Bob Iger rightly said, “The heart and soul of a company is creativity and innovation.” If done right, innovation creates huge rewards for your business. But like anything else, it too has its risks. Unfortunately, it is not possible to eliminate innovation risks altogether. You can, however, adopt business strategies to avoid them as much as possible. In this article, we will break down the 4 most common innovation risks and ways you can tackle them effectively:
1. Financial Risks
It is a no-brainer that improving an existing product or developing a new product or service demands funds. Like any other investment, this fund too is a risk because nobody can guarantee a successful outcome. Suppose you allot the budget for developing a new product only to realize later that the cost of innovation exceeds your estimation. Now, you might discover this midway, while the product is still in the making. In that case, you can still drop the project. However, if you decide to carry on and launch the product, chances are you will not earn your projected return on investment (ROI). Either way, your business might suffer a huge loss.
How do you avoid these financial risks? Always evaluate your firm’s financial capability before allotting a budget for product development. Sit with your Research and Development (R&D) team and the financial department to decide on the budget for the project. At the same time, think through the project requirements to anticipate the financial risks associated with it.
Another preventive measure is deploying a joint venture model. In this case, you can leverage your business partner’s resources. This can mean both – to have an extra shoulder that bears the load of the financial risks or bring in a partner that already has the technical know-how. These strategies support your innovation efforts so you don’t have to drop projects!
2. Risk of Imitation
Competitors that imitate products or services are one of the significant innovation risks that keep Innovation Managers on their toes. The simplest example of this is Snapchat and Instagram stories. The former had introduced a feature in 2011 that deletes photos and videos shared by its users after 24 hours. Five years later, in 2016, Instagram launched its own version of the same feature. Soon after, Snapchat’s stock prices started falling and its revenue decreased significantly.
Don’t you dream of a market in which you beat your competition for good? Same here. But this can only stay a dream. So, let’s come back to reality where we have to thrive to stay ahead. You can reduce the risk of imitation by building certain barriers. For example, patenting your product safeguards it for quite a while. It might be temporary but is long enough for your rivals to lose interest in imitating your product. But well, patents often cost a fortune. The alternative is to let them imitate you while you make sure to establish firm brand loyalty by offering a superior product or service. So, even if other companies provide a similar product or service, the majority of consumers won’t consider them as they won’t be able to match up to your quality.
3. Reputational Risks
In today’s competitive market, reputation is everything. Once stained, it takes a lot to re-establish the same trust among consumers. Innovation is great, but it can, at times, backfire, and give rise to reputational risks. Just think of the Galaxy Fold that failed to impress its consumers on the first try. Was the Galaxy Fold innovative? A big yes! It brought to market a fusion of smartphones and tablets. But did consumers need this innovation? Not really. Moreover, the Fold was so expensive that one could actually buy a smartphone and a tablet separately with that money and enjoy premium experiences from both.
What is the takeaway here? To avoid reputational risks you should be very mindful in the product development process. Leave no stones unturned. Perform quality checks until you are absolutely sure that the product has no defects and is ready to be launched. And, more importantly, conduct a thorough market analysis to figure out what exactly your consumers want and what main pain points you need to solve.
4. Operational Risks
Enthusiastic to bring about game-changing innovation within your company? That is great! But do you have the infrastructure to support the same? Will your employees be comfortable with the changes you are about to introduce? Businesses often ignore these factors, which leads to increased operational risks. So, the first thing you need to do is analyze your company’s Learning and Development strategy, or develop the same if you do not have one already.
Conduct professional training as well as create a safe space where your employees feel free to share their creative ideas. In addition to that, you need to take advantage of appropriate software tools to save time and increase efficiency. For instance, if you work in the banking and financial industry and decide to digitize your processes, you need to deploy cybersecurity solutions to ensure that your consumers’ data is safe online.
Did we miss any other important innovation risks you have faced and think that they should be on this list? Get in touch & let us know!