Agility and prudence cannot be maximized simultaneously. Attempts to pursue both through “prudent innovation” may appear inspired but fail in practice. There is an inherent trade off between prudence and agility that calls for an approach that balances both aspects in various stages of the innovation development lifecycle.
Determining the path from idea to adopted innovation
How can organizations incorporate the agility that drives change with the necessary prudential mechanisms to deliver the desired impact while operating within their risk appetite?
Successful innovations originate as simple ideas. To become successful and sustainable, the idea must be both nurtured by a spirit of agility and grounded by the rationality of prudence. In determining the right path to pursue, leaders must account for:
- External pressures (competitors, regulators/supervisors/public policy makers, client and investor expectations)
- Nature of the solution (value vs. risk)
- Internal capabilities and strengths
- Talent and organizational culture
- Risk appetite (by different type of risk and relevant organizational unit)
To get from the idea to the adopted innovation, there is a need to:
- Follow agile methodologies that enable a rapid deployment of solutions, incorporating target user’s input through testing and learning
- Build over time the risk controls that result in a prudent proposition for the organization
Companies who define a framework that drives innovation in the most effective manner can earn an important competitive edge.
What is the best path?
This paper provides a conceptual framework to go from idea to adoption, leveraging, as a metaphor, a mathematical concept from the 17th century, the brachistochrone curve. In addition, the paper defines a four-staged model for financial institutions to set their most efficient path in the agile-prudence continuum.