Innovation is an inherently risky endeavor and failure is an inevitable bedfellow. New research from City’s Business School explores a number of approaches digital innovators can take to reduce their risk of failure.
The researcher interviewed senior leaders at a number of global digital champions, including Alibaba, Amazon and Baidu. The aim was to better understand their strategies for success. Three distinct approaches emerged:
- Innovation by experimentation – This approach involves a continual process of testing ideas on a small scale. It doesn’t require huge investments up front, with resources only deployed once these initial experiments prove successful.
- Radical transformation via incremental improvements – This approach involves breaking larger projects up into strategic investments. Each of these chunks is then measured to allow companies to radically innovate several projects at once in small, incremental steps. It’s an approach that also reduces the risk of a single large project failing.
- A portfolio of temporary advantages – The final approach aims to take account of the rapid nature of change in the digital economy, where competitive advantages can be extremely short-lived. An approach of successive, incremental and temporary advantages can add up to significant long-term gains.
What each of these three approaches have in common is that they employ elements of portfolio management, with a diverse range of projects aiming to mitigate the risks of failure.
“Digital technology is a highly volatile, fast-paced sector,” the researchers say. “It is important for companies in the field to recognize that competitive advantages are short-lived, and that there is no ‘end-point’ for innovation. Throwing all your weight behind one project as a start-to-end activity is highly risky and serves little long-term benefit even if successful.”
With the rapid pace of change in the sector, reinvention needs to be a permanent process. They believe that the coronavirus pandemic has helped non-digital companies to realize this, and could mark a fundamental shift in how innovation takes place.
“The coronavirus pandemic has both challenged and opened doors of opportunity to traditionally non-digital organization to innovate methods of banking, education and even living room gym classes,” they say. “This is placing added pressure on industry incumbents to stay ahead of new disruptors, putting further emphasis on the need to have new irons in the fire and the ability to change direction quickly and efficiently between innovations.”
