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.
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.
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.
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):
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.
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:
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:
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.
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
Altin Kadareja, MSc, passionate about innovation management has experimented several risk management techniques in innovation projects in Italian banks. Holds a Master of Science degree in Economics and Management of Innovation and Technology from Bocconi University, Milan. Former organizational change consultant focusing on business process re-engineering. An amateur entrepreneur, already founded a start-up and an economic think tank.
 This study has been carried out for the final dissertation of MSc in Economics and Management of Innovation and Technology, in Bocconi University.
Bernstein, B. and Singh, P. (2006), “An integrated innovation process model based on practices of Australian biotechnology firms”, Technovation, Vol. 26, pp 561-572.
Cooper, R. G. (1999), “The Invisible Success Factors in Product Innovation”, Journal of Product Innovation Management, Vol. 16 No. 2, pp. 115-133.
Cooper, R. G. (2000), “Doing it right: winning with new products”, Ivey Business Journal, Vol. 64 No. 6, pp. 1-7.
Gielens, K and Steenkamp, J.E.M. (2004), “What Drives New Product Success? An Investigation Across Products and Countries”, working paper No 04-108, Marketing Science Institute, Cambridge, MA.
Kilmann, Ralph H. (1985), “Managing your organization’s culture”, Nonprofit World Report, Vol. 3 Issue 2, p12-15.
Miller, Paddy & Brankovic, Azra. (2011), “Building a Creative Culture for Innovation”, IESE Insight, Issue 11, p51-58.
Schumpeter, J. (1912), The theory of economic development, Harvard University Press (english trans, 1934), Cambridge, MA.
Sims, Ronald R. (2000), “Changing an Organization’s Culture Under New Leadership”, Journal of Business Ethics, Part 1, Vol. 25 Issue 1, p65-78.
Tidd, J., Bessant, J. and Pavvit, K. (1997), Managing Innovation: Integrating technological, market and organizational change, John Wiley & Sons Ltd, Chichester.
Urban, Glen.L. & Hauser, J.R. (1993). Design and marketing of new products (2nd ed.), Englewookd Cliffs, Prentice Hall, NJ.