Perceived risks in product innovation projects : development of a risk skeleton

Abstract

The essence of undertaking a product innovation project is to create or establish\nsomething new. Risk taking is an intrinsic part of that process. In today's markets, with heavy competition, advanced technology and tough economic conditions, successful product innovation has become critically important to maintaining and increasing competitive advantage. In consequence, the importance of diagnosing and managing risks throughout the development process has increased accordingly. As risks are inherent to innovation, a strategy based on risk avoidance cannot be a realistic option. So if risks are unavoidable, management must develop an approach that will identify risks at an early stage of the innovation process and develop strategies to manage them. Risk diagnosis and handling should thus be seen as an essential part of successful product innovation management.\nIn the paper a risk assessment framework is introduced for diagnosing risks in product\ninnovation projects. In this framework three domains of innovation risk factors are distinguished:\ntechnological risks, organizational risks and business risks. Technological risks, are related to the intended product (components), the production process and production equipment to use and to specific intellectual property issues. Organizational risks, are related to such factors as the way the innovation project is organized and managed and possible external influences from the project environment. Business risks finally, address issues like the impact on the company's brand positioning, consumer and trade acceptance, commercial viability of the new product and possible actions from potential competitors.Traditionally, the scale of any risk has been defined as depending on its likelihood of occurrence and the magnitude of the consequence if it does occur. In the paper, we introduce a conceptual framework for diagnosing risks in product innovation projects. We propose that the true nature of a project risk is not only determined by the likelihood of its occurrence and the consequence if it does occur, but also on the perceived ability or inability to influence the risk factor within time and resource limits. Since many technological and organizational factors interact in an innovation process, they should all together be carefully considered in a structured way. We develop a risk skeleton for product innovation within a world-scale operating consumer goods company. Based on data from 114 in-depth interviews and 8 breakthrough projects, a risk skeleton consisting of 12 main risk categories and 142 connected critical innovation issues are identified. We conclude the paper with a discussion of the use of the risk skeleton as\na risk assessment tool.

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