Taking bigger—but smarter—risks

At a time when organizations should be taking bigger innovation risks, their bias is in the other direction. Avoiding risky projects altogether strangles growth. The solution is to pursue a disciplined, systematic process that will distribute innovations more evenly across the spectrum of risk.

George S. Day of the University of Pennsylvania’s Wharton School in Philadelphia identifies tested evaluation tools in his recent article "Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio" in HBR Spring '09.

I use the R-W-W Screen, adapted to my university setting. It helps expose faulty assumptions, knowledge gaps, sources at risk, and problems suggesting termination. The screen is a series of questions designed to help evaluate the potential for success:

I. Is it real?

a. Is the market real?

i. Is there a need or desire for the product?

ii. Can the customer buy it?

iii. Is the size of the potential market adequate?

iv. Will the customer buy the product?

b. Is the product real?

c. Is there a clear concept? 

d. Can the product be made?

e. Will the final product satisfy the market?


II. Can we win?

a. Can the product be competitive?

i. Does it have a competitive advantage?

ii. Can the advantage be sustained?

iii. How will competitors respond?

b. Can our company be competitive?

i. Do we have superior resources?

ii. Do we have appropriate management?

iii. Can we understand and respond to the market?


III. Is it worth doing?

a. Will the product be profitable at an acceptable risk?

i. Are forecasted returns greater than costs?

ii. Are the risks acceptable?

b. Does launching the product make strategic sense? 

i. Does the product fit our overall growth strategy?

ii. Will top management support it?

The screen also provides a "just the facts" checklist that will help prevent personal excitement and passion from clouding decision making. To gain the most value from this tool, try putting your entire portfolio of new initiatives to the test.

Compete or cooperate?

Trying to outmaneuver an incumbent is not always the best way to succeed as a new company. A study by Scott Stern at the Kellogg School of Management and David Hsu at Wharton revealed that the return on investment tended to be higher for a cooperation strategy than a competition strategy when one or more of three conditions existed for the start-up company:

1) The firm has strong patents
2) The firm is backed by venture capitalists
3) There is a high sunk cost requirement for the firm to compete in its industry

If patent rights are valuable in your industry, strong patents increase the validity of a competitive threat against the incumbent if negotiations break down and cooperation fails.

Start-ups that enjoy venture backing increase their credibility in a negotiation by evaluating and certifying the company’s innovation.

In an industry such as biotechnology, distribution channels, brand recognition, regulatory knowledge, and production expertise make it expensive for start-ups to enter alone. This situation makes leveraging the assets and resources of an established firm a more viable option.

Cooperation may be achieved through several mechanisms, such as licensing the innovation, forming a strategic alliance, or selling the technology outright to a competitor.

Deciphering the developing mind

When you look into a child’s eyes, what do you see?

Zsuzsa Kaldy, assistant professor of psychology at UMass Boston, sees innocence and adventure, purity and mischief, helplessness and determination, anger and pride, envy and happiness, impatience and endurance, serenity and resentment.

She also hopes to see the precursors of mental disorders.

Eye movements provide critical insights to analyze human behavior. Eye tracking is used to answer an endless array of research questions in many fields, including developmental psychology. Kaldy and her colleagues at UMass Boston, Alice Carter and Erik Blaser are developing screening tools for early detection of anxiety disorders.

The team’s research project focuses on the creation of standardized behavioral assessment tools that can be used in the diagnosis of anxiety disorders in young children, ages 2-3. Its specific objectives include the identification of early neurocognitive markers of anxiety disorders and subsequent development of a new clinical test, with accompanying support materials, for use by health care professionals. The faculty team is well-positioned to claim a leading role in this largely-neglected area of study. The effort is consistent with priorities identified by the National Institute for Mental Health for pediatric mental health, and it is strongly aligned well with the campus's emphasis on developmental science. Research partnerships exist with National Institutes for Health intramural researchers and scientists at Massachusetts General Hospital.

For decades, developmental psychologists have tried to decipher the developing mind by looking at eye movements, but it has not been easy. The gaze of a yound child is infuriatingly difficult to track with any kind of speed or precision. They squirm and if they are fitted with headgear to help track their movements, they tend to reach up and pull it off.

Advances in eye tracking are beginning to solve these problemssuch as the Tobii Eye Tracker, that can track eye movements unobtrusively while keeping up with a bobbing head. A computer does in seconds what could take hours to code previously. In an effort to support innovative research and development on campus, UMass Boston’s Venture Development Center recently purchased this research tool for the Kaldy research team. Erik Blaser is developing the customized software that underlies the screening tool for early detection of anxiety disorders.

There are only ten to fifteen research labs across the nation that have invested in eye trackers for young children, according to Bob McMurray, a psychologist at the University of Iowa. Already, data from the new tools is challenging assumptions about how and when young children learn about language, people and objects in their world.

UMass Boston team’s first aim is to focus on Obsessive Compulsive Disorder which has a high heritability component and currently cannot be clinically diagnosed until early school age. Individuals with obsessive-compulsive disorder have persistent, upsetting thoughts (obsessions) and use rituals (compulsions) to control the anxiety these thoughts produce. Most of the time, the rituals end up controlling them. The disorder affects about 2.2 million American adults according to the National Institute of Mental Health.

The course of the disease is quite varied. Symptoms may come and go, ease over time, or get worse. If it becomes severe, it can keep a person from working or carrying out normal responsibilities at home. Those affected by the disorder may try to help themselves by avoiding situations that trigger their obsessions, or they may use alcohol or drugs to calm themselves.

Based on adult studies of the disorder, Kaldy hypothesizes that tests that the team develops can be used to detect early precursors (behaviors that may not yet reach the level of clinical symptoms) in young children.

Their second aim is to use these findings to design a cost-effective, patentable screening tool: a new clinical test with an accompanying manual for professional pediatricians and clinical psychologists. Such a test would have tremendous clinical impact.

Their third aim is to leverage their results, deepen expertise, and expand
research capacity to increase chances of procuring significant external funding.

Kaldy, Carter, and Blaser were among the recipients of the 2008 prestigious Science and Technology Initiatives award from UMass President Jack Wilson to support their research and development. The team will be presenting their first findings at the Society for Research in Child Development’s meeting in Denver in April 2009.