World Scientific Publishing, 2013. 234 + xxii pages. US$68.00.
Review by Teresa Jurgens-Kowal, Ph.D., NPDP
New product development (NPD) is inherently risky. Identifying new technologies, novel markets, and unique applications of products is highly uncertain. Russell Walker’s recent book, “Winning with Risk Management,” offers deep insights from multiple case studies as well as take-home lessons for risk management.
Chapter 1 defines what risk is and gives an interesting history of the development of the insurance industry. Risks and insurance originally derived to prevent shipping losses during cargo transit. Walker defines and categorizes risk in our modern world along two dimensions: explicit or implicit and finite or persistent.
Explicit risks are not surprises while implicit risks may result from a series of linked events. Finite risks are limited in amount while persistent risks may linger, impacting a firm over a very long period of time. New product practitioners face any combination of these risks during development and design.
The concept of embedded risks (finite and implicit) is introduced in Chapter 4 with a case study detailing how two companies responded differently to the same situation. A fire at a Philips plant in New Mexico resulted in a supply interruption for a critical cell phone chip. Nokia and Ericsson collectively received about 40% of the plant’s production (pg. 37). While Nokia proactively responded to the supply chain disruption by gobbling up the remaining world’s supply, Ericsson failed to enact a contingency plan. Trickle down effects delayed Ericsson’s debut of the first mobile phone to feature Bluetooth technology and a loss in market share.
Other risks that guide innovation efforts revolve around brand and category. Brand recognition and trust are key features for a successful firm. In Chapter 6, Walker describes a persistent risk resulting from unwanted media attention. Even though the news story contained inaccurate information, clients of a health insurance firm reacted negatively and the losses due to the the risk spread as new customers resisted the brand. In order to protect a brand from this “contagion,” the firm must respond quickly to both customers and employees. A radical move to protect the products from profit erosion and to retain a talented workforce may be to rebrand the company.
Walker provides several engaging examples of accepted risks that led to the Great Recession of 2008. Other financial case studies in “Winning with Risk Management” outline relevant lessons regarding credit card information hacking and repeated risks. Cultural bias is reflected through a case study of petrochemical firms, where a danger exists if companies believe that a hazard cannot occur within their organization. Such risk blindness leaves a firm vulnerable to unknown risks.
Cultural complacency and too-rapid growth are further illustrated with a case study of Toyota. Especially when a company has brand loyalty, the firm must respond to uncertainties rapidly. Toyota has suffered significant fines, and as Walker points out, correcting brand damage might far exceed the expense of regulatory actions.
Measuring the firm’s risk tolerance relative to the industry and close competitors can help a firm minimize the impact and cost of risk events. For example, how does a new product introduction compare to those within a similar industry? Understanding the financial and market risks relative to competitors may reveal vulnerabilities as well as opportunities.
Chapter 13 concludes “Winning with Risk Management” by providing focal points to improve communication and risk identification. These include risk metrics, monitoring competitors, and aligning risk tolerance (risk taking) with the firm’s strategic goals. Walker summarizes the case study learnings with seven succinct points that we can apply to innovation projects across the board (pgs. 210-215).
Develop proprietary risk information,
Ready the response for risk,
Set risk management goals for long-term value protection,
Focus on operational and technological risks,
Lead with a culture for active risk management,
Develop redundancy for information in processes and systems, and
Measure and manage your brand and reputation.
New product development processes are designed to minimize the financial, technical, and market risk for innovations. Supplementing process with basic risk knowledge can only make a company more competitive.
“Winning with Risk Management” is an interesting book for professionals with operational or financial responsibilities. New product development practitioners should build in lessons from Walker’s case studies to ensure long-term success with the inherently risky business of innovation.
Teresa Jurgens-Kowal, NPDP
Global NP Solutions, LLC
Released: October 20, 2014, 12:36 pm
By:Kokkirakulam Subramaniam Ramalingam, Er, DFM & Innovation Consultant
Posted: October 28, 2014, 10:07 am
NPD menas risks only .It is heartening to note that Toyata itself is facing lot of risks through NPD. Then definitely this new book on NPD & Risks is worth reading .I will buy this book and learn more on NPD by being a DFM Consultant .