Harvard Business Publishing

The banking crisis story is an example of the downside of innovation. As many have reported, one major factor in the crisis was the use of new financial products, like CDOs (collateralized debt obligations). While the concept had been in use since the 1980s, it's only been the last decade that CDOs have been used so heavily, and a decade is a tiny hash mark in the history of banking.

We forget that innovations like CDOs are guaranteed to have unexpected effects. All innovations introduce some kind of change, and therefore all innovations create uncertainty and unpredictability. The bet is that the change will be positive, at least for someone.

But we never know with certainty the effects of adopting some new thing. We hope, and often assume, the positive changes outweigh the negative, but we can never be certain. And it often takes much longer than we think to sort out whether adopting a new innovation was the right move, or the wrong one.

For example, take gas-powered automobiles. In 1908, The Ford Model T was much like the Apple iPhone of today. It offered a revolutionary improvement in how common and critical tasks people needed to do were done. But no one could have predicted in 1908, that in 2008 we'd be desperate to get away from gas-powered anything, or that we'd be fighting a war in part over gasoline. Or that in the U.S. alone we'd have more than 40,000 deaths annually related to automobile accidents. And speaking of cell phones, I bet the rampant use of text messaging while driving will be an increasing part of those statistics in years to come.

An innovation that seems great in the first 5 years can create new problems that are impossible to predict, and that may be much worse than the original problem the innovation was trying to solve.

From wikipedia's entry on Innovation:

Failure is an inevitable part of the innovation process, and most successful organizations factor in an appropriate level of risk. Perhaps it is because all organizations experience failure that many choose not to monitor the level of failure very closely. The impact of failure goes beyond the simple loss of investment. Failure can also lead to loss of morale among employees, an increase in cynicism and even higher resistance to change in the future.

The wise recognize failure is an unavoidable part of innovation -- and the faster and more aggressively a company, or industry, pursues big changes, the greater the risks they take on, in exchange for greater access to the possible rewards. But when we push harder and harder to move faster and faster, it shouldn't be a total surprise that our urgency blows up in our faces now and again.