Better Ways to Green-Light New Projects
Organizations can make better choices about which R&D projects gain funding by managing bias and involving more people.
Image courtesy of Michael Morgenstern/theispot.com
In early 1962, an unknown band from Liverpool auditioned for Decca Records. The label rejected the band, saying, “We don’t like their sound, and guitar music is on the way out.” About 18 months later, the Beatles would release their first album.1 The rest is history.
The business world is full of anecdotes about businesses that passed on an idea that later became a huge success. The reverse is also true; in some cases, companies invest in promising ideas that prove disastrous. A famous example is Iridium Communications, a former division of Motorola that sought to market satellite phones broadly. After the company sent satellites into orbit in 1998, a host of issues prevented the business from gaining traction with customers, and the company filed for bankruptcy the next year. (Iridium was restructured and is still around; its technology is used by the U.S. military.)2
Get Updates on Innovative Strategy
The latest insights on strategy and execution in the workplace, delivered to your inbox once a month.
Please enter a valid email address
Thank you for signing up
Selecting innovative new projects for further investment and development is critical — and hard. The best R&D projects can renew an organization’s product lines, processes, and services, improving its performance and competitiveness. But deciding which new ideas are winners and which are duds is tough, because new initiatives are characterized by fundamental technological and market uncertainty. And our research shows that at many companies, bias and process issues can imperil good decisions.
To improve their track record of choosing the right innovations to bring forward, leaders must first understand where R&D selection panels go wrong. Based on our research, we have identified five main categories of such issues. We suggest specific steps that leaders can take before, during, and after the selection process in order to make more objective, fact-based decisions about which new ideas to green-light. While nothing can eliminate all risk from an inherently speculative endeavor, improving the process can tip the odds in companies’ favor.
References
1. H. Davies, “The Beatles: The Authorized Biography” (New York: McGraw-Hill, 1968).
2. J. Bloom, “Eccentric Orbits: The Iridium Story” (New York: Grove Atlantic, 2016).
3. S. Harvey and J.S. Mueller, “Staying Alive: Toward a Diverging Consensus Model of Overcoming a Bias Against Novelty in Groups,” Organization Science 32, no. 2 (March-April 2021): 293-314.
4. P. Criscuolo, L. Dahlander, T. Grohsjean, et al., “Evaluating Novelty: The Role of Panels in the Selection of R&D Projects,” Academy of Management Journal 60, no. 2 (April 2017): 433-460.
5. M. Reitzig and O. Sorenson, “Biases in the Selection Stage of Bottom-Up Strategy Formulation,” Strategic Management Journal 34, no. 7 (July 2013): 782-799; and Criscuolo et al., “Evaluating Novelty,” 433-460.
6. D. Fehder and F. Murray, “Evaluation of Early-Stage Ventures: Bias Across Different Evaluation Regimes,” Academy of Management Proceedings 108, no. 1 (August 2018): 477-482.
7. R. Koning, S. Samila, and J. Ferguson, “Inventor Gender and the Direction of Invention,” AEA Papers and Proceedings 110 (May 2020): 250-254.
8. R. Cao, R.M. Koning, and R. Nanda, “Biased Sampling of Early Users and the Direction of Startup Innovation,” working paper 28882, National Bureau of Economic Research, Cambridge, Massachusetts, June 2021.
9. K.J. Boudreau, E.C. Guinan, K.R. Lakhani, et al., “Looking Across and Looking Beyond the Knowledge Frontier: Intellectual Distance, Novelty, and Resource Allocation in Science,” Management Science 62, no. 10 (October 2016): 2765-2783.
10. S. Danziger, J. Levav, and L. Avnaim-Pesso, “Extraneous Factors in Judicial Decisions,” Proceedings of the National Academy of Sciences of the United States of America 108, no. 17 (April 2011): 6889-6892.
11. P. Criscuolo, L. Dahlander, T. Grohsjean, et al., “The Sequence Effect in Panel Decisions: Evidence From the Evaluation of Research and Development Projects,” Organization Science 32, no. 4 (July-August 2021): 987-1008.
12. R. Tamblyn, N. Girard, C.J. Qian, et al., “Assessment of Potential Bias in Research Grant Peer Review in Canada,” Canadian Medical Association Journal 190, no. 16 (April 2018): E489-E499.
13. J. Kolev, Y. Fuentes-Medel, and F. Murray, “Is Blinded Review Enough? How Gendered Outcomes Arise Even Under Anonymous Evaluation,” working paper 25759, National Bureau of Economic Research, Cambridge, Massachusetts, April 2019.
14. “Innovation at DARPA,” PDF file (Washington, D.C.: Defense Advanced Research Projects Agency, 2016), https://www.darpa.mil.
15. C. Bryar and B. Carr, “Working Backwards: Insights, Stories, and Secrets From Inside Amazon” (New York: St. Martin’s Press, 2021).
16. C.H. Loch, F.J. Sting, N. Bauer, et al., “How BMW Is Defusing the Demographic Time Bomb,” Harvard Business Review 88, no. 3 (March 2010): 99-102.
17. K.R. Lakhani, R. Hutter, S.H. Pokrywa, et al., “Open Innovation at Siemens,” Harvard Business School case no. 613-100 (Boston: Harvard Business School Publishing, June 2013).
18. “What Is Lego Ideas About?” Lego, accessed June 28, 2021, https://ideas.lego.com.
19. “Sandpits,” Engineering and Physical Sciences Research Council, accessed June 28, 2021, https://epsrc.ukri.org.
20. S. Avin, “Mavericks and Lotteries,” Studies in History and Philosophy of Science Part A 76 (August 2019): 13-23.
21. D.S. Chawla, “Swiss Funder Draws Lots to Make Grant Decisions,” Nature, May 6, 2021, www.nature.com.
22. D. Adam, “Science Funders Gamble on Grant Lotteries,” Nature 575, no. 7785 (November 2019): 574-575.
23. J. Herlocker, J.A. Konstan, L.G. Terveen, et al., “Evaluating Collaborative Filtering Recommender Systems,” ACM Transactions on Information Systems 22, no. 1 (January 2004): 5-53.
24. J. Füller, K. Möslein, K. Hutter, et al., “Evaluation Games: How to Make the Crowd Your Jury,” in “Proceedings of the Service Science—Neue Perspektiven für die Informatik. Lecture Notes in Informatics (LNI): Proceedings, Series of the Gesellschaft für Informatik, Vol. P-175,” ed. K.-P. Faehnrich and F. Bogdan (Leipzig, Germany: Springer, 2010), 955-960.
25. M. Beretta, “Idea Selection in Web-Enabled Ideation Systems,” Journal of Product Innovation Management 36, no. 3 (January 2018): 5-23.
26. P. Tollman, V. Panier, D. Dosik, et al., “Unlocking Productivity in Biopharmaceutical R&D: The Key to Outperforming,” PDF file (Boston Consulting Group and Bristol-Myers Squibb, 2016), www.bcg.com.
27. “The Anti-Portfolio,” Bessemer Venture Partners, accessed July 15, 2021, www.bvp.com.
28. C. Sieczkowski, “Bic Pens ‘For Her’ Get Hilariously Snarky Amazon Reviews,” HuffPost, Aug. 30, 2012, www.huffpost.com.