Innovation is a Risky Process

They had to contain and the cost of these hi-tech bricks was a staggering $3000! Call charges were similarly highly priced. Despite the incredible technological achievements which this represented the take up of the system never happened and in 1999 the company filed Bankruptcy. Its problems were not over – the cost of maintaining safely in orbit was around $2 m per month. Motorola who had to assume the responsibility had hoped that other telecom firms might take advantage of these satellites but after no internet was shown they had to look at further price tag of $50 m to bring them out of orbit destroy them safely! Even then the plans to allow them to drift out of orbit and burn up in the atmosphere were criticized by NASA for the risk they might pose in starting a nuclear war, since any pieces which fell to earth would be large enough to trigger Russian anti-missile defenses since they might appear not as satellite chunks but Moscow bound missiles!

A survey of 14000 organizations purchasing computer software carried out of the UK Department of Trade and Industry suggested that between 80 and 90% of projects failed to meet their performance goals, around 80% were delivered late and over budget around 40% failed or were abandoned and only 10-20% fully met their success criteria.

Whilst the internet seemed as a seedbed for an enormous numbers of new ventures the experience of the dot.coms has not been all rosy. Some firms like Amazon and Yahoo! saw their share prices surge upwards on initial flotation but for them and many others the bubble burst. New players were ill equipped to survive and only a handful of the original start ups remain but even large and established players were hit hard. For example the giant telecommunications player BT lost 60% of its market value, whilst Marconi eventually went under.

Of course not all failures are as dramatic or as complete as these, for most organizations the pattern is one of partial success but with problems. For example studies of product innovation consistently point to a high level of failure between initial idea and having a successful product in the market place. Actual figures range from 30% to as high as 95% an accepted average is 38%. But this shouldn’t surprise us after all innovation is by its nature a risky business and like omelettes eventual success will involve broken eggs. And we need to remember that there is a great deal of uncertainty in innovation made up of technical market, social political and other factors, with the result that the odds are not too good for success unless the process is managed carefully. Even the best managed firms still make mistakes — for example the success story of 3M’s Post it notes is actually a somewhat chequered history where the innovation might have failed at several points. And as Perez points out, the pattern of riding on technology driven bubbles which eventually burst with dramatic consequences is not a new one.

The key point is to ensure that experiments are well designed and controlled so as to minimize the incidence of failure and to ensure that where it does occur lessons are learned to avoid falling into the same trap in the future.

Faced with what is clearly a risky and uncertain process many organizations could be forgiven for deciding not to innovate, through the possible rewards are attractive. However, that approach of doing nothing is rarely an option especially in turbulent and rapidly changing sectors of the economy. In essence unless organizations are prepared to renew their products and process on a continuing basis, their survival chances are seriously threatened.