New Series of Articles on the Risks Faced by Innovation Projects

By: Altin Kadareja

Every innovation project starts from an idea or a problem and mostly, all innovation teams do jump immediately to the feasibility study and scenario analysis dedicating little or no time to the assessment of the risks of innovation projects. This series of article represents an extended dashboard of internal, external and hidden risks of such projects in aiding innovation teams throughout their risk management activities. The first article looks deeper into what drives a successful innovation eco-system.

Risk assessment and risk management activities are seldom used in innovation project proceedings. Only 30% of the managers surveyed for this study¹ use risk assessment procedures and the rest are either not doing it or do not know how to assess and then manage such risks. Apparently, the need is not for a more risk averse company but for more analysis and measurement practices before and after an innovation project starts in increasing the success rate of innovation projects. In this series of articles, I want to deliver an overview of risks associated with the innovation projects and a relative distinction of internal, external and hidden risks starting with some key determinants of a flourishing innovation organizational attitude that managers need to harness to their innovation activities.

The analysis was carried out at the project-level, on a survey covering around 1700 projects in 32 European companies. Conditional statistics were used to understand the behavior of variables under analysis keeping the successful rate of innovation projects as the control variable.

Risks of innovation projects

• Part 1: What drives a Successful Innovation Eco-System
• Part 2: Internal and Hidden Risks of Innovation Projects
• Part 3: External Risks of Innovation Projects
• Part 4: Risks of Incremental, Differential, Radical, and Breakthrough Innovation Project
• Part 5: Cooperation and IP Risks of Innovation Projects

What drives a successful innovation eco-system

It was Joseph Schumpeter in “The theory of economic development” (1912) who introduced for the first time the distinction between invention and innovation, that gave rise to a whole new subject of theoretical studies, conceptual frameworks and practical cases in empowering innovation throughout different market scales.

As essential as innovation becomes, more attention should be directed on the corporate culture that embraces it.

In this 100 years of innovation, both theoretical and practical evidence suggest that innovation has become a critical factor for the long-term success, in maintaining competitiveness (Tidd et al., 1997; Cooper, 1999; Bernstein & Singh, 2006) and increasing the probability of succeeding in the market place (Cooper, 2000; Gielens & Steenkamp, 2004; Urban & Hauser, 1993). In the same vein, Innovation 2010, a study conducted by BCG, a consultancy, targeting the most innovative worldwide companies reveal that more than 72 percent of the senior managers consider innovation one of the top three priorities (up from 63 percent on 2009). Hence, as essential as innovation becomes, more attention should be directed on the corporate culture that embraces it.

What are the determinants of a flourishing innovation organizational attitude?

When developing a new product, service or method, companies make use of particular project management techniques that use organizational approaches that are embedded in the innovation team’s experience, built up in forms of routines or new knowledge that can support decision making during the life span of the project. Experience that is widely shaped by the organizational innovation culture and the way innovation is conceptualized within one company.

But what is an organizational culture and how could such culture create an innovation eco-system that delivers successful innovation projects?

It is not limited to one-off projects, but is generative, ongoing and, most importantly, sustainable.

The culture of an organization is a force field of energy-a social energy which has an existence and life all its own (Kilmon, 1985). Sims (2001) characterizes it as a common way of thinking about and describing an organization’s internal world — a way of differentiating one organization’s “personality” from another. And recently, Miller and Brankovic (2011) describe an innovation culture as a business culture in which various creative values and behaviors interact to weave innovation throughout an organization. It is not limited to one-off projects, but is generative, ongoing and, most importantly, sustainable.

With this in mind, I have investigated the innovation eco-system along two dimensions:  the organizational strategies on firm’s innovation activities and the propensity to innovate.

Organizational strategies on innovation activities

The organizational strategies for innovation activities have aimed to reveal how well is the firm structured in welcoming, organizing and delivering innovation. Every surveyor has been asked to indicate their organizational extent toward the following six innovation organizational strategies from 0 (not at all) up to 4 (consistently and effectively):

• Training of Employees – Training employees and managers on innovation topics;
• Innovation Strategies – Moving beyond hit-and-miss innovation to a more strategic approach;
• Innovation Culture – Developing an innovation culture so that everyone at every level contributes to the innovation process;
• Innovation infrastructure & partnerships – Building networks, pathways and platforms that promote the flow of innovation both internally and externally through alliances and partnerships;
• Process of Innovation – Standardizing in a step-by step funnel process that facilitates idea generation right through the development of a business case to the deployment of the new product/service/process.
• Innovation Knowledge Spread – Building systems of knowledge creation and spread within the enterprise.

Given the results, the companies have been clustered into four classes of different types of organizational strategies; Poor – Fair – Good – Very Good.  These classes have been analyzed in relation to the average rate of success in their innovation projects (Fig a.1). This analysis has indicated a positive correlation between the extent toward the organizational strategies of innovation projects and success rate on such projects. As expected, the “Very good” organizers have been 22,67 percent more successful on their innovation projects than the “Poor” organizers.

Further considerations and subject to future research could be the trade-off between the growth in the success rate of innovation projects and the investments that companies are required to make for effectively implementing such organizational innovation strategies.

Propensity to Innovate

The second venue to be analyzed in identifying the determinants of a flourishing innovation organizational attitude has been the approach toward the propensity to innovate. Since, innovation culture within the firm tends to be strictly related to the management style that the innovation mangers inputs within the innovation team, the first variable to be taken into consideration has been the manager’s approach on innovation as considered more an opportunity or risk.

Five different types of innovation-to-risk cultures were emphasized:

• Proactive innovation-to-risk culture. Always an opportunity rather than additional risk. Innovation managers taking this approach will usually induct within the firm a very optimistic and positive innovation culture.
• Reactive innovation-to-risk culture. Risk and opportunity at the same time. At the forefront of this mindset, the innovation culture will be only reactive to opportunities ahead.
• Not decided, either risk or opportunity. Subject of change according to different company’s objectives for the specific time period. In this case, the manager is un-determined and will induce an innovation culture of doubt and unclear objectives.
• Neither risk, nor opportunity. In this case the manager does not consider innovation as neither risk, nor opportunity.
• Risk-averse innovation-to-risk culture. More an additional risk rather than an opportunity. In this case, risk dominates innovation and these managers will create a defensive culture within the company. (None of the respondents have answered this way and therefore this level has been removed from the analysis).

Fig a.2, showing the average conditional frequency of successful rate of innovation projects to innovation-to-risk cultures, have implied that managers looking at innovation always as an opportunity rather than risk have been on average 34 percent more successful in their innovation projects than skeptic managers “Neither risk, nor opportunity”.

The second variable in examining the propensity to innovate has been the attitude toward new knowledge, suggestions, methods or people (New Inputs).

Five different degrees of openness to new inputs were created:

• Do not welcome new inputs, dismiss them completely. Drastic behavior of firms that are against new inputs and usually show a very overprotective attitude toward one’s resources (None of the respondents have answered this way and therefore this level has been removed from the analysis).
• Skeptical of new inputs, see them as similar to what we already know. In this case firms are somehow resistant to welcoming new inputs, in some way oppose change. However, this could be case where firms do not have enough resources, in adapting to new inputs and incorporating this change within their systems.
• Hear out new inputs and implement only what is told. These managers have not created a funnel process of new inputs development and usually execute whatever has to be done.
• Open to new inputs when they are given, implement them without waiting to be told. In this case the managers are open to new knowledge and inputs.
• Not wait for new inputs, but actively seek them out. This is the highest level of the openness to new inputs where firms develop a process of research, implement and share new inputs within all levels of firm’s innovation system.

Referring to the results (fig. a3), the highest success rate on innovation projects has been associated to highest degree of openness: “Actively seek new inputs”. Surprisingly,  “the skeptical of new inputs” group has been 13,5% and 3,4% more successful than the “open when they are given” and “hear out new inputs” groups, accordingly.

Interestingly, these results have shown that to achieve the highest outcome in innovation projects (highest success rate), the openness to new inputs is subject to creation of such inputs. Firms being in the first group do not only welcome and adapt to such changes but also generate them through their system. Whilst, in those firms where new inputs were externally integrated within the innovation’s system, from the market or other external resources, referring to the second and third category, the success rate of innovation projects was even lower than for those firms that were “skeptic to new input”. This analysis seems to indicate the trade-off between welcoming/adapting new inputs and being skeptic on them.

Therefore, an attitude of welcoming/adapting and creating new inputs impacts the innovation project success rate positively but as far as firms are willing to create new knowledge, methods, and ideas “in house”. Otherwise, the firms will be less successful than only being skeptic on new inputs.

Determinants of an innovation eco-system that embraces successful innovation projects

Implementing a proactive innovation-to-risk culture could increase the probability of being successful in the innovation projects by 34 percent.

The organizational strategies on innovation activities are positively correlated with the success rate of firm’s innovation projects. That is, the right implementation of the following organizational strategies (Training of Employees, Innovation Strategies, Innovation Culture, Innovation infrastructure & Partnerships, Process of Innovation, Innovation Knowledge Spread) could result in 25 percent higher success rate in innovation projects.

The propensity to innovate has been analyzed along the attitude toward innovation as opportunity or risk and the attitude toward new inputs. Implementing a proactive innovation-to-risk culture could increase the probability of being successful in the innovation projects by 34 percent. On the other hand, the dominant attitude toward new inputs has been “actively seek them out”, potentially resulting in 22.25% higher innovation project’s success rate.

By Altin Kadareja

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References

[1] This study has been carried out for the final dissertation of MSc in Economics and Management of Innovation and Technology, in Bocconi University.

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