15 Smart Ways Businesses Can Balance Innovation With Risk Management

It can be a struggle to strike the perfect balance between innovation and risk management. Here we've gathered insights from CEOs, founders, and other top executives on how to mitigate risk while also promoting innovation in your business.

Best Practices for Balancing Innovation with Risk Management

1. Implement Good Pre-Production Planning

"Before we start any innovative project, we do extensive market research and audience analysis: How interested will audiences be in the unique aspects of this particular film? And what are the best distribution channels that will reliably return our investment?

"For example, before we made an experimental documentary a couple of years ago, we researched how AI documentaries were growing in popularity, and were able to target the right film festivals and get distribution deals with streaming platforms that reached that audience—thus mitigating the risks of a non-traditional film.

"Also, we are guided by measured innovation. Rather than going big on something completely new, we combine elements of the new with something more familiar. That way, we can experiment with what we’re doing without risking the whole project. For example, in our next feature, we are using a relatively new method of virtual production, but the movie has a very traditional narrative structure. In this way, the measured innovation allows us to try something new creatively, while minimizing the risk to a single scene and not the entire production budget.

"Armed with careful planning, bold experimentation, and a commitment to listening to our users, we can remain true to our creative spirit while also creating a financially sustainable company."
—Andrew Cussens, FilmFolk

2. Test Offerings in Controlled Settings

"Before we fully roll out new offerings, we test them in smaller, controlled settings like events or small classes. For example, we recently introduced puppy yoga on our website. We started with a few pilot sessions to gauge interest and refine the experience. In this way, by the time we offer something more broadly, we've ironed out the issues and can confidently deliver a great experience."
—Echo Wang, Yoga Kawa

3. Foster Collaboration Between Teams

"Creative innovators can feel as if risk managers are the enemy—and vice versa—but that's not the case. Both sides share a common goal: do the best thing for the business at any given time. Innovators need to recognize the risks (both financial and reputational) that come with developing new products/services too hastily, while risk managers need to recognize that innovation is a key business driver—getting left behind is itself a significant business risk.

"The key is to create a unified team with acknowledgment of that shared goal, and encourage lots of healthy debate and communication to get both business sides working together, not against each other, toward a shared business vision."
—Luther Yeates, UK Expat Mortgage

4. Conduct a Pre-Mortem Analysis

"In my business, we approach innovation like sailing into unknown waters: we don't try to avoid the risk—we build a stronger ship. Our strategy is to create what we call 'pre-mortems,' where we imagine that the innovation project has already failed spectacularly, and then reverse engineer the reasons why.

"By doing this, we uncover blind spots, weaknesses, and potential failures before they even occur. This forces us to address vulnerabilities proactively, without stifling creativity. It's a mind hack that shifts the fear of failure into an actionable risk assessment, allowing us to innovate with confidence."
—Austin Benton, Gotham Artists

5. Adopt a "Fail Fast" Approach

"The best route for us has been adopting a 'fail fast' approach, and we use this every time we need to innovate. The concept is simple: we try out things quickly, see what works, and if something doesn't pan out, pivot and move on. We learn what's necessary without wasting tons of resources. And it doesn't give us too much time to get attached to ideas, which is imperative if you want to succeed.
"If an idea is too big to accomplish, then we break it down into smaller, manageable chunks. And for every task, we set clear goals for what we want to learn from each experiment. We also make it a point to document the outcomes, whether they're successes or failures. This way, everyone can benefit from the insights gained."
—Paul Carlson, Law Firm Velocity

6. Seek Outside Feedback

"If the only feedback you have is between you and your team, it can become an echo chamber where you're just bouncing back each other's thoughts and preferences—and that's a huge risk. Imagine launching a product based on assumptions, only to find out it's not what your customers wanted at all.

"That's why we set up regular check-ins with our stakeholders, either through meetings, surveys, or even informal chats. We record their insights and work with them. It helps us avoid that dreaded situation where you launch something that's not fully baked and get hit with a wave of criticism or confusion."
—Gary Gray, CouponChief.com

7. Practice Controlled Experimentation

"A long-time colleague recently asked me, 'How do you manage to sleep at night with all the risks we take by constantly innovating?' My answer was simple: we don't avoid them; we manage them.

"Our approach to innovation is based on what I call controlled experimentation. We test new strategies and technologies on a small scale, often within existing campaigns or on internal projects. This approach allows us to collect real data on the effectiveness of the innovation, refine it based on concrete feedback, and scale only what truly works. If an idea doesn't produce the expected results, we can take a step back with minimal impact. If it works, we already have tangible evidence to present to our partners.

"This balance between innovation drive and prudent risk management has allowed us to remain competitive and grow consistently, while maintaining the flexibility and agility necessary in our industry."
—Paolo Cernigliaro, Partitaiva.it

8. Diversify Innovation Efforts

"Balancing innovation with risk management in our business is really about managing a range of risks at the same time. By spreading our efforts across various types of innovations, we can balance the potential for losses and gains, which helps us lower uncertainty and manage risk better. For instance, working on low-risk, incremental innovations is a good way to build on what we already have, like making our existing products, services, or processes better. These are usually less risky and don't take as much time or money, but they help keep things steady and profitable.

"The key is deciding how to divide resources between low-risk, medium-risk, and high-risk projects so we're getting the most value without taking on too much risk. So, one approach I'd suggest is to diversify. In general, we might spend around 70% of our resources on safer, incremental changes that might bring in a smaller, but steady, return—say around 10%. On the other hand, we could dedicate about 10% to more transformative innovations, which can have a chance of bringing in much higher returns, maybe up to 70%. These numbers aren't exact, and every company is different, but having this kind of mix allows us to manage risk while still aiming for those big wins."
—Adam Klein, New Ventures West

9. Utilize AI-Driven Risk Assessment Tools

"Create a culture of calculated risk-taking. We leverage AI-driven risk assessment tools to help us analyze potential risks and opportunities more accurately. We encourage our team to pursue innovative ideas, but with clear metrics for success. Regular check-ins allow us to pivot quickly if needed."
—Paul Sher, FuseBase

10. Form Cross-Functional Teams

"One of our go-to strategies is forming cross-functional teams for innovation projects. These teams bring together folks from different areas—like R&D, finance, and operations. By having a mix of perspectives, we get a fuller picture of any potential risks, whether they're technical, financial, or operational.

"We also use a risk assessment framework that helps us break down and evaluate each innovation idea systematically. This means we look at the likelihood of risks and their potential impact, so we can focus on what really needs our attention. For instance, we might run through different scenarios to anticipate possible hurdles and come up with backup plans.

"This approach helps us keep our innovation efforts on track while making sure we're prepared for any bumps along the way. It's all about balancing excitement with caution to drive progress without sacrificing stability."
—Steve Britchford, Polycote

11. Engage in Scenario Planning

"I recommend using scenario planning to mitigate risks associated with innovative initiatives. Brands can make a list of possible scenarios that might happen after executing their innovative plan. They can also sort out all the scenarios according to the probability of their occurrence.

"For instance, they can use the 'most likely,' 'likely,' 'unlikely,' and 'most unlikely' categories to sort all the scenarios. Based on the risk factors, they can form the best mitigation strategies and assign the required resources or budget to each one. Thus, they will have robust preparations if any risks arise from their innovative initiatives. Brands can analyze historical data or use AI analytics to form the best risk scenarios."
—Kosta Hristov, QGP

12. Maintain a Safety Net During the Life Cycle of a Project

"You cannot do away with risk in innovation; you can only reduce it. We have had more success reducing risk by having a safety net throughout the life cycle of the new project. First, we review the idea, the process, and potential challenges. We then have working sessions to identify when to make a decision and the factors that influence the decision. Based on this, we create a sketch of the innovation framework that we refine with the team and our board.

"We prioritize clarity in the earliest stages of the new idea’s life cycle and add later stages as we proceed. We understand what we need to learn in each phase and prioritize channeling our resources to the most promising ideas that progress further in the life cycle. It becomes a safety net through which we identify, manage, and reduce risk while we test assumptions. As the idea advances, the net fine-tunes it further to ensure we only move forward with the strongest ideas."
—Oliver Page, CyberNut

13. Conduct a Risk-Benefit Analysis

"Balancing innovation and risk has been key to our success. Before launching any new sustainable product or service, we analyze how it may impact clients and the environment. If risks outweigh benefits, we don't proceed. For example, when we introduced soy-based inks years ago, we tested them to ensure print quality wouldn't suffer and they were truly eco-friendly. We identified potential issues, then implemented controls to address them, allowing the innovation to move ahead.

"Diversification also helps mitigate risk. We offer a range of sustainable printing services, from recycled paper to carbon offsets. If one area faces challenges, others provide stability."
—Greg Barber, Eco Friendly Printer

14. Test Ideas in an Innovation Sandbox

"Create a controlled environment where new ideas can be tested safely without jeopardizing core operations. We allocate 10% of our resources to experimental projects that push the boundaries of our AI-driven security solutions. These projects operate separately from our main product line, allowing us to take bold risks without endangering our core business. For instance, we recently tested a facial recognition feature in our sandbox. While it showed promise, we identified potential privacy concerns before full implementation. This controlled experimentation saved us from a potential PR nightmare and hefty fines.

"Don't shy away from innovation due to fear of risk. Instead, create a safe space for experimentation that allows you to push boundaries without putting your entire business on the line. When a sandbox project doesn't pan out, we gather to discuss lessons learned. This has fostered a culture where calculated risks are encouraged, not feared."
—Tomasz Borys, Deep Sentinel

15. Implement a Phased Rollout Approach

"To manage the risks associated with a new initiative, I recommend implementing a phased rollout approach, coupled with continuous feedback loops:

1. Start small: When introducing a new service or technology, we begin with a pilot program involving a select group of trusted clients. This allows us to test the waters without risking our entire client base.
   
2. Gather feedback: We actively solicit feedback from both the clients involved in the pilot and our team members implementing the new solution. This helps us identify potential issues early on.
3. Iterate quickly: Based on the feedback, we make rapid adjustments to our innovation. This agile approach helps us refine the offering before a wider rollout.
4. Gradual expansion: Once we're confident in the solution, we gradually expand it to more clients, continually monitoring performance and satisfaction.
5. Full implementation: Only after we've addressed all major concerns and optimized the innovation do we roll it out fully.

"This approach has several benefits:

• It limits potential damage if an innovation doesn't perform as expected.
  
• It allows us to learn and improve in a controlled environment.
• It helps build confidence in the new offering among our team and clients.
• It provides opportunities to adjust our marketing and pricing strategies based on real-world data.

"For example, when we introduced AI-powered chatbots for our clients' websites, we used this phased approach. We started with three clients, refined the technology based on their experiences, and gradually expanded. This allowed us to iron out issues like response accuracy and integration challenges before offering it widely."
—Josh Matthews, LogicLeap

About the Author

Post by: Brett Farmiloe

Brett Farmiloe is the founder and CEO of Featured, a platform where business leaders can answer questions related to their expertise and get published in articles featuring their insights.

Company: Featured
Website: www.featured.com
Connect with me on LinkedIn.