Effectively Dealing with Innovation Risk and How it Helps Fuel Organizational Growth
Whatever way it’s looked at, technological innovation is currently on the war-path, revolutionizing the business landscape as it’s known; bringing with it newfound risks and challenges that had previously yet to be encountered. PwC’s Risk and Review Study that was published in 2018 revealed to the world just how distinct risk management practices can improve the average business. The study shows organizations a way to capture value from their innovation efforts, all the while managing to improve their management style for related risk when it comes to any future growth.
By surveying just over 1,500 senior risk executives, all spanning over 76 different countries, PwC’s study explores a number of actions that these risk executives put into practice for their representative organizations. In the case of the study, it was to highlight some of the business practices that were used to balance risk-reward for the advent of innovation. Around 60% of those that were asked agreed that they were either somewhat effective or very effective at managing risk innovation, which the survey population for this has come to be known as “Adapters”.
The survey showed that Adapters would routinely outperform their colleagues in a number of areas, with one focused on their level of influence over decision making when it came to innovation and the implementation of new technologies. These new technologies are designed to develop new products (57% vs 18% of non-Adapters) and the value that they reported their risk management function brings (58% vs 18%). Worth noting, Adapters are 2-3 times more likely to express clear and defined confidence in their risk management program’s ability to manage risk. Some of the more notable uses of this technology was including the use of AI, and the Internet of Things, and as such, caused a likely expanse of revenue growth.
Jason Pett of PwC’s U.S. Risk Assurance practice went on to report that organizations are finally embracing the potential of new, emerging technologies, such as AI, and IoT. He has also gone on to say that risk management is quite regularly overlooked during periods of innovation, however, it seems that the Adapters are the few exceptions in this case. Instead, they tackle the risks differently and head-on and are 3 times as likely to go on to say that their functions contribute significant value to the organization.
From reading PwC’s survey, it can clearly be learned that there are five distinctive outlines that separate the Adapters and the non-Adapters:
- Early on, they engage and typically do it throughout the innovation cycle. Adapters are twice as likely as non-Adapters to surmise new innovative activities, before the planning stage is even involved.
- Adapters are also known to use multiple actions to address any risk exposure from new initiatives that haven’t quite been figured out yet. From what the report reads, Adapters use 4 or more actions than their less effective peers to mitigate the risk twice-fold.
- They will also regularly adjust risk appetite and tolerances with frequency. Whenever a new product is making its way through the pipeline, these Adapters will use all 8 innovative activities that were demonstrated in the PwC survey to great effect.
- They’ll harness and make use of their new skills, new competencies, and new tools to support innovation. 58% of Adapters report that they are improving their risk management capabilities, whereas non-Adapters have reported to only have a 27% likelihood of doing as such.
- They will also monitor and assess the effectiveness in risk management throughout multiple different ways. 51% of Adapters use external parties to assess their risk management capabilities, whereas 27% of non-Adapters are doing the same.
Brian Schwartz of U.S. Governance, Risk and Compliance Enablement Solutions Leader at PwC, reports that organizations must realize that risk management and innovation go together, without no altercations between the two. Having a keen awareness of the necessary actions to address both known and unexpected risks that go hand-in-hand with innovation. This can provide risk executives the ability to succeed in such a fast-changing environment that’s constantly evolving.