Innovation Governance

Innovation
Governance
Spark the Change / 4 Jul 2014
#gov4innov

Yoav Aviram / @yobo
Simon Baker / @energizr
Gus Power / @guspower
ENERGIZED WORK / HMS President Victoria Embankment London EC4Y 0HJ / www.energizedwork.com

Schedule
11:30 – Introduction.
11:35 – Risk.
12:00 – Investment.
12:25 – Impact.
12:50 – Questions / Close.

2
Discuss
15 min
Doodle and discuss.
Build up a picture.
Focus on what matters.
1
Context
5 min
Share our thinking.
Pose some questions.
3
Rotate
5 min
2 stay with the table.
Rest rotate clockwise to
the next table.
Hosts present what
was discussed to
newcomers.

verb
make changes in something established, especially by introducing new
methods, ideas, or products
innovate

“The accepted purpose of governance is to monitor, report on, and ensure that
the specified requirements will be delivered in the agreed timeframe and within
the agreed budget to realise the benefits stipulated in the business case.
And in so doing, to ensure processes are followed correctly, standards are
adhered to, and the software is produced to an acceptable level of quality.”
Gating and approving / Ensuring compliance to processes and standards /
Controlling budgets and headcount / Auditing and quality assurance reviews /
Monitoring progress / Reporting status / Managing issues and risks /
Managing stakeholders
Governance

IT Programmes
17% go so badly they threaten the existence of the company.
Calleam Consulting
50% fail to achieve what they set out to achieve.
KPMG
60% do not meet schedule, budget or quality goals.
IBM

Innovation
80% of VC investments never achieve the expected ROI.
National VC Association
93% of Angel investments never achieve the expected ROI.
Washington University
95% of technology startups fail.
Allmand Law

“Uncertainty is the lack of complete certainty, that is, the existence of more than
one possibility. The ‘true’ outcome, state, result, or value is not known.”
How to Measure Anything, Douglas Hubbard
Uncertainty
Quantify uncertainty by assigning probabilities to a set of possibilities.
E.g. There is a 60% chance this market will double in five years.

“Risk is a state of uncertainty where some of the possibilities involve a loss,
catastrophe, or other undesirable outcome.”
Risk
Quantify risk by assigning probabilities and quantified losses to a set of
possibilities.
E.g. There is a 40% chance the proposed oil well will be dry, with a loss of
£12 million in exploratory drilling costs.

People grossly underestimate risk and uncertainty.
The problem with risk
Our mind is wired to use heuristics when making decisions which involve
probabilities.
This is particularly true in cases involving compound probabilities, i.e.
where two or more related probabilities combine.
Both technology & innovation involve compound risks.

Risk management 101
Accept because some risks are worth assuming.
Avoid by eliminating the situation or activity that presents it.
Transfer through insurance or other types of contracts.
Reduce by reducing uncertainty or hedging your bets.

Information reduces uncertainty.
Reduce uncertainty
Information Theory, 1948
Reduced uncertainty improves the quality of decisions.
Improved decisions have observable consequences with measurable value.

Governance
Traditional governance seeks to reduce risk by exercising control.
It hampers innovation because it enforces process and compliance.
The goal of governance is to assure investments generate value and
mitigate associated risks.

ENERGIZED WORK / HMS President Victoria Embankment London EC4Y 0HJ
Risk
What are the unique risks
innovation programmes face?
How can we reduce risk and,
at the same time, enable
innovation?
Discuss
Doodle and discuss.
Build up a picture.
15 min
Rotate
Rest rotate clockwise to the next table.
Hosts present what was discussed to
newcomers.
5 min

Understand the gamble
Capital investments in IT projects are made on the merits of business cases
built on assumptions.
Every time you build a feature and
delay validating it with customers
you make a bet that it’s the right
feature.
The more features you build and
the longer you wait, the bigger the
ante gets until, one day, you’ve bet
the budget on a hole-in-one.
Increasing inventory
Increasing investment
Bigger and bigger bet
£
t

Sticking to the plan and optimising productivity so that projects aren’t late
or over budget do not address the risks in following the assumptions:
More control doesn’t reduce the bet
1. The requirements and designed features define the right solution.
2. All of the requirements must be delivered before any value can be
realised (all or nothing).
3. If all the requirements are delivered, the promised business benefits
will materialise.
Markets shift. Governance must help projects to sense and respond.

What if you could spread smaller bets across a number of options, and get
data faster to prove earlier what’s valuable and what’s not?
You can be a bit more scientific.
Small bets

Small incremental investments
Why not make smaller incremental capital and operational investments
based on live business measurements?
£
t
Less inventory (regular releases)
Series of smaller investments
Smaller bets

More informed decision-making
How do you decide whether to invest more or stop investing in a
partially successful idea, after you’ve already invested £200K?
Answer: Have an investment strategy and data to gain insights and
inform decisions. Otherwise decisions are based on gut feelings.
Why not quantify your expectations and the ongoing impact of your
investments in flash forecasts and fast actuals so you can ramp up the
performers and quickly abort the lemons?

Apply an investor mindset
Create your investment
strategy up front based on data
with “stop-limits” and “stop-
losses”.
Analyse fresh data constantly
to gain new insights.
Manage your portfolio from an
informed position.
Otherwise you risk blowing
yourself up:
1. No edge.
2. No planning.
3. Wrong bet size.
4. No risk management.
5. Mistiming exits.
6. Out of control.
7. Not in tune with market.
8. Running before walking.
9. Emotionally unstable.
10. Not taking responsibility.

Investment
Draw a picture showing how
financial governance like this
might work.
+ Light-weight.
+ Investment strategy.
+ Portfolio of projects.
+ Data-driven.
+ Small bets.
+ Incremental investments.
+ Sense and respond.
Discuss
Doodle and discuss.
Build up a picture.
15 min
Rotate
newcomers.
5 min

Governance is there to maximise the impact of investment - to support
work teams in delivering the most benefit for their stakeholders.
Quantified value
Without reality-backed and
independently verifiable
measures of impact, governance
cannot effectively prioritise
between competing demands or
fairly arbitrate conflicts over
resources. +
?
Past
Trend
Record
Survival SurvivalFail
Targets
Benchmarks
Constraints[ ]!
Goal
Stretch
Wish
?
Competitive Engineering, Tom Gilb

Governance must understand the needs of its’ users and meet those
needs as effectively and unobtrusively as possible.
Minimise interruption
Too much governance, or too
little, is likely to result in a
system that users choose to
avoid.
Governance can have a
significant impact on working
culture.
Tolerate it
Irritating
Glad for the
interruption
Glad for the
interruption
Not Useful Useful
Don’tExpectExpect

Governance provides services that support self-managing work teams -
they are both jointly responsible for achieving their goals.
Governance that views itself as the party ultimately answerable for
realizing stakeholder value opens the door to a dangerous game of over
and under responsibility.
1. Considers options, makes decision, informs leader afterwards
2. Provides options, makes recommendations to leader
3. Generates options and asks leader for decision
4. Describes the problem and asks the leader for help to solve
5. Leader solves problem; staff member watches & learns
6. Takes no responsibility – expects leader to solve problem
The Responsibility Virus, Robert Martin
Shared responsibility

Governance must balance short term gains against medium and long-
term considerations for company survival. If survival requires innovation
then governance must create a safe-to-fail environment.
Balance
BAU
Innovation

Supporting a robust, failure tolerant and creative work environment
requires governance to support increasing amounts of participation and
an emergent process.
Emergence
More and more, useful change
comes not from traditional
stakeholders but from employee
insight and creativity.
Governance must adapt to the
diversity of these viewpoints and
methods of work or risk losing one
of the largest sources of value
generation it has access to.
The World Café, theworldcafe.com
Action Planning
Reflection & Exploration
Collective
Insights
Harvesting
Discoveries
Implementation
Feedback &
Assessment
Conversation
as a
Core Process

Discuss
Doodle and discuss.
Build up a picture.
15 min
Rotate
newcomers.
5 min
Impact
If Governance is optional, what
would the top 3 most valuable
services be:
● for work teams?
● for stakeholders?
If Governance isn’t optional,
what are the top 3 things it
should NOT be:
● for work teams?
● for stakeholders?

Thank you for participating.
#gov4innov
@energizr @guspower @yobo

Governance – Friend or Foe by Energized Work Limited is licensed under
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under the same or similar license to this one.

Uncertainty
Measure: “Uncertainty is the lack of complete certainty, that
is, the existence of more than one possibility. The ‘true’
outcome, state, result, or value is not known.”
Quantify: By assigning probabilities to a set of
possibilities.
Example: There is a 60% chance this market will double in
five years.
Risk
Measure: “Risk is a state of uncertainty where some of the
possibilities involve a loss, catastrophe, or other undesirable
outcome.”
Quantify: By assigning probabilities and quantified losses
to a set of possibilities.
Example: There is a 40% chance the proposed oil well will
be dry, with a loss of $12 million in exploratory drilling
costs.
Risk / Handout
Risk management
Avoid by eliminating situations or activities that present it.
Transfer through insurance or other types of contracts.
Reduce by hedging your bets or reducing uncertainty.
Retain because some risks are worth assuming.
Reduce uncertainty
Information reduces uncertainty.
Reduced uncertainty improves the quality of decisions.
Improved decisions have observable consequences with
measurable value.
Value of information
The amount a decision maker would be willing to pay for
information prior to making a decision.

Understand the gamble
Capital investments in IT projects are made on the merits
of business cases built on assumptions.
Every time you build a feature and delay validating it with
customers you make a bet that it’s the right feature. The
more features you build and the longer you wait, the
bigger the ante gets until you’ve bet the budget on a hole-
in-one.
More control doesn’t reduce the bet
Optimising productivity so that projects aren’t late or over
budget doesn’t address the risks in the assumptions:
1. The requirements define the right solution.
2. All of the requirements must be delivered before
any value can be realised (all or nothing).
3. If all the requirements are delivered, the promised
business benefits will be realised.
Markets shift.
Governance must help projects sense and respond.
Investment / Handout
Small bets and smaller incremental investments
What if you could spread smaller bets across a number of
options, and get faster feedback from customers to prove
earlier what’s valuable and what’s not?
Why not make smaller incremental capital and operational
investments based on business measurements?
More informed decision-making
Have an investment strategy and fresh data to gain insights
and inform decisions. Otherwise decisions are based on gut
feelings.
Quantify expectations and ongoing impact of your
investments in flash forecasts and fast actuals so you can
ramp up the performers and quickly abort the lemons
Apply an investor mindset
Create your investment strategy up front with “stop-limits”
and “stop-losses”. Analyse fresh data constantly to gain new
insights.

Quantified Value
Governance is there to maximise the impact of investment
- to support work teams in delivering the most benefit for
their stakeholders.
Without reality-backed and independently verifiable
measures of impact, governance cannot effectively
prioritise between competing demands or fairly arbitrate
conflicts over resources.
Minimize Interruption
Governance must understand the needs of its’ users and
meet those needs as effectively and unobtrusively as
possible. Too much governance, or too little, is likely to
result in a system that users choose to avoid.
Balance
Governance must balance short term gains against
medium and long-term considerations for company
survival. If survival requires innovation then governance
must create a safe-to-fail environment.
Impact / Handout
Emergence
Supporting a robust, failure tolerant and creative work
environment requires governance to support increasing
amounts of participation and an emergent process.
More and more, useful change comes not from traditional
stakeholders but from employee insight and creativity.
Governance must adapt to the diversity of these viewpoints
and methods of work or risk losing one of the largest
sources of value generation it has access to.
Shared Responsibility
Governance provides services that support self-managing
work teams - they are both jointly responsible for achieving
their goals.
Governance that views itself as the party ultimately
answerable for realizing stakeholder value opens the door
to a dangerous game of over and under responsibility.

Innovation Governance

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