Risk and uncertainty are not the same thing

A lot of people tell me that innovation goes nowhere at their organization because their management is too risk-averse. That may feel true, but it’s imprecise.  All managers (good ones) should be risk-averse.  The most innovative companies are also risk-averse.  That means they don’t take risks they don’t have to, and they find ways to minimize the risks, including those from innovation.

Managers who refuse to do any innovation are uncertainty-averse, which is not the same thing. It’s also not a viable management stance. There is always uncertainty in any endeavor, even ones you’ve done a million times.  The Wall Street trading bots could go rogue and your company could lose millions of dollars. The same thing could happen, but only to your competition. Your CFO could be hit by a bus. Your COO could have a brilliant idea that saves the company millions.  A flaming cow could fall from space and destroy your server farm.

A better management approach is to understand what’s uncertain, and understand what the various outcomes are, and how likely each is.  Some of those uncertainties will lead to bad outcomes, and for those you need to assess how likely they are to happen; that’s the probability. Next, you figure out just how bad it will be if they happen. That’s the danger. Then you take whatever steps make the most sense to stop or reduce the danger and the probability for as many of the bad outcomes as you think necessary. That’s mitigation.  Finally, you look at the situation again, with all the mitigations in place, and that is the risk.

trapeze artists in airHere’s a metaphor:  Imagine two trapeze artists in mid-air.  They are swinging toward each other, arms outstretched, but one of them is flying free and the other has his legs hooked over the trapeze. They both are facing the same uncertainty – will they make the catch? If not, a very likely outcome, gravity being what it is, is that they will fall and suffer serious injury or death.

But obviously one is more at risk than the other.  While the uncertainty of the catch is equal for both, the risk of falling has been mitigated for one. His biggest risk is that he will have to find another partner.

You can assume a net if you want; that would be another mitigation against ugly failure. It won’t mitigate audience disappointment in the failed catch, though…so let’s add a mitigation for that uncertainty, and say that these two athletes practice a lot. To be even more risk-averse, let’s make sure they practice with each other, and have the level of trust necessary to pull off this move close to 100% of the time.  They can now do the audience-wowing stunt with a minimal amount of risk. 

If you’re in management, or if you can talk to your management, try using this metaphor for how to do innovation. There will always be uncertainty (word is that 50% of corporate innovations fail, so I guess that it’s almost certain you’ll fail half the time but whatever, never tell me the odds), but you can find ways to mitigate how much danger your company will be in should the bad outcome(s) happen.

This may mean doing a staged prototype approach, and finding buyers for each of the stages.  It may mean repurposing existing technology, or having the innovations do double duty.  Be creative!  Innovative ways to mitigate innovation risk are worth double points.  The biggest risk of all is not innovating.

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