Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 41

Companies that fear innovation risk stagnating

Some years ago, the Harvard Business Review ran a must-read article called, 'Countering the Biggest Risk of All'. It talks about seven major classes of strategic risk, that is, industry, technology, brand, competitor, customer, project and stagnation. The concept of stagnation risk is not often discussed.

The article defines market stagnation as ‘the inability to find new sources of growth’. It says that the best countermeasure for dealing with this class of risk is ‘demand innovation’, which involves ‘redefining your market by looking at it through the lens of the customers’ economics and expanding the value you offer your customers …'

In my experience, I’ve seen two types of stagnation risk.

Stagnation risk I: fear of radical change

Take the scenario of a strategic discussion where a course of action that involves radical change is being considered. The actuaries and other risk professionals will thoroughly analyse the risks of proceeding with a course of action. However the risks of not proceeding are not often given as much emphasis. That is: what happens if we don’t do this? What if we delay and don’t do it now? And what do we lose by not acting?

As a result bold decisions may be deemed too risky, or pared back and dumbed down, without proper consideration of the costs of inaction. This is the stagnation associated with lack of innovation. It is particularly prevalent in large organisations with dominant market shares, which feel safe in their current operating mode. A perception can grow that ‘everything is OK and we have a lot to lose by implementing a radical change’. However, when an organisation does not innovate, competitors step in and fill the gaps.

In product development, there is always the dilemma of whether and when to introduce a radically new product, especially if it is a lower cost, lower margin product that will cannibalise the organisation’s existing (and profitable) book of business. Then once it is launched there is the moral dilemma of how the new product is marketed to the existing customers. Does the organisation proactively tell them that they would be better off switching to the new, lower cost product? Or leave them paying more and hope they don’t notice?

If the organisation looks through the customer lens, there is an argument that it should definitely market the new product to the existing book, recognising that if it doesn’t, then eventually a competitor will. However in superannuation, with a disengaged customer base, it’s not always an easy call to cannibalise profits, as organisations know that a large part of the customer base in the old product may stay there for many years.

If customers are left consuming outdated products for years without being offered the more competitive alternatives, once they do find out (and they will, eventually), they are likely to become disgruntled and lost to a competitor. There is also the risk of reputational damage to the organisation from a large portion of existing customers becoming net detractors, possibly with a spill-over into consumer advocacy and negative publicity. This risk should be fully costed and be part of the decision-making process.

Stagnation risk II: taking your eye off the ball

Take the example of an organisation that is busy implementing responses to legislative changes, as pretty much every super fund in Australia has been for the last five or more years. Everyone has their heads down and bottoms up, and the whole organisation puts in long hours on tight deadline projects. Everyone takes the view that ‘we’re all exhausted but we really feel like we’re achieving something’. This is a classic set-up with all the elements necessary for deep stagnation.

In such busy workplaces, the widely-held view is:

We are simply running to stand still. We’re bogged down and spinning the wheels. All that action gives us the illusion of progress but we’re stagnating. We can’t remember the last time we innovated because all the leadership, strategists and product development teams are completely consumed in a reactive, fire-fighting mode facing new legislation and changes to our processes. We don’t have the time and space to think.

It’s difficult for busy people to innovate. Creativity requires being out of the madness of day to day activities. As someone who has been outside the super industry for the last few years looking in, the lack of innovation is clear, especially in the post-retirement space. That's easy for me to say, because I didn’t have to implement the FOFA and Stronger Super changes!

How many organisations take their best people out of the busy yet distracted day-to-day workforce and give them space to be creative – for example, an innovation ‘skunk works’? We’re starting to see Chief Innovation Officers appointed now, so perhaps this is coming.

So can we change? Yes, we can. But to do so, we need to take the time and space to look for a vision of the future, where we can drive growth in our business by stimulating demand. We’ll need to look at issues through our customers’ eyes and expand the value proposition we offer them. This will involve radical change. We need to weigh the downside of not acting along with the risks and rewards of acting. And believe that if we build it, they will come (misquoted, with apologies, from 1989 movie Field of Dreams).

 

Melinda Howes is an actuary, a financial services executive and a non-executive director.

 

  •   22 November 2013
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Welcome to Firstlinks Edition 674 with weekend update

What begins as appetite, grows into excess and ultimately ends in spectacle. Millions of investors just discovered this the hard way.

  • 6 August 2026

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Latest Updates

Retirement

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

SMSF strategies

Who really loses from the SMSF borrowing ban?

The ban on borrowing to buy residential property inside a self-managed super fund was framed as closing a loophole for the wealthy. Yet ATO data suggests its effects may be felt more heavily on members with moderate balances.

Investment strategies

The investing rule that explains the next market crash

What if investment success depends less on picking the right assets and more on understanding the decisions of other investors? A principle borrowed from game theory offers a different perspective on markets.

Investment strategies

Gold: should you own the metal or the miners?

Gold is back in the headlines but investors may be asking the wrong question. Before deciding where prices are headed next, it's worth considering whether the investment you choose will deliver the outcome you're actually seeking.

Fixed interest

Global bonds markets are hiccupping

For decades, investors looked the other way as government debt ballooned. But a reckoning may be beginning. Bond markets are stirring and the consequences could reach far beyond markets into everyday life.

Property

Why investors are looking beyond traditional property sectors

A little-known corner of the property market may be quietly benefiting from powerful demographic and healthcare trends. Could this specialised sector offer investors something increasingly difficult to find: enduring demand?

Retirement

Retirement in reality - 6 months in

Is retirement really an identity crisis, or is something else at play? New insights challenge conventional thinking and reveal why some retirees struggle to fully embrace life after work.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.