Is Your Company Choosing the Best Innovation Ideas?

Generating good innovation proposals from within the ranks of the organization is only the beginning. The more difficult part is creating a selection process that identifies which ideas to implement.

Managers who are new to the field of corporate innovation will quickly find that there is no dearth of advice or resources on how to turn corporations into fountains of creative ideas. Books and journals abound with techniques for helping employees overcome old mental models and “think outside of the box.” The goal of these approaches is to generate vast numbers of unconventional ideas to improve the existing business or uncover new opportunities. However, as veteran leaders of innovation campaigns know, the problem for most large organizations usually isn’t a shortage of ideas. The real challenge is figuring out how to ferret out the good ones.

In large organizations, senior managers need to delegate major parts of the selection process to lower-level managers. But delegating critical decisions comes with risks. In the case of asking subordinates to filter innovation proposals, the company may end up promoting ideas senior management doesn’t deem worthy; alternatively, it may not pursue projects top management would have promoted had they known about them. Therefore, it’s essential for senior managers to understand the mechanisms at work when their staff evaluates one another’s ideas, so that executives can hone in on the ideas that will make a real difference to the organization as they move through the innovation funnel. This article, based on research on more than 10,000 innovation proposals from within a large multinational corporation, examines what happens when ideas are screened through a large organization. Based on my research, I describe seven variables, or setscrews, that senior managers can adjust to their particular context to ensure that the most promising innovation proposals — and only those — stand a good chance of being implemented.

Generating Critical Mass

Studies have repeatedly shown that only a small percentage of employee suggestions for new products or processes provide significant value to organizations.1 Some companies respond to this reality by figuring it’s a lost cause. Others try to compensate for the long odds by staging elaborate management retreats where everyone’s job is to conjure up blockbuster ideas. Unfortunately, luxurious management off-sites rarely produce winning ideas. In fact, companies are more likely to generate significant numbers of useful proposals by convening brainstorming sessions with large and heterogeneous groups of employees with different types of expertise. Most importantly, however, experimental psychologists have shown across numerous studies that the best way to generate a large volume of proposals is by having employees work individually as opposed to in groups.2

Innovation leaders who take these insights to heart arrive at one conclusion: In order to maximize the number of potential blockbusters at the end of the process, you need to begin with as many employees as possible and encourage them to contribute their own ideas, before even discussing them in groups.3 However, once you accept that, the obvious challenge is how to manage the cost of selection and identify the best ideas.

Managing the Costs

Sifting through ideas to find the best one may seem like it would be a mundane task compared with the creative side of the process; perhaps that is why there is little or no data on what organizations spend on the idea selection part of large innovation campaigns. I analyzed proposals for innovative ideas solicited from more than 50,000 employees at a large multinational corporation operating several hundred sites in more than 60 countries (see “About the Research”). It is difficult to know how many employees eventually submitted ideas, how many proposals they sent in and how many different managers were involved in evaluating all of the submissions, in part because of the large number of operating locations and also the number of different IT platforms in use.4 I began with 25,000 idea proposals, which could be traced to approximately 6,000 different employees worldwide. More than 200 lower-level managers and about 80 midlevel managers were involved in evaluating roughly 20,000 of these ideas over the course of about two years before the selection process was terminated. Since each idea required anywhere between 10 and 20 minutes of total evaluation time (including reading and reporting on the proposal, conferring with colleagues and so on), and since some ideas had to be evaluated repeatedly, this group of ideas required total manager assessment time of between 5,500 and 11,000 hours (or 715 to 1,430 workdays); that does not include any time needed for implementation.

Most companies are understandably reluctant to invest significant sums of money on idea evaluation unless there’s reason to believe that there will be a payoff. Unless the campaign shows that it’s capable of generating and spotting good ideas, it is difficult to justify. There are financial costs (measured in terms of time and other resources), and there is also the risk of breeding internal skepticism about whether innovation can ever be managed effectively: Every failed innovation initiative creates a taller hurdle for the next innovation campaign.

Thus, ensuring that the idea selection process is both well managed and successful is critical. Ultimately, you want to create systems that are able to flag proposals for investments that will create the highest revenues and discard the others. Of course, that is much easier said than done: Innovation is, by definition, characterized by uncertainty; long-term benefits are not visible and are often difficult to predict when the selections are made. And no one has a crystal ball that can answer these questions objectively at the point of selection. Irrespective of this fundamental problem, however, there is still good advice for senior managers about designing systems for filtering ideas within their companies. Although I cannot offer a golden decision-making rule for picking the best ideas, I can tell them:

  • What happens when they delegate the selection process to their subordinates; and
  • How the organizational structure top management puts in place affects the decision-making behavior of their staff.

Understanding these two issues is paramount: Given their other responsibilities, senior managers will never be able to review every innovation proposal themselves. Therefore, they need to design systems, or funnels, where the ideas they are likely to favor are either: (a) selected by subordinate managers for further evaluation at their level or (b) if the ideas are of sufficient importance or promise, they are flagged to the attention of top management for further evaluation. In a sense, the real challenge in selecting good ideas is optimizing the trade-off between the direct selection costs on the one hand and the costs of both missing out on good ideas and implementing the wrong ideas on the other.5

Adjusting the Selection Funnel

Companies need to balance the costs of foregoing good opportunities on the one hand and the costs of implementing bad ideas on the other. How managers accomplish that will differ from company to company. But what should not change across different organizations are the fundamental psychological and sociological mechanisms that influence how individuals select ideas suggested by others in their organization. My research partners and I identified novel ideas and quantified both known and novel mechanisms at work. We linked them to seven different organizational setscrews companies can adjust to sort through innovation proposals to meet the organization’s needs.6

Below, I illustrate how management can use the different setscrews to their advantage. First, I describe the variables that affect the likelihood that ideas are selected. Second, I offer guidance on how managers can adjust the design parameters optimally within the context of their own company to create an effective funnel.

1. Country bias. We examined three biases that were at work within the organization: country bias, business unit bias and site bias. Before looking at them one by one, it is important to point out the overall role of bias. It is well established that two individuals will almost never look at one another in an objective or neutral fashion, no matter what the context.7 People tend to be biased either positively or negatively toward other people, and the sources of the biases can be multifold. However, it is in senior management’s interest to understand the extent to which biases shape how lower-level managers see innovation proposals submitted by employees. In the broad context of corporate innovation efforts, the fact that there are biases is not necessarily a positive or a negative; however, since biases do affect the shape of the innovation funnel, senior managers should be aware of them and compensate for them if necessary.

The research underlying this article shows that lower-level managers tend to prefer ideas that are suggested by employees who happen to work in the same country as they do. Knowingly belonging to that same nominal group — even if those managers haven’t met some employees — increases the chances of an idea passing selection; in research this paper draws on, the advantage of being from the same country was between 7% and 16%.8 There are several explanations for this. However, there are three leading rationales, and they may operate simultaneously: (a) Managers and employees may truly have fewer miscommunications when they are from the same country for cultural reasons (irrespective of language),9 and/or (b) the employee’s country-specific background/competence increases the objective quality of the idea relevant to the country the manager works in and/or (c) managers simply like employees from the same country better (and thus are impressed by their suggestions) for reasons that are unrelated to the actual proposal — an effect known as “homophily.”10

2. Business unit bias. Managers also tend to favor ideas that come from employees working within their own business units for reasons that are similar to those stated above (simpler communication, more specific knowledge and homophily), although the competence factors are likely more important than other issues. Within the context of the corporation I researched, the effect of managers and employees sharing the same business unit affiliation improved the chances for idea selection by about 3%.

3. Site bias. The research also demonstrated that managers choose ideas for further evaluation far more often when employees working at their actual site are the ones who suggest them. In fact, the site bias was much stronger than the previously discussed biases, increasing the chances of passing the first stage of the filter by between 10% and 50%. The strength of this bias may reflect the fact that when managers and employees work at the same site, they are members of the same “real” group as opposed to being just peers. They may actually know and like one another. In any case, senior managers should be mindful of these biases. As noted, in some instances, it can be a plus for the company, providing a receptive environment for innovation ideas; however, it can also be something management will want to adjust for, perhaps by requiring proposals to be reviewed by other managers from elsewhere in the company in addition to managers from the site (or country or business unit).

4. Length of the proposal. The length of an innovation proposal has a major influence on whether managers will select the idea for further consideration. The record shows that proposals that are either too long or too short do not get the same level of consideration from managers as those that are the “right” length, given the particular environment. The optimal word length in the company I studied was about 250 words; other organizations will have different norms. The fact is, the lower-level managers who screen proposals are busy and have short attention spans. A proposal that is too long may be eliminated from further consideration irrespective of the potential merit of the idea; a long and turgid proposal frequently suffers from lack of focus.11 However, a skimpy proposal may also be an indication that the submission is in fact insufficiently thought through and fails to answer the basic questions. Thus, above and beyond perception issues on the part of the evaluator, optimal proposal length also reflects objective proposal quality, which increases the chance of the idea being promoted further. Companies looking to tap into the most promising ideas need to communicate the standards for proposals. Otherwise, they may find that some of the very best ideas are being disqualified before they are seriously considered.

5. Tone of the proposal. In addition to paying attention to proposal length, how the ideas are presented can make a major difference in how managers involved in screening will view their potential value. Proposals that highlight an idea’s upside for the company as opposed to focusing on the problem they seek to mitigate will have a better chance of receiving further consideration.12 On average, proposals with 10 positive attributes (highlighting the “great,” “superior” or “novel” aspects of the solution) increase the chances of an idea passing initial selection by roughly 10% to 15%. Generally, managers are more receptive to ideas that highlight the opportunities embedded in the proposed solution than proposals that focus predominantly on threats.

6. Size of the organization. The research shows that the organizational environment the manager operates in (which includes the size of the organization) also influences the likelihood that he or she will pass along promising ideas to superiors. Notably, the larger the organizational unit is, the more likely managers will pass along ideas for further assessment and not reject them out of hand. My research indicates that the more colleagues that lower-level innovation managers have, the more accustomed they are to attributing responsibility to others in the company, a mechanism known from other domains of organizational behavior.13

7. Degree of hierarchy. However, company size isn’t the only organizational factor that plays a role in whether innovation proposals clear the initial hurdles. Lower-level innovation managers are also affected by the amount of hierarchy that surrounds them and whether they feel comfortable about sticking their necks out. The more hierarchy there is in the unit in which the evaluating subordinate manager works, the less chance that he or she will declare an idea — even a promising one — relevant to the corporation and pass it on to superiors. My study indicates that this reluctance reflects lower-level managers’ perceived inability to influence (or control) innovation proposals in very hierarchical organizations. It is likely that leads to managers’ psychological detachment and withdrawal from the innovation campaign. Beyond concerns about hierarchy, some lower-level managers likely don’t engage in the process because they don’t want to subject themselves to potentially negative feedback from superiors.

Building the Funnel

So how can top management apply these findings? Once companies encourage employees to step forward with new ideas, managers need to build funnels that allow them to find the best ones. Executives can begin this design task by studying the mechanisms described above as they relate to their own organizations, recognizing that there are no fixed rules for balancing quantity and quality that make sense in every setting. (See "Tailoring the Innovation Funnel.")

Take the issues of bias. Although there are obvious benefits to having lower-level managers from a particular country or business unit reviewing the innovation proposals from employees from that same country or business unit (they share a common frame of reference), there are also inherent problems (they may be too uncritical of the ideas). For every variable, senior managers need to balance the pluses and the minuses in order to make the appropriate changes to organizational structures and processes. Given the organization’s circumstances and goals, senior managers have to assess whether there’s more value in opening the funnel wide, making it narrow or doing something in between, recognizing that there are cost and resource implications in each of these decisions.

Finally, companies not only need to commit adequate resources to their innovation efforts, they must also revisit the initiatives to deal with changing circumstances. Indeed, the corporation I analyzed for this research still casts a relatively wide net in soliciting ideas from employees today — almost three years after the campaign described in this article ended. But management also pays greater attention to the costs associated with idea selection than it did previously. It achieves savings by limiting the right to submit ideas to more experienced employees, who are incentivized to think through their proposals in great detail before submitting them. Employees can receive significant cash rewards for promising ideas and in some cases are invited to present their ideas to the board. Although it is too early to know whether this move was a good one, it clearly demonstrates that there is at least one further trade-off senior management must ponder: managing the trade-off between allocating resources to idea selection as opposed to creating ideas in the first place. How managers can optimize this top-level management challenge will need to be addressed in future research.

References

1. In its most general form, this insight on the skewed distribution of breakthrough ideas was reported by Alfred Lotka as early as 1926. See A. Lotka, “The Frequency Distribution of Scientific Productivity,” Journal of the Washington Academy of Sciences 16, no. 12 (1926): 317-324. More recently, these insights have been applied to improve our understanding about corporate innovation more specifically. See L. Fleming, “Breakthroughs and the ‘Long Tail’ of Innovation,” MIT Sloan Management Review 49, no.1 (2007): 69-74.

2. For a review, see H. Lamm and G. Trommsdorff, “Group versus Individual Performance on Tasks Requiring Ideational Proficiency (Brainstorming): A Review,” European Journal of Social Psychology 3, no. 4 (1973): 361-388.

3. Recent experimental studies in the field of operations research support this conclusion. For details, see K. Girotra, C. Terwiesch and K.T. Ulrich, “Idea Generation and the Quality of the Best Idea,” Management Science 56, no. 4 (April 2010): 591-605.

4. The data on ideas I deploy for analysis are limited to observations that can, at least in theory, be tracked to an individual inside the company’s central personnel database, and have no major missing information otherwise.

5. Note that the “costs” of implementation can be twofold. The company will incur direct costs when implementing a bad (that is, unprofitable) idea, and it will face opportunity costs when not implementing a good (or profitable) idea. Both types of errors (so-called false positives and false negatives) jointly create the total costs of idea implementation. When balancing selection and implementation costs, the manager must find an optimum for her or his corporation.

6. For more information, see M.G. Reitzig and O. Sorenson, “Intra-Organizational Provincialism,” Working paper, Toronto, February 12, 2010, http://papers.ssrn.com/ and M.G. Reitzig, “Hierarchies, Polyarchies, and Endogenous Screening,” August 6, 2010, http://papers.ssrn.com/.

7. For the basics, see M.B. Brewer, “In-group Bias in the Minimal Intergroup Situation: A Cognitive Motivational Analysis,” Psychological Bulletin 86, no.1 (1979): 307-324.

8. Depending on the actual statistical model; for more information, see Reitzig and Sorenson, “Provincialism,” and Reitzig, “Hierarchies.”

9. In this case the bias is driven by an informational transfer problem, and not by other behavioral particularities of the subjects.

10. For further reading, see M. McPherson, L.S. Lovin and J.M. Cook, “Birds of a Feather: Homophily in Social Networks,” Annual Review of Sociology 27, no. 1 (2001): 415-444.

11. A detailed manual inspection of a random sample of about 200 idea descriptions confirms this large-scale empirical finding.

12. Think of it as follows: You can say (1) that an idea makes $1 million more per year for the company; or (2) that the company has a problem, which unless fixed will cost the company $1 million per year. The first statement is positively worded. Chances are, it will pass the selection. The second one, saying exactly the same thing in terms of content, stands a worse chance because it is not framed positively.

13. For further reading, see D.R. Forsyth, L.E. Zyzniewski and C.A. Giammanco, “Responsibility Diffusion in Cooperative Collectives,” Personality and Social Psychology Bulletin 28, no. 1 (2002): 54-65.