In today’s dog eat dog competitive environment, businesses are flooding the market with new products and services in an attempt to create and capture customer value. Businesses rely on technology and innovation to gain competitive advantage, without which they will miss the bus. Be it external transactions like electronic fund transfer, placing e-orders to suppliers, enhancing customer relationship or internal process improvements, resource planning, cost cutting and knowledge management and a host of other business processes, technology has altered the rules of the game. Growth in top-line is effected by both product and process innovation whereas bottom-line is increased by process innovation. And this works the same way for firms in all industries.
Needless to say, risk is inherent in any activity. Technology in many ways is helping firms to reduce risk in otherwise more risky business activities. For e.g. Robots are employed to execute activities that humans cannot perform safely. Though the risk of failure of a robot cannot be ruled out, proper design could ensure absolute safety. Overall, technology helps the firms to carry out their whole range of activities effectively.
Innovation risk: Interestingly, the level of uncertainty is uncertain in the case of innovation! According to Niall Fitzgerald, Ex-chairman, Unilever, “Zero Risk = Zero Innovation”. All innovations smack of ‘innovation risk’. An example of potential innovation risk in today’s business context is space tourism which would have remained an untapped business opportunity if not for technology, innovation and little risk taking. "We need an environment that allows and rewards risk in innovation. The X PRIZE is about allowing people to think out of the box, pursue crazy ideas and have a little bit of risk taking," says Peter Diamandis, chairman, president and founder of the X PRIZE, a $10 million purse to jump-start the space tourism industry through competition between teams of entrepreneurs and rocket experts around the world.
Innovation is inevitable. Risk is manageable. In most case, risk stems from inappropriate usage! Let us understand the importance of innovation and the risk involved, with few examples:
Medicine: Innovation in the field of medicine has gone a long way in offering superior health solutions. Many life saving drugs and better diagnostic systems have saved millions thus far. Cloning is deemed to be the next big thing in the business of medicine. Partial understanding about the innovation forces people to arrive at biased, quick conclusions. This scientific advancement could have enormous benefits for humans by enabling organ replacement which could save many valuable lives. Being overly sceptical and hyping the potential medical risk simply discourages further innovation.
Finance: Microfinance is a form of financial innovation that has illuminated the lives of millions of rural population. In the words of Jonathan Morduch, "Microfinance stands as one of the most promising and cost-effective tools in the fight against global poverty." The system is designed such that the credit risk of small loans repayment is nothing but zero. This illustrates risk free innovation is possible.
The field of finance has witnessed many other innovations over the past few decades. Products like mutual funds are for common men who have limited understanding of the financial markets. Complex products like derivatives, exchange traded funds and risk transfer instruments are no child’s play. These instruments were designed for knowledgeable players in the market. Against this background, the case of sub-prime crisis is often misunderstood. Financial innovation in the form of CDO and CDS instruments is beneficial for banks as they securitize risky loans and sell them to investors who are willing to stomach such risks. Now whom shall we blame for the global financial crisis? Definitely not the financial innovation per se, but the misuse of the instruments! Despite being aware of the inherent risks, investors willingly hold such risky portfolios for want of higher returns. Once the borrowers defaulted and housing prices declined, the financial institutions had to collapse.
As life gets complex everyday, technology helps to simplify things for us. Agriculture and allied businesses are greatly benefited by computers that solve sophisticated mathematical models to predict monsoon quantity and timing. Clean energy from nuclear sources and other non-conventional sources is not possible without innovation. The list of innovation in business is endless and it touches all aspects of our lives.
Needless to say, risk is inherent in any activity. Technology in many ways is helping firms to reduce risk in otherwise more risky business activities. For e.g. Robots are employed to execute activities that humans cannot perform safely. Though the risk of failure of a robot cannot be ruled out, proper design could ensure absolute safety. Overall, technology helps the firms to carry out their whole range of activities effectively.
Innovation risk: Interestingly, the level of uncertainty is uncertain in the case of innovation! According to Niall Fitzgerald, Ex-chairman, Unilever, “Zero Risk = Zero Innovation”. All innovations smack of ‘innovation risk’. An example of potential innovation risk in today’s business context is space tourism which would have remained an untapped business opportunity if not for technology, innovation and little risk taking. "We need an environment that allows and rewards risk in innovation. The X PRIZE is about allowing people to think out of the box, pursue crazy ideas and have a little bit of risk taking," says Peter Diamandis, chairman, president and founder of the X PRIZE, a $10 million purse to jump-start the space tourism industry through competition between teams of entrepreneurs and rocket experts around the world.
Innovation is inevitable. Risk is manageable. In most case, risk stems from inappropriate usage! Let us understand the importance of innovation and the risk involved, with few examples:
Medicine: Innovation in the field of medicine has gone a long way in offering superior health solutions. Many life saving drugs and better diagnostic systems have saved millions thus far. Cloning is deemed to be the next big thing in the business of medicine. Partial understanding about the innovation forces people to arrive at biased, quick conclusions. This scientific advancement could have enormous benefits for humans by enabling organ replacement which could save many valuable lives. Being overly sceptical and hyping the potential medical risk simply discourages further innovation.
Finance: Microfinance is a form of financial innovation that has illuminated the lives of millions of rural population. In the words of Jonathan Morduch, "Microfinance stands as one of the most promising and cost-effective tools in the fight against global poverty." The system is designed such that the credit risk of small loans repayment is nothing but zero. This illustrates risk free innovation is possible.
The field of finance has witnessed many other innovations over the past few decades. Products like mutual funds are for common men who have limited understanding of the financial markets. Complex products like derivatives, exchange traded funds and risk transfer instruments are no child’s play. These instruments were designed for knowledgeable players in the market. Against this background, the case of sub-prime crisis is often misunderstood. Financial innovation in the form of CDO and CDS instruments is beneficial for banks as they securitize risky loans and sell them to investors who are willing to stomach such risks. Now whom shall we blame for the global financial crisis? Definitely not the financial innovation per se, but the misuse of the instruments! Despite being aware of the inherent risks, investors willingly hold such risky portfolios for want of higher returns. Once the borrowers defaulted and housing prices declined, the financial institutions had to collapse.
As life gets complex everyday, technology helps to simplify things for us. Agriculture and allied businesses are greatly benefited by computers that solve sophisticated mathematical models to predict monsoon quantity and timing. Clean energy from nuclear sources and other non-conventional sources is not possible without innovation. The list of innovation in business is endless and it touches all aspects of our lives.
In sum, innovation and technology have transformed the way businesses operate and what they offer to consumers. Many of the innovations are considered risky only in hindsight after somebody has already misused. Some other innovations are deemed risky purely because of the fear of misuse in future. Thorough understanding of innovation by all stakeholders and sensible usage can obviate risk and do full justice to the purpose of the innovation. Let us not over emphasise risk and thereby stifle innovation and technological advancements that are in many ways helping the businesses to improve our standard of living! After all, “Just as energy is the basis of life itself, and ideas the source of innovation, so is innovation the vital spark of all human change, improvement and progress” – Ted Levitt.
