Corporate Innovation and the Risk/Reward Equation

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Corporations have been wrestling with an innovation problem for decades. Some of the most well-known are infamous for it, with an innovation strategy that appears to downright steal ideas or absorb innovative upstarts into venture funds and incubator teams. Not much seems to come from within.

The problem is that eventually corporations that fail to innovate, fail. Kodak, Blockbusters, Toys ‘R’ Us, and HMV’s failures to react to a changing market are well documented, but many have a sneaking suspicion that other giants may be circling the plughole, just on a wider orbit. No business is too big to fail; the bigger ones just take longer.

By innovation, I don’t mean complete 180s of paradigm shifts every quarter (stability is important), I mean the continuous incremental improvements that keep businesses a nose ahead of competitors and the market. “Adapt to survive” is a mantra for a reason.

Corporations with ample resources, market knowledge, sharp minds, huge economies of scale, and healthy budgets should be leading the way in coming up with better things, and better ways of doing things. Many have tried to foster this by bringing in chief innovation officers and starting innovation teams, but even that doesn’t seem to be helping. When it comes to ideas, even incremental ones, corporations are still being given the run-around by those who are smaller and more agile.

Why Is There So Much Stagnation?

If you’re reading this, you’re here because your ancestors didn’t do anything too stupid. They weren’t mauled by a bear and didn’t fall into a crevasse before they could manage to reproduce. Your ancestors were risk-averse, and so are you.

For thousands of years, being more sensitive to avoiding potential risk than gaining potential benefit has been of evolutionary advantage. On the Savannah, you only have to get it wrong once and its game over.

It works like a constant equation running in our minds. Potential risk and potential benefit in any situation are continually calculated. If a potential risk is greater than a potential benefit, no action will be taken, but if the potential risk is less than the potential benefit, actions will be taken. It appears that simple subconscious mathematics guides all of our choices.

Over millennia the great leveler that is Darwinian economics has made sure that the cautious ones multiplied, and the risk-taking ones didn’t — and here we all are.

Today, however – this can translate into our innovation problem. Our amygdala (the part of the brain responsible for our fight or flight response) can’t differentiate between the risk of a bear mauling and the risk of looking silly in a meeting. That’s how stress works. Our nervous system only feels the fear, not the context.

Large corporations are made up of huge numbers of people focused on getting by without shouldering too much responsibility for decisions or annoying anyone more senior. These people are continually running their risk-benefit calculations and risk is winning. This creates a culture that encourages people to fly under the radar and follow orders. Rocking the boat is a risk. And risks are to be avoided.

People aren’t really concerned with the efficiency, productivity, or bottom line of the business. The benefit of doing so doesn’t trickle down to them. If someone sticks their neck out with an idea, the benefit is more likely to go into the bonuses of faceless board members, and the credit given to someone more senior. Or louder. According to that person’s subconscious calculation, it’s just not worth it to care too much.

The Common Sense Approach: Reward Innovative Acts

However, I think there’s hope. In theory, fostering innovation in the ranks shouldn’t be difficult, but it does require skillful rebalancing. People in senior positions rightly want to understand the internal equation and alter it. Reducing risk and increasing benefit is good for everyone, the company especially.

Step 1: Identify the factors that influence the risk side of the equation

Why aren’t your employees speaking up? Are they worried about rocking the boat? Causing problems for senior people? That their thunder will be stolen? That their ideas will be shot down? Called stupid? Look silly in meetings?

Step 2: Identify the factors that influence the benefit side of the equation

What would make your employees want to speak up? Financial incentives? Promotions? Bonuses? Recognition? Interesting projects to work on? A team to build? A pat on the back? Power? Money? Influence?

Step 3: Mediate these risks and benefits and alter the equation

For example, if your problem is that people are scared to speak up, then bring in policies to mediate that. Anonymity, assurances, protection from tyrants, flat hierarchies, transparency, vulnerability, psychological safety.

If your problem is that people lack an incentive to speak up, then set aside some budget. Create innovation prizes, bonuses, cherish ideas, financial and career incentives, awards, and recognition.

Altering this equation is one of the most effective things a business can do to regain the competitive advantage of ideas. Probably the most advantageous competitive advantage there is.

It doesn’t matter how you do it, workshops, brainstorms, surveys, questionnaires, interviews, it matters that you work out what’s on either side of that equation – and change it. The benefits are enormous.