# Tag: risk

## The Cost of Ideas

What is the cost of ideas? What normally happens when people come up with bright ideas at work? A manager will typically calculate the cost of implementing it. This cost will then be balanced against the value potential of the idea. This is normally additional income from increased sales or reduced operational costs. The more creative an idea is, the harder it can be to determine the value in monetary terms. Many potentially very exciting ideas are not implemented simply because a manager has decided that to do so would be too costly.

Many managers are excellent at working out the cost of implementing an idea. They often fail to calculate the cost of NOT implementing an idea. This can often be far more than the cost of implementing. The cost of ideas is thus a two sided coin.

How much does it cost not to implement an idea? Here is a simple example where an idea might lead to cost savings on a production line. The cost of the idea in terms of equipment and labour is USD500,000 and is a one-off cost. As a result of this, the cost of manufacturing each widget that comes off your production line is reduced by USD5.00. Your Sales department tells you that you are currently making 100,000 widgets each year. Sales are expected to rise 10% per year over the 5 year life of the equipment.

Simple maths tells us that the cost of not implementing the idea is zero in year 1 and then USD500,000 in year 2. Over 5 years the cost would be over USD2,300,000 which is significantly larger than the initial investment needed.

Things are not always this easy though. Imagine that one of your R&D staff has come up with a pen-sized device that can see through solid objects. There are potential applications in medicine, construction and intelligence gathering to name a few. To get such a device into production might cost say USD50,000,000 but how can you predict the sales potential of such new technology? How can you also keep it secret from your competitors until launch? The potential seems huge but you cannot put your finger on it.

We know that ideas do not spring from single sources. It is likely that a competitor will come up with a similar idea at some point. What will they do? Will they develop the idea and create a new product? What will happen, will it be a success? If it is then you lose out big time in terms of cash. But what about your reputation?

The cost of not implementing an idea might be both financial and long-lasting damage to your reputation and brand.

Does anyone remember Polaroid? Polaroid was the word that described instant images. The company failed to keep pace with digital technology and almost went bankrupt.

Next time an idea is put to you, think very carefully about the cost of not implementing it as well as the actual cost of implementing it.

## Using Negativity Wisely

There is a lot of it about, negativity. Negativity is often seen as disruptive and something to be banned from organisations. Often we can spend far too much energy fighting it so why don’t we make use of it? In a previous article I described the use of Reverse (or Negative) Brainstorming as one of the ways we could do this. This was purely for generating ideas for new products and services but you could use it in many other ways too. Here is just one possibility.

Do you have any ideas about the things that could wreck your business? Market changing new products announced by competitors, new government legislation, flash flooding or severe bouts of food poisoning are all possibilities! Some of these threats are predictable (to some extent) such as flooding but many are not. It is likely that you have the predictable events covered already so let us focus on the unpredictable for now. As well as protecting your business you could actually discover ways to threaten the competition.

As you would expect, we are going to use creative thinking techniques but in a slightly more focused way than normal. Instead of asking “What could destroy our business tomorrow?” questions should be more relevant to the type of business that you have. To start off with try coming up with some ideas about the areas in which your business might be vulnerable. If you manufacture products from raw materials then you might be vulnerable in areas such as production or delivery of raw materials, continuity of energy supply, or distribution of finished products. You might also be threatened by Government legislation or exchange rates if you export.

#### How can we use it?

Now let us get focused. If we have identified that transport and distribution is a potential issue then ask:

• What could stop us obtaining raw material or delivering to customers?
• If the price of diesel fuel rose dramatically, what would happen?
• In the event of our competitors doing a deal with road haulage companies, what would the effect be on us?

If you were making consumer products you could also be worried about bad PR if your products were faulty or even killed people! You get the idea?

If you do identify serious threats then you can do something to reduce their impact or avoid them altogether. Identifying a ground breaking product that might put you out of business is also good since it provides you with the opportunity to develop such a product and hence outfox your competitors.

Wherever there is a threat there is also opportunity, so get thinking!

## Audacious Ideas

With most ideas, there is a correlation between how audacious or risky an idea is and its potential for economic reward. Disruptive or radical innovation produce  ideas which disrupt industry and dramatically change a business sector. These are audacious and highly risky but if they work out as hoped, audacious ideas can bring huge rewards.

Niklas Zennström and Janus Friis developed their own voice over Internet protocol (VoIP) and then built a business around it – Skype. They offered free telephone calls over the World Wide Web as well as cheap calls via the Web to ordinary telephones. Their business model was audacious. A couple of unknown Swedish guys took on the world’s telephone service providers. Their idea was both innovative and seriously risky. Potential users might well have decided they did not trust  VoIP or Internet Service Providers who  might have tried to block Skype calls. In which case, the two Swedish guys would have lost a lot of money.

Skype has been a huge success story. There are more than 100 million Skype users around the world and the two founders sold their company to eBay for USD2.4 billion. Not bad for an audacious idea.

To visualise the importance of audaciousness in business innovation, imagine a simple graph with X and Y axis. The right end of the X axis is marked “Audacity”, the left end is marked “Boringness”. The top of the Y axis is labelled “Risk/Rewards”. The bottom is labelled “Stability”. Next, draw a narrow diagonal bar from the bottom left corner of the graph to the upper right corner. This bar represents the range where most business ideas fall. Audacious business ideas are risky yet innovative. Boring business ideas are safe and not very risky. But they do not bring high rewards. Most business ideas, of course, tend to fall near the axis.

There are several useful things we can learn from this exercise.

1. In Europe and America we tend to favour highly innovative ideas, but it seems that a handful of boring business ideas resulting in incremental innovation can also bring benefits. You should not focus all your innovative efforts on big, disruptive innovation. A number of smaller, moderately innovative ideas should be mixed in.
2. Many companies have an overly strict review process that requires every single dea pass a number of hurdles before it is implemented. All too often committees reduce the risk of the idea. They seek to protect the company against risk or most likely they seek to protect their own jobs by not sanctioning risk projects. By reducing risk, they are also making an idea more boring, less innovative and reducing the potential reward.
3. Conversely, an idea can often be pushed to be more audacious, thus increasing its reward potential – but also its risk. Bear this in mind the next time you brainstorm ideas. When you get a few good ideas, don’t stop there. Push the best ideas further.
4. If an idea is very boring and of low risk, its reward potential is also low. Thus you need to be certain that the cost of implementing the idea will not be greater than the rewards it brings in.

So, the next time you have a business idea, go on and be audacious. Push the idea to the limits and don’t be afraid to go with it.

## Psst – wanna avoid being creative?

There are many lists of how to do this and that,  but what if you want to avoid doing something? What if you wanted to avoid being creative? If this is you, then follow these tips and you are well down the path to being as intellectually dull as ditch water!

1. Follow the same  routine every day, for everything.
2. You will not see this because you have read item number one and think you know it all!
3. Assume that your way of thinking is always right and your ideas are the best.
4. Only pretend to listen to other people’s ideas, they know nothing.
5. Play it safe, avoid taking chances. Never have a different sauce on your burger.
6. Copy everyone else.
7. Plan everything to the last detail BEFORE you start doing it.
8. Pretend not to care and not to be inspired.
9. Never take time to chill out and rest your brain.
10. Believe that alternative modes of thinking are for actors and artists.

Finally, if you recognise any of the above traits in your work colleagues then please get in touch. There is a chance that they can be saved.

## Innovation – Rockin’ Chairs

I recently had the good fortune to bump into Mark and Jon Owen at a business event in Cardiff and was immediately intrigued by both their product, and the way in which they had developed it and got it to the market. Those with design heads will of course marvel about ergonomics, design and manufacturing but what about the human side, what about (dare I say it) Innovation? I’m sure that Jon and Mark did not really see themselves as innovators but they are doing something different and making headway, so what happened?

Mark had been a wheelchair user for over a decade and had been going with the flow. Wheelchairs were an engineering solution to a medical condition. Did that have to be the case? Had being confined to a wheel chair caused a major personality shift, changed his interests or priorities in life? No, but it had placed him in an entirely new bracket within society. He was now classed as disabled. One thing that struck Mark and Jon was the ugliness of mobility products. Just as we feel close to our iPhone or other gadget, so Mark had a gadget that was with him all of the time which was transport, sofa and office chair – so why couldn’t it be cool too?

Nomad was born! Why hadn’t this been done before, why did nobody see this opportunity? Was it market, was it international conglomerates or blinkered stakeholders (you decide)? With an emphasis on design and with access to a unique perspective on the marketplace a unique wheelchair was born. Made of lightweight aluminium, engineered to provide day long comfort and requiring less effort it sure does look cool, even people who are not disabled will want to have a go! You can even propel yourself with one hand!

So how did they get here and more importantly how did Mark and Jon start out? A discussion whilst on holiday convinced them that this was possible. Time out to think is always important, without it the results could have been a badly engineered product in a garden shed!

Inspiration was drawn from a variety of sources, not just pinching ideas but values and lifestyle cues as well. So take a look at a Nomad chair and you may very well see hints from cars, bikes and fashion. All good stuff but knowing what you want is great, how do you actually get there? Usually this means engaging outside help to acquire the skills that you yourself do not possess. It also means that you also have more people to bounce ideas off and gain inspiration from. In this case, local designers were the key.

Was it all plain sailing? Jon says that prototyping was a little tricky as others do not always wish to push the boundaries, but they can be convinced if the vision is strong enough and the message is compelling. How many people say to you “that will never work”? Being brothers of a similar age, Mark and Jon often disagree but seem to have a fairly comprehensive support system that includes both each other and parents so (creative) tension is channelled into Nomad and is seen as a positive factor. Do readers of this article actually think about their own environment, support mechanisms and close advisors?

Mark and Jon seem to have created an effective ‘mash’ of traditional and innovative with their approaches to design, planning, risk assessment, company culture and having fun. They have balanced risk and planning, creativity and control but above all they have an in depth understanding of their environment (both internal and external) and are revelling in the challenges and opportunities that they are discovering. By coincidence, these are also the main drivers to ensure that a business has a (high) capacity to innovate. The future looks bright for Nomad.

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