Manage Risk to Foster Innovation in IT

Some years ago, I was managing manufacturing and IT in a semiconductor company. The engineering department developed a prototype of a new product, so we set up space on the manufacturing floor to try it out. Unfortunately, the first prototype test didn't work out: It actually blew up!

We took this in stride and went back to the drawing board, understanding that R&D was an integral component in our highly competitive technology market. We knew that some ventures would just fail. At the same time, it wasn’t lost on me that if we had generated such a colossal innovative failure in IT, an internal cost center, rather than manufacturing, this risk would have been much less tolerated.

I’ve talked to other CIOs about innovation in IT. Do you stick with plain vanilla IT, or do you do something out of the box that could really become a business and IT breakthrough?

Playing it on the safe side, CIOs and IT leaders tend to build their budgets around proven solutions that a majority of the IT market has already invested in. These solutions are already well established, and the risk of a CFO or a CEO questioning such a budget decision is low.

This is a dependable strategy — but it falls short in certain situations, such as:

1. Your company wants a distinct competitive edge that technology enables in its industry.

Not every company was an early adopter of e-commerce, IoT, telemedicine or cloud. Yet, those that did adopt early gained a “first in” competitive advantage in their respective markets. and this benefited corporate performance.

The offset of this was risk.

Many e-commerce sites failed to work smoothly or to be properly secured in the early days. Teleconferencing applications like telemedicine often froze because of public internet bandwidth constraints. And many cloud providers were careless in areas such as governance and security.

Early adopter companies saw these risks but decided to proceed anyway because they realized the market upside.

2. You see a business process breakthrough.

Loan departments used to be clogged with applications. The bottleneck was usually a junior underwriter waiting for a senior-level supervisor/underwriter to sign off on a loan.

Then, some lending departments began to adopt automated loan decisioning software that approved loans based upon underwriting rules in software based on input from senior staff. A junior staffer could immediately make a decision on a customer, thanks to the software.

Customer service and goodwill improved, and underwriting efforts and process time were reduced.

3. You discover new ways of working together.

The IT software development life cycle over the years was a sequential “waterfall” execution of requirements definition, design, development, test, acceptance, and deployment. Often, the user didn’t see the end product until final test and deployment. This left room for many unpleasant surprises, such as when users realized that the finished product wasn’t anything like they thought it would be when they first defined it.

Now, innovative development concepts like agile and DevOps have users and IT working together from start to finish of an application. The move to DevOps and agile fosters closer and more continuous user/IT collaboration and reduces the risk of users being disappointed when the final product is released.

Risk Management for Innovation

Technology is innovation, and as the poet T.S. Elliott once said, “Only those who will risk going too far can possibly find out how far it is possible to go.”

IT leaders recognize this, so the trick is being able to foster a climate of innovation in IT while controlling the risks of innovation at the same time.

IT innovations are most likely to come in these areas:

• Systems programming and operations, where systems programmers are continuously devising new IT workflow techniques that shorten processing times and better manage resources

• Application development, where no-code and low-code applications are enabling users to create more “on the spot” IT, and where collaboration techniques like agile and DevOps are aligning IT and users in closer working relationships

• Internet of Things (IoT), where sensors and automation are transforming business operations

• IT leadership, which is being asked by management to be more assertive and impactive in the overall business, not just in IT

These innovations come without proven track records, so they’re risky. The job of IT management is to manage this risk so innovation can proceed in a manner that allows for failures as well as successes.

How do you do this?

Assess the corporate appetite for innovation. I’ve worked in companies with an appetite for risk-reward, and in organizations that are more conservative. I found that even a conservative company is willing to assume some risk if the promise of a reward is enticing enough.

The appetite for risk will vary with each innovation you propose, so the first step is to present the idea to upper management so you can get a “read” of how enthusiastic management is.

Trial any innovation first. Innovations should always be trialed in a “pilot” setting to see how well they work before they are more broadly deployed. IoT automation, for example, might first be trialed with a single product line before it is extended to more product lines.

In this way, if revisions are needed, or if you find that the innovation doesn’t work at all, you can easily dismantle it at a controlled level of risk.

Reward innovation, but also explain risk management. If IT is going to innovate, it also has to know that failure is a possible outcome that everyone accepts. This assures staff that management is behind them no matter what.

At the same time, management should let staff know what the parameters of experimentation (or risk tolerance) will be. An example of this is an artificial intelligence project. If you realistically feel that you should get dependable outcomes from a new AI system in six weeks, and the six-week mark arrives and you’re not even close, you should consider pulling the plug on the project and moving on to something else.

What to Read Next:

Why Hard Times Seem to Spur Technology Innovation

How Industry Convergence Is Driving Competition & Innovation

How Corporate Risk Management is Changing