Running head: Innovation vs risk management

Innovation vs risk management

Gurumurthy Purushothaman
Wilmington University
IST 7100
September 14, 2015
Diane, S., Murphy

INNOVATION VS RISK MANAGEMENT

2
Introduction

Risk management is the process of assessing the losses that can be incurred by analyzing
and identifying potential risk factors (Marquette University, 2015). Innovation is the continuous
process of changing and creating more effective processes. Organizations that focus on
innovations have better productivity and performance (business.gov, 2015). Risk management
helps the innovation agenda of a company by showing areas of underperformance which can
hinder the best side of the company. Innovations can put company at risk but at the same time
successful innovations can provide solutions for the problems companies face. Risk management
and innovation have started to go hand in hand with the advent in managerial process in
corporate companies. Risk management supports innovation in a positive fashion by adding
discipline and transparency to the process. Innovation and risk management must not be seen as
adversaries but combining these two have shown successful results in todays corporate
environment (Steve, 2013).
New products or services have constantly helped in improving businesses by helping
them perform tasks better than before or by performing tasks that couldnt be done before. These
changes always carry risk along with them and the level of risk depends upon the way people use
them. For example, during winter people prefer to drive a four wheel drive car rather than a two
wheel drive but according to statistics, accident rates havent improved at all. The reason being
innovation of four wheel drive did not make driving safer but people felt safer. In conclusion, the
driver is making choice between lowering the risk and improving performance (Harvard
Business Review, 2013).
Organizations often become risk averse such that innovation and initiative becomes
paralyzed. These problems often arise because risk managers often see themselves apart from

INNOVATION VS RISK MANAGEMENT

other employees and report only to the chief executive officer. The manager must encourage
team members to take prudent risks without affecting progress in a negative way. Managers must
encourage employees and themselves to share responsibilities and assess the factors that can put
the organization at peril. This will also motivate employees to seek a sense of ownership and
self-confidence. With experience this will improve their decision making skills as well
(Crawford, 2014).
To combine risk management and innovation effectively, organizations must establish the
following guidelines:
Culture: Define risk tolerance and recognize small failures that are within acceptable rates.
Oversight: Effective innovation governance and risk assessment must support investment
decisions, innovation.
Business model: Build a model showcasing all the variables that are related such as company
strategies, upside and downside uncertainties, risk and innovation activities.
Analytics: Risk investment and scenario analysis techniques must be used to effectively
understand individual risks, combined risks and risks due to underinvestment.
Innovation portfolio: The innovation portfolio of the employees must align with the portfolio of
the company to maximize potential benefits.
Innovation processes: Employees must focus on their innovation processes to make speedy
progress so that they can make timely corrections in the progress should any discrepancies arise
(Alon & Hooper, 2013).

INNOVATION VS RISK MANAGEMENT

Conclusion
It is conclusive and evident that in todays corporate world, innovation and risk management
must work hand in hand to effective conduct business and stay competitive in the unstable
market that is present today.

References

INNOVATION VS RISK MANAGEMENT

Alon, A., & Hooper, K. (2013, 01 03). Fostering innovation through effective risk management.
Retrieved from Innovation management:
http://www.innovationmanagement.se/2013/01/03/fostering-innovation-througheffective-risk-management/
business.gov. (2015). Innovation. Retrieved from Business.gov:
http://www.business.gov.au/business-topics/businessplanning/innovation/Pages/default.aspx
Crawford, F. (2014, 03 17). Managing risk without stiffling innovation. Retrieved from
Bloomberg: http://www.bloomberg.com/bw/articles/2014-03-17/managing-risk-withoutstifling-innovation
Harvard Business Review. (2013, April). Innovation Risk how to make smarter decisions.
Retrieved from Harvard Business Review: https://hbr.org/2013/04/innovation-risk-howto-make-smarter-decisions
Marquette University. (2015). Risk management. Retrieved from Marquette University:
http://www.marquette.edu/riskunit/riskmanagement/whatis.shtml
Steve, C. (2013, 01 07). Risk management can stimulate rather than deter innovation. Retrieved
from Forbes: http://www.forbes.com/sites/steveculp/2013/01/07/risk-management-canstimulate-rather-than-deter-innovation/