Risk or Opportunity? Promoting Innovation in Your Organization

Inaction or Action? The Game Show vs the Penalty Kick

In general, humans prefer to avoid risk. This is no news for corporate innovators, whose work inevitably involves the challenge of introducing change - and risk - to organizations.

But Felix Hofmann identifies another aspect to human psychology that impacts how we behave around risk. This is how we feel when we actively do something, and lose, compared to when we do nothing, and lose.

Let’s take as example the way goalkeepers tend to behave in penalty kicks.

Studies have found that the best strategy for goalkeepers during penalties is to stay in the center of the goal, as it enables them to make a save 39% of the time. In reality, however, goalkeepers rarely take this option, instead overwhelmingly choosing to jump left or right where their chance of making the save is just 13%.

Why? Why take an action that drastically reduces your chance of success?

What the penalty kick scenario and the Monty Hall problem demonstrate is the greater psychological cost of failure we feel through action, compared to inaction.

In the game show, people prefer to stick with their original choice because if they changed their minds and switched away from the door with the prize, they would regret it more than if they had stayed put. In this case, inaction is the norm.

In the penalty shootout, on the other hand, action is the norm. The goalkeeper decides to jump as far as they can to the left or right, so everyone can see they put all their effort into blocking the shot. This action is psychologically preferable to the goalkeeper even if they end up going the wrong way and would have been more likely to save the goal if they had stayed in the center. They’d rather take the wrong action, than stay put and risk looking stupid by doing nothing.

These examples demonstrate that when making decisions, people don't pick the option that maximizes their chances of success.

Instead, we choose the things we expect to regret the least. This is an incredibly important element of human psychology to navigate when undertaking innovation.

Reframing Risk to Change the Norm

In organizations, the core business is the norm. Most people work within the core business, it’s the main source of profits, it’s where the majority of operations lie.

Pursuing innovation - taking action to explore the new and unknown - is therefore perceived as a risk. If this risk becomes too high, then managers tend to revert to the norm, to the core business, to inaction. And innovation becomes impossible.

Most managers would rather stick to an old line of business than developing something new. This is just normal human thinking, and it applies even if the old line of business is set to become irrelevant in the near future.

It’s therefore a huge challenge - and even an existential risk - for organizations to deal with.

To overcome this we need to reframe the problem. This means changing the perspective on innovation, from something that feels like a game show scenario in most companies, where people don’t want to take action, to something that feels more like the penalty kick situation, where action is the norm.

From Gain-Framing to Loss-Framing

Given that we’re more motivated to avoid pain or loss than we are to seek gains, it can be helpful to talk about innovation in terms of the cost of not doing it (loss-framing), rather than the potential benefits at stake (gain-framing).

To harness this framing effect for innovation, Felix recommends using loss-framing to highlight the cost of inaction through a funeral speech exercise.

In this activity, leadership must craft a eulogy to their organization after it has gone bankrupt.

Gather a group of key business leaders and decision-makers together. Set the scene: it’s 10 years from now, and the business has gone bankrupt. Ask them to imagine why. What happened that they failed to deal with? What problems could have arisen with their current business model, what challenges did they face from competitors, what new technologies emerged?

As Felix states, when telling the story of their business’s imagined journey to bankruptcy, leaders almost always identify a lack of innovation as a contributing factor. This exercise therefore uses loss-framing to position innovation as crucial to an organization’s survival, rather than something that could potentially bring them a few optional benefits.

This kind of thinking can really help to change the way leadership perceives risk around innovation, helping them understand why it’s so important.

Leading Cultural Change for More Impactful Innovation

To make innovation the norm within an organization, it must be seen as everyone’s responsibility. This can be tricky when innovation activities are siloed to specialist innovation labs or departments, as it encourages people in other areas of the business to think it’s not relevant to their role, their work, or even the success of the company.

In order to change the culture around innovation it’s important to change this mindset - so Felix recommends training people in all areas of the business in concepts such as reframing, empathy, courage, and long term thinking. This will help everyone to be more courageous in the way they relate to risk, and ultimately make the whole organization more innovative.

He also recommends that organizations find suitable ways of incentivizing innovation that encourage people to take risks on potentially game-changing projects.

“Innovation needs to be incentivized way more. People in the iPod team got huge amounts of shares, for example, because they knew that if they failed, they would lose their job. But if they succeeded, they’d be rich. This is the kind of culture and motivation you need for innovation, but it’s not there in most established European companies. This is why there’s the tendency to do the whole innovation theater thing, you can’t lose much. But you also can’t win much either.”