Dealing with uncertainty -

Imagine if the outcome of innovation projects could be predicted with accuracy, wouldn't that be great? However, no plans or budgets are going to make an innovation project any more certain. So how best to deal with the uncertainty of innovation projects?

Ignore uncertainty

Most innovation pitches sound too good to be true. The possibilities sketched seem endless and the risks appear to be minimal. The team tells a great story, which makes it sounds all very plausible. The slick visuals make it look very real too. And it is true, a killer presentation will get a project it's funding.

However, a lot can be hidden during such a presentation. Thus, during the execution, it soon becomes clear that the project team overpromised and is on track to underdeliver. Sounds familiar?

Worst-case scenario

And what happens when such a top pick of a project underperforms?

Exactly, it makes everyone look bad. The team, the selection committee, etc.

So nobody wants that to happen. In practice, this means that such a team often gets to continue, but in the shadows, until everyone has forgotten about the project. The project slowly disappears from the radar screen. This happens more often than you would think.

This is bad enough in itself, however, that is typically not where it ends. About two or three years later, a similar idea or project will come along and be presented to a new set of decision-makers. And because organizational memory is short, the whole cycle starts over again, with more money being spent on a similar project with similar outcomes.

Point out all uncertainties

The reverse is unworkable too, because saying "I don't know" is simply not an acceptable answer when trying to get funding for your project.

If you would honestly list all the uncertainties and mitigation strategies while pitching your project, it is a pretty sure bet that you won't get funding for your project. What more, in all likelihood, your audience will fall asleep because you are boring them with all these details.

No incentives to be honest about the uncertainties

Simply said, for an innovation team that is pitching, there is no incentive to be honest about the uncertainties involved. It is a much better tactic to ignore them and only address uncertainties when specifically asked.

That explains why early-stage project teams put most of their time and effort into telling a great story and creating a beautiful slide deck.

However, for the outcome of the project, it would be better if instead of putting all the efforts into a great storyline and slick slides, the team would put this energy into testing their most critical and uncertain assumptions.

Methodologies like Discovery-driven Growth and the Lean Startup are designed to help innovation teams think through the assumptions they are making.

Why then are assumptions ignored during the project selection process? Simple, because most innovation committees don't ask teams for them. Assumptions are not part of the selection criteria. I think they should be.

Similar uncertainties

While all innovation projects are uncertain, they are also unique.

That does not mean, however, that uncertainty cannot be addressed in a universal matter that is easy to assess by a selection committee, without getting overwhelmed or bored to death by details.

The uncertainties innovation projects have to deal with can be divided into 4 categories:

Market
- Is their demand?
- Will clients buy?
Solution
- Can it be made/created/delivered
- Will the rewards be large enough to make it worthwhile
Organization
- Does the organization have the resources to make it happen?
- Can the organization be motivated to adopt and adjust to the change?
Project
- How to get from the current to the desired situation?
- How to do that within time and budget constraints?

While it would be unreasonable to demand that an innovation project team has answers to all these questions at the outset, you can ask about the assumptions they are making that with regard to each of these questions. What should happen or should be done, or should work, for them to be successful in each of these areas?

Ask teams about the assumptions they are making

Instead of ignoring or talking over uncertainties, it is much better to address uncertainty head-on in each project presentation.

Ask teams to present the list of critical assumptions they are making with respect to the market, the solution, the organization and their project. Critical assumptions are assumptions that are uncertain but have to become true for the project to result in a successful solution that clients will value.

For the average project and in the early stages, the list of relevant critical assumptions can typically be brought back to 4 to 12 assumptions. To be clear, a team will be making hundreds of assumptions, but not all are critical or relevant when the project still has to get started.

Such a list can be made in Excel, and some programs and innovation team support platforms have build-in features to list and keep track of assumptions. For example, Launchpad Central lets you track market-related assumptions as part of the customer discovery process. Our T4 platform tracks market, solution, organization, and project assumptions.

Additional benefits?

The above approach is what we use in our T4 online innovation training program.

Use the quality of the list of assumptions as a proxy for team performance

When focussing on assumptions, you can create a few simple criteria that are easy to evaluate each project on, despite each project being unique.

A few possible quality metrics:

How many assumptions did the team come up with?
Has the team challenged themselves while formulating these?
How relevant are the assumptions the team came up with?
Are there glaring ommissions?

These metrics can be compared between projects, because even if you fail to understand what the project is about, it is relatively easy to understand what questions a team should ask to make the project a success.

That makes the evaluation is simple: is the team asking the right questions? This latter question is an excellent indicator of the future performance of an innovation team.

Use the number of assumptions in each category as a proxy for project costs and duration

There seems to be a correlation between the number of assumptions that need to be tested in each category and the time it takes to execute an innovation project.

That is because each category has its own rather limited set of "experiments" to test assumptions. For example, market risks are nearly always tested through interviews and focus groups later on in the process. Those experiments are time-consuming to set up, but inexpensive and relatively simple to execute.

Organizational and project risks can typically be resolved by gathering information within the organization and talking with leadership. So testing these assumptions typically have minimum impact on the duration and resources needed for an innovation project. However, each of these assumptions can kill the project. If there are many project and organizational assumptions, the likelihood that a project will survive becomes thereby minimal, unless someone from the leadership team is willing to shepherd the project all the way through and shield it from the demands of the rest of the organization, as is the best practice for disruptive innovation projects (source).

Last but not least, assumptions with regards to the solution are expensive and resource-intensive to test. Each assumption in this category typically asks for a full iteration of designing a (partial) solution, testing it out, getting feedback, and improving. Thus many solution assumptions mean the project is akin to a research project and will be lengthy and expensive to execute.

No funding for projects with too many assumptions to test?

The nice thing about working with assumptions is that you can link funding to testing assumptions.

So should you not fund a project that has many critical assumptions to test?

No, that would be foolish. Organizations that thrive, have a portfolio of innovation projects that includes high-risk projects with potentially a high reward, and low risk relatively certain projects (source). If you want to be known as an innovative company, you need to stick out your neck on occasion!

For teams working on highly uncertain projects with many assumptions to test, let such a team continue if they find support for their critical assumptions. In other words, you would ask such a team to test a set of assumptions at each milestone and fund the project one milestone at a time.

ORGANIZING4INNOVATION

Dealing with uncertainty