In Business Articles
The articles below have all featured on the 'Innovation' page of The Oxford Times' monthly 'In Business' supplement, which is compiled by The Oxford Trust.
Risk in innovation - could there be a downside to success?
The risk of failing is easy to understand but what about risks associated with success? Terry Thomson from Oxford Risk contemplates the hazards associated with successful innovation.Innovation and risk are "joined at the hip. Zero risk. Zero innovation." said Niall FitzGerald, then Chairman of Unilever, when outlining a change of leadership strategy in 2003 to encourage risk taking and revive flagging brands and profits. A desire to counter risk spurs innovation. As air traffic increased the deployment of automatic landing systems allowed higher density with greater safety. Equally the process of innovation is risky, often in ways that at first seem counter intuitive. We assume a positive relationship between innovation and gain, at least for the successful, but gains are rarely shared proportionately, and gains for some may be losses for others. Innovation drives change and has much in common with Darwinian adaptation and evolution.
Innovation in direct selling, often via the Internet, has seen traditional intermediaries driven out of business. High street travel agents and insurance brokers are almost extinct. Whilst this may not bother most of us as we benefit from more competition and reduced distribution costs, even among consumers there are losers such as those who needed the human interaction to make an assured purchase. Supermarkets are keen to be seen as customer driven innovators, and it is arguable their efficiencies have led to lower prices, but they are also adept at transferring costs. We drive miles and suffer excess packaging because it suits their distribution and handling. And do we really benefit from convenience foods that are loaded with inferior or unhealthy ingredients whose sole function is to mislead taste buds and boost profits?
What of the innovation of CDOs, complex off balance sheet debt securities which hid 'toxic' mortgages, even from the banks that bought them, and subsequently lead to near global financial meltdown? Some very clever people made a great deal of money out of the subsequent misery of millions of others. The original mortgage sellers and the CDO assemblers gained at the expense of banks and their shareholders, taxpayers who've bailed out shaky finance houses, foreclosed mortgagees, and everyone who borrows, owns property or lives in a money based economy.
Some innovations we embrace wholeheartedly, but even they may not be entirely win-win. The holy grail of technology innovation is the 'killer app' because people become dependent, even addicted, adapting to their constraints and making behavioural changes that might otherwise be unthinkable. Consider the rise of the Blackberry, social networking or the ubiquity of the iPod. But then dependency, which psychologists will tell you is harmful, drives profits. The Apple Inc stock price, currently around $151 was $9 ten years ago.
An iPod or Facebook habit might appear benign but some worry that other innovations may hide threats and vulnerabilities, what Marc Ventresca, at the Saïd Business School, calls the "frog boiling" problem. Gradually rising heat causes the frog no alarm - until the water is so hot that death is imminent. "Adaptation can sometimes be dangerous, but the hazard isn't apparent until it is 'too late.'" Despite their potential for increased production consumers are wary of GM foods. Is it fear of the unknown, of misuse of science, or of agriculture being owned by a few global companies?
Innovators, even in success, are not immune. Imagine, you have a good idea and by working long and hard you prove the concept. To get the product to market needs investment; no problem a business angel or two is at hand. Yes you have to give away some of the company but it will be worth it, besides they want you fully engaged. Over time more investment is needed, and you own less of the company but the promise of a smaller share of a much bigger whole is attractive - isn't that how the new investors reassured you? With the next round of finance a new management arrives; the investors want more control and a change of emphasis. The company, based on your idea, is no longer yours, neither emotionally because of the new management, nor in fact since you've been diluted below the point of consideration. The business model has evolved to suit the investors. In time you know you might be entirely superfluous, your idea has been developed by all those bright employees your enthusiasm attracted. There's no sentiment in money, only a desire for the best return, but you can console yourself that those who ultimately reap the rewards couldn't have done it without your innovative new idea.
At least the risk of failing is easy to understand!
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This page is compiled by The Oxford Trust www.oxtrust.org.uk