NIST logo

Insights on the Road to Performance Excellence Logo
May 2012


I = IR + SE
Innovation Results from Intelligent Risk Taking and a Supportive Environment

Like many people in many companies and organizations, I have been thinking a lot about innovation lately. In my case, the effort has been a prelude to thinking about upcoming revisions to the Baldrige Program’s 2013–2014 Criteria for Performance Excellence. I consulted works by Rosabeth Moss Kanter, Clayton Christensen, Jeff Dyer, and Hal Gergersen, as well as numerous articles and blogs. And my conclusion was that innovation (I) is the result of intelligent risk taking (IR) and a supportive environment (SE): I =IR + SE. In this column, I will explore each of these concepts, starting with the two contributors (IR and SE) and ending with the intended outcome, innovation.


Intelligent Risk

I define an intelligent risk as an opportunity in which the potential gain outweighs the harm or loss that could impact the organization’s sustainability if the opportunity is not explored. Taking intelligent risks requires a tolerance for failure and an expectation that innovation is not achieved through initiating only successful endeavors. At the outset, organizations must invest in potential successes realizing that some will also lead to failure.

The degree of risk that it is intelligent to take will vary by industry pace and level of threat. In a rapidly changing industry with constant introductions of new products, processes, or business models, there is an obvious need to engage more resources in intelligent risks than in a stable industry. In the latter, growth potential and change must be monitored and explored but with a less significant commitment of resources. In either case, not to engage at all in taking intelligent risks is like driving down the freeway or country road (pick your metaphor) with blinders on.

Kanter talks about an innovation pyramid as a mechanism for buffering risk while you are not shying away from it. At the base of the pyramid are many small ideas. These include continuous improvements that can be easily and quickly implemented. Early-stage ideas with a larger, long-term potential can be refined further with minimal risk and time commitment. This base encourages everyone to get involved and participate in a culture of creativity and change.

At the middle of the pyramid is the new opportunity incubator. This is where a more limited set of projects and ideas are developed for their longer-term promise of growth.

At the top of the pyramid are a few major breakthrough opportunities. These are the opportunities that get greater priority for resources and management’s attention because of their potential for breakthrough or disruptive change. These ideas will frequently arise out of the base of the pyramid having achieved some initial success and promise.


Supportive Environment
How do you build an environment and a culture that support innovation? This may be one of the most frequently asked questions. According to Dyer, Gergersen, and Christensen in their new book The Innovator’s DNA, there are five characteristics of innovators. These characteristics, which can be learned, are associating, questioning, observing, networking, and experimenting. Associating deals with connecting disparate inputs. Questioning relates to a passion for inquiry and always challenging the status quo; good questions are worth as much as good answers and generally outnumber them. Observing means watching the world around you and every aspect of that world—customers, new products and technologies, and changing habits. Networking is not done strictly for social purposes but, rather, to test ideas and listen for new insights. Experimenting involves trying out new ideas and engaging in new experiences.


To encourage these characteristics of innovators, I propose eight mechanisms for building a supportive environment, based on my readings and my own thoughts:

  1. Encourage flexibility and agility in your planning and operating systems so that you can adapt to changing external and internal environments. Reserve some resources to explore exciting, new opportunities and to improve existing processes and products.

  2. Involve everyone in idea generation. Don’t create two classes of organizational citizens, those who can think and those who do. Allow everyone to contribute their thoughts and ideas.

  3. Empower smart people who push the envelope within the boundaries of your core values.

  4. Hire new talent, even if you generally promote from within. New people bring new ideas and prevent myopia. They help with the innovator’s characteristics of associating and networking.

  5. Foster new internal connections. This networking will bring different groups together who have different insights and perspectives.

  6. Involve partners, suppliers, and customers. They understand parts of your business that you might not. You need to have them on board because they will be partners in the generation and consumption of your innovations. When the innovation depends on partners’ and suppliers’ collaboration, they too have to see a benefit. And your customers know things they would like in future products and services, but you have to ask. That said, don’t rely too heavily on customers because they might only envision the next generation of existing products.

  7. Support risk taking and reward failure. This will encourage innovation and creative thinking.

  8. Train people on the five characteristics of innovators. Make them aware of the concepts that lead to innovative ideas.


Innovation
The Baldrige Criteria for Performance Excellence define innovation as a meaningful change to improve products, processes, or organizational effectiveness and create new value for stakeholders. Innovation involves the adoption of an idea, process, technology, product, or business model that is either new or new to its proposed application. The outcome of innovation is a discontinuous or breakthrough change in results, products, or processes. As the definition states, innovation is not strictly composed of new products and new technology. Innovation can and should take many forms that affect how you do your business and how you serve your customers and stakeholders.

As you consider the innovation equation (I = IR + SE) in your organization, here are some more thoughts to ponder: Innovation thrives when there is intelligent risk taking and a supportive environment. Innovation suffers when it is treated as a fad. Innovation has been in and out of vogue in corporate America over recent decades. Innovation groups have been formed and disbanded due to poor or inadequately supported idea execution and due to cost-cutting programs. To do away with the engine of economic growth is a sustainability killer for organizations and national economies.

Large corporations frequently suffer from their own success, stifling their ability to innovate. Christensen describes this theory in his book The Innovator’s Dilemma. Breakthrough innovations can initially cause problems in reliability and may not generate the profits of existing processes and products. Hence, large corporations may shy away from these investments until it is too late and they are left behind with outdated products and processes.

Philip Auerswald recently conjectured that if you are not threatening someone’s marketplace, you are probably not innovating. While I am not sure this is always true, it does provide for an interesting line of questioning when one is considering pursuit of a new idea. Whose market will it upset? What new market can you enter? Where is the real breakthrough and how do you plan for it and execute? Where is this innovation in Kanter’s pyramid? What resources should it receive?

A closing thought on why innovation is so challenging: In the 1930’s Karl Duncker articulated the concept of functional fixedness, observing that people tend to fixate on the common or expected use of a product or process. In other words, we tend to see the things as they are in use, rather than exploring all the features, including those that could lead to a new use. Generally, we are not even cognizant of the other features. Two simple examples are presented by Tony McCaffrey in a recent HBR blog. People on the Titanic saw the iceberg as a big threat and thus overlooked that it could have been like a lifeboat. A candle provides light, but the wick also provides a source of string in a pinch. Look beyond the obvious.

I do not know yet exactly how the above thoughts or the concepts in I = IR + SE will be embodied in the 2013–2014 Criteria for Performance Excellence. I invite your thoughts on the topic.



You need to have Acrobat Reader installed on your computer to view the PDF file. If you do not have Acrobat Reader installed on your computer, download the program at http://get.adobe.com/reader. People with visual disabilities can download tools and information at http://access.adobe.com to help make Adobe PDF files accessible.


*

Dr. Harry Hertz photo

Dr. Harry Hertz, Director
Baldrige Performance Excellence Program

Contact

Baldrige Customer Service:
301.975.2036 Telephone
301.948.3716 Fax
baldrige@nist.gov E-mail

red-envelope-small Sign Up for Baldrige Email Alerts