The opportunity cost of avoiding organisational change

Digital disruption is an inherently risky business. Organisations can no longer afford to ‘wait and see what happens’ when competitors try new things, yet fear of failure (and its perceived impact on reputation, customer experience or share price) holds many enterprises back. But there are three ways to create a new framework for taking calculated risks during a time of change.

1. Set up core capabilities for change 
2. Be clear about what you will (and won’t) do 
3. Be prepared to pull back

Peter Bradd, CEO of innovation consultancy The Beanstalk Factory, says there are two key types of risk to consider: the operational risk of doing something new, and the strategic risk of not doing something new. A serial entrepreneur and co-founder of start-up hub Fishburners, he regularly advises ASX200 companies and governments on the frameworks they need to be able to take calculated risks with innovation.

“Too often, we see huge investment in innovation programs that are then shut down, because the rules around commercial return and risk were put in place by people who understand the operational side of risk – but not the strategic risk of missing that opportunity,” he says.

“The problem is huge. You can’t define the return without data, but you can’t get data without experimenting. Until you set up innovation teams for success, they will bear the brunt of any failure – and you’ll lose talent.”

As new technologies emerge and the pace of change accelerates, the risks of change also expand. “New platforms can be grey zones, and regulation always lags behind innovation,” says Bradd.

“Moving into new frontiers will increase risk because it’s all unknown. For example, moving into the cloud enables us to do thing better and cheaper, but what is the security risk? Open platforms and real time payments add a new layer of complexity to managing data security and fraud. Voice – such as Google Home and Amazon Echo – will add new strategic risks for businesses that depend on search.”

It’s clearly not possible to make business transformation a risk-free proposition – but we can put new frameworks in place to manage both strategic and operational risks more effectively.

1. Set up core capabilities for change

When Australia Post began its own digital transformation journey, its Digital Delivery Centre General Manager Cameron Gough realised core processes like funding models and
governance were causing roadblocks for the fledgling team. “We had to build an environment where the staff’s creative capacity could thrive,” he explains.

Moving to a capacity funded investment model allowed the team to quickly identify opportunities and allocate capacity and funding to chase them autonomously. More than 95% of his teams are now funded this way.

Bradd says human centred design requires direct feedback from customers – but this can present a market or brand risk when you’re in experimentation mode. “We suggest putting things out in a ‘lab brand’ or beta brand, so customers know it might not be perfect – but it will be fixed quickly. Telstra, Optus and CBA have all adopted this approach.”

Another option is to bring together a group of ‘alpha’ customers to test the idea in a controlled environment. “You need to set expectations this isn’t going to be up to the usual brand experience standard, but by doing this you minimise so much risk by getting human feedback before launch – and you’re bringing customers along on the journey with you,” he says.

Before Macquarie Bank launched its new digital bank platform for consumers, it undertook ‘brainsourcing’, asking potential customers to test the beta app. Enthusiastic participants became brand advocates.

Bradd says it’s worth including regulators early in the process as well. “Many are pro-change – ASIC even has an innovation hub. If you build a strong relationship with them you may be able to create your own ‘regula-tunities’ – opportunities that anticipate changes in compliance frameworks.”

Australia Post took this route when it sought to develop Keypass in Digital iDTM into an approved proof of age entitlement in Victoria. The business is currently working alongside state regulators and local authorities to run a pilot with 200 participants in an inner city entertainment precinct.

The four-month pilot to test Keypass in Digital iDTM was approved by the Victorian Minister for Consumer Affairs, Gaming and Liquor Regulation. A working group comprising Australia Post and relevant Victorian regulators, including the Victorian Commission for Gambling and Liquor Regulation, the Department of Justice and Regulation, the local city council and police, has been formed to work through each issue as a group until the pilot ends in January 2018.

2. Be clear about what you will (and won’t) do

“Managing risk is really about setting expectations with your teams and customers. This in itself reduces both the probability and impact of something not going to plan,” says Bradd.

He says successful change managers have ongoing conversations between the innovation team, the risk team and the leadership team. “Everyone needs to understand the strategic risk, and the opportunity cost of not doing something.”

Bradd also suggests regular showcase demos of new products and services can keep external teams informed and inspired. “It’s very important people realise it’s a journey, not a finished product,” he says.

“We also share regular reporting packs with our clients, covering the business model, the tests we ran, the results and what we’ll do next.”

When Australia Post began developing a digital solution for Working with Children Checks for the Department of Justice and Regulation (DoJR) in Victoria, it needed to find a trusted way to conduct a Level 4 assurance check through online channels.

“In this space, a digital solution can be perceived as a new and risky frontier compared to a traditional in-person service,” explains Australia Post Senior Project Manager Glenn Markovic.

“Our job was to give the DoJR the confidence to do it. So we held a series of workshops specifically around deciding the most appropriate electronic verification rule and bringing in specialists to explain the various frameworks available.”

This co-creation approach ensured the solution saves both applicants and department time – and has also improved the application compliance rate.

3. Be prepared to pull back

One of the things enthusiastic innovation teams sometime forget to do is define what ‘bad’ looks like. “You still need a contingency plan,” says Bradd. “What level of loss becomes unsustainable? If you can roll back iterations quickly, it frees you up to make decisions because the impact is reduced.”

For example, Facebook allows its engineers to roll out updates to a certain number of users without permission. Data is gathered to see whether the impact is negative or positive, and the change is either rolled out further or rolled right back.

Doing these three things won’t entirely prevent risk, but they can reduce the impact or probability of those risks occurring – and also build resilience and capabilities within your organisation.

“Risk is the elephant in the innovation room,” concludes Bradd. “So you need to address it before you can create an innovative culture that will attract and retain the best talent.”

This article is provided for general information purposes only and is not intended to be specific advice for your business needs.