Measuring innovation

I recently saw some new thinking from Alex Osterwalder, who’s best known for introducing the Business Model Canvas in his book Business Model Generation. In this presentation he argues that on the uncertain new development side of what he calls the Explore-Exploint continuum, OKR (objectives and key results) is not a workable measurement model, because it focuses too much on ahead-knowable outcomes, and instead we should develop what he calls are AKI (aspiration and key insights).

This highlights a repeating, fundamental error of corporate development thinking. As OKRs were originally introduced, and the way Google popularized them, the Objectives of OKR were not supposed to be certainly achievable, plannable outcomes, but aspirational, if not audacious goals you’re not even supposed to (easily) reach, but which should guide all decisions and actions. They turned into SMART (Specific, Measurable, Achievable, Relevant, and Time-Bound) goals in the hands of project and business managers who were uncomfortable in the face of uncertainty.

This is a situation I saw a few years ago in a corporation where my task was to lead product development around a new technology for which the market was still unexplored. To be successful, we would have to embrace uncertainty with many small experimental projects, some of which would simply study various market niches, others prototype products exploiting the technological capabilities of the company. A challenge in most of these was that the technology was unique enough that the products wouldn’t really face established competition. That is, the market could not expect such a product to exist, and there were not clear benchmarks to compare against.

It turned out that the company really was not ready to accept that exploration would be needed and was expecting a project plan to exploit an unproven opportunity. After some time trying to explain the organization that while a project plan could be put together and executed, the expectation of valuable results in an unexplored market was unrealistic, and being denied the opportunity to develop experiments instead, I had to declare a loss. It’s always painful, but sometimes necessary.

The company has continued on the same trajectory and is yet to find success. I wish them well — but in order to find the success they seek for, they’ll have to accept that market uncertainty won’t be tackled by using tools intended for repeatability in a known market.

Would the Explore-Exploit framework and its OKR/AKI split help them? Sadly, I don’t think so. It’s not difficult to superficially understand the differences between those models, and I’m sure the leaders in that company would claim to be well aware of this difference. It’s another thing completely to use that understanding in their management and develop a culture which is able to embrace uncertainty and build processes around it. The most likely outcome, barring significant management thinking changes, would be a rollout of this metrics model, with failure to understand the fundamental nature of aspirational goals, and have yet one more measurement framework corrupted by expectation that objectives must always be small enough to be certain they can be achieved.

While Alex Osterwalder is a good communicator and it is necessary to continue to iterate on the message that exploratory development requires aspirational, not achievable goals, that shift in thinking unfortunately eludes most corporate business managers. After all, almost all of them are being paid to achieve goals, not to aspire for uncertain insight.

I would be very happy to be proven wrong on this, though.