Since the dawn of time, human beings have had to evolve coping mechanism to survive and live comfortably as the environment changes. From the discovery of fire to the invention of the telephone, innovation has always been an essential part of human development.
These days, we find ourselves in a world where technology is at the heart of enabling businesses to evolve and maintain a commercial advantage. The rise of technologies has had a significant impact on the way companies operate, with a clear focus on improved business outcomes.
Digital technologies have become so integral to business models and core processes that no enterprise can ignore them and remain competitive. Organisations are now faced with the extra responsibility of channelling their creative juices to come up with cutting-edge innovations, lest they fall behind. But for innovation to deliver the best results, it must go hand in hand with risk management.
According to the Oslo Manual, innovation can be described as a new or improved product or process (or a combination thereof) that differs significantly from previous products or processes, and that has been made available to potential users or brought into use by the unit. Putting the word risk management and innovation together may sound like an oxymoron because of their natures.
In reality, the two can work together in achieving great results for an organisation. Risk management can help foster an organisation’s innovation agenda by revealing blind spots and areas of underinvestment that threaten the achievement of both Strategic and Operational objectives.
In order to manage the risks involved in innovation, a risk manager must first assume an advisory role. As risk practitioners, it is necessary to act in an advisory role in assessing innovation strategies. It is important that we facilitate innovation strategic/operational risk assessments. We should be able to advise our organisations on the need for a well laid out strategy even as we are innovating and moving forward as a business.
It is also necessary that we ensure that our strategy is aligned. Although other companies in the same industry might adopt a particular strategy, it does not mean that we have to follow suit. We must ensure that our selected strategy is aligned with what we want to achieve as an organisation. We also need to facilitate risk workshops with other members of the company in order to assess the possible risks and decide how to manage it from a strategic and operational perspective.
Secondly, risk managers should be involved at the early stage and throughout the innovation cycle. From the conception of the idea to when it is being developed or being commercialised, the risk function must be involved in the entire process. In some organisations, it is only when things are going wrong that they involve risk managers.
This is counterproductive because it is better to avoid the risk rather than solve the problem when it arises. Risk managers must therefore inject themselves and be completely involved in the entire innovation process. It is necessary to have strategic discussions throughout and provide options and advise on the risk consequences of the various actions that may be taken.
An equally critical point that risk managers need to consider is adjusting their risk appetites to reflect the evolving risks that confront their organisations. Risk appetite can be described as how much risk an organisation is ready or willing to bear when deciding on a particular course of action.
In managing the risk involved in innovations, it is necessary to adjust risk appetite and tolerances to align with strategic objectives. It is necessary to monitor and check your risk appetite for particular innovation projects and ensure that you are acting in a way that is absolutely necessary for the overall objective of the project.
In some cases, you may need to have a high appetite, while in other cases, a low appetite will do. It is necessary to carefully assess the situation and make sure that whichever risk you chose to bear, you will be able to deal with it thoroughly, and that the business will not be dealt a huge blow.
It is also important that risk managers are equipped with the expertise and tools to assess innovation-related risks. While discussing the need to be involved in the innovation cycle, it comes along with being up to date with the needed skill-set and having the necessary tools needed to handle the possible risks involved in understanding strategic implications of innovation initiatives.
For instance, a company that begins to make use of RPA (Robotic Process Automation) will need internal auditors to raise their skill level to effectively audit such innovation. The company will only be putting itself in a position of weakness if staff don’t have the ability to understand how to audit. Read wide, take a course, or do whatever is necessary to ensure that you have the requisite skill needed to understand and assess the risks involved with the particular project your company is undertaking.
With Globalisation and the relentless pace of technological change, the message is very clear – innovate or die! But with innovation comes risks; and the bigger the innovation, the higher the risks.
Therefore, organisations must recognise this risk, and intentionally establish structures to align innovation with strategic objectives, coupled with processes to govern the innovation cycle. Organisations must view innovation and risk as a two-edged sword, clearing the way for greater opportunity and increased revenue growth with eyes wide open about the all-but-certain and unimaginable risk.
>>>the writer is Head, Internal Control, Stanbic Bank Ghana
