Chapter 9: Managing uncertainty
9.1 MEETING THE CHALLENGE OF UNCERTAINTY
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there is no guarantee of success but we can view possible successful outcomes
Firstly, the assessment of risk is based on limited information
Secondly, there is a chance of balance between risk and potential rewards, that may
follow if the innovation is successful
Can use a business plan in the face of uncertainty
In the idea phase involve all stakeholders
Incremental inno – low risk
Radical inno – high risk
9.2 THE FUNNEL OF UNCERTAINTY
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Knowledge converts uncertainty to risk
It is better to get information as early as possible, especially in a competitive
environment as it helps in calculated decision making
The challenge in inno is acquiring knowledge early
through market research,
technological R&D, competitor analysis, trend spotting and other mechanisms
We can use innovation to reduce uncertainty but increase resource commitment
(e.g. the further we go in a project the more knowledge we have as well as costs
increase) – which translates into the innovation funnel
roadmap that helps
review and make decisions about resource commitment. Essentially, the more we
know helps us with the later product
We can use the ad hoc basis (doing something for a specific purpose) but having a
structured development system with clear decision points and agreed rules on which
to base go/no-go decisions is more of an effective approach
As the project progresses we move from uncertainty to risk management
We need to realise the importance of configuring a system to a particular
contingencies of the organisation
9.3 PLANNING UNDER UNCERTAINTY
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The formal plan is to secure support or funding for a project or venture
Planning can help take big and abstract goals into operational needs and support
decision making and identify trade-offs
planning makes risks and
opportunities less vague, exposes unfounded optimism and self-delusion and avoids
arguments with responsibilities and rewards.
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When it comes to entrepreneurs and their business plans, they tend to focus
more on their expertise but have insufficient experience in the team and don’t
demonstrate passion and commitment to the venture.
Business plans for innovation are poorly planned
Adoption and diffusion of innovations help with successful business plans
The plans fail to identify and analyse any potential competitors.
New ventures rely on customers for sales in the early stages this leads to:
1. Loss of negotiating power which may reduce profit margins
2. Don’t develop marketing and sales functions which may limit future growth
3. Vulnerable to changes in the strategy and health of the dominant customer
9.4 FORECASTING INNOVATION
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Forecasting has a central role in business planning for innovation – it should provide
the framework for gathering and sharing data, debating interpretations, and making
assumptions, challenges and risks more defined.
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There is a trade-off between the cost and robustness of a forecast
The regression analysis can be used to identify the main factors that drive demand
for a given product and can estimate future demand
Customer or market surveys:
 Companies conduct customer surveys – the problem is that customers cannot
state their future needs.
 Information can be based on salesforce, and from existing products and services
which is biased as it is based on sales performance instead of long-term
development potential.
 Where products and services are complex, potential users are unaware and not
able to articulate their needs – traditional methods of market research are then
useless
Internal analysis (e.g brainstorming) – a method where a small group of experts interact to
identify opportunities or solutions. The suggestions are then recorded so that members can
vote on them. It doesn’t produce a forecast, but it provides a useful input.
Approaches to problem-solving:
1. Understanding the problem - The process involves analysing the task, determining
the need for deliberate problem-structuring efforts, constructing opportunities,
exploring data, and framing problems.
2. Generating ideas - The problem-solving process involves generating and focusing
phases, where individuals or groups generate various options, such as fluent, flexible,
original, or refined, and then examine and select promising options.
3. Planning for action - The goal is to identify and develop effective choices, preparing
for successful implementation and social acceptance, despite the potential for
unintended benefits.
External assessment
(e.g Delphi)- method for consensus-building on future technological goals and consumer
needs, used for long-term forecasting and identifying factors affecting achievement.
It involves selecting experts, structuring questions and including non-tech experts.
The process starts with a postal survey, then an analysis and then the resampling with more
a focused questionnaire.
The Delphi technique is a repetitive process of questionnaires and feedback among experts
to forecast probabilities of events. It aims to eliminate biases from face-to-face meetings,
but the quality depends on expert expertise and selection. It's popular for national foresight
programs.
Scenario development – these are the descriptions of alternative possible futures that are
based on different assumptions and interpretations of the driving forces of change.
Path of development can range from conventional to revolutionary. It incorporates critical
events.
Can either be normative (preferred vision of the future and outlines different pathways from
the goal to the present) or explorative (defines drivers of change and creates scenarios from
these without explicit goals or agendas)
Must challenge the assumptions of stakeholders
The goal is to plan for the outcome with the greatest impact or retain sufficient flexibility to
respond to different scenarios.
9.5 ESTIMATING THE DEMAND FOR INNOVATIONS
Understanding how and why innovations are adopted helps to develop realistic plans.
9.6 ASSESSING RISK, RECOGNISING UNCERTAINTY
Risk can be estimated through either qualitatively (high, medium, low) or by probability
estimates.
The degree of uncertainty must be known to help select appropriate assessment methods
and plan for contingencies.
Firms can emphasise project management to mitigate internal risks in the firm – but they
can fail to identify or exploit opportunities to acceptable risks and to innovate.
Risk as probability – innovation can be uncertain so the forecasts (costs, prices, sales
volume etc) that underlie project and program evaluations can be unreliable.
Managers and technical managers cannot accurately predict development costs, periods,
markets and profits of R&D projects.
Assessing opportunities for innovation
Value of uncertainty
Method one:
Method two: supporting decision-making
Mapping the selection space
The innovation selection space is divided into four spaces
Zone 1 – exploit (incremental innovation)
Zone 2 – reframing
Zone 3 – bounded exploration
Zone 4 – coevolve (frontier of innovation)
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