Risk management can either feed corporate growth and innovation -- or starve it.
"One of the challenges when it comes to innovation is many companies, because they lack the ability to measure and manage risk, they tend to default to a very low risk innovation portfolio," said Adi Alon, managing director in Accenture's Innovation and Product Developing Consulting practice in Boston.
"I would equate that to an entire [investment] portfolio consisting of certificates of deposit," said Alon, who co-authored Accenture's Stage Gates Can Kill Innovation; Risk Management Can Fuel It study, along with Wouter Koetzier, global managing director of the organization's Innovation and Product Development Consulting practice, and Kenneth Hooper, senior principal in its Managing Consulting practice.
According to the survey, more than nine of 10 (93 percent) companies believe risk management is an important driver to sustainability of future profitability. In addition, 91 percent of the companies believe risk management enables long-term profitable growth.
The survey polled 397 companies in 10 industries.
Profitability and growth require, however, that companies design innovation portfolios that correspond to their risk tolerance, Alon said.
"To do that, you need tools, processes and governance to manage and measure their risk, and I think risk managers have those tools," he said. "All of those risks that are out there also represent opportunities in terms of developing products, services and capabilities to address them."
One tool is risk scenario analysis, which can be used to simulate results and better understand operational flexibility, according to the report. "It is a forward looking perspective which focuses on the combination of disparate events and their potential consequences," it states.
The report stressed the importance of flexibility in creating a portfolio of innovative investments, and agility in experimentation and development.
It is also important that companies accept that failure is a necessary part of the innovation process, the report stated.
--By Anne Freedman
February 19, 2013
Copyright 2013© LRP Publications