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Entrepreneurship and innovation June 23, 2016

Innovation challenge: Why companies kill great projects and how to avoid this happening

person is examining two apples at a market
As companies strive to invest their R&D budgets in innovation, the selection process should not be ignored.

“It’s not fair.” All parents have heard this statement from their children, and all developers have said it more than once. In the race for R&D budgets within companies, project leaders whose innovative schemes are either not funded or underfunded question why a less novel project receives a much greater amount of financial resources. What is causing this? Can the process be fair?

In a study of R&D projects in a leading professional firm, we found that organizations are more likely to fund projects that are somewhat novel, but that too much novelty resulted in projects receiving little or no funding. Instead of examining the characteristics of people who were generating project ideas, we shifted the focus to the panels which were selecting the ideas and allocating funds. What we found was that, indeed, it was not always fair. The selection process was not neutral but biased. The composition and the workload of the panel reviewing R&D projects affected the decisions surrounding which projects to fund, and location also played an important part.

Selector biases

Workload: Novel projects are less likely to be funded when the selection panel’s workload is too great, because assessing new ideas takes more time and effort.

Diversity: The more diverse the panel, the more interested it is in novelty. Diversity increases the likelihood that the members of the selection panel will look at multiple facets of a proposed project.

Location: The willingness to accept novelty is greater when the project applicant and panel member share the same location. The shared location creates an in-group bias that causes panel members to overestimate merits of a proposal and underestimate its problems.

How to overcome

Our findings challenge many of the current practices of R&D project funding selection. It raises critical questions about how and when selection is undertaken. When promoting innovation, the mechanics of selection are very relevant.

To avoid the workload bias, organizations seeking novelty could achieve better results by limiting the flow of projects into the selection process. This would allow for enough managerial attention to be paid to each project under evaluation. One such strategy could involve “binning” projects by selection windows and convening a selection panel when a bin is full, rather than at a set date or time of year.

Should it not be possible to make a selection panel per se more diverse, a company could implement competitions or innovation tournaments to engage different internal and external communities in the selection process. This approach would also help to mitigate partiality caused by lack of experience and knowledge surrounding the innovative project, which, in turn, often leads organizations to select local solutions.

As companies strive to invest their R&D budgets in innovation, the selection process should not be ignored. The changes listed above, while not guaranteeing the selection of the next “big thing”, would facilitate a less biased and perhaps even “fairer” allocation of resources.

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