Is innovation the natural habitat of a risk manager?

As Head of Nido, I am constantly looking to stimulate civil servants to innovate faster and smarter. I thrive on calculated risks, ones that we have dissected and are thoroughly understood. Unforeseen mishaps are not my cup of tea. This inclination can be traced back to my previous role as an Internal Control Manager (risk manager). This experience provided invaluable insights into how an organisation structures its aspirations and operations.

The public sector is traditionally characterised as a relatively risk-averse landscape, and even more so in the realm of innovation. Managers often face minimal push-back for adhering to the status quo, even though this approach may not necessarily epitomise optimal management practices. To foster a more effective and ambitious public sector, risk and innovation managers can play a crucial role in assisting management teams in identifying organisational risks and opportunities and guiding them in how to best deal with them. While today innovation management is correctly treated as a distinct public sector discipline, it also continues to be considered risky business. This is problematic.

When I first switched to the innovation domain, it seemed like a brave new world, a huge change, a major shift. Yet, with innovation nowadays being dealt with on a much more strategic level, risk management and innovation management surprisingly appear to have a lot more in common. For instance:

1. Both disciplines care about the future of an organisation

Both risk management and innovation management are about looking ahead and anticipating possible outcomes. Risk managers will agree that internal control should not only focus on identifying and mitigating potential threats or negative outcomes. Like innovation management, it is also supposed to focus on identifying opportunities and creating new paths for future growth and success. This makes both risk management and innovation management integral parts of an overall business strategy. They contribute to the organisation’s ability to adapt to changing environments, seize opportunities and finally achieve its goals.

2. Importance of decision-making

Blind acceptance or outright refusal of risk without sound reasoning are the kiss of death for ambitions in the public sector.

Both disciplines require effective and calculated decision-making processes. In risk management, decisions are made on how to respond to identified risks and opportunities, whether that be to avoid, mitigate, transfer, or accept them. In innovation management, decisions revolve around which challenges and solutions to pursue and experiment with, and in what way. It includes decisions on how to allocate resources as well as how to bring innovative products, services, or processes to the market. Therefore, both disciplines prefer to deliberately decide on managing risks rather than simply accepting or rejecting them completely.

Given that innovating requires a safe place and a process, innovation labs are the ideal place to keep risks low. Still too often, innovations are immediately implemented in business without prior testing. Spending large resources on an innovation project without having gained certainty in prior stage gates should be avoided at all costs. To calculate the probability for success, one must ensure robust decision-making processes and anticipate possible outcomes. And, the greater the probability that something will work, the bigger investments can become. Innovating should always start with a limited budget. Hence, I believe advocating for fault tolerance should be done with care. Exploring and trying out opportunities is necessary. However, implementing something new without market research and experimentation, or piloting with large sums of taxpayers’ money is not tolerable. That is merely bad management. It is time to look at the status quo in a nuanced way:

Are governments always playing it safe? By adopting the same routines and not managing risks and opportunities properly, governments are taking a lot of risk in achieving objectives.

3. Spoiler alert! Both disciplines are linked to the mission and strategy of an organisation

Internal control revolves around identifying and navigating risks and opportunities that impact an organisation’s strategic goals and mission. Mastering the art of handling risk and seizing opportunities is pivotal.

It is a dance of probability and impact, a symphony of managing risks and taking advantage of opportunities, all in pursuit of organisational triumph.

Innovation management is the process of introducing innovative solutions, processes, and products, to improve the efficiency and effectiveness. This can include creating new strategies, technologies, or products. Innovation management helps to achieve ambitious goals.

So, innovation is no stranger to an organisation’s strategy. In fact, an innovation manager will even challenge the existing strategy, pushing the limits of an organisation’s mission. Strategies should not be obsolete.

A plea for a shared, anticipatory approach

Risk management and innovation management need to better align with the time horizon. Risk management tends to have a shorter time horizon, focusing on immediate or near-term threats and uncertainties. In contrast, innovation management often involves longer time horizons, as organisations invest in research, development, and implementation of innovative solutions that may take time to mature and yield results.

Yet, embracing risks and opportunities by exploring plausible futures is a discipline that the public sector is only just beginning to take up, and not yet entirely comfortable with. Future exploration and scenario building help to proactively understand uncertainty, explore plausible futures and shape a desired future. In other words, we should more systematically embrace uncertainties as opportunities to achieve stronger solutions and more positive outcomes. Good risk management goes beyond protecting what is there. It anticipates by exploring weak signals and taking them seriously.

We live in times of complex challenges and major societal and technological evolutions that demand a more anticipatory management approach, one that accepts, manages, and proactively explores risks and opportunities. A quick PESTEL and SWOT analysis will just not cut it anymore. Learning to deal with uncertainty over risks and opportunities is more key than ever.

Conclusion

Like risk management, good innovation management is aligned with the organisation’s mission yet dares to question the prevailing strategies. Both disciplines are about managing risks and opportunities, and are based on an informed decision-making process.  

Exploring risks and opportunities for trying new things is the way to gather data and lessons learnt. Innovation management should therefore be seen as a continuous learning process, not just the implementation of something new. It enables us to blaze new trails while avoiding the wrong paths. Innovation is not just throwing (expensive) technology at a problem. Deliberately exploring new usercentric possibilities with the available limited resources is good for the organisation’s long-term success.

We are living in tumultuous times that require us to be comfortable with uncertainty: today’s successful approaches and outcomes are uncertain due to ever evolving expectations of our citizens and businesses, and the constant multifaceted challenges ahead. Like risk management, innovation management can be a helpful discipline to navigate this.

Success is found not in the absence of risk, but in the ability to deal with risks and opportunities effectively through innovation.