In the incubation phase of innovation, uncertainty is not just a characteristic—it’s the defining feature. Here, innovation opportunities face a unique landscape, riddled with ambiguous assumptions about market size, customer behavior, costs, competition, production feasibility – and many others.
The sheer volume of unknowns makes building a reliable business case challenging. These uncertainties cause many organizations to prematurely kill (“red light”) or approve (“green light”) innovation opportunities.
These ill-informed decisions can each be considered a failure to avoid: the former means missing an opportunity for transformative change, and the latter creates so-called “zombie projects” that waste resources for weeks, months, or even years without creating value.
Navigating these decision points successfully requires a refined approach, a way to truly “win” at this complex game of “red light, green light.”
The Red Light, Green Light Dilemma in Innovation
In innovation, decisions are often made with incomplete data. When projects get the green light too soon, they can drain resources without delivering expected returns. This occurs when assumptions about success factors, like market readiness or customer adoption, are overly optimistic. These projects proceed under a misguided sense of progress, but often lack a rigorous, evolving assessment of risk and opportunity.
By the time the red light finally flashes, significant time and funds have been spent, and morale has noticeably declined.
…Projects that get the red light too soon can stifle creativity and risk-taking within an organization.
In contrast, projects that get the red light too soon can stifle creativity and risk-taking within an organization. These may be promising initiatives with the potential for substantial impact, but they face roadblocks when the innovation team lacks alignment with executive expectations or underestimates the potential impact.
The solution isn’t to play more conservatively or to throw caution to the wind. Instead, the solution should be to create a system that allows both innovation teams and executives to achieve visibility into the relevant uncertainties, and to know which issues matter most in building confidence in the business case. Achieving this alignment and clarity during the incubation phase requires a framework that accounts for the high degree of unknowns—and this is where a prioritization of learning can shift the odds toward winning.
Embracing Uncertainty Through Ranges of Assumptions
A fundamental way to build a resilient business case amid uncertainty is to embrace ranges of assumptions instead of relying on single-point estimates. By incorporating low, high, and baseline assumptions that reflect a spectrum of possible outcomes, teams can demonstrate the inherent variability of new ventures, and leaders can adapt their expectations dynamically.
Using ranges of assumptions within the business case also sets the stage for sophisticated analysis, such as Monte Carlo simulations, which can help teams visualize and quantify uncertainty through a tornado diagram. A tornado diagram provides a clear picture of the factors with the greatest impact on the business case, pinpointing where the biggest risks lie. In other words, it provides a roadmap for how to achieve the green light and where to expect the red light based on data rather than gut feel or incomplete information.
The Critical Link Between Issues and the Business Case
For innovation teams, it’s essential to connect the issues that will influence a venture’s success directly to the business case factors they influence. Creating this clear, traceable connection enables a more actionable response to each risk or opportunity, guiding teams toward the areas that require the most immediate attention and learning.
This alignment also prevents the innovation team from focusing on the wrong areas. For example, misalignment on what matters most might cause a project team to heavily invest in understanding production logistics while the executive team’s concerns are focused squarely on market demand – which significantly increases the likelihood of an untimely red light at the next gate review. By prioritizing learning in areas that most significantly affect the business case, innovation teams can seek to deliver evidence that improves confidence in the business case for all stakeholders and get the green light to continue.
To win at the innovation version of ‘red light, green light,’ innovation teams need to shift their focus from avoiding risk to prioritizing learning.
Prioritizing Learning as a Competitive Advantage
To win at the innovation version of “red light, green light,” innovation teams need to shift their focus from avoiding risk to prioritizing learning. By understanding which issues have the most significant impact on the business case, they can design targeted experiments that resolve these uncertainties, allowing the team to progressively reduce the unknowns and build a stronger, more compelling case for — or against — moving forward.
For instance, suppose market size is identified as a critical uncertainty. The innovation team can conduct pilot studies or surveys to gather market data, then incorporate these findings back into the business case to refine assumptions and re-run the model. This iterative process allows for continual refinement, where each new piece of data contributes to a more realistic outlook. Over time, the project can evolve from a high-risk, uncertain venture into a well-understood opportunity with a clear pathway forward — or a definitive red light based on robust, data-driven reasoning.
Avoid Failure with the Right Lights at the Right Time
Winning at “red light, green light” in the world of innovation is about making sure the right light shines at the right time. Green lights should go to projects with an evolving de-risked business case built on prioritized learning, while red lights should only appear when data confirms that it’s time to stop or change course. By focusing on the uncertainties that matter most, innovation teams can sidestep premature red lights, and executives can avoid waste from hasty green lights. Learning becomes the critical advantage that paves the way for innovation success.
Prioritizing learning on impactful uncertainties can transform the incubation phase into a strategic playground for innovation. In this environment, every red light and green light serves as a checkpoint that brings the organization closer to its next breakthrough, without the pitfalls of wasted resources or missed opportunities. This approach is how innovation teams cannot only “play” the game of “red light, green light” — but also win it.
Curious to learn more about SmartOrg’s method of linking issues to the business case and working with ranges of assumptions to navigate these complexities? Click here to download our “iNav in Action” eBook.
Doug Williams is Associate Director of Innovation at SmartOrg.
