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Innovation requires risk, and risk requires leadership

The price of doing nothing is steep, and playing it safe is anything but. The only way to create a culture of innovation is from the top down.

There's an old saying, "Nobody ever got fired for buying IBM." Over the years, inertia has changed the meaning of that phrase from "It's safe to buy quality" to "Nobody ever got fired for avoiding risk."

So, while a given person may be rewarded for avoiding risks, the company itself can take severe hits for the same thing. And an individual may be rewarded for successfully taking risks, a company's stock may tank on the basis of an unsuccessful or even just longer term risk potential.

How can we advise companies to take chances—and back their people when they do so—but distinguish between reasonable and unreasonable risk?

We asked a group of risk professionals to help us define risk and understand its psychological mechanisms, differentiate between desirable and undesirable risk, and outline steps to create a corporate culture that encourages reasonable risk and indemnifies those who take it. Here's what they said.

Innovation = risk

Doing something different is not the essence of innovation. The essence of innovation is risk.

"Real innovation is much more disruptive than delivering a predictable outcome," says Craig Partridge, worldwide senior director of the advisory and transformation practice at HPE Pointnext Services. "If you could predict the outcome of real innovation, then it's not real innovation because someone's done it before. They've proven that that path pays back in a certain way. Then what you're actually doing is copying."

There's nothing wrong with copying, of course. What matters is to do something that works, and in certain situations, copying works. But not if the situation demands innovation. When do you decide to invest to protect your existing base? When do you decide to invest to create the next wave?

One of the problems in implementing innovation is the "crisis of prioritization." If something has worked before, it is likely to get the OK before a risky choice. When that happens, Partridge says, "you get stalemate inside the organization."

Regardless of which choice a company makes at a given intersection, one thing that seems invariable is that organizations that don't invest for the next wave of innovation cannibalize their existing market offering.

Partridge offers a number of examples: Blockbuster was overtaken by Netflix because it didn't see the coming primacy of streaming, and Kodak hit the skids because it didn't see digital photography taking off.


Appetite for risk comes from the top down

Companies that turn risk into opportunities for growth are those for which failure is seen as a triggering event that will lead to solutions, says Joel Peterson, the Robert L. Joss Adjunct Professor of Management at Stanford Graduate School of Business and chairman of the board of overseers at the Hoover Institution. "Those companies and their leaders tend to learn by celebrating uncertainty, change, and growth."

In other words, they have a vision that embraces risk, and vision is paramount, according to Robert Christiansen, VP, Strategy, Office of the CTO, Hybrid IT, Hewlett Packard Enterprise.

"You need to create a narrative that works for the organization to rally them around a purpose," says Christiansen. "If I don't know what to do, I'm not going to do anything."

So a strong rallying cry doesn't just have to be sounded—it's got to be sounded from the top.

"Leaders gotta lead," he says. "Leaders drive the narratives and have the details to support them. The narrative is the center of gravity and give the company a reason why they do things. People who stay safely within their four walls do so because they do not believe in the mission. If the mission is large enough, it can move anyone to action."

Peterson agrees.

"Culture flows from the top," he says. "Senior management must reward risk-taking, not punish it. This means seeing that failure isn't fatal, considering it a waystation on the road to success, and—unless a failure of character or effort—[finding] a way to build the brand, the culture, the muscles for innovation."

Christiansen gives one example of a heavy equipment manufacturer. All the company wanted to do was to continue to sell its equipment.

"Now there were people in pockets inside their organization who wanted to put IoT devices on the equipment," he says. "They wanted to put GPSes on them. But most had no interest."

The clients on the other hand—those who manage construction sites and use the company's equipment to do it—wanted to be able to employ the machines without human operators and with a full spectrum of technological innovations.

"They wanted to be able to know where on the planet their $300,000 bulldozer was, what it was doing, how many miles it had on it at any given time, when they need to change out the tires," says Christiansen. This vision of maintaining the status quo is a good example of how the price of doing nothing is too high. All it takes is a competitor to come along and offer that bulldozer, and the "safe" company has likely lost that customer. The best-case scenario is the company winds up having to chase its competitor just to maintain the status quo—and there is no guarantee it will.

Creating a high-trust culture

"A high-trust culture is the greatest organizational asset when dealing with risk," says Peterson. "Broadly speaking, people are more willing to take risks where they feel supported and trust that others have their interests at heart. When people trust colleagues, especially leaders, they're more willing to share information, decisions are made more quickly, coordination is less difficult, and costs decrease because there is less bureaucracy. Risks are embraced because they're less costly in such environments."

High-trust, risk-embracing cultures don't happen by accident, and they don't happen overnight. They are intentionally created. Their leaders build trust one conversation at a time, decision by decision and action by action. In essence, to create a company willing to take smart risks, its leaders have to take that risk first.

"Bureaucracy, aristocracy, and complacency all combine to resist change," says Peterson. "If leaders are punished for taking risk and rewarded for the status quo, risk aversion will be the outcome. People, including management teams, respond to what is measured and rewarded. In many cases, public companies reward predictability, a deterrent to risk-taking."

A sure way to fail to create a company devoted to innovation is to mandate it. People know what side their bread is buttered on. If a C-suite that is prone to finger-pointing issues a fiat to take risks, no experienced employee will do so. Lead by example.

The only way to create an innovative company is to lead from the front.

Risk requires leadership: Lessons for leaders

  • There is no such thing as safe innovation. By definition, innovation requires risk.
  • To encourage innovation, take the first risk. Create a culture that rewards thinking around corners.
  • Create a culture of trust. Lead from the front. Reward employees for pushing forward.

Next up in the risk-takers series:

Evaluating risk: Companies that want to innovate have options

Encourage risk-taking with the right innovation structures

Diversity in risk-taking: Why every voice matters

This article/content was written by the individual writer identified and does not necessarily reflect the view of Hewlett Packard Enterprise Company.