Why Innovation Risk Is Different

John Spacey, updated on December 16, 2016

Innovation is an approach to change that seeks revolution over improvement. Businesses that innovate are able to leapfrog the competition by creating designs, technologies, processes, capabilities and experiences that are an order of magnitude better than the current state of the art.

Innovation typically requires an elevated level of risk taking as it's hardly possible to revolutionize an industry by thinking conservatively. As such, innovation risk is considered a special category of risk whereby a business expects regular failures as it tries many things to see what works.

High Probability, Low Impact

Early stage innovation risks are unique in that they are usually high probability, low impact. Early stage innovation involves experiments that are essentially expected to fail. At this stage, risk management is focused on the design of experiments to fail cheaply and safely. This is typically a lightweight process that involves reviewing an experiment for risks related to budget, reputation, business disruptions, safety, health and the environment.

Low Probability, High Impact

As innovation progresses towards launch, risks may shift towards low probability, high impact risks that require standard risk management due diligence. If you're launching a product that's truly an order of magnitude better than the state of the art there are usually risks that it will be rejected by the market, experience operational failures or cause impacts such as environmental damage. As such, innovation risk management is particularly intensive and may be centered around the precautionary principle.

Overview: Innovation Risk
Type	Business Risk
Definition	Risk associated with attempts to produce a revolutionary leap forward in a business or design.
Related Concepts	Fail Well Innovation Metrics Risk Innovation Risk Management Precautionary Principle Order Of Magnitude