Innovation is a mandatory task of today's IT shops. But that doesn't make it easy. How to innovate well is a problem that leaders must repeatedly face. For some (lucky) organizations, that's where Michael Schrage comes in. Co-director of the MIT Media Lab's e-Markets Initiative, senior adviser to MIT's Security Studies Program and former CIO columnist, he is well-known as a thought leader on the subject of innovation. He sat down with CIO to talk about corporations' aversion to change, why risk is an inherent part of innovation, and how rapid prototyping can help companies better manage the risk of innovation.

How do you get corporations to embrace the need for change?

Frankly, I think it's impossible to get organizations to embrace the need for change. Organizations are a bit like alcoholics in that regard, and there's this wonderful line from Gregory Bateson, is that two things are required for somebody to decide to take the step. The first is they have to acknowledge they're an alcoholic, and the second is that they have to wake up in the gutter. And I think for organizations, they have to acknowledge that they're not willing to change, and the second is that they have to go through some sort of crisis that really prompts that kind of action.

How do you evaluate what kind of changes an organization needs to make?

When an organization brings me in and they talk about change and about innovation, I spend a lot of time listening to what they say, but I'm more interested in the tone than the content. I pay a lot of attention to, what's the level of frustration in people's voices when they complain, when they talk? And then I kind of ignore the content and start paying attention to how people actually behave. I'm a very strong believer that actions speak louder than words. And I think the only way an organization can really take constructive steps to change or improve or innovate is not to examine the words they use but to examine the actions they take and the behaviors they manifest.

How can you balance the need to innovate and create positive lasting change with the need to manage risks and avoid the wrong kind of changes?

Well, it's very interesting when one talks about innovation and risk: Much like Milton Friedman was fond of saying there's no such thing as a free lunch, there's no such thing as a risk-less innovation. And I think one of the great con jobs that have been perpetrated on organizations around the world is the need to innovate, the need for renewable sustainable innovation, and risk is treated like the ugly bastard stepchild to that, when in fact innovation that makes a difference obviously is going to create risks. More importantly, not only is innovation going to create risks, it's going to create new risks because it's innovative, so it's probably a risk you really haven't dealt with much before.

So the way you deal with these sorts of things is to decide, okay, this is an interesting innovation, how do I identify and manage the risks associated with that? And the approach that I strongly, strongly, strongly recommend is not, let's do better, sharper and more in-depth analysis, it's more along the lines of [rapid prototyping]: How do we build models, prototypes, and simulations, and how do we run experiments with those models, prototypes, and simulations so we see the trade-off between the benefits of the innovation and the potential costs of the risks.