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.