Risk Management

Risk Management

Name of Student



Risk Management

The current global business environment is highly characterized by great unpredictable instability in almost every aspect of the social and economic sphere. The continued change in the manner in which business is done throughout the world is itself a perfect marker of the role played by various state economies to support growth of both local and international business sector (Grasman, 2008, p32). Of great interest to investors however, is the urge to see their investments grow according to their expectations. If all investors are given an assurance that their investments, be it in Real Estate or in any other forms of investments, will grow there is no doubt that; the amount in volumes of investments will encounter unprecedented growth even without advertisement efforts. However, in real life cases, the business sanctuaries can be highly unpredictable and threatening causing investors to pull back a bit as they gauge the direction of the already made investments. Sometimes, the existing supporting structures for businesses may not be adequate to wholly support the kind of investments made. As a precursor, may be the investment involves development of a new product or improving the usability through innovation and to overcome such derailments, each of the components of this new product have to put in check in order to avoid incidents of failure. This paper will delve into various aspects of invention, innovation and the process of product development with the aim of reviewing the entire subject of risk management in order to appreciate the role played by management of risks in successful implementation and integration of new products.

To begin with, the terms invention and innovation have continued to coexist with each other in business context. Invention, on one hand, has been used in many occasions to mean creation of either a process or a product for the first time. On the other hand, innovation puts invention at its base and is used to signify the improvements made on a specific product, process or service (Grasman, 2008, p21). In order to highlight the difference between the two, the case of Iphone can be used in the same way predecessors have. The Iphone was originally an invention and subsequent improvements and upgrades made to the original invention can only be described as innovation. For example, the invention of GPS may have been invented during the age of Sputnik (Jaizki, 2009, p34), but its inclusion into an Iphone is termed as innovation. Another meaning of innovation emerges from what people continue doing with the Iphone invention. A sample of these include; health monitoring, getting their geographical location and restaurants and making bookings. Therefore, invention is considered in the business sphere as being the benchmark for innovation to take place.

Both invention and innovation are two concepts considered very relevant to the growth of any industry. Whereas various researches have continuously indicated that innovation is of great importance when compared with invention, there is also much counterevidence to refute this argument. Although this is a debatable argument, both have advantages contributions they make to the current industry and marketplace. Invention on one hand is the one strongly accredited to building up on scientific knowledge to come up with absolutely new products, processes and services that are much helpful to any human generation that finds use of these inventions appropriate. As such, invention is considered important to industry as it leads to the creation of new products and services that innovation can later work on to lead to better lives. On the other hand, innovation is crucial since it involves the use and application of inventions in various platforms to bring about increased quality and efficiency of products or processes. It is very much relevant to the contemporary business industry because of a number of reasons. To begin with, innovation is the most desired trait in any business since through it, businesses can better respond to existing market trends and competition by discovering an assortment of opportunities that exist both currently and make a projection of what the future may be like. In addition, innovation enables the industry to make the best use of what it currently has by either focusing on designing a new product/service, looking for new prospects or focusing on the existing business practices and processes to increase the level of efficiency. Besides that, innovation can present a new avenue through which a business organization can develop an outstanding selling point since research shows that; consumers associate innovation with value addition to a company that embraces it (Rothwell 2014, pg 16). Therefore constant innovation can be an avenue through which an industry can obtain better staff, increase satisfaction of clients and above all, increase the level of profitability for any business.

The process of new product development is a crucial element in determination of useful life of a product or service. Due to this known fact, it is important that those who are delegated with duties to introduce new product do so following an appropriate path for a more successful end. Depending on the type of business enterprise, the process is normally made up of many components. Although this process might be a typical example of what many current industries use, its effectiveness in development of new products may be insufficient owing to difficulties in obtaining feedback from the target market (Cortada 2005, pg 6). The process of new product development always begins with idea generation which involves gathering of ideas which are later evaluated as options for the product. This first component often calls for contributions from both within and without the organization. In addition, this involves brainstorming, and inclusion of various research techniques such as running focus groups and inciting customers towards giving comments and suggestions through various media platforms. The second component of new product development is the screening process where various ideas received from the idea generation component are thoroughly evaluated by specialized personnel in order to choose the best options. The people involved in this step are the high level executive staff who, depending on the number of generated ideas, may want to review the generated ideas on a number of rounds. Once the idea has been chosen, rough estimates are made and the product moves to concept development and testing. Both customers and employees are involved in this process which often takes the form of a concept board presentation where both consumers and employees can openly express their; likes and dislikes, level of interest in the product, purchase frequency and the price points. The fourth component of new product development is the business analysis step where the large number of ideas originally generated will have been greatly reduced to only one or two alternatives. This component is greatly affected by results of market research since viability of business ideas is the main object in this stage. This is the stage in which forecasts on the market size, financial projections alongside operational costs are made in order to align the product to the company’s strategy and mission. In addition, both internal research and external marketing research are considered instrumental at this stage of product development. The fifth component of new product development constitutes of product and marketing mix development. In this component, serious considerations are given to ideas that surpassed the business analysis stage and companies generally pull a lot of their research and develop resources to come up with an initial design of the product. Marketers, on the other hand, spend a larger portion of their time developing an appropriate marketing plan before seeking input from customer. The overall significance of this stage is to solidify the decisions of marketers and provide vital information such as purchase rates and the overall reaction from customers. The next component is the market testing of the real product. Although this component can be skipped by various companies, this component is vital since through it, a company that is still interested in obtaining more input from other groups through marketing it in a few selected outlets can do so at their peril. The marketers, on the other hand, take it upon themselves to visit potential outlets such as supermarkets and other retail outlets for their products to be tested in the market. This stage can also be accomplished through running computer simulations where actual customers may not be involved at all. The final step is the commercialization component which comes after sufficient amount of research and evidence have literally confirmed that the product is ready to be launched to the market.

The process of innovation is often a long one and its successful implementation involves a number of responsibilities which, in a typical organization, need to be shared among staff (Jerrard 2008, pg2). Based on the kind of leadership and preferences, various organizations may decide to adopt a number of models for various innovations.  The first type of innovation model is the one chaired by the management team. In this model, this team is entrusted with the overall responsibility to conduct the innovation. In the contemporary business environment, research indicates clearly that; it is the most commonly adopted model in many organizations since it calls for every personnel in the top management to make a contribution to the final product (Hubbard 2009, p9). In the real life, this model has for a long time been adopted by Lego, IBM and Coming although the composition of the innovators vary greatly from each of the mentioned companies. The second model is the one that is conventionally headed by the CEO or either Group or Division President. This model is – according to research- the second most supported model across organizations especially in organizations where direct founders are the owners of these organizations (Zhao 2008, pg45). An example of where this model of innovation was adopted is in Apple where Steve Jobs was the CEO in-charge of innovation. However, since the succession, Tim Cook may not expressly lead the innovation team therefore prompting the Apple team to adopt another model for successful innovation. The third model is where innovation in a particular organization is headed by a high level, cross-functional group where several managers are appointed and assigned different roles which work towards realization of an innovation. This is somehow different from the first model in the sense that; not an entire group is drawn from the organization’s top leadership. In the contemporary marketplace, a number of case studies have shown existence of this kind of innovation model in companies such as Philips, Eli-Lilly, royal Dutch and even Tetra Pack. The fourth model is the one chaired by Chief Technical Officer or Chief Research Officer which is widely considered one of the oldest models used in technology-based innovation. In this case, either the CTO or CRO are seen as new technology promoters. This model is largely applied in the engineering, pharmaceuticals or even the finance industry. There are couple of other models which include; that headed by a dedicated innovation manager, one headed by a group of innovation champions, one that has no particular leader and finally, the duo model which is led by a team of only two persons. Although these models are many, it is generally considered good practice that both companies and organizations refrain from restricting themselves to only one model since both advantages and disadvantages for each vary across models and industries (Hubbard 2009, p28).

During the process of new product development, it is apparent that many factors are in play and failure to observe and analyze the effect of each prior to completion, may lead to serious losses.  A number of researches have been conducted and found out that; both risks and creativity have an inexorable link in the sense that, they are infinite in their own variety with a combination of the two defying any accurate description. Owing to the complex nature of the environment in which new product development takes place, risks tend to emerge from different number of levels and respective situations. Additional research has openly found out that; 80 percent of projects involving new product development fail to reach completion stage while more than half the remaining 20 percent don’t turn out to be profitable (Cortada 2005, pg67). This is usually a harsh reality given the amount of resources which most companies put to enable successful launching of these products. A number of reasons have been pointed out as being the major causes. These include; poor response to diverse risk factors in the development phases, overreliance on inappropriate development schedules, poor time allocations to various phases, insufficiency brought about by inappropriate decision making system. Studies have also shown that; risk, likelihood of risk and the likely consequence are interrelated by

Risk = Likelihood X Consequence

Therefore, by reducing the likelihood, the risk of making losses due to poorly performing products of new product development process can be avoided (Zhao 2008, p2). However to reduce this likelihood, a number measures can be taken. These include; reviewing and controlling each phases of product development, conducting a more thorough and perfect design/analysis, and finally making both test and evaluation components more real either through design-of-experiment, accelerated life testing or reliability qualification testing. From this analysis, it is therefore evident that when adequate risk analysis is done in every stage of new product development, it can play a vital role in shielding organizations from encountering surmountable losses brought about by investment on products that may not produce commendable results.

On the other hand, systematic risk management plays a very significant role in implementation of innovation. This is especially true since innovation generation and subsequent adoption entails risk which brings a lot of uncertainty no matter how well risks are dealt with. Although risks can be managed, they must not be allowed to deter innovation of products. Through identification, periodic assessments, and partial mitigation by employing appropriate tools can help save some of the inevitable costs associated with innovation. Among the major roles played by risk management is that; although risk is quite significant, management makes it easy to overcome major hurdles in the path of innovation. Secondly, research has conclusively found out that; many organizations tend to get worried when risks involved emerge from both technical and financial dockets. However through systematic risk management, risks arising from the technical hemisphere can better be handled by use of appropriate information and eventual push to the suppliers while financial risks can better be handled by use of insurance policies, guarantees and imposition of adequate modalities of payment. Thirdly, the application of risk management plays the roles of identifying, mitigating, reducing risks for an innovation. By applying all these roles to a specific innovative venture, innovation is more likely to succeed in its purpose. Fourthly, through application of appropriate risk management procedures, risks can be properly managed through making trade-offs. For example, increasing the number of actors can greatly reduce risks but at the same time increase the amount of delays. In addition, very detailed and explicit risk management potentially increased time and cost of an innovation while lack of such can lead to even worse situations. Therefore, by striking trade-offs, boundaries as to where intelligence gathering should stop and action begin can be easily marked thus enabling innovation to transform organizational performance in the face of competition. In the advent of technology, a number of tools have been brought that have the potential to help those in charge of innovation to manage various risks. However, overall change of attitude is a compulsory ingredient towards proper identification, reduction and eventual mitigation of innovation these risks.


Cortada, James W. (2005-11-03). The Digital Hand: Volume II: How Computers Changed the Work of American Financial, Telecommunications, Media, and Entertainment Industries. USA: Oxford University Press.

Grasman, S.E., Faulin, J., Lera-Lopez, F. (2008).  Public‐Private  Partnerships  for  technology growth  in  the  public  sector.  IEEE  International  Engineering  Management Conference.

Hubbard, Douglas (2009). The Failure of Risk Management: Why It’s Broken and How to Fix It. John Wiley & Sons. p. 46.

Jaizki Mendizabal; Roc Berenguer; Juan Melendez (2009). GPS and Galileo. McGraw Hill

Jerrard, R. N., Barnes, N., & Reid, A. (2008). Design, risk and new product development in five small creative companies. International Journal of Design, 2(1), 21-30.

Rothwell, Roy,(1994),Towards the Fifth-generation Innovation Process,in: International Marketing Review,Vol.11,No 1,1994,pp.7-31

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Zhao,  Zhen‐Yu  and  Duan,  Lin‐Ling  (2008).  An  Integrated  Risk  Management  Model  for Construction  Projects.  PICMET  2008  Proceedings,  27‐31  July,  Cape  Town,  South Africa.

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