What is the one thing iconic brands like Ford, BirdsEye, Google, Amazon, Uber and others have in common?
They were all innovative, and not just at a low level or by incrementally improving existing products, services, or processes. No, what these and similar companies share is they fundamentally changed how things were done or created entirely new market segments.
This can be illustrated with the statement: “Electricity wasn’t invented to improve the performance of the candle.”
With the rapid growth of AI, Internet of Things (IoT), and other technologies, innovation is a recurring buzzword these days.
And while it’s true that companies will have to be innovative if they are to survive and thrive in the years ahead, simply chasing the latest fad based on a fear of missing out could end up doing more harm to a company’s long-term prospects than doing nothing at all.
The point is not to dissuade innovation but rather ensure any decisions around it are informed.
Originally appearing in the journal Carrier Management, this article (linked below) discusses steps companies should be taking to avoid a calamity when pursuing innovations.
Instead of being reactive in the pursuit of innovations (as so many are), a company should harness decision-making processes supported by robust risk management practices to seek out areas of innovative disruption or business development in a deliberate and systematic (but not bureaucratic!) way.
At a minimum, this involves understanding upstream dependencies and downstream consequences of pursuing a particular innovation.
It is through a process like the one outlined in this article that a company may discover that while an innovation may work for a competitor, it will be too costly, even disastrous, for them for pursue.
This investigation process is just a first step…
Transformative innovation is about more than the here and now, which is why a specific type of scenario analysis aimed at understanding drivers of uncertainty over the long term is necessary as well. Coupled with advanced tools like Monte Carlo simulation, this will enable a company to understand the probability of success for a particular course of action.
Contrary to the reputation ERM has with many executives, the process outlined in this article is not meant to be a naysayer, but rather a way for ensuring a company’s decisions around technology or innovation are truly informed.
Like previous articles appearing in Carrier Management, the examples in this article are geared towards the P&C industry, but the fundamental concepts are applicable to any company in any industry.
ERM and Strategic Scenario Analysis: A New Way to Think About Innovation
Has your company pursued innovations without due diligence? What was the result?
As always, I want to thank Carrier Management for allowing me the opportunity to publish content for helping insurers make risk-informed decisions.
To share your thoughts on how risk management can support decisions around innovations, please don’t hesitate to leave a comment below or join the conversation on LinkedIn.
If your company is struggling to determine how to best pursue innovations in an informed way, please reach out to me to discuss your current situation.
