Strategic Innovation and the governance of uncertainty
Born of the breaking down of geographical barriers and of extraordinary intellectual breakthroughs, the modern world was aptly named the Risk Society: that world structured its growth and dynamic progress around the capability to radically reduce uncertainty by modelling it. Abundant and consistent data sets and the new probability theory with which to interpret them were leveraged to make sense of the future and thus venture into discovery, invention and enterprise. Yet, its very progress, the opening up this induced to multiple new aspirations and the exponential technological development it fostered to realise them, have by the same measure increased complexity.
Most importantly, for decision-making, that progress has also multiplied the instances of contexts relevant to us and has increased the speed in the transition we experience from one state of the context to the other. The emerging post-modern society is fast, multidimensional, non-linear and random in its evolutions: this uncertainty challenges the generation of relevant intelligence about changes, the possibility of informed choices, the timeliness of action and the effectiveness of new commitments.
Risk is a “measurable uncertainty”, but in a post-modern society there are only few instances in which what is measurable is also most relevant to the governance process. When anticipating the nature and evolutions of our context a reliance on probability is of fast diminishing value: in fact, it is now a cognitive bias in governance that limits access to possibilities that lie outside the cone of probability, and thereby constrains the strategic conversation and commits to courses of action that can prejudice viability in the future. The dominant quality of our context already is, and increasingly will be, ‘un-measurable’ uncertainty, a condition that can only be resolved by emergent, discursive, contingent processes of perpetual learning and self-renewal. The implication for institutions and organisations is a need to recognise the ineffectiveness of governance systems anchored to a Newtonian worldview of evident structures, linear evolutions, general laws and predictable dynamics. Effective strategic decision-making under these new circumstances demands a conceptual leap forward, an updating of its paradigms that severs the ties with a modernist perception of context as determined by linearity in its progress and of identity as an effect of consistency of being.
Decision-making systems must establish relevance of the multiple emerging changes, anticipate their implications and mitigate the effects. They must adapt and then learn to leverage those changes with a sustained investment in imagination, experience and possibilities. Success here depends on the flexibility of a strategic identity, on the speed at which it transforms, and on whether that identity can supply itself with a diverse range of options to conceive of new models for strategic renewal. Going forward this will prove to be the most effective approach to managing the unpredictable and idiosyncratic qualities of contexts of experience and activity. And in here lies a formidable argument for innovation and a rationale for sustained investments in building capabilities to support and enhance renewal efforts.
Change is changing, but the degree to which change is relevant, and thus an appropriate object of interpretation and a rationale for action, is not in it happening, but in its happening to ‘us’. It is not the ‘fact’ of change that matters, but its relevance, the significance it assumes on account of an agent’s identity. It is seldom appreciated in the innovation effort, in the design of its policies and of organisational systems that are intended to make it happen, that innovation has a transitive property: there is ‘something’ here that wants to renew itself, that makes itself the object of a process of renewal. It is this ‘thing’, this identity at play that establishes a principle of coherence and thus provides discipline to choices, investments and activities in the innovation effort. It is our sense of self, the robustness of the critical reflection that generates it, the extent of the engagement it emerges from, the richness of its representation that ultimately gives human systems the all important values of relevance and, therefore, of engagement and effectiveness.
A fulsome appreciation of the idiosyncratic significance of one’s relation to change is fundamental to resilience and eventually to generating competitive advantages predicated on distinctiveness and appropriate timing. It is here that Risk becomes meaningful, that choices can be argued and purposeful actions taken to resolve uncertainty. It is here that strategic leadership matters.
The leadership qualities called for in the renewal of an identity are ‘critical’, as in capability to engender an organisational reflective ‘crisis’, an interrogation of fundamental assumptions that acknowledges the need for difference in the way of being. There is an imperative to innovate echoing across social systems, markets, organisations, lecture theatres, design labs and beyond, but there is also a blindness to this effort, a hit and run inefficiency that seldom is questioned. With this go a tension between the urgency of innovation (proportional to the increased frequency in change) and the averseness to it of prudent governance (proportional to an increased focus on efficiency and control). To reduce the uncertainty of outcome, risk averse organisations with renewal intent seek and apply funnelling and evidence based processes of innovation. What they reduce, instead, is the very stuff of which innovation is made: diversity, dynamic and open exchanges, creativity, obliquity, serendipity, experimentation and learning. The effect is an overwhelming reliance on opportunistic and incremental developments of current value propositions: a tactical, and often very wasteful, innovation activity lacking the relevance and rigour of a robust strategic rationale.
The paradoxical consequences of this approach are strategic single mindedness, operational short-termism, the funnelling down and the modesty of organisational innovation efforts. This is a consequence of governance systems where decision-makers adjudicate innovation rather than being responsible for fostering it, arguing its case and leveraging its value. All of which, ultimately, entails a diffuse lack of prudence: if innovation is a response to change, and change is constant and erratic, modest and reductive approaches to innovation can only increase the risk to viability of an entity, thus challenging the prudential concerns of responsible decision-makers.
Strategic Risk can unlock a purposeful and coherent commitment of leadership and governance to ensuring resilience and competitiveness through continuous innovation. The challenge, in leveraging such a strong rationale for innovation, lies in the fact that Strategic Risk is currently stagnating in a quagmire of conceptual haziness, of regulatory contradiction and of governance short-sightedness. All of which merits addressing and solving, for Strategic Risk, when it is fully recognised and managed, when it is the object of a sustained effort of intellectual enquiry and pragmatic solutions, resolves the taxing paradox that decision-makers experience, i.e. the conflict between stewardship and entrepreneurship.
Extract from “Innovation: managing Strategic Risk”, my contribution to the Companion to Strategic Risk Management recently published by Routledge.
