Monday, 13 August 2012
Week 3 - Risks and Risk Management
After today's lecture you should have some understanding regarding the difference between risk and uncertainty. Risk being an insurable event and uncertainty being a so called 'Act of God'. Have a look at the following article and share what you think is the relationship between risk and innovation.
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I think that risk and innovation are directly related in that an increase in innovation leads to a decrease in risk, and vice versa. For example if your "innovativeness" drops, your risk (in this case of falling behind in the market) increases
ReplyDeleteRisk can be defined as the probability or threat of damage, injury, liability, loss or other negative occurrence caused by internal or external influences, which can be mitigated through preventative action. In a financial context, risk refers to the probability that the actual return on an investment will be lower than anticipated (i.e. lower than the expected return).
ReplyDeleteInnovation can be broadly defined as the process through which an idea or invention is converted into a useful good or service for which people are prepared to pay, with a unique need being satisfied from the good or service or in question, which is replicable at an economical cost.
The two are somewhat linked given that there is inherent risk in innovation. An innovation may, in fact, not be replicable at an economical cost and so, there is a probability that the actual return on an investment (financial capital utilised to research and develop the innovation in question) may be lower than the expected return – thereby indicating (financial) risk.
Furthermore, with any innovation, it may be defective (does not work optimally), either as a result of internal or external factors, and this would be indicative of a negative occurrence, which in severe cases may lead to the threat of damage, liability, injury or loss, and hence, would also be representative of risk.
Innovation is a fundamental aspect of most business, however is naturally more prevalent in businesses that rely on specialized products or services to obtain the market share needed to sustain business operations. Innovation in companies such as Facebook, Apple and Google is far more relevant as opposed to companies such as BP and Chevron, both of which find themselves in the World’s top 10 money making companies. This makes sense as innovation in the gas and oil industry does not need to be highly prioritised to ensure sustainability.
ReplyDeleteOn the other hand, innovation in companies such as Facebook, Apple and Google is at the forefront of ensuring sustainability. This is due to the ever changing market in which they compete, where the “next best thing” could either mean market dominance or market failure. In companies such as these, risk and innovation mean very different things as opposed to the meaning attached by companies in the gas and oil industry.
I believe the relationship between risk and innovation is therefore fully dependent on the nature of the business at hand and to what extent innovation is needed to ensure sustainability. It goes without saying Facebook, Apple and Google will employ far greater risks with regard to innovation as opposed to companies such as BP and Chevron. Innovation naturally carries a wide range of risks, from financial to social; however the need and possible reward may far out weight any such risks.
Careers are made based on the evaluation of risk, and how probable the options would be. A statistical approach would be to spread your investment and yield a safe return, or at least that is what the plan is. By studying past data, you can see a trend and try base your decisions on this. It is not a certainty but is an effective way in predicting what the future trend might be.
ReplyDeleteUncertainty deals with venturing into the realms of the unknown as there is no past data to go buy. By playing it safe and not taking the chance, a missed opportunity could occur as if you don’t invent something and advance a product, then inevitably somebody else will.
What a lot of those companies have in common is they took a risk despite the uncertainty and are reaping the rewards. Now it’s not to say you should make reckless decisions, instead educated leaps of faith in your product and idea by doing research into the market you are entering into could prove the most successful method.
I think that risk is the potential probability that a chosen action or activity whether it be by choice or not, will lead to a loss / undesirable outcome.
ReplyDeleteand innovation is the creation of better or more effective products, services, technologies, or ideas that are available to markets and society. it is different from invention as invention is the creation of a product.
FRSMIC011
Innovation is taking already exisitng products, services or techonolgies and improving it to make it better and more effecient for public and market use.
ReplyDeleteInnovation would inlove alot of thinking, soucring of information and creating improvments and changes to these products.
The changes will either be successful or not, and this is the risk that the company or entrepreneurs will have to take. Therefore we can say that innovation and risk are very closely related. Whenever there is an uncertainty about a new or altered product working or being profitable, there is risk invloved. Sometimes this risk can be calculated however the future is very unpredictable and they say it is 'the act of God'.
The ability to identify and prioritize and systematically eliminate risk is what drives innovation forward, therefore saying that risk leads innovators to new ideas and inventions. And if you think about it most new ventures arise from problem solving and i.e problem equals risk.
ReplyDeleteTreating risk management as a learning process can increase the rate at which innovation moves forward, from this we can see that innovation and risk almost cant exist without one another!
No company is perfect from birth and thus risk and problems play an integral part in helping it develop and to become more innovative.
There is risk associated with all decisions which have to be made. The severity of this risk is dependent upon the systems in place to control risk. Risk associated with uncertainty cannot be minimized however that risk which contains probability can be accounted for.
ReplyDeleteAs a business progresses so it grows and with that come more risks. Innovation is therefore a tool in order to keep the level of risk the same despite how large or intricate a company may become. It is necessary to innovate in order to minimize operational risk specifically, Operational risk could destroy a company should there be changes in consumer demand which was not accounted for through innovation
If business risk is defined as a potential loss or gain in revenue, then almost every innovation will require some level of risk in order to be realized. Traditionally, companies have to invest a certain about of capital into an idea in order to turn abstract innovation into concrete profit. By investing in that innovative idea, the company is taking a risk. However, in today's webcentric world, innovation is not that hard to come by - all you need is a good idea and some computer skills. Google, Facebook, Amazon: these three giants each started from a simple innovative idea that grew through its web interface into the mega-company that it is today. Yes, each of these companies required much more than just a website to reach that point, but each company would also be nothing if they didn't have their website.
ReplyDeleteAnother aspect to consider is the physical entity of the business. Internet-based companies do not need a brick-and-mortar store to start turning profits. There is minimal rent to be paid, offices are unneeded, the entire infrastructure of the business could theoretically center around someone's living room....or college dorm room for that matter.
Innovation in today's business world is not as risky as it used to be. Instead of putting all of your chips into one idea and trying to build up a physical company from scratch, you can instead push the idea digitally through the Internet to see its potential for success without betting a large sum of money upfront.
In my opinion, the only business (of the first 4) to have had a substantial amount of risk in their history is Apple. Apple Inc, or Apple Computer Inc as it was then known, started in the 70s when a few guys tried to sell a computer they (Steve Wozniak, specifically) had hand-built. They put their energy and money into this innovative idea and time tells the rest. Apple has continued to dominate the technosphere by constantly producing new, unimaginable devices with user-friendly designs and creative marketing strategies. Perhaps Apple is so successful because of the many innovative risks they have taken each time they release a new product. Who would have thought that the iPad, whose name originally invoked images of a female hygiene product, could become the market-changing device it is today?
http://www.nytimes.com/2012/07/07/technology/tech-companies-leave-phone-calls-behind.html?_r=1
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ReplyDeleteIf businesses take more risks, more innovation will happen. If risk is too simplistic, the chances of a business growing is small because sometimes you need to take on risky ventures to gain big profits. Risk therefore present opportunities for success.
ReplyDeleteRisk and innovation somehow compliment each other, for example, if you want to stand out of a crowd you're going to take risks and by standing out you need to create new ideas that will grasp people's attention. Innovation therefore refers to the creation of new ideas that succeed by taking the risk to disclose them.
Innovation and rick seem to go hand in hand. It could be said that if there is no risk involved, you are not really being innovative; you are merely copying or tweaking what already exist to a small extent.
ReplyDeleteInnovation and risk seem to have a positive relationship, as innovation becomes more extreme, so does risk, but linked to risk is reward. As innovations become bigger, so does the chance of failure, but then again so does the chance of brilliance, as seen with Apple.
If you take the biggest risk to stride far ahead with your innovation, you could fall horribly or you can excel, and if you do so, others are forced to follow. Others might have taken a risk with their innovation, but if they have not risked enough, they will be forced to follow, and in that case their risk might have not paid off.
But one must realise, that risk is often thought of as taking a wild leap, when in fact risk is often calculated. Even though a calculated risk may not be as great, or pay off as well as a wild risk, the innovation may be more likely to have a successful future.
As seen with these top 4 companies, they are all being extremely innovative and taking risks, which all seem to pay off, some more than others, but you have to keep in mind these are calculated risks. I personally would think that a wild risk is most likely to be the best of the bunch, if it pays off, but these 4 companies seem to prove the opposite and the most calculated risk seems to be the most innovative.
The dictionary definition in innovation is (n), something new or different introduced. This means that the product being introduced for the first time might not have a market or a need. It therefore carries risk of failure. Thus the relationship between risk and innovation is very much interlinked. There is no certainty that a new product will do well in the market and so by investing in it, a risk is taken on.
ReplyDeleteI would define risk as an unfavourable outcome of a project being undertaken by a firm or an individual. This may have a high or low probability of happening.
ReplyDeleteInnovation would be the idea before the implementation. Therefore I believe that innovation comes with it a higher degree of risk than a tried and tested idea e.g. a franchise.
I think that with any new venture there is a certain degree of risk and even more so if that venture or product is an innovative idea that the market hasn't seen before. But with risk comes reward, look at Facebook and apple, both introduced a product that was already on the market in an innovative and unique way and are now both ranked as the worlds top innovative companies, showing that there is a huge reward should you get it right. Saying that, they also stood the risk of not being accepted in the market because people may not have seen the need for using Facebook when they had myspace or using an iPod when they had a walkman. Hence innovative idea's do stand a greater risk of not succeeding because the product or service is something that people are not used to, but should they succeed they stand a chance of being world renowned.
ReplyDeleteNeedless to say, all possible ideas-particularly innovative ones are associated with the risk however I think the riskiness of a certain innovation is the limitation to the innovation. In other words, the risk of failing is what keeps the innovation to an even level.
ReplyDeleteIn the given article and with particular reference to Facebook, if someone was to come up with (theoretically) a better deign and functionality for Facebook and hypothetically was able to implement that idea, there is no doubt that there would be criticisms as to why it changed. However, it could give rise to a number of different possibilities such as different privacy settings, accessibility, timing etc.
Therefore, innovation is limited by the risk of failing. Ultimately, risk management becomes essential in determining the outcome and rewards of taking risks and the severity of those risks.
Innovation and risk management have to be seen as interrelated. This is because risk management is the accelerator to innovation. However there risk management is not a preventative measure but rather a learning process. In which the ability to identify and eliminate or reduce risk drives innovation forward. In the ability to find what may cause failure to a new venture one can foresee future defaults and hence improve the product or service in a manner in which one would have been previously bind to.
ReplyDeleteThe relationship between innovation and risk is closely intertwined. In innovation there is opportunity, and opportunity rarely presents itself without threats or risk. This means that good risk management an d innovation are polar opposites and that if you have one you will not have the other. This view holds that taking risk management seriously means not being innovative because inherent in innovation are the risks and uncertainties associated with new ideas.
ReplyDeleteRisk refers to those ideas one is willing to take, knowing there may be serious costs, however it is also the willingness to take steps in a forward direction, as the benefits usually associated with risk are great. The higher the risk, the greater the benefit. Without Risk, where would innovation come from?
ReplyDeleteUpon saying this, innovation is the advancement of new ideas as well as attempting to create the "forbidden fruits", in other words, innovation is looking at the future, identifying specific needs, and coming up with ideas and ways to fulfill those needs.
Therfore innovation and risk are very closely linked, as new innovation often involves taking new risks.
The definition of innovation involves the process of something new or different being created. This therefore is directly related to some sort of risk as the target market and customers of this new product are unaware of the benefits. This means that the producer has to create a problem in their minds with his innovative solution to solve it. The risk is whether people preceive your idea to be a problemm or not and whether they need your product to solve it.
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ReplyDeleteRisk is the probability of loss or other negative occurrence that is caused by external or internal factors that are possible to control through preventative strategies. In financial terms it is the probability that an actual return will be less than the expected return.
ReplyDeleteInnovation is the process of creating an idea in which it is transformed into something which customers are willing to pay for.
Risk and Innovation are closely linked as most innovations carry risk due to it having a chance of success. A chance of success means huge profits and with profit there is always a foregoing expense which is the risk factor. Risk management is a precautionary strategy to try and reduce the amount of risk but will never eliminate risk.
There seems to be a general consenus that there is a direct relationship between risk and innovation. However, innovation would not be possible were there no level of risk involved. Innovation is therefore a product of putting risk to good use. Risk involves the possibility of failure and in terms of business, this failure could mean the loss of millions for companies. That is where the art of innovation comes in.
ReplyDeleteIf one has an idea good enough to outweigh the possibility of failure, and if the idea is put into practice in a strategic enough way, we are then minimizing the risk, but risk will always be there in some form.
The innovator embraces risk
Risk and innovation are in my view quite closely related as there is obviously an element of risk in any form of innovation due to the nature of the business world. The risk element of innovation is however reduced through proper and well planned processes regarding decision-making by the team that controls innovation. The issue is that for a company or business to have any growth there needs to be innovation and thus there is always the element of risk involved, thus the notion of risk for reward is very much true in this sense.
ReplyDeleteFrom the article I it is clear that risk and innovation are indirectly linked. Obviously with a new produced, where a large amount of innovation has contributed to its developing, the risk of such product would be sufficiently less. Alternatively this idea can be approached by looking at it the other way round, where the more risks a company does take there greater the chance there would be for more innovation and success of an idea, but on the other hand with greater risks comes greater volatility between success and failure.
ReplyDeleteInnovation is the ability to manufacture or create something which has never been needed or used before. Having said this, there is a degree of risk involved in creating something which has previously never been demanded. The amount of risk involved in an innovative idea does vary between one idea to another.
ReplyDeleteThere are a few factors which need to be considered when calculating the risk of an innovative idea. If the risk involved can be minimized as far as possible (Insurance, safety procedures etc) then the probability of your innovative idea working out is slightly better.
You gotta risk it to get the biscuit.
I feel that with any new business venture there is always risk attached, even risk that may harm a persons reputation. If a enterprise where to create an innovative product and launch this product into the market, all the energy, efforts and financials of the firm that went into making the product is considered risk. The risk comes in many different forms, but in a nutshell it is the potential that a chosen action or activity will lead to a loss. For example, Mark Zuckerberg's Facebook would have been considered a business venture with minimal risk attached, as the amount of capital & efforts (given he developed the website in a couple of weeks)needed to start the business was minimal. Yet, because his idea was so innovative and well timed, it evolved into a multi-billion dollar company. This just proves that the risk does not have to be great, in order to make a substantial return, but there needs to be a high degree of innovation.
ReplyDeleteThe relationship may be seen in that innovation acts as a small protective layer against risk. As long as one is being innovative and creating and designing new and unseen products or services, the primary risk of competition decreases considerably. But a whole new form of risk arises with regard to possible success or failure rates, hitting the market at the right time, or being able to sustain your new innovative product. So with pretty much everything, there will always be a risk factor attached and even more so when one pioneers in new territory, but with regard to the market place and having performed the right amount of research and background, being innovative may also be the one trait that retrieves a business from market risk.
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