickly with the resources have at hand and never more than you can afford to lose if things don’t work out defined as an acceptable loss. A small bet rather than betting the firm. When considering acceptable loss the authors suggest assets at risk are: money, time, professional reputation, personal reputation, and missed opportunities and bounding the investment so that if the option fails it fails cheaply. Enlist the support of other like minded people who share interest in the goal and purpose. When learning from the results of the small step the authors note that “creation is all about exploiting the contingencies and leveraging the uncertainty by treating unexpected events as an opportunity….treating surprises as a gift….running headlong into a problem and then solving it can give you a barrier to the competition”. The book provides useful implementation advice.

Implications For Canada

Max McKeown’s observations on adaptability are particularly poignant for Canada as many SMEs that have stopped growing may have not recognized the need to adapt given the predominance of the resource industries in the overall economy. The implication being that stability is not only a dangerous illusion but that the voices that oppose the prevailing wisdom are potentially being ignored. SME business leaders should stress test their business assumptions and consider potential avenues for change and adaptation. The creaction method provides a means for SME business leaders to take small steps, learn, and adapt to develop growth strategy. Future posts will explore other approaches to overcome risk and uncertainty.

2 thoughts on “Facing and Overcoming Innovation Uncertainty and Risk

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s