Owning outcomes vertically
‘Tollgates’ are a common feature in most organisations’ innovation and investment procedures, and are the principal instrument for managing risk alongside potential returns. However, the way they are defined and implemented has a profound impact on whether they focus and accelerate innovation, stultify creativity and risk appetite, or permit wasteful use of scarce investment resources and human creativity.
A well constructed system of innovation approval gates will:
- Be transparent so all parties (the innovation team, their line management, senior executives) know what criteria and hurdles are expected at each stage, and how this relates to the organisations’ appetite for risk.
- Enables the judgment about risks and returns to be shared, giving confidence to the innovation team that this balance is understood as they move onto the next phase.
- Lays the foundations for a climate where individuals can still gain recognition for a well executed project even if it fails to succeed. It is especially important that teams feel they can declare their project difficulties openly and be seen to gain from doing so. Teams need passion and optimism, but must also have the ability to periodically take a long hard look at their assumptions and avoid falling into the ‘Conspiracy of Optimism’ trap.
- Sets out the milestones that define the envelope of acceptable progress, so that additional review gates can be triggered if the project departs from this envelope. For example, the innovation plan could set dates by which specific risks would be retired, with a trip wire review if this date is not met, or the risk proves not to be mitigated.
- Allows innovation projects that are failing to meet their objectives to killed, re-directed or put on ice. Terminating innovation projects that lack promise, or which are too early for a market, is a tough but vital decision.
- Confirms the cost profile that the team must stay within, noting that accounting for innovation projects may have special rules, for example cash burn may be specified separately from internal resource consumption and opportunity cost.
To be effective, the process of managing the Tollgate system needs custodianship to maintain the integrity of the process, monitor critical milestones and keep an audit trail of decisions.
Innovation Governance Checklist
- Is there a clear articulation of the innovation stages, the gates that must be passed, their criteria and who exercises gate approval?
- Is there a simple presentation format that captures the key features of an innovation opportunity in a way readily accessible to senior executives?
- Are the assumptions and risks agreed at each gate fully owned and recorded, with a clear envelop outside of which additional review is triggered?
- Is there a delegated first stage gate that allows the basic features of an opportunity to be developed with limited funding?