Schrage: 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 . And I think one of the great con jobs that have been perpetrated on organizations around the world is , 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 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.

CIO: How can rapid prototyping and digital experimentation be a cost-effective method for innovation risk management?

Schrage: I am astonished by how few organizations have effectively managed to that Moore's Law and Metcalfe's Law have given them in terms of integrating innovation and risk management. Things that used to cost hundreds of thousands of dollars just six or seven years ago can now be done for thousands of dollars. Remember back in the '80s and the '90s and the turn of the millennium, organizations would have these direct mail campaigns that would cost hundreds of thousands--when you finally added the soft dollar cost, millions of dollars to run--it would take a year to do the evaluation. [Now] between , e-mail, and SurveyMonkey, you can get 80 percent of that value for not even 1 percent of the cost.

And I think that there's been not just disruptive innovation in the Clay Christensen sense, there's been disruptive economics. Moore's Law and Metcalfe's Law has made digital experimentation and rapid prototyping faster, better, and cheaper, not by 15 percent, not by 50 percent, not by 80 percent, but by two or three or four orders of magnitude.