Despite its importance, innovation project governance is often handled ineffectively, slowing down rather than driving innovation.

Innovation project governance is a decision-making discipline for leaders to decide which ideas to pursue, how to allocate the innovation budget, and how to assign resources. Through this process, senior management can lead innovation, implement strategy, and empower their teams to create new sources of growth.

As such, it's crucial for the innovation function to deliver results. When uncertainty and risk are high in the early stages of a project, large upfront investments waste precious resources. Decisions made not based on evidence can result in poor outcomes. Not making decisions can lead to an innovation portfolio overflowing with "zombie" projects. These are just a few examples of what poor decisions can lead to.

Most would think that leadership is at fault when this happens. Yet it’s not always so; instead, it's very likely to be because of the decision-making process itself.

During our recent Innov8rs Learning Lab on Innovation Strategy, Leadership, Governance & Portfolio Management, Noel Sobelman (Partner at Accel Management Group) shared his experiences helping organizations set up and build effective innovation governance, including practical do’s and don’ts, as summarized below.

What’s Innovation Project Governance?

We all know we're working with scarce resources these days. So leadership can’t just make decisions based on the merits of each individual project they review. They must make those decisions relative to a certain capacity of resources. So there are a lot of trade-offs involved.

Companies that know how to successfully decide which ideas to pursue, how to invest their innovation budget across a portfolio of projects and, very importantly, how to assign resources usually rely on a decision-making group able to connect exploratory growth strategy to implementation. This leadership group is commonly referred to as a Growth Board (other names include Venture Board or Innovation Board) and it’s a cross-functional leadership team.

The Growth Board’s responsibilities include assessing and determining which opportunities to fund, clarifying areas to focus on, holding project teams accountable, allocating budget and resources, removing roadblocks, and creating an environment where innovation teams can thrive.

In other words, you need a Growth Board to prevent the governance process from stifling innovation rather than driving it. However, when the board isn’t set up correctly, innovation governance may have to face several challenges:

  • Large upfront investments when risk and uncertainty are high. Too often, companies invest significant capital into developing a product, sometimes even getting it all the way to market before consulting with customers to find out if the solution meets an unmet need in the marketplace.Noel tells about the mistake he made in the late 1990s when he was Product Manager on a project called the Hip Zip, an mp3 player. He says: “You probably haven't heard of it because it died on the vine. We spent lots of money and about a year getting it to market, but when we launched it (with a lot of fanfare!), it didn't sell. We should have been working with customers early on to validate the solution and make sure it met a customer need before spending lots of money”. A governance team can make sure that validation happens.
  • Decisions based on ivory tower judgment, opinion, or politics. The other problem we often see is decision-makers making decisions based on corporate politics or the highest paid person’s opinion in the room- sometimes referred to as the "H.I.P.P.O.". Instead, customer behaviors and evidence should drive decisions on what projects to pursue or persevere with versus the others in the portfolio.
  • Asking the wrong questions at the wrong time. The development stage of a brand new project is not the right time to ask about ROI. In the transformative innovation territory where uncertainty is high, by definition, asking these kinds of questions only leads to guesswork.
  • Indecision leading to too many dormant products. Indecision, or just not making decisions, is another common problem with the governance of the innovation pipeline. Having too many dormant or zombie projects in your portfolio is a problem. You need to start thinking about how to get rid of those to free up capacity for the more promising projects in your portfolio.

For this not to happen, here are some practical do's and don’ts to consider as you stand up and build exploratory innovation governance capability in your organization.

1. Membership And Structure

As mentioned, the leadership group responsible for making decisions in the area of exploratory innovation is commonly called Growth and has a number of functions and responsibilities, including (but not limited to): clarifying the organization's areas of focus; setting size guidelines for project opportunities; making the decision on each project to persevere, pivot, or cancel; encouraging teams to manage themselves; allocating budget and resources; and removing roadblocks to successful innovation.

In small to mid-sized corporations, the Growth Board should consist of the organization's CEO or COO, as well as the heads of Marketing, R&D, and Finance. In larger organizations, the Growth Board should be made up of members from the C-suite or the BU leadership level.

If there are tensions between exploratory innovation and the core business (for example, pushback from business units due to the allocation of funds away from a certain BU into new growth), these tensions must be confronted and managed at the highest levels of the organization. Failing to do so legitimizes conflicts, allowing unhealthy behaviors to fester. Your organization's CEO must personally drive the company's exploratory growth agenda, reinforcing its importance.

Do: Establish a Growth Board with cross-functional membership. Because this group's primary function is to make decisions, keep it small (six to eight members), and separate (but still not isolated) from the efficiency-oriented core business.

Don't: Combine exploratory innovation project governance with core business project governance.

2. Linking Decisions To Strategic Objectives

The Growth Board should pursue opportunities based on who your organization is and what its growth ambitions are. It’s up to this board to cancel languishing projects and reallocate resources to more promising opportunities. They must evaluate each project based on its potential relative to other projects in the innovation portfolio. Of course, funding and staffing an innovation project may mean canceling something else.

Do: Link individual project funding decisions to your organization's strategic objectives, and say "no" to less auspicious ideas to free up capacity for the most promising projects.

Don't: Avoid tough decisions to cancel projects. It's better to have a high cancellation rate of projects in their early stages when investment is low. Remember: it's a funnel, not a tunnel.

3. Review Cadence

There are two main ways to set up the cadence for reviewing and making decisions on innovation projects: schedule-based (the one preferred by companies) or event-based (the one recommended by Noel). Schedule-based reviews take place at set intervals (e.g., monthly, quarterly. etc.). In contrast, event-based reviews are held when you hit pre-established progress milestones or Investment Readiness Levels (e.g., project charter approved, solution concept defined, MVP validated, scalable business validated, etc.).

Noel believes that the event-based approach empowers project teams and holds them accountable to continue to the next milestone or until they run out of funding. Both occurrences should then trigger a Growth Board funding review.

Do: Hold event-based reviews at pre-established progress or investment readiness milestones or pre-defined evidence strength thresholds.

Don't: Hold Growth Board Reviews too frequently or based on a predetermined schedule. Also, don't turn your reviews into unproductive status meetings; status updates should be provided via other channels, preferably prior to reviews. Each Growth Board Review should have a clear objective and outcome, such as a decision.

4. Project Funding

Funding for innovation initiatives involves metered investment based on the accomplishment of evidence-based learning objectives. At each stage, teams must show appropriate evidence to warrant the requested funding. This allows the Growth Board to invest small amounts at the beginning when risk and uncertainty are high and smaller amounts as risk is reduced and confidence rises.

Do: Invest in tranches as new opportunities are validated, confidence levels are increased, and risk and uncertainty are reduced.

Don't: Invest ahead of learning or through the annual budget process.

5. Project Evaluation Criteria

More experimentation over time leads to vastly reduced risk and increased confidence, allowing executives to feel comfortable that they aren't betting on a potentially losing proposition. One such method of experimentation is to conduct "call to action" experiments, which provide a basis to motivate your Growth Board's decisions.

As an example of a call-to-action experiment, a company may choose to release a video about a new product on the internet and encourage anyone interested in learning more about the product to sign up for a demo. In this way, the company can find out how many potential customers may be interested enough in their new product to use their valuable time to attend a demonstration.

Such fact-based evidence requires the exchange of value. For instance, the higher the consumer's willingness to exchange their personal details, the stronger the evidence is that a project holds promise.

Do: Perform tests and iterative experiments; use strength of evidence gathered across the dimensions of desirability, viability, feasibility, and adaptability to allow your Growth Board to evaluate highly uncertain, transformative innovation projects. Removing subjectivity from the equation ensures that the Growth Board will rely on objective facts to make these essential decisions.

Don't: Use traditional financial metrics for innovation projects that are heading into uncharted territory where you have no history to inform the decisions of the Growth Board.

6. Resource Allocation

Companies begin to struggle more as more projects move closer to the launch and scale phase and compete for the same resources. In this case, the Growth Board's role goes beyond simply determining which innovation projects should be advanced. The Growth Board's continuing investment in a promising project is equivalent to its approval of the resources needed for the team to run its next series of experiments. It's vital to understand resource demand versus supply- resource assignment is essential in light of shortages of resources.

Do: Identify potential resource constraints and confirm the availability of resources in advance of the Growth Board Review.

Don't: Approve a project to continue without first making sure the necessary resources for the next series of experiments are available.

7. Leadership Decision-Making Behaviors

Many business leaders have difficulty changing their decision-making behaviors, especially if they’ve been successful throughout their careers. However, within the Growth Board, a different approach is necessary. When setting up a Growth Board, it is helpful to come to an agreement on how members will handle “common situations''. In fact, the Growth Board must never be stymied by indecision. These common situations are defined and reviewed by Growth Board's members themselves so that when one or more occur, they can hold each other accountable to the predetermined ground rules.

Some common review situations around which the Growth Board should set its ground rules include:

  • The board cannot reach a decision due to insufficient or questionable evidence.
  • The board cannot reach a decision because the review brings to light other broad, strategic issues that are outside the scope of the innovation project management team.
  • The board cannot reach a decision because the members have differing opinions on certain factors, such as investment priorities or strength of evidence.
    · A board member changes their mind outside of the meeting
    · A board member is unable to attend the review.
    · A board member leads the discussion into inappropriate or unrelated detail.
    · A project team recommends killing a project the board deems strategically important.

Do: Agree on a set of Growth Board decision-making ground rules and hold each other accountable.

Don't: Revert to decision-making behaviors used when managing the execution-oriented core business, where the criteria are different.

In Summary

The decision-making discipline known as Innovation Project Governance helps leaders implement strategy, empower teams, and ultimately create new sources of growth. Yet building effective innovation governance is a challenging departure from standard business decision-making processes and may therefore make some team leaders uncomfortable at first.

However, it all starts with setting up a Growth Board of six or eight members (usually the CEO or COO and heads of Marketing, R&D, and Finance) who know how to link innovation decisions to the company’s strategic objectives and growth ambition and allocate scarce resources. Thanks to the oversight of the Growth Board, your organization will be able to grow and innovate into the future.