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
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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.
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