Acceptable Risk

You know the game “chicken”? That describes what it feels like as companies push for more growth and innovation in a time of increasing economic uncertainty. Today’s business landscape is like a volcanic field, with eruptions taking place left and right. Rising fuel and commodities costs have changed the equation for many businesses. The effects ripple from suppliers through layers of the value chain to businesses that might not initially have thought they were at risk.

This comes on top of the fact that many companies’ business models are shifting beneath the surface of digital change. New employees and customers have radically different expectations about what you should be doing for them. Business leaders who know things are changing, but don’t know exactly how or what or why, have higher-than-ever yet ill-defined expectations of IT.

And as I write this today, people are just trying to get their heads around what the crisis in the financial markets means for them.

One thing it means is that the pursuit of innovation not tempered by risk management is, well, risky. As Diana Farrell, director of the McKinsey Global Institute, writes in the October issue of the Harvard Business Review, “Clearly, risk management has lagged behind innovation in the financial system, and existing regulatory frameworks and institutions need to be updated to keep pace.”

But that doesn’t mean it’s time to retrench. Forrester founder and CEO George Colony spoke about “the brutal truths of chaos” at the recent Business & Technology Leadership Forum. CEOs he’s interviewed recently (including Mark Hurd and Steve Ballmer) are still pushing their organizations to embrace risk, he said, with their own success imperatives being things like, “embrace disruptions,” “engender risk taking” and “destroy bottlenecks that prevent innovation.” His advice to CIOs: Manage IT like an iceberg, with heavy standardization, reliability and lower costs beneath the waterline, but above the waterline, let it snow.

Managing innovation is the same as managing a financial portfolio, says Dave Olverson, a director of IT and blogger (TechyPundit.com). “No risk means no innovation. The trick is to embrace the risk and actively manage it because not doing so means stagnation.”

What are you doing to manage risk while still pushing innovation? Drop me a note; I’d love to know about it.