Failure to Innovate Can Be a Fatal Risk

The focus of many risk management programs today is to avoid risk or, at the very least, to minimize risk to its lowest level. While that may seem like a rational approach given the economic crisis we have just experienced, it is not necessarily a wise approach. One of the greatest risks to any company is its failure to continually innovate. Examples abound of companies that did not continue to question how to create new products or deliver new services to meet the fickle demand of consumers. Once wildly successful companies like Blockbuster Video or America Online have seen their fortunes turn very quickly as other companies have invested in new delivery channels.

Another company that did not continue to push the bounds of innovation is the social network provider, MySpace. As recently as 2006, MySpace was the most popular social networking website in the United States. At the height of its popularity, MySpace was acquired by media giant News Corp. According to a report this week in the Los Angeles Times, that acquisition severely limited MySpace's ability to innovate. Here's is how the Times contrasted MySpace with the leading social network provider, Facebook:

"There's no short explanation for Myspace's stunning fall, but people with knowledge of the situation say the social network struggled to innovate once it had been absorbed by the old-media giant. Also, Myspace's managers came under pressure to wring profits from the site, while Facebook's private investors were willing to absorb losses to invest in the future. Facebook engineers were ordered to make the site more engaging for users while more independent software developers were attracted to make popular applications for the site."

Now, there are reports from various sources that News Corp. either will spin-off MySpace as a separate entity or shut down the operation altogether. Whatever path they choose, it is clear in this case that failure to innovate can be a fatal risk. ###

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