Opportunity and Innovation

Episode: 019
Date: Tue 05 Oct 2021
Title:               Opportunity and Innovation

What is the “upside” of risk? Does ERM manage opportunity meaningfully? The whole thing leads to… innovation.

Opportunity, as conceived of in ERM discourse, is discussed. Then we improve upon this by presenting the notion of a structured program for innovation.

Main points
1. Opportunity – origin of the idea in ERM
2. Opportunity – how can we make sense of the idea?
3. Opportunity – as innovation
4. Innovation
  a. an established discipline
  b. within the grasp of the risk manager; an expanded role
5. Innovation – Free Online Introductory Course
6. Innovation – Paid Course
7. Innovation for Risk Managers – accredited course through RIMS

1. Opportunity is yet another term form the world of finance that requires interpretation for meaningful application in Enterprise Risk Management.
2. Managing opportunity must, in the end, resolve to a structured search and development; i.e., innovation.
3. Innovation courses Edward has online:
– one free introductory;
– a second, paid and in-depth
– a third, accredited for RIMS Fellow designation, by Riosk & Insurance Management Society, New York.

”…risk managers can borrow from the practice of innovation and use a structured method to seek out, evaluate, greenhouse and develop new ideas” (Robertson 2016 p.112)

(E. Robertson 2016) Solving the Enterprise Risk Management Puzzle: Secrets to Successful Implementation

DISCUSSION OF TECHNOLOGY IMPLEMENTATION – 3-part discussion, LinkedIn audio posts
innovation – successful tech implementation

Innovation – free introductory course
Innovation – paid course
Innovation for Risk Managers – accredited course


[edited for clarity]
This is Ep 19 Opportunity and Innovation.

Today we’ll discuss opportunity, as it was conceived in the earlier stages of ERM discourse. We’ll try to make sense of it as a real practice, and this will quickly lead us to a discussion of innovation, which is where I feel the whole concept really leads us.

So to begin, you might see in ERM discourse still, in various publications by accounting firms or from government sources, or from other institutions, that somehow, within enterprise risk management, we have to manage the upside of risk; we have to manage opportunity. When this was first being promulgated, it wasn’t really explained what was meant. So, speculating on the origin of this term, it seems to me to be yet another bit of vocabulary that comes from the world of financial management, that means something within financial management and investment. But when it’s translated to the world of enterprise risk management, we have to interpret it and apply it somehow — and that’s rarely if ever explained.

This we encountered with risk appetite and risk tolerance and now the same thing with the “upside” of risk and opportunity. So fairly obviously, in the world of finance, if you invest in a risky stock, something that is highly volatile, the risk of loss is considerable, and at the same time the risk of a great gain is also considerable. Therefore there’s so-called “upside” to the risk.  

Shifting over to the idea of opportunity: how is opportunity encountered? Well, if you’re conducting risk assessment on a given program or project, and you identify some uncertainty that could lead to an unfavourable result, but then in the same discussion, identify some advantage that might flow from that same occurrence in the future, then this presumably is the upside of a risk — something that has to be seized and developed.  

What that means is, you cannot take the item that represents an opportunity and enter it into the risk register. That would be nonsensical, because the risks are all oriented in such a way as to identify uncertainty and negative outcomes for the project, whereas the opportunity — the idea of a new thing to be developed — has to be taken off line, and managed as a separate project, entirely divorced from the risk ID exercise. Then it will have to be reconciled with whatever planning you might have done.

[03:31] So there we see that the idea of opportunity is quite problematic when it comes to incorporating it into the world of identifying uncertainty in administrative programs, simply because the ideas of opportunity are going come up only at random, in a sort of a haphazard way, not in any predictable or regular way. Secondly, because as I mentioned you’re going to have to incorporate [it with planning]… if that idea for opportunity is indeed seized upon and developed, it’s going to have to be reconciled with all the previous planning.

In conclusion: if we’re not investing in a stock on the publicly traded stock market, and if we’re not content with the idea of simply encountering opportunity as a haphazard possibility for gain (that was really discovered just by chance, by virtue of the fact that someone identified a risk that happens to include in it a potential gain, then the question arises: how are we going to manage opportunity? The only answer that makes sense to me is to actively seek for opportunity in a dedicated exercise, and then develop the ideas from there — and that is is simply another name for innovation.  

[04:46] This problem bothered me sufficiently several years ago, and I was asked about it in workshops time and again to such an extent, that I decided to go back to the drawing board and research opportunity. As I say, it led me to the idea of innovation, and I ended up building an online course with Risk & Insurance Management Society. Since that time, I’ve put up 2 other online offerings, one of them free, and I’ll give a description of these courses a little bit later in this episode.

Well, if I’m correct in conceptualizing opportunity for enterprise risk management as leading us to the idea of innovation, then we see that, first of all, innovation is already an established field. It’s a vast field with a considerable history, training, literature, and its own, practices, concepts, terminology, and so on. I think all of this is entirely within the reach of risk managers, and also it really speaks to the idea of branching out.  

In other words, there’s been some discussion about having multiple roles or an expanded horizon for the risk manager. So the person (in this job role) is going to be involved in strategic discussions… in company management, and will therefore take on an expanded role, and no longer be restricted to a role of a subset within enterprise risk management — for example, health & safety, or claims, or managing the insurance portfolio, or something like that. No, it seems that risk managers are looked upon to actually participate in management from a strategic standpoint.  

This whole idea of managing opportunity through an innovation program really fulfils that expectation. 

So in considering the idea of managing opportunity, managing an innovation program, the risk manager will undoubtedly have a concern about his or her own personal creativity. But the essential point there is to realize that the risk manager is acting as a facilitator — someone who’s bringing together the right people around the table, and walking them through a structured process.  

Now of course there’s room for expanding our consciousness, expanding our capacities, and investigating personal creativity. But that is not the first requirement of the risk manager in managing innovation.  

Another common concern is that the risk manager simply doesn’t have the time to devote to a new activity. A lot can be said on this point, with regard to how companies can repurpose time to their advantage.  

The third main concern that I’ve seen come up is that people feel that they just don’t have the methods. That’s the value of the courses — because I’ve done the research, and distilled the methods so that they’re accessible.

[07:30] These basic points that are really the concern, commonly, of the risk manager considering innovation are the subject of the free innovation course that I created. It’s called Innovation: How Can My Organization Get Started?

When I did the initial research on innovation, I discerned a pattern in the outcomes that practitioners were getting, and so I thought I would set them out in a structured schema. That way you can consider, speculate or visualize what sort of results you might be after. 

The first level of benefit from innovation could be called compliance. In other words, you’re simply trying to make sure that your risk management [or some other] practice is in compliance to the regulatory framework, or the set of rules that you’ve got set up. 

The second level of benefit would be the active support of planned goals and objectives. You’re innovating some sort of practice that will support the goals and objectives you’ve already formulated. 

The third level of benefit could actually be a new source of income, some sort of value creation, through income streams, or a profit centre, or efficiencies.  

The fourth level of benefit that I saw practitioners getting was to actually reinvent the industry practice, by virtue of investigating something that was wrong — something was broken in their own field. They could start to create a solution that was of wider notoriety or benefit for the industry at large.

Finally there’s a level of benefit discernible as community or wider social change, and this description is fitting if the nature of the innovation is really of wider benefit for society at large, and not limited to just the industry.

So once you start going down this road, I think you’ll find that the possibilities… well, the two things: first of all, they’re much richer than you might have imagined; and secondly they’re much more accessible — discoverable and feasible — than you might have imagined.

[09:22] You probably remember in earlier discussions of risk assessment, how practitioners have sometimes gone down the wrong road by taking an informal or ad hoc approach to risk ID, and for that reason we looked at the idea of high quality risk assessment, which has more structure and expertise built into it.

Similarly with innovation, we don’t want to simply imagine that it’s getting around the table and having a brainstorm. Brainstorming has a specific function, and maybe that’s one of the tools — but we want to approach it with a little more sophistication. There’s many ways to do what they call ideation, in other words, to generate novel ideas. Then, you’ll have to assess the candidate projects along a few different dimensions. First of all, the strategic import or the potential profitability of a given idea; and then that balanced with the resources required to go into it, to develop it. Then, the level of uncertainty that is attached to the project, by virtue of the fact that it might require something rather new that has to be researched and developed.

[10:23] And that’s interesting point about innovation. It doesn’t necessarily imply that it’s something original — absolutely original and patentable, for example. It could simply be some sort of practice, product, or development, or arrangement, that is new to the organization.

Now that answers a question that might have been floating in the back of your mind, that is: does innovation necessarily imply new technology?

In the popular discourse on innovation, technology is featured very highly. That’s just the nature of the society we live in, and yet it’s really, first of all, unnecessary to introduce new technology to have it [the new project] qualify or even be beneficial as an innovation. The second point is that if you are going to use technology — and here I am speaking of course about computer technology and information technology, primarily, to constitute your new innovation program — then I have to issue a warning.

Technology implementations fail at a notoriously high rate, or they under-deliver, and they are [can be] hugely expensive. It seems that people are not learning the lessons in IT implementation that were actually solved many years ago. Not sure why that is! It simply doesn’t seem to be making its way into the body of knowledge for managers these days. I already have several posts on that score which I have up, and I’ll give a link to that in the show notes.

There’s also an extended discussion of the use of technology and innovation in two of the online courses that I’m referring to. 

[11:52] So I would say that, on balance, some of the work in innovation for the risk manager is going to be familiar, and some will be unfamiliar.  

If you’ve been following my method so far for planning and enterprise risk management, then you know that I like to focus on the strategic identity of the organization — to assess its internal assets, strengths, and so on, and use that as a basis for developing further plans. It’s the same thing with innovation.  

But what is unfamiliar to you, probably, are the techniques that have to do with creativity, ideation, developing new ideas, discovering sources of innovation, and really just understanding all the various ways that innovation is possible — both looking out to the world of the client or the customer, and then looking internally, to one’s processes.  

I encourage you to take a look at that, because so often our idea of innovation is restricted simply to new products and services, or technology — and those are not the only types of innovation that can be really beneficial!  

[12:52] I should mention, too, something about process. Quite similar to the processes of risk assessment and planning, the participatory exercises in innovation can be really beneficial for the company. They involve the input from people who don’t normally get heard from, who might have a whole wealth of knowledge and expertise that you can tap. At the same time, it builds a common spirit, a common drive. It makes people feel that they’re actually working as a team towards a common end.  

[13:22] One important idea in innovation, apart from being able to simply generate to candidate projects, is to know how to implement them: understanding what motivates people, and how to introduce novelty into the organization with the best chance of success. These principles of successful program implementation are so important to pay attention to, because of the high program failure rate in all domains.

 Finally I can say that there’s scarcely anything more rewarding as a risk manager than to lead a team to build innovative solutions that move the company forward. That is really, probably, the best experience that I’ve ever had as a risk manager.  

[13:59] The three online courses are:

1. Innovation – How Can My Organization Get Started? It’s an introductory course; it’s free. It should take probably about half an hour to get through. And it’s great for an introduction to basic concepts.

2. Innovation: How to Find the Right Projects and Make Them Work. As the title implies, it’s a full immersion into the whole methodology.

Now both of those courses include a component where I can be contacted personally and be involved.

3. Creating Value: Risk Manager as Innovator. This course I developed for Risk & Insurance Management Society. That’s for people who are interested particularly in getting accreditation towards their RIMS Fellow designation.

So I encourage you to take a look at these materials and consider how you can expand your role, and expand your horizons and get much more job satisfaction in your risk management career!

Remember, if you’re somewhat hesitant: we always approach a new management practice, like innovation, in a way that is gradual, incremental, and low-risk.




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