While many organisations cite innovation and a healthy approach to risk as critical to their success, it is rare to actually cultivate the culture where these elements thrive. Organisations that are willing to disrupt old biases and norms to truly create a culture of inclusivity and equity reap many benefits including the diverse perspectives and voices that are necessary for innovation and risk to be championed.
‘Gender Equity is the fast track to innovation and a healthy approach to risk.‘
Innovation – essential to organisational success
What is it and why does it matter?
Innovation is the ability to see opportunities and act on them. It involves coming up with new ideas and solutions to create value or address problems, appreciating the whole system and connecting dots that were previously unseen or not connected. It requires a futuristic, creative mindset that goes beyond old methodologies, thinking, systems, and processes to reimagine what could be possible.
But why is innovation so essential to business in today’s world? Businesses that innovate can differentiate themselves from competitors in many ways through innovation. Customers are willing to pay a premium for innovative products or services and employees are more engaged and motivated when they participate in projects or cultures that have innovation as a core value. Having a reputation as an innovative organisation enhances the employer brand, delivering strong employee attraction, retention and recommendation whereas organisations that fail to innovate, risk being out manoeuvred or made less relevant/irrelevant by competitors. Creating a culture of innovation also enhances an organisation’s ability to navigate change, builds its resilience capability and importantly delivers a sustainable business model.
Without hearing from multiple perspectives, organisations may overlook key dimensions critical to success; “Without diverse leadership, women are 20% less likely than straight white men to win endorsement for their ideas. This costs their companies crucial market opportunities because inherently diverse contributors understand the unmet needs in under-leveraged markets” [i]
What does it take to innovate?
Innovation requires an open mind, a willingness to fail, to be wrong, and to not have all the answers. This can feel counter to the normal demands in most organisations where avoiding mistakes, being the expert and ensuring nothing unexpected happens is of a high currency. A truly innovative culture requires collaboration and real collaboration is hard; it requires individuals to sacrifice their own ego and power in service of what is best for the organisation and for some this can be confronting and can threaten their identity and value proposition.
Innovation relies on hearing from all perspectives and ensuring dominant voices do not overshadow others; “Leaders who give diverse voices equal airtime are nearly twice as likely as others to unleash value-driving insights, and employees in a “speak up” culture are 3.5 times as likely to contribute their full innovative potential”[ii].
Agility is a key aspect of innovation and includes the willingness to move quickly, to test, learn, and fail, as well as having a tolerance for uncertainty and change. Additionally, it is important to recognise that the outcomes of these failures will cost money, time and energy and the organisation will have to be ok with these costs of innovation. Curiosity and maintaining a Growth Mindset are crucial when it comes to creating a sustainable innovative culture.
What does innovation create?
When harnessed as a core organisational value, innovation creates exponential impact. It taps into previously unseen opportunities to create value for all stakeholders, leading to a learning culture where everyone is invested in and operating in service of the overall strategy and outcomes of the business. It is a pathway to a sustainable, resilient, agile, emotionally mature culture where people have strong interpersonal skills, are willing to challenge each other and the status quo. And whilst there are hard costs to innovation, it’s pretty clear that the benefits across the whole organisation will outweigh these in all metrics that matter.
Innovation is a powerful force that equips businesses and individuals to reimagine what is possible. It helps organisations differentiate themselves and maintain a competitive advantage, and creates a learning culture where everyone is invested in the overall strategy and outcomes of the business. By valuing curiosity, flexibility, learning over being right and individual agendas, innovation thrives and so does a culture and solutions that generate extraordinary impact and paves the way towards a sustainable future.
Risk – a powerful catalyst
What is it and why does it matter?
Risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something we value, often focusing on negative, undesirable consequences.
Risk management is the process of identifying, assessing and controlling these risks (often financial, legal, strategic and security) to preserve an organization’s capital, earnings and operations.
Understanding, appreciating and managing risk is an important part of leading an organisation capable of navigating the highs and lows of external and internal pressures and dynamics. Being aware of the many interconnected elements across the organisation and implementing safeguards and processes with agreed criteria provides a level of clarity, safety and certainty that is crucial for a sustainable business model. Without a healthy and proactive approach to risk, organisations can find themselves in chaos, full of dramatic highs and lows and a culture driven by fear and uncertainty.
What does it take?
A risk-conscious organisation is one that is prepared to face the reality of the current circumstances, and even if unpopular or difficult will make the necessary choices to preserve the organisation for the future. Curiously, an effective risk culture requires many of the same elements necessary for an innovation culture – the courage to speak up, to question why things are done in a certain way, to challenge the status quo and to take collective responsibility for the purpose and goals of the entire organisation. The ability to think in terms of the whole ecosystem, appreciating all the intersecting parts is powerful in identifying what is really at stake.
Effective risk management requires a diverse and multifaceted team. The different voices, perspectives and experiences at the table will inevitably unearth areas that a monoculture is incapable of seeing, often blinded by their loyalties to established thinking. This is why including diverse voices such as women and minority groups across all levels of leadership is so important to facilitating a quality of discussion around risk.
Women have a lot to contribute when it comes to suitably addressing risk, a Credit Suisse reports say “companies with at least one woman on the board have outperformed in terms of share price performance those with no women on the board over the course of the past six years. Companies with at least one woman on the board also exhibit higher return on equity, lower leverage and higher valuations”[iii].
When the organisation has clear goals and provides the certainty and stability of risk frameworks and guidelines, individuals are free to apply critical thinking skills, debate various options and then be judicious and discerning in their decisions. None of this comes easily; it requires leaders to have a deep level of self-awareness and respect and to prioritise the collective over individual ego and outcomes.
What does it create?
When managed well, risk can be a powerful catalyst for organisational success and when practised well can create a learning culture. A culture where an organisation can face the reality of a new venture that is not living up to expectations (despite being the CEO’s pet project), to question what is in the best interest of the organisation, to learn from the experience, to pivot and focus on what is next, without getting lost in the consequences of sunk costs or bruised egos. Rather than damaging the organisation and creating an even more risk-averse culture, the lessons are applied and leveraged in service of future projects.
The ability to readily collate necessary information, and apply critical thinking and discernment are the hallmarks of a robust risk culture. When applied in a way that is systematic and supported it becomes an important differentiator, that is often underutilised in organisational strategy.
How do innovation & risk work against and complement each other?
On the surface, these two disciplines appear to operate at opposite ends of the spectrum. Both are recognised as important to the sustainable operation of an organisation and yet seemingly both require a very different approach.
Risk is often associated with black-and-white thinking, clear cause-and-effect outcomes and a clear delineation or structure of what is acceptable and what is out of bounds. Risk is defined by rules, structure, compliance and loyalty to what has gone before (particularly what has worked or been successful in an organisation).
Innovation is pulling in a different direction; it is curious and seeking to find new and alternative ways to engage with stakeholders. It is focused on creating something beyond the existing structures, systems and rules; it purposefully sets out to challenge the status quo and is forward-oriented, driven by what is possible irrespective of the past (including past successes).
However, beneath the surface, there’s a nexus where these two forces align and amplify in service of an organisation’s sustainability and success.
Humans are complex and rely on multiple sometimes conflicting data points and intuition to make decisions. They can often rely on default behaviours and assumptions, which then entrench old power dynamics. Despite good intentions, individuals tend to be loyal to and protective of projects and initiatives in their own areas of expertise. The critical success factor in aligning and amplifying these two disciplines is when the individuals involved have a high level of emotional maturity, are self and other-aware, are able to argue their case without making or taking it personally and can prioritise the purpose and goals of the organisation over their own agenda or ego.
Organisations need to be able to harness and leverage the opportunity of the new (the previously unseen and unrecognised) while being able to assess and manage risks as they emerge. Good risk management creates more certainty for those involved in innovation, providing more freedom and focus whilst limiting the downside. Good innovation will challenge the risk management approach to be bolder and aligned with the organisation’s strategy which in turn delivers better thinking and results aligned with the broader organisational goals.
Leadership Capabilities to align and amplify innovation and risk
Courage to speak up
Strong risk management means being prepared to have hard conversations. It requires the courage to speak up when something goes wrong and call out problems. This courage is also required for innovation to thrive – a frank talking culture where different opinions, ideas and perspectives are encouraged and expected.
Preparedness to challenge the status quo
There’s a sweet spot for striving for out-of-the-box ideas, products and services while also attending to risk, in a way that is constructive rather than shutting down ideas. It’s a reorientation from a ‘we can’t do that because…’ to a ‘given what we know about risk, what is possible if we were at our most creative?’ This fosters a learning culture, where it is ok to fail and to gain new knowledge in the pursuit of the larger goal, it requires the best of both innovation and risk approaches.
Critical thinking skills – Able to take calculated risks and wear costs
Combining an understanding of the risks involved and being willing to trial and pilot innovative concepts and ideas requires a tolerance for accumulating some sunk costs that will not be recouped. Knowing how much to risk, and when to walk away from an idea that is not going to deliver the anticipated upside requires clarity and discernment.
Objective perspective – able to let go of loyalties and biases
A willingness to be self-aware and recognise where old loyalties or biases may be influencing judgement that is sub-optimal to the overall goals of the organisation and applying objectivity to challenges and decision-making.
Collaboration – prioritising the collective
A healthy approach to risk and innovation demands that individuals let go of their individual agendas and focus on the common good. True collaboration is rare in most organisations and yet is essential to sustain high performance.
The skills and mindset that set an organisation apart in modern business require the sophistication to hold the complexity and ambiguity of both risk and innovation and see them as important elements of a whole, not competing disciplines vying for dominance. When fully appreciated for what they offer, innovation and risk are given their rightful place and seen as tools to advance the organisation as a team rather than areas to be protected or defended.
Why gender equity is a key component for a healthy innovation & risk culture?
A core element to creating organisational cultures that embrace innovation and health risk, is that diverse voices, experiences and opinions are welcomed and encouraged at every level of the enterprise. When organisations prioritise gender equity, they increase the diversity of skills at the decision-making tables and create cultures where people are more likely to challenge assumptions, generate new ideas, and develop innovative solutions. By including women (and other under-represented groups) in leadership and decision-making roles, companies can harness the power of diverse perspectives, which leads to both greater innovation and a considered approach to risk
Gender equity equals stronger profits
In order for organisations to thrive and deliver on their purpose, they need sustainable revenue and profit. A key component of sustainability is long-term profitability, which is far more achievable when there is a good balance of innovation and risk within the organisation. Research has consistently shown that companies with diverse teams perform better financially than those who lack diversity. A study by McKinsey & Company found that companies in the top quartile for gender diversity on their executive teams were 21% more likely to experience above-average profitability than those in the bottom quartile[iv].
In Australia, the Workplace Gender Equality Agency (WGEA) collects and reports on the progress and impact of women’s representation in organisations, and the data is clear, there is “a strong and convincing causal relationship between increasing the share of women in leadership and subsequent improvements in company performance…. More women at the top mean better company performance, greater productivity and greater profitability”[v].
Gender equity fosters innovation
A study by Boston Consulting Group found that companies with diverse management teams were more innovative and generated 19% more revenue than those with below-average diversity. BCG reported: “Companies that reported above-average diversity on their management teams also reported innovation revenue that was 19 percentage points higher than that of companies with below-average leadership diversity, 45% of total revenue versus just 26%.[vi]”
Gender equity means better risk management
More women at decision-making tables results in a more risk-conscious culture; “Having female board members helps temper the overconfidence of male CEOs, improving overall decision making for the company…having at least one female director on the board was associated with less aggressive investment policies, better acquisition decisions, and ultimately improved firm performance in these industries[vii]”.
Diverse perspectives help teams identify potential risks and develop strategies to mitigate them. By including a strong representation of women in leadership roles, companies can benefit from their unique perspectives and problem-solving skills, which can help reduce the risk of making costly mistakes.
The ripple effect
By focusing on gender equity, organisations are more able to attract and retain high-performing female talent. Women make up nearly half of the global workforce, and they are increasingly making choices that favour companies that value diversity and inclusion. Organisations with a board and executive team committed to gender equity and boldly sharing that ambition with the market are more likely to attract and retain senior female talent.
Gender equity is not only about equal rights; it is also a powerful catalyst for sustainable profitability, fostering innovation and managing risk in business. Companies that prioritise gender equity are more likely to succeed, innovate, and manage risk effectively, while those that fail to address gender inequality risk falling behind their competitors.
We’ve spent over a decade researching, consulting and working with organisations to build a sustained pipeline of female talent. In our experience, one of the fastest and most effective interventions to deliver on this goal is to resource women in your organisation with the mindset and skills to navigate the systemic, structural and personal confidence barriers that often hold them back. If strengthening the pipeline of female talent in your organisation is a focus and you would like to learn more please get in touch at email@example.com.