Is there a thing called ‘risk-mitigated innovation’ for SMEs?

Risk-mitigated innovation? Isn’t that an oxymoron? Higher the risk, higher the return is what your stockbroker would have told you when you first started investing.

This apothegm is also applicable to enterprises that believe in innovation. There is no such thing as risk-free innovation. If you are disrupting something, it will indeed come with major risks, depending on the scale of disruption you are envisaging. Successful organisations have all taken that big leap of faith. Examples aplenty: From Google to Apple, Whatsapp to Instagram. In India we play it safe and see frugal innovation only. We are not into radical innovation at all. Yet, there are methodologies available for mitigating the risk similar to options trading in stock markets.

The chairman of one of the most innovative companies in the consumer products industry, P&G (the company that launched the first shampoo, shampoo with conditioner, skin-friendly soap, etc), had famously stated that he would always worry when more than 60 percent of new ideas succeed. What he meant was that executives were playing too safe. When it comes to innovation, it is not a question of eliminating all risks, but it is all about alleviating, and providing for, some risks.

My work with the world’s no.1 innovation guru Rita McGrath has given me some unique insights on the way innovation works in India in comparison with what is best in the world. What most companies resort to here for alleviating risk is diversifying. Most companies we work with categorise growth projects into incremental, breakthrough and transformational with the time frame ranging from one to five years. We believe this is not a good route to driving innovation. To make innovation a way of life in an organisation, companies should take a holistic view of innovation (and risks thereof) and plan to mitigate the risk. Risk not just of financial kind; of every kind. Critical to innovation success is the balance a company takes between current business and growth plans. Culture, diversity and other factors are to be considered in this plan. What’s more, one needs to work on more than five initiatives to give a better success rate and at lower costs. We often use an opportunity portfolio akin to investment portfolio to navigate the innovation route for a company.

There are many ways SMEs can take to mitigate risks. These include customer co-created innovation, application of Medici Effect and intersectional thinking, systematic funding and resource allocation, risk sharing with partners, ‘Think Wrong’ framework and Design Thinking, options and discovery driven planning and so on. Customer-driven innovation is gaining currency fast today because it involves the most important stakeholder in the process. Hotels to airlines and aircraft makers resort to this. Boeing’s new plane was the result of over 120,000-strong design team from all over the world – not just from within Boeing. It is a win-win for all as customers are investing in something that will offer them more value, and companies will improve the product offering to suit what the end-user needs.

Another important aspect is the involvement and commitment of senior management or promoters. For a leading bank, which has achieved hall of fame status for its innovation processes, this commitment has delivered major benefits. They have an innovation council that monitors all initiatives and the director-level executive allocates resources based on pre-set criteria. Not allocating enough resources and not monitoring regularly can hamper the success rate – Learnings for SMEs.

An FMCG client looked at resourcing in a slightly different way. Operations groups invite and identify a few ideas for seed funding internally every year. The steps in innovation process are followed and at every stage, depending on the success, resources are allocated as per plan. They were able to eliminate huge investments by allowing smaller and quicker testing and prototyping.

For a leading insurance client, we deployed Medici Effect, helping their 10 project teams acquire as much diversity as feasible to identify 10 possible strategic initiatives. These teams worked without any additional resources, and within three to five months we were able to help the top management decide and fund six of these initiatives that showed major potential. By doing so the funds were allocated more strategically without diluting the creative passion. This approach also allowed individual freedom and access to other resources along with a loose structure.

Innovation risk can be mitigated also through sharing costs. Partners should have strategic objectives and values matched for this. A laptop for every child was an idea our government touted to get votes. The sub-Rs 10,000 tablets caught on fast despite its poor performance. However, partnerships with Chinese vendors brought in some flak for the same.

Eventually, the success of a business strategy is determined by revenue and profitability. Innovation when done right will help gain competitive advantage. With methods that can reduce the risks of innovation, it is possible for SMEs to drive major changes in India. The challenge is about changing mindsets.

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