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Monday, 15 March 2010

The trouble with Innovation – Part 4

Risk! This will be the main theme of this part of the series we are investigating. As highlighted in part 3 Risk Management and Sustainability are key factors to consider in unleashing Innovation and creativity in the organisation’s life cycle.

However, in the word life-cycle we already have a clue as to the inevitability of decline and ultimately the death of the enterprise, per se.

In the current climate, Risk Management has a pure Compliance and Regulatory connotation.

We assert that there are two sides to the Risk Management coin:

A Negative and Positive approach to Risk Management. In the negative worldview, risk is associated with mitigating and loss prevention strategies, namely compliance and regulatory requirements in addition to downside risk alleviation.

A Positive Risk Management framework would look to the up side and Value Creation potential of enterprise governance frameworks.

The overall philosophy and practical application of the model is embodied in a sound risk management framework underpin by the convergence of Internal Auditing and Financial Controls and the Value drivers inherent in the Value Based Management approach, namely

(1) Creating Value

(2) Managing Value

(3) Measuring the Value created

The focus in measuring and managing for value and thus superior organisational performance is encapsulated in performance and investment drivers such as:

a. Sales Growth

b. Operating Margin

c. Cash Tax rates

d. Fixed Capital Investment

e. Working Capital Investment

f. Cost of Capital

g. The Planning Period

Creating Value

The departure point in creating value ultimately has to have Innovation as one of the factor inputs required to create Economic Value in any organisation. This in combination with other economic factor inputs such as capital, land and labour are the foundation building blocks of any organisational sustainable growth approach.

Therefore, combining resource inputs such as capital and labour with innovation, in the right mix and during the right time frame are the sustained growth drivers in any organisation.

In the next article in this series we will address the next step in the Value Based Management framework, namely ‘Managing Value’ and the further step of ‘Measuring Value’.

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