Forget "risk" for now... and focus on reducing uncertainty in key project assumptions.
Uncertainty is different than risk: Many companies fear uncertainty, associating it with risk. But risk and uncertainty are different beasts. Suppose you were asked to cross an unfamiliar chasm. Would that be risky? Hard to say. You can’t assess risk—which assigns a probability to the downside—unless you know if you’ll be facing a tightrope or a sturdy bridge.
Until you see the chasm then, you’re simply uncertain. This isn’t just semantics. If you had a cost-efficient, structured approach to studying every chasm of interest, you’d a) know how to eliminate your uncertainty before crossing, and b) avoid undue risk, by simply opting out of chasms requiring ultra-long leaps, tightropes or motorcycle ramps.
This is precisely how to pursue unfamiliar markets… with a structured approach for stripping away uncertainty. You’ll no longer shun unfamiliar markets, leaving sleepy incumbent suppliers to enjoy them in peace. You’ll know how to explore them quickly and cheaply, giving you an edge most competitors lack. Instead of worrying about how "risky" a project is at its inception, you'll do the following:
- Assemble all the assumptions that must be true for your project to succeed.
- Determine which assumptions have high impact and high uncertainty.
- Execute a plan to drive these assumptions from uncertainty to certainty.
- Only ask management for investment decisions after you've eliminated most uncertainty cheaply and quickly.
Of course, you could simply decide to keep focusing on your existing markets. But this often leads to incremental, not transformational innovation. High-performing companies receive 70% of their total return on investment from transformational projects. (See Bansi Nagji and Geoff Tuff, Managing Your Innovation Portfolio, Harvard Business Review, May 2012.)
Develop skills to pursue unfamiliar markets and you’ll have unfettered innovation. We’ll explore how to do this in the next articles. For more, download the AIM white paper, Innovating in Unfamiliar Markets, and view the Minesweeper Project De-risking video.
Keywords: uncertainty, risk, transformational, transformative, project, unfamiliar market, investment decision