Discover PerformanceHP Software's community for IT leaders // April 2014
Find IT success: Maximize 'return on risk'
If you avoid risk, you risk avoiding success. With IT driving the business, CIOs need to be smart, economical risk-takers. Here’s your approach.
Most IT projects—most IT leaders—are so process-driven and budget-constrained that innovation takes a back seat. But particularly in a fast-moving marketplace, business success thrives on finding new, better ways to serve your customers or end users. How do CEOs and CIOs foster a willingness to take risks and experiment, and make the process as affordable and fruitful as possible?
Without question, advances in Big Data analytics let IT experiment more wisely, while cloud technology and Agile/DevOps processes let us move faster. But technology alone doesn’t guarantee breakthrough innovation. Too often, CIOs try to make what they do as risk-free as possible and fail to put in place the culture and systems required to foster innovation. With IT more important than ever for delivering real value to end users, that has to change.
"Today’s business and IT leaders really need to accept risk and rethink their processes," says David Matheson, who teaches at the Stanford Center for Professional Development and cofounded SmartOrg.com. "I would tell a CIO: 'Embrace ambiguity and uncertainty. Make them your allies. Don’t treat risk as something to be feared.'"
In other words, you need the guts that helped former CIO Steve Bandrowczak beat tough odds at DHL. And just like you spend money when you see good potential ROI, take chances with an eye on "ROR"—return on risk.
"Scientists get it," says HP Software Vice President Paul Muller. "We would have no great innovations in science without the ability to take big risks, eliminate what doesn’t work, pursue what does work, and repeat the process. Though often costly, the payoff can be well worth the risks."
But larger enterprises generally have less appetite for risk than scrappy little startups. Maybe the stakes are bigger, maybe shareholders are driving short-term thinking, maybe having too many internal stakeholders smothers new ideas.
"The result," Muller says, "is that fewer people get access to high-cost experimental resources and fewer, safer bets get made. This means no breakthroughs—just incremental progress."
The value of embracing uncertainty—and continuous learning
The answer may be to adopt a risk management process that embraces experimentation and shortens the learning cycles, to find breakthroughs faster and less expensively. Behind the process improvements is a mindset that focuses not on avoiding risk, but maximizing its return.
"To most people in IT, risk is a project management term that tends to indicate 'things possibly might not go the way we think they will,'" says Matheson, who wrote The Smart Organization: Creating Value through Strategic R&D (and discusses a smarter approach to experimentation and risk here). Instead, the focus should be on how best to ensure that risks will pay off. Some helpful guidelines:
- Do the diligence: Concentrate on the research and planning stages, where finding and fixing flaws is cheapest and easiest. In the era of Big Data, smart analytics is a must.
- Find failure faster: Know the first data point that will tell you to put your time and money elsewhere.
- Control the scale: Don’t roll out an experiment to your entire user base if serving it up to 10 percent will prove out the concept.
- Learn from each iteration: The last step of an underperforming innovation is to extract the learning that will make the next one better.
Think like a venture capitalist
A venture capitalist firm may take chances with 50 or more startups each year—investing in them, allowing them to experiment, and expecting many of these early-stage experiments, which are relatively low-cost, will fail. That’s the stage to cut losses on losing propositions and double down on the few strong successes that will more than pay for the failed bets.
A CIO can similarly pursue innovative projects. Monitor well-managed risk vs. potential return, and strive to shorten learning cycles to get to the reward faster.
Agility, continuous delivery, Big Data—to push your IT to the next level, talk with HP Software Professional Services. And for more on leadership in the modern IT-driven enterprise, and the driving tech trends, subscribe to the Discover Performance newsletter.
HP Software’s Paul Muller hosts a weekly video digging into the hottest IT issues. Check out the latest episodes.
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