Balancing risk with innovation is one of the biggest challenges for hospitality operators, according to a study by Forrester Consulting and commissioned by Mastercard.
Nearly nine in ten respondents said that innovation was a hurdle that required strong focus to stay on top of.
With volatility and uncertainty now the status quo, innovation is even more critical to staying competitive. Although many businesses recognise its potential, few have the capabilities in place to innovate effectively, especially when it comes to embedding AI.
Innovation is an essential response to market disruption, but without a proactive culture of experimentation, increasing competition can force companies into a reactive stance that stifles innovation, a challenge for 77 percent of respondents’ businesses. In this environment, businesses must build on innovation methods that start with customers’ needs, yet most don’t consider their customers enough (75 percent). And although innovation depends on the ability to take calculated risks and comply with regulations, companies are hamstrung by a risk-averse culture (72 percent) and unable to manage complex regulatory requirements effectively (75 percent).
Half of respondents said their innovation initiatives are not meeting expectations, and only 13 percent prioritise applying AI to their innovation strategy.
Despite how critical innovation is to compete in today’s market, few organisations pursue innovation regularly: 24 percent to be exact. But those that do are far more likely to see their innovation initiatives succeed.
Sixty-eight percent of respondents said their innovation initiatives had met or exceeded expectations in the past 24 months, compared to only 45 percent for more reactive companies. Within retail, a greater percentage pursue innovation regularly yet were more likely to say their innovation initiatives didn’t meet expectations, underscoring how consumers hold retailers to an even higher standard. But regardless of their approach to innovation, all groups struggle with a critical component of success: the ability to balance fostering innovation with managing risks related to reputation, finances, regulations, etc. Eighty-seven percent said this balancing act is a challenge for their company.
Challenges balancing risk and innovation can be costly: 41 percent of respondents said their businesses lose their competitive edge, and 38 percent miss market opportunities when they don’t achieve this balance. Additionally, 37 percent reported experiencing decision paralysis, a clear sign of loss aversion at play. Operators may hesitate to innovate, focusing more on avoiding potential risks than pursuing new opportunities. This bias leads to losses on both fronts: misaligned action as well as inaction, resulting in commoditised offerings and increased customer churn. The stakes for getting it right are especially high for restaurants, and 37 percent said they lose consumers to more innovative competitors when their organisations don’t balance risk management.
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