Reducing the risks of innovation in asset management
Asset Management takes a risk-based approach to create value for stakeholders through assets. Reducing risk is a key focus for asset management practitioners. Given the increasing imperative for innovation in organisations of all types, asset managers have an important role in driving this innovation. In risk averse environments, the imperative for effective risk management can compete with the imperative for innovation. Innovation can also be stifled by regulatory, financial, organisational, technical or cultural barriers.
Asset managers can address these competing imperatives by adopting approaches that reduce the risks of innovation within their organisational context. These approaches include consistency, commitment and collaboration.
Consistency acknowledges that not all attempts at innovation will succeed. Therefore, given the same success ratio, a greater number of attempts will lead to a greater overall number of successes. Consistency also builds capability as learning is generated through a repeated practice.
Commitment considers financial, time and cultural commitments required by the organisation to reduce risks. The economic concept of affordable loss provides a mechanism to limit risk within known and acceptable levels, without limiting the unknowable upside of innovation opportunities.
Collaboration reduces risk by expanding the opportunities explored beyond the known capacity within the individual or work group. Collaboration can be across organisational divisions, across organisation within the same industry, or across industries.
This paper draws on research and practice to provide practical approaches for asset managers to reduce the risks on innovation within their scope of work.
Presented for the Asset Management Council's AMSPEAK Conference 2020.