Wednesday, May 16, 2007

Innovation and Risk

Having recently completed the first phase of a new inverse planning algorithm for radiation treatment planning, I have been thinking a lot about the relationship between innovation and risk. Of course, everyone knows that innovation is intrinsically risky, but the question is: what are all of the components of this risk, and can all be mitigated as efficiently as possible?

The commitment of time and resources to the initial development of a new idea is one of the first sources of risk in innovation. This risk can best be managed by following a path that develops the innovation to a suitable state for evaluation, while expending a minimal amount of resources.

But once this point has been reached, there is still further risk that persists, due to the need to couple further development to pragmatic concerns of how the innovation is to be used (productization). While this will consume even more resources, it seems that the current market(s) for innovation could benefit from significant improvements in efficiency of how this risk is mitigated.

For any new innovation, there will always be some early adopters who would be willing to expend some of their own resources toward the productization of a promising new technology. The problem is that this early adopter's risk is not efficiently mitigated, because the adopters themselves seem to only get intangible benefits from this risk. For instance, a high-profile clinic with many researchers will undertake new technologies because it allows their researchers to maintain their status as cutting-edge innovators. This means that, when deciding which innovations to adopt, they will mostly evaluate the likely "halo effect" of being associated with a ground-breaking new technology, which is an intangible benefit that eludes quantitative evaluation. Thus they will tend to be looking for "blockbuster" technology, much like Hollywood makes money mostly on a few blockbuster movies. Smaller independent films need financiers who are more willing to undertake smaller risks for smaller possible benefits, in return for equity interest.

But why can't early adopters in technology also partake in "equity interest" of some sort for their risk? This might encourage more commitment of resources during the productization phase of innovation, which would then make the initial development phase correspondingly less risky as well.