30. Expected Value - Act 2, Chapter 5

“If you can't explain it simply, you don't understand it well enough.”
Albert Einstein

Innovation has no shortage of frameworks, toolkits, or canvas templates. But too often, those tools complicate instead of clarifying. They add noise instead of structure. They create motion without meaning.

Act II is about changing that by introducing a coherent system, not just more frameworks.

This episode marks the beginning of Act Two, operationalizing innovation value. We follow Freya's team as they put X V into practice for the first time.

Transcript

Intro: 0:00

What's a burphy? What's a parthe?

Simon: 0:09

This episode marks the beginning of Act Two, operationalizing innovation value. We follow Freya's team as they put X V into practice for the first time.

Intro: 0:19

We've been counting all the pilots, posting metrics on the wall. But when the CFO is asking, where's the value in it?

Simon: 0:29

Act two building a system that measures what matters. If you can't explain it simply, you don't understand it well enough. Albert Einstein. Innovation has no shortage of frameworks, toolkits, or canvas templates. But too often those tools complicate instead of clarifying. They add noise instead of structure. They create motion without meaning. Act two is about changing that by introducing a coherent system, not just more frameworks. From insight to implementation. Discovering a new way to think about innovation value, as Freya and Axel have started to do with XV is only the first step. The harder challenge is turning that insight into a working system, something that can be taught, scaled, and embedded into an organization's decision fabric. This transition from conceptual breakthrough to operational reality is where most innovation methodologies fail. They remain theoretical frameworks, impressive on slides but absent from daily decisions. They become what one disillusioned innovation leader called shelf help. Ideas that sound promising but never leave the bookshelf or the classroom. The expected value system was designed specifically to bridge this gap between theory and practice, to function as a working language rather than just a clever vocabulary. It emerged from the boardroom silence that follows the question What's this all worth? It was designed to be used, not just understood. Building the operational backbone. In the chapters that follow, we build the system, a practical, explainable, operational way to turn innovation from something interesting into something integrated, measurable, and strategic. We begin with XV, expected value, the metric Freya and Axel stumble toward in their late night sketching session. From there we layer in company alignment through the strategic fit lens, life cycle awareness via the S curve, and even structured learning through failure kill credits. Together, these components form a coherent innovation operating system where each element reinforces and enhances the others. Expected value provides a dynamic way to assess confidence as a weighted value that turns gut feel into structured decision support. Strategic fit ensures that high value ideas also align with strategic capabilities, addressing the critical question of why us alongside why this. The S-Curve framework positions innovation initiatives along their natural life cycle, preventing the common trap of comparing early stage ideas with scaling solutions. Together, these tools are not just a collection of interesting techniques, but a coherent approach to making innovation decisions with clarity, confidence, and credibility. From tools to transformation. It's not just about adopting new metrics, it's about changing how people think, about innovation itself. This transformation requires navigating both the rational and emotional dimensions of change these are one overcoming the institutional inertia that treats innovation as inherently unmeasurable. two building decision confidence in areas of high uncertainty. Three, creating a language that bridges creative exploration and business performance, and four, establishing rituals that turn measurement into insight, not just scorecards. The chapters ahead aren't just about the frameworks themselves but about how they work together as a system and how they reshape the way innovation is led, measured, and valued. Building these tools is only the first step. To create lasting change, they must be embedded within effective governance structures and continuous learning systems. Elements we'll explore in Act three. This isn't about adding more innovation jargon. It's about making sense of innovation so that the rest of the business can believe in it, back it, and build with it. Because if you can't explain it simply, you'll never scale it effectively, and if you can't scale it effectively, you'll never create the impact that innovation promises. Chapter five Understanding XV Theory and Practice. The difference between theory and practice is smaller in theory than in practice. The late night whiteboard session where Freya and Axel developed the expected value formula was just the beginning. In this chapter we'll deepen our understanding of each component of XV, explore implementation approaches, and examine the psychological shift that make XV more than just a calculation. It's a fundamentally different way of thinking about innovation value. Expected value XV was born from a simple but powerful insight. Innovation decisions don't need perfect certainty to be strategic. They need structured transparency about what we know, what we believe, and how those beliefs are evolving as we learn. The formula that Freya and Axel developed XV equals confidence multiplied by predicted value, multiplied by time sensitivity multiplied by strategic fit represents more than just a calculation. It embodies a philosophy about innovation decision making that is dynamic rather than static. Values evolve as learning occurs, is evidence based rather than opinion driven. Beliefs are grounded in validation, is transparent rather than opaque. Assumptions are made explicit, is adaptive rather than rigid. The approach changes as initiatives mature. This philosophy fundamentally reshapes how innovation teams operate, moving them from trust me advocacy to structured, evidence-based conversations about potential and progress. Let's examine each component of the XV formula in greater detail, building on the foundation that Freya and Axel established. Confidence. The evidence factor. The confidence component scored 0.1 to 1.0 represents the strength of evidence supporting an innovation's potential. Unlike traditional approaches that might dismiss ideas with low initial certainty, XV acknowledges that all innovations start with limited evidence. The focus shifts from demanding premature certainty to systematically building confidence through learning. Confidence is fundamentally tied to the champion or team backing an innovation. It's their metric, a reflection of the evidence they've gathered, the assumptions they've tested, and the credibility they've established. When a team presents a confidence score, they're essentially saying, here's how strongly we believe in this, based on what we've validated. This approach transforms innovation conversations from subjective enthusiasm. I'm excited about this idea. To evidence based conviction, we've tested these assumptions and here's what we've learned. It creates accountability for champions to build their case systematically rather than relying on charisma or position to push ideas forward. The confidence scale in practice. While Freya and Axel establish the basic zero point one to one point zero scale during their whiteboard session, implementing it requires more detailed guidelines. These confidence level benchmarks are zero point zero to zero point one. Assumed belief. The idea is based on intuition or early hypothesis with no supporting evidence. Assumptions are untested. Potential value is speculative. Insight comes mainly from internal experience or anecdote rather than validation. zero point one to zero point two Early Hypothesis Formation The problem and solution have been articulated and limited qualitative evidence, for example, a few interviews or secondary data support the need. However, no experiments or prototypes have been conducted. Uncertainty remains very high 0.3 to 0.4. Early validation with partial supporting evidence. Core assumptions have been tested through limited prototypes, pilots, or user trials showing that the concept works in principle. Some uncertainty has been reduced and early stakeholders or users express interest or alignment. Confidence remains moderate as scalability, cost effectiveness, and sustained impact are not yet evidenced. 0.5 to 0.6 Structured Validation Multiple tests or pilots have produced consistent results. Technical feasibility and user desirability are evidenced. Early indicators of commercial or operational viability are emerging. Key risks are being managed through iterative learning. Confidence is building, but not yet proven, at scale. 0.7 to 0.8 Demonstrated Performance Evidence from real world pilots or controlled rollouts shows clear value creation with measurable results tied to performance or adoption. Replicability is improving and most major risks have been reduced. The innovation is ready for broader scaling or investment. 0.9 to 1.0 Proven and Predictable. The innovation has demonstrated consistent results at scale, with robust data validating its value and sustainability. Confidence is high, uncertainty is minimal, and the focus shifts from validation to optimization and exploitation. Evidence requirements by confidence level 0.1 to 0.2 based on gut feel 0.3 to 0.4 must have initial evidence in at least two critical dimensions 0.5 to 0.6 requires moderate evidence in at least four dimensions with no significant negative signals 0.7 to 0.8 demands strong evidence in at least five dimensions with validation from multiple sources 0.9 to 1.0 requires comprehensive evidence across all dimensions with real world implementation validation. The critical dimensions of confidence. For confidence to function effectively within XV, it must be assessed across multiple dimensions rather than as a single impression. When innovation champions or teams present their confidence assessment, they're demonstrating what they've learned and validated across these key dimensions. One technical feasibility Can we build this reliably and at scale? Why this is critical. Champions must prove they understand the technical challenges and have evidence their solution works, evidence sources. Working prototypes, technical assessments, performance tests, expert evaluations and technology readiness levels two. Why this is critical. Teams need to demonstrate they validated real user needs and willingness to pay, not just assumed them. Evidence sources User interviews, usage analytics, willingness to pay tests, purchase intent metrics, adoption data, lead user identification and customer feedback. three Market viability Is there a sustainable commercial model? Why this is critical? Champions must show they understand the commercial realities beyond just the product or solution itself evidence sources Market sizing, competitive analysis, pricing tests, unit economics, conversion metrics and regulatory assessment. four operational delivery can we execute effectively? Why this is critical? Teams need to demonstrate they've thought through how the innovation will actually be delivered Evidence sources Capability Assessments, Delivery Track records, resource availability, implementation planning and partnership evaluations. Five Implementation readiness Are we prepared to implement this effectively? Why this is critical? Champions must show they've considered what's needed to make the innovation successful in practice evidence sources. Team capabilities, infrastructure assessment, process readiness, training needs analysis and implementation planning. six regulatory compliance Can we navigate legal and regulatory requirements? Why this is critical? Teams need to demonstrate they understand the regulatory landscape and compliance requirements, evidence sources regulatory reviews, compliance assessments, legal opinions, certification requirements and industry standards. Conformance each dimension represents an area where champions must build credibility through evidence rather than assertion. The confidence score reflects how thoroughly they've done this across all dimensions. This approach transforms innovation advocacy. Instead of champions defending their ideas based on personal conviction alone, they present the evidence they've gathered and acknowledge the areas where uncertainty remains. It's not about having perfect information, it's about being transparent about what is known versus what requires further validation Confidence scoring process. One score each dimension separately on a zero point one to one point zero scale based on available evidence. two document specific evidence for each dimension score three calculate a weighted average if some dimensions are more critical than others for your specific context. four apply conservative adjustments for interdependencies between dimensions. five review historical confidence assessments to calibrate against past accuracy when assessing confidence across these dimensions, champions should present evidence for each dimension separately. Be forthright about areas of lower confidence propose specific learning activities to address knowledge gaps. Update their confidence assessment as new evidence emerges This structured approach transforms confidence from trust me to here's why you can trust this assessment. It creates both accountability for champions and clearer decision criteria for leadership. It's important to note that while confidence measures a team's evidence based belief in an innovation's feasibility and viability, the separate strategic fit component of the X V formula discussed in upcoming chapters addresses a different question whether this innovation aligns with the organization's strategic direction, capabilities and advantages Confidence asks can we do this successfully? While strategic fit asks should we be the ones to do this common pitfalls to avoid one overconfidence bias. Teams consistently overestimate technical feasibility and underestimate regulatory challenges two confirmation bias seeking evidence that supports existing beliefs while ignoring contradictory signals third precision fallacy giving overly precise confidence scores without corresponding evidence. Fourth enthusiasm effect allowing excitement about an idea to inflate confidence scores. five domain blindness overconfidence in familiar domains and underconfidence in new ones remember that confidence scores should evolve as new evidence emerges. Establish regular reassessment points to update confidence based on learning and validation activities. Early stage ideas typically start with confidence scores of 0.1 to zero point four reflecting their potential but unproven nature reserve scores above zero point seven for ideas with substantial validated evidence across multiple dimensions The lead user signal a particularly powerful confidence building signal comes from lead users, individuals or organizations already creating their own solutions to the problem you're targeting. When Freya's team discovered users implementing makeshift solutions or workarounds they considered this strong evidence and increased confidence scores accordingly the presence of lead users indicates not just that the problem exists but that it's significant enough for people to invest time and resources addressing it themselves. This real world validation often provides more meaningful confidence than internal testing alone predicted value the potential upside the second component is predicted value the potential upside of the idea if it works. This can be financial like new revenue or cost savings but it can also be strategic reduction in risk increase in customer satisfaction acceleration of delivery regulatory compliance or alignment with sustainability goals. The important part is that value is defined by the business not the buzz. When developing XV, Freya and Axel had debated whether to use currency figures or an abstract index for measuring value. While an index from zero to one might have offered mathematical elegance and consistency with the confidence scale they ultimately chose currency for its immediate clarity and connection to business language. As Freya had noted I need this to work in board meetings and budget discussions and those run on dollars not indexes. This choice acknowledged that while currency values might imply more precision than actually existed for early stage innovations, they created an immediate bridge to how executives thought about business decisions. It was another example of how the XV system balanced theoretical purity with practical application. In early stage innovation you rarely have exact numbers. That's okay Freya encouraged her team to use directional ranges what would success look like at a low estimate and at a high one The midpoint became their working value. Precision wasn't the goal visibility was for financial value estimates teams should use consistent metrics where possible one revenue growth new or protected two cost reduction or margin improvement third strategic advantage four risk mitigation quantified for strategic value that's harder to quantify teams can use proxy metrics or relative scoring but should always be explicit about the assumptions behind these estimates. In practice, value estimation typically follows these patterns based on innovation type for cost saving innovations identify affected processes and current costs estimate percentage improvement or efficiency gain calculate annual impact and project over appropriate time frame apply confidence based discount to reflect uncertainty for revenue generating innovations define target market and addressable segments estimate adoption rates and pricing models project revenue streams over appropriate time frame account for cannibalization of existing offerings apply confidence based discount to reflect uncertainty for strategic innovations identify key metrics that capture strategic impact develop proxy financial measures where possible establish relative importance compared to financial initiatives create comparable strategic currency valuation the key is not precision but directionality understanding whether an innovation represents a $100,000 or $10 million opportunity even when exact figures remain uncertain. When estimating the predicted value component of the XV formula a disciplined approach to quantification creates more credible and defensible valuations. Predicted value represents the potential upside if an innovation is successful, not just financial returns but also strategic advantages risk reduction and capability development Quick Value Assessment Framework Before engaging in detailed financial validation with finance teams and stakeholders use this simplified approach to establish an initial value estimate that provides directional guidance for early decision making step one Identify primary value category determine which one category will deliver the most significant impact revenue generation Definition New sales or protected existing revenue Cost reduction Definition Efficiency gains error reduction resource optimization risk mitigation definition compliance security resilience improvements Strategic advantage definition market position capability building competitive differentiation Step two apply the rule of ten estimation for your primary value category establish three reference points establish the value level using t-shirt sizing small less than one million dollars medium one million dollars to ten million dollars large greater than ten million dollars or whatever works in your context another way of defining is small impacts a single department slash function or affects a narrow customer segment or creates incremental improvements. Medium impacts multiple departments functions or affects a significant customer segment or creates substantial improvements up to ten million dollars large impacts the entire organization or affects most and all customers or creates transformative improvements over ten million dollars. Step three Triangulate with quick check question verify your initial category with these validation questions verification check scale check verification question What percentage of our business would this impact multiply total relevant baseline by this percentage E.G.E. Your annual department costs are five million dollars and the innovation would impact twenty percent of those costs that suggests a value of one million dollars comparison check What similar initiatives have we done before and what value did they deliver? E.g. a similar project delivered eight hundred thousand dollars in value your current estimates should be in the same range unless there are clear differences in scale or scope competitor check If a competitor implemented this what would the impact be? E.g., a competitor implementing this solution would result in a $1.4 million dollar improvement or loss of market position or only $50,000 in minimal financial impact. Higher dollar values indicate more significant competitive threats loss check What would it cost us if we didn't do this? Status quo cost each maintaining the status quo costs $1.2 million dollars annually in inefficiencies. Your value estimate should reflect this potential cost avoidance using the verification results after performing these checks you should one compare all results. Look for significant discrepancies between your initial estimates and what each verification check suggests. two adjust if necessary if multiple verification checks suggest your estimate is off consider revising it. three document the reasoning record which verification checks had the most influence on your final estimate and why Step four document assumptions capture the key assumptions behind your estimate Who benefits customers, departments, stakeholders How the value is generated mechanism of impact When value would begin to materialize time to impact What dependencies exist other systems, initiatives or capabilities Time sensitivity The urgency factor The time sensitivity component scaled zero point seven to one point five captures the strategic timing of an innovation opportunity. This dimension acknowledges that timing can significantly amplify or diminish potential value operationalizing time sensitivity The time sensitivity scale that Freya and Axel developed recognizes not just urgency but also strategic delay with timeframes calibrated to realistic organizational capabilities zero point seven to zero point eight strategic delay i. e. there is an advantage in waiting implementation is strategically advantageous to delay by twelve plus months. Supporting technologies or infrastructure will mature significantly in one to two years. Market is not yet ready for adoption, early for customer acceptance. Competitive dynamics favor deliberate patience and preparation example emerging technology that will benefit from industry standardization Still in development zero point nine slight delay planned future implementation. Value is maximized by beginning implementation in six to twelve months. Moderate dependencies on upcoming market or internal developments Resources better deployed to other initiatives in immediate term. Initiative aligns with next year's strategic focus or technology roadmap. Example Solution that fits within next fiscal year's strategic priorities one point zero standard timing normal implementation timeline. No special urgency or delay factors Standard Planning and implementation timeline three to six months is appropriate. Competitive landscape stable Market conditions neither rapidly evolving nor static. Example Typical product enhancement with standard development cycle one point one to one point two moderate urgency prioritize within next quarter advantage in accelerating implementation within next three to four months emerging market window with six month opportunity period early signs of competitive activity in the space internal alignment opportunity with other strategic initiatives Example Feature that provides modest competitive differentiation if delivered within quarter one point three to one point four significant urgency expedite development clear market window with three to six month opportunity period competitor actions creating increased urgency regulatory or compliance deadline approaching within six months major customer expectation with defined timeline example response to competitor launch or meeting regulatory requirements one point five critical urgency immediate priority shift required must be prioritized above all other initiatives extremely time sensitive market opportunity with one to three month window imminent competitive threat requiring rapid response emergency response to external event or market disruption now or never opportunity requiring immediate resource reallocation example response to sudden market disruption or critical competitive threat this approach to time sensitivity prevents a common trap in innovation prioritization, allowing ready ideas to move forward ahead of more valuable ones simply because they're available. It creates a mechanism to deliberately sequence initiatives for optimal value, sometimes by accelerating time critical opportunities and sometimes by strategically delaying premature ones. Strategic fit the right to win during their initial development of XV, Freya and Axel recognized that even highly valuable ideas might not be right for their organization to pursue. This insight led them to include strategic fit as the fourth component in the XV formula. While we'll explore strategic fit in much greater depth in subsequent chapters, it's worth understanding how it functions within the XV system. It represents how well an innovation aligns with organizational capabilities and direction. Unlike value metrics that measure potential return, the strategic fit framework determines whether your organization is the right one to pursue an opportunity it considers four dimensions problem value dot company advantage market attractiveness and trend alignment. The strategic fit transforms the innovation conversation from is this valuable to is this valuable for us technical implementation of XV When Freya moved from concept to practice she developed several implementation tools to make XV operational confidence assessment across key dimensions value estimation frameworks for different innovation types calculation and tracking of XV over time visualization of confidence movement through trend charts Narrators note you can download an example of the XV calculation template and several other templates referenced in this chapter and across the book at the website www.xvbook.com The XV dashboard for portfolio level visibility showing XV for all active initiatives month over month XV Delta indicating learning momentum confidence breakdowns by dimension resource allocation mapped against XV The learning canvas find the canvas at xvbook.com The learning canvas helps to make confidence scores more than just numbers documenting capturing key assumptions requiring validation experiments designed to test those assumptions evidence gathered and its impact on confidence next learning priorities these tools transformed XV from an abstract concept into an operational reality something teams could use in daily decision making enhancing XV with agentic AI as the XV system matured, Freya and Axel explored how emerging AI technologies could enhance its implementation. They recognized that while human judgment remained essential, agentic AI systems could significantly improve the data processing and pattern recognition aspects of XV This approach led to several AI enhanced applications. One confidence calibration tools that use machine learning to analyze historical confidence assessments against actual outcomes, helping teams recognize where they tended to be overconfident or underconfident. two market signal tracking systems that monitored online communities, forums and reviews to identify potential lead users and emerging solutions. three value prediction models that use comparable data and market analogs to suggest baseline predicted value ranges four portfolio pattern recognition that identified non obvious correlations between initiatives, highlighting potential synergies, dependencies or duplications The psychological power of XV Beyond its analytical value XV creates several powerful psychological shifts in innovation teams as follows From advocacy to inquiry When team members are evaluated on confidence building rather than idea selling they shift from defending their ideas to testing them rigorously. This creates a culture where questioning and exploration are valued above attachment to specific solutions, from fear of failure to value of learning. By making learning visible through confidence movements, XV reframes failures as valuable insights that improve decision quality. Teams become more willing to run experiments that might disprove assumptions, recognizing that this information is as valuable as confirmation from politics to evidence creates a more level playing field where the strength of evidence matters more than the seniority of the advocate. On one axis and confidence level low or high on the other axis low confidence and low value should be reconsidered or reframed. Low confidence and high value are potential learning investments. High confidence and low value are potential quick wins and high value high confidence ideas are priorities Portfolio implications A balanced innovation portfolio should contain initiatives from at least three quadrants with careful allocation across them based on strategic priorities and risk appetite The X V movement story rather than presenting static X V numbers she showed how XV was changing over time, highlighting Ideas where confidence was increasing positive learning ideas where value estimates were being refined better understanding Ideas where XV was declining early warning signals X V to strategic outcomes She created bridges between X V and strategic KPIS the executive team already tracked showing how the innovation portfolio contributed to revenue growth targets, cost reduction goals customer experience metrics strategic capability building These translation tools allowed executives to understand the value of the innovation portfolio without getting lost in the details of calculation methodologies Overcoming resistance to XV When Freya first introduced XV to broader stakeholders she encountered several predictable objections. This is just putting numbers on guesswork. This criticism misunderstood the purpose of XV It wasn't claiming false precision it was creating structured transparency about what they knew and didn't know. Freya's response We're not pretending to predict the future we're making our current beliefs explicit so we can test and refine them. We can't possibly estimate value this early early value estimates aren't about precision, they're about direction and magnitude Freya emphasized we're not committing to these numbers. We're establishing a starting point that we'll refine as we learn. Our finance team will tear this apart. Finance professionals are often the strongest allies for XV once they understand it. As Freya discovered David the CFO became one of XV's strongest advocates once he saw how it created a bridge between early innovation and the rigor finance requires later. This adds bureaucracy to innovation. When implemented properly XV reduces bureaucracy by creating clearer decision criteria. Freya's team found that decisions happened faster with less politics and more focus on evidence. These objections weren't roadblocks they were opportunities to clarify the purpose and power of the XV approach. By addressing them directly Freya built broader understanding and buy-in implementing XV in your organization as you consider implementing XV in your own context three implementation principles can help ensure success. Start simple then refine begin with basic applications of the model using rough estimates and straightforward confidence assessments. Don't let perfect be the enemy of useful as teams gain comfort with the approach you can add more sophisticated assessment dimensions. Build the ritual before the rule introduce XV first as a conversation tool not a mandated process. Create regular rituals where teams discuss confidence levels and evidence, building comfort with the language before formalizing the metrics. Connect to existing decision systems look for natural integration points where XV can enhance rather than replace existing governance. Stage gate reviews, portfolio meetings and budget discussions are all opportunities to introduce X V thinking the power of XV isn't in mathematical precision. It's in creating a structured way to discuss uncertain futures, turning the murky process of innovation assessment into something more transparent, more inclusive and ultimately more effective The efficiency dimension while the core XV formula provides a view of expected value, Freya and Axel's breakthrough came when they added the efficiency lens. By calculating cost per XV point total investment divided by XV, they created a metric that revealed not just what innovations were worth but how economically they could be developed. This approach immediately highlighted something surprising different implementation approaches for the same innovation could produce dramatically different efficiency ratios. Traditional RD approaches often showed costs of 50 cents to five dollars per X V point while open innovation methods frequently achieved 4 cents to 15 cents per X V point a 10 to 20 times advantage. This insight transformed resource allocation decisions rather than simply pursuing the highest X V opportunities regardless of approach teams could now optimize for X V efficiency, generating significantly more expected value from the same budget. The efficiency dimension also created a new lens for innovation strategy early stage exploration higher cost per XV point acceptable up to one to three dollars for critical learning mid stage scaling efficiency becomes paramount target under fifty cents late stage optimization focus on maintaining sub zero point three zero efficiency. This approach ensured appropriate resource allocation across the innovation life cycle while maintaining accountability for efficient value creation at each stage When XV isn't enough as powerful as the XV model is, Freya and her team quickly discovered they needed to develop the strategic fit component more fully some projects scored well on the other three components strong confidence, meaningful predicted value, clear time sensitivity but still didn't feel right they didn't fit the company strategy, played in markets they didn't understand or solved problems that weren't theirs to solve. That's when Axel observed we're measuring potential now we need to define fit more precisely. While strategic fit was always part of the XV formula the team recognized that this dimension required deeper development. They needed a structured framework for evaluating not just how valuable could this be, but should this be ours to pursue? This insight led them to develop the strategic fit framework which we'll explore in the next chapter. This framework would enhance their approach to the strategic fit component from a simple assessment to a sophisticated evaluation of strategic alignment across multiple dimensions. The evolution from XV to a fully developed strategic fit framework represents the natural progression from understanding value to understanding context, from knowing what opportunities are worth pursuing to knowing which ones your organization is uniquely positioned to capture looking ahead from formula to system The X V formula represents the foundation of a more comprehensive innovation management system. In the chapters that follow we'll explore how this foundation expands into one a structured approach to evaluating strategic fit chapter five two a deeper understanding of how strategic fit informs innovation decisions chapter six three a life cycle perspective that positions innovations along their natural S curves chapter seven together these elements create a coherent system for innovation decision making that balances value potential with strategic alignment, timing considerations and life cycle positioning As Freya discovered the formula is just the beginning. The real power comes from how it transforms not just what we measure but how we think about innovation itself TLDR Expected value XV transforms innovation decision making by combining four critical dimensions confidence based on evidence rather than gut feeling predicted value expressed in currency units time sensitivity capturing strategic timing and strategic fit reflecting organizational alignment. The XV formula creates a dynamic assessment that evolves as learning occurs, turning uncertain innovation into a structured conversation about value lead users, individuals already creating their own solutions provide particularly powerful confidence signals. When enhanced with the efficiency dimension cost per XV point the system reveals that open innovation approaches can be 10 to 20 times more efficient than traditional RD. Beyond measurements XV creates psychological shifts from advocacy to inquiry fear of failure to value of learning politics to evidence and sunk cost fallacy to dynamic reassessment the system works because it doesn't pretend to predict the future perfectly instead it makes current beliefs explicit so they can be tested and refined as teams learn.

Outro: 50:16

What's a birth uh uh uh uh