1. FACT Update Sept emb er 2 01 1
Vo lu me 3 Issue 1
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INSIDE THIS ISSUE
Innovation Metrics for Risk Managers
1 Demystifying the Concept of Risk By Leslie Riley
1 Innovation Metrics for Risk Innovation is risky business and managing risk requires measurement. Someone
Managers
once said that you can‟t manage what you can‟t measure. Perhaps we can
1 Upcoming Events in 2011 manage for a while, but how will we know when we get there or even if we are
headed in the right direction? Innovation requires leadership and most of us
2 Demystifying Risk (cont‟d)
hate following a leader who doesn‟t know where he or she is headed.
3 Innovation Metrics (cont‟d)
Traditional measures of corporate success and even compensation for individual
achievement depend on lagging indicators, but that assumes prior success to be
a good predictor of future success. This too seems like risky business.
Continued page 3 – Innovation Metrics
Demystifying the Concept of Risk
By Shira Yoskovitch
Our Upcoming
When you consider the variety and complexity of changes that the typical C-suite must
Events in 2011:
contend with, they all ultimately wrap around the idea of the risk/reward payoff.
Rewards are easiest for most to understand, as they‟re generally a direct tie to the P&L.
FACT Calgary
It‟s the „risk‟ part of the discussion that will most commonly strike fear into leaders, and inaugural event:
perhaps more significantly impacting, the employee base. Why? Because for most October 21st, 2011
people, there‟s no clear-cut definition of risk to anchor to. For traditionalists, discussions Calgary, AB
of risk focus on the pure finance. However, in an economy where the service-based or
Globe and Mail’s
social media company has as much pull (and dare we say it, valuation) as physical
Small Business
goods-based organizations, there‟s a rapid ascent of real-time communications
Summit:
technology, and geographic borders are blurring ever-more, risk doesn‟t simply exist in
November 8th, 2011
the end finances. To successfully lead, we need to look for risk sources and solutions in Toronto, ON
the systems, processes and people that comprise the business itself.
Defining the concept of “Risk” For more info go to
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The Oxford English Dictionary cites the earliest definition of risk in English, from 1621:
or email us.
“(Exposure to) the possibility of loss, injury, or other adverse or unwelcome
circumstance; a chance or situation involving such a possibility”
Continued page 2 – Demystifying risk

2. FACT Update Page 2
Demystifying Risk (continued from page 1)
Taking this definition one step further, modern descriptions of risk may look like:
Regardless of industry or
function, common threads exist  ISO31000 (2009) /ISO Guide 73: the 'effect of uncertainty on objectives'
in defining risk:  Factor Analysis of Information Risk1: “the probable frequency and probable
Magnitude of impact magnitude of future loss.
Likelihood of occurrence  Occupational Health & Safety Advisory Services:” the product of the probability
of a hazard resulting in an adverse event times the severity of the event”.
Positive and negative impacts
 Financial risk: “the unexpected variability or volatility of returns”.
need to be considered
So what? While no doubt an industry or function may highlight a different aspect of
Risks aren’t just financial,
what is considered to be risky, there are common threads in every definition of risk.
although they’re the most visible
The difference between “Uncertainty” and “Risk”
Even once a definition of risk is established, organization teams are challenged by the
use of “risk” and “uncertainty” as interchangeable terms. The difference?
“Uncertainty” represents the likelihood that something positive or negative will occur.
There‟s no true formulaic measure, most times sounding like “X-% probability that this
will happen in Y years”, and there‟s a potential for more than one outcome. 2 It is
experiential, informed by history and its interpretation, and is made current by
considering current environmental factors (people, process, systems). A discussion of
Risk and uncertainty are not „uncertainty‟ tends to veer to the subjective, and alone does not allow leaders to make
interchangeable terms. decisions, nor does it inspire confidence by teams to continue to create and innovate.
Uncertainty is a component of
risk. Risk is not a part of “Risk” is more objective and considers the combination of the likelihood of an
uncertainty. The key- risk can occurrence of a hazardous event or exposure(s) and the severity of injury, ill health or
be objectively measured. loss that can be caused by the event or exposure(s). Most importantly, it can be
measured3. Importantly, any risk formula or definition measurement is a moment-in-
time worst case scenario, presuming that no further action is taken.
Distinguishing risk and uncertainty is critical. A concept that can‟t be measured will,
by its very existence, cause stress on an organization, affecting its ability to focus and
align on promoting innovations. By interchanging these terms, organizations diminish
their power to influence, shape and insulate their innovations and teams.
As we know as leaders, if it can be measured, it can be managed, leading us to the
concept of risk management. As organization responds to a risk, the measure can be
recalculated to understand success or ongoing change required.
The Creativity-Invention-Innovation cycle and risk management
Consider the Creativity-Invention-Innovation cycle4, and that an innovation
exists only once it has yielded market benefit. The very nature of creativity says the
idea has never been sought out, and that subjective, unfulfilled, needs and wants of
customers and suppliers inform the designers.
Continued page 3 – Demystifying Risk
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3. FACT Update Page 3
Demystifying Risk (continued from page 2)
Moving towards invention and innovation, the practicality of resource management
kicks in, coupled with its requirement to measure in order to progress. You can argue,
therefore, what defines a change of state from creativity -> invention -> innovation is the
organization‟s ability to morph the uncertainty into risk, and consequently be able to
more concretely manage its impact.
So what exactly is „risk management’? Like many terms that get floated around the
business environment, it‟s a phrase that many leaders say they know and understand,
but can‟t necessarily put their finger on its definition. Simply saying „it‟s the managing
of risk‟ doesn‟t really capture its intent... it also moves leaders into a more passive
approach because just like metrics if you can‟t define it, you can‟t action it. And, more
critically, you can‟t affect it.
The concept of risk management relies on the existence of two critical processes once
the risk is identified.
1. The risk is prioritized in context of other risks and requirements in the organization,
particularly in relation to its impact on key performance indicators, and
2. The prioritized risk is acted upon to mitigate or resolve.
Note that there‟s no discussion here about „avoidance‟. Risk is, by its nature, ever-
present. Organizations that successfully navigate their way through innovations aren‟t
doing so because they‟ve avoided risk. Rather, they have acknowledged it, planned for
it, and harnessed it into a series of ongoing activities and philosophies.
Innovation Metrics (continued from page 1)
Arthur D. Little5 suggests adding real-time indicators and learning indicators to the
leading and lagging indicators, in order to keep your innovation priorities on track
and to ensure long term sustainability. Each of the indicators in this model has a
specific purpose.
 Lagging indicators help us to understand how well we did in the past.
 Real-time indicators shed light about how well we are doing right now.
 Leading indicators indicate how successful we are likely to be in the future.
 Learning indicators provide information on the agility of a company - the ability
to learn from the past, to adapt, and to improve future long term performance.
As a leading indicator, employee satisfaction has been proven to be a reliable
indicator of future success and profitability. Therefore, the Innovation Culture of an
organization should also a reliable indicator of commitment to innovation and future
innovation success; it‟s certainly a good place to start. Employee surveys often
Continued page 4 – Innovation Metrics
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4. FACT Update Page 4
Innovation Metrics (continued from page 3)
contain many questions related to Innovation Culture and many companies already
Strategy is generally driven have data from prior surveys that can serve as a benchmark to help gauge
from the top down in an improvements in the short and long term. The chart below [Exhibit 1: Employee
organization while innovation Survey Questions] provides sample questions that probably already appear on your
is generally a bottom up employee surveys and what they tell you about Innovation Culture at your
process – this makes Innovation organization. Employees look to their leaders for cues on what is important in the
Culture an important leading organization and it sets the tone for how they respond to new opportunities and
indicator of sustainability. challenges.
Exhibit 1: Employee Survey Questions
Relevance
Does your department place a HIGH Do employee responses match what executives believe are the
importance on: important drivers?
Do employees in the same business unit share the same insight
 Faster new product development? about priorities?
 Faster payback from innovation? If not, then both the message and its communication need to be
 Increasing the number of new clarified so teams are working together and departments don‟t
products developed? waste time by acting in opposition to one another. A competitive
 Reducing costs/investment related spirit is fine, but you don‟t need open hostility or even sabotage at
to innovation? work.
Ask the most senior person you can find about the organization‟s
I have a clear sense of the
vision and future direction. If it‟s not the same as what you hear
organization's vision & direction for
from the front line, your company‟s ability to respond and to learn is
the future.
at stake. It‟s a tremendous impediment to corporate success but
quite easy to fix.
Since most creativity and innovation starts at the bottom, then the
My views & participation are valued
perception of being valued is important; if responses to this question
by the organization.
are not good, your innovation goals are at risk.
Managing innovation risk is all about leadership. If you think it‟s
risky business, how do you think everyone in your business unit
I have confidence in my company‟s
feels? Employees take their cues from senior and executive
leadership.
leadership when deciding on priorities. They won‟t offer new (risky)
ideas or suggestions if they don‟t trust their leaders.
Sometimes we send out mixed signals. We say that we value
creativity and an innovative spirit but what happens when someone
My organization's culture encourages
1
"An Introduction to Factor Analysis of Information Risk (FAIR)", Risk Management Insight LLC, November 2006 act of risk-taking valued or does
tries something new? Is the mere
me to work in innovative ways.
2
How to Measure Anything: Finding the Value of Intangibles in Business, Doug Hubbard (2007) their breath waiting to see what punishment awaits
everyone suck in
3
Risk, Uncertainty, and Profit, Frank Knight (1921) he who dares to stray from the tried and true? Be aware of how
you define failure and its consequences.
4
FACT 2010- Many Facets of Innovation, Shira Yoskovitch and Leslie Riley (2010)
5
Innovation Metrics Framework and Representative Metrics model
Shira Yoskovitch- Co-founder, The FACT Network | Shira is a global supply chain expert with over sixteen years of experience in developing, implementing
and improving procedures and controls that drive superior operational performance. She has worked globally for such leading brands as Arrow Electronics, Virgin Mobile
and XM Satellite Radio. In 2008 Shira founded Supply Chain (R)Evolution, a boutique consulting firm focused on enabling organizations to successfully implement business
transformation strategies in a “total value chain” approach. | Shira has an MSc in International Accounting and Finance from the London School of Economics and Political
Science, a B.Comm. from McGill University and is a certified Project Management Professional (PMP).
Leslie Riley- Co-founder, The FACT Network | Leslie is a strategic planning & corporate communications professional with over 20 years experience in both
corporate and not-for-profit sectors. An experienced relationship manager, she employs a collaborative approach to obtain commitment on tactical objectives and
implementation from internal and external stakeholders at all levels in an organization. Her corporate experience includes marketing and selling services to Canadian &
multinational companies. | Leslie earned an MBA from University of Toronto’s Rotman School and a B.Sc. in Industrial Management from Purdue University.
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