From innovation risk to innovation reward
Executives see the potential of new disruptive technologies – from cloud to AI – but are so worried about making mistakes that they hesitate and drag their heels before taking action. Meanwhile, their bolder rivals are free to secure a competitive advantage.
Any hesitancy represents an urgent challenge if the business is to achieve its objectives and not get left behind. KPMG’s research reveals that three in four CEOs want their organization to be the disruptor, not the disrupted, in its sector – and many are increasingly impatient for success.
Nervousness about innovation is completely understandable; in many respects, it’s the logical response. As disruptive technologies come on stream, it is extremely difficult to know where to invest. Today’s big thing quickly becomes tomorrow’s big disappointment. In turn, businesses struggle to fund innovation consistently, knowing that failure is part of success and that return on investment may take time to come through. Crucially, many lack the skills to pursue technology opportunities and are in competition with rivals to recruit the talent they need.
Businesses also face external issues, which further puts the brakes on new initiatives. For many, regulation is a stumbling block as governments get to grips with a fast-changing economy. At the same time, brand equity is easy to lose in a world where social media amplifies any mistakes in product and service development. And, with the adoption of any new technology, cyber security is an ongoing concern.
There is, however, a way to bridge nervousness and opportunity. In our view, the key is to build a governance framework that enables the organization to embrace emerging technologies while managing the challenges that arise. Using this framework, businesses can empower individual units to make their own decisions around emerging technology, supporting an enterprise-wide culture of innovation.
There is no one-size-fits all framework for innovation governance, but it may help to think in terms of three key pillars.
1. Making innovation part of a strategic continuum
Emerging technologies should not be looked at in isolation, but as individual parts of a wider strategy. The question is not “what cool new things can these tools do in my function?” but “what cool new things can these tools do for the business?”
Thinking in this way will help organizations become better prepared for impact and ongoing change. It makes sense, for example, to use a common portfolio to track business-as-usual investments and innovation, rather than treating these pursuits separately. An enterprise-wide model will also help organizations pursue the technology opportunities best suited to their priorities, while resisting the temptation to invest in every new idea.
2. Defining and agreeing on the appetite for risk
Innovation risk is an important part of enterprise risk, so shouldn’t be treated separately. By defining the organization’s appetite and tolerance for risk at an executive level, with directors taking advice from technology advisers, it is possible to manage innovation risk as systematically as any other threat. Innovation risk soon becomes more manageable, and therefore less daunting.
3. Funding for success
Successful innovation requires capital funding, but new and unproven ideas often struggle to secure financial support from organizations that allocate resources in a conventional fashion.
Data from the Harvey Nash/KPMG CIO survey shows organizations spend, on average, just 4% to 6% of their IT budgets on technology-based research and development. With this in mind, businesses could consider setting up a separate fund – perhaps from CEO’s discretionary budget, or annually funded by the executive committee – for investment in innovation so that ground-breaking new ideas don’t have to compete on an uneven playing field.
While organizations inevitably want to retain some control over how technology is deployed, a model based on guardrails – boundaries which are built in to prevent disaster – could work more effectively. Guardrails provide a flexible framework for technology adoption and usage, while still setting basic parameters. An organization’s guardrail on smartphones, for example, might be employees can use their smartphones to access the corporate network, but only on the stipulation that it supports enterprise management.
Governing for successful innovation requires significant effort and executive engagement, as well as a willingness in IT to work with the rest of the business to facilitate greater self-sufficiency. But the hard work is worth it – with an emerging technology framework in place, and an enterprise-wide culture shift on technology adoption, the fear factor can be overcome.
1 Disrupt and grow, 2017 CEO Outlook Survey, KPMG International, 2017.
1 Harvey Nash/KPMG CIO Survey, KPMG International, 2017.