Innovation Tournaments: Creating and Selecting Exceptional Opportunities

Research Technology Management, Sep/Oct 2009 by Deevi, Seetharama C

Innovation Tournaments: Creating and Selecting Exceptional Opportunities; Christian Terwiesch and Carl T. Ulrich; Harvard Business Press, Boston, MA; 2009; 240 pp., $35.00.

Many books have appeared on "Innovation," which has been a subject of discussion and debate across nations, in the academic circles of business and engineering schools, and among government funding agencies. Innovation spans many different disciplines and has been a difficult subject to grasp. Many corporations and industrial sectors struggle to implement the best practices, and the innovation rules of a fast-moving consumer products sector don't automatically apply to an aircraft manufacturer or a pharmaceutical firm that discovers new drugs. But several common themes exist across industries, and this book presents principles that can be applied to different industries.

The authors, professors at The Wharton School, describe innovation broadly as matching the need of a customer with a specific solution. Chapter 1 discusses the need, concept and structure of innovation "tournaments" to identify the exceptional opportunities with a high variance in the expected payoffs. The authors explain the necessity of a tournament (Terwiesch is an avid bicyclist) to filter out the opportunities as in a pure cascading process and also discuss the iterative modes of a filtering process. Chapter 2 discusses the tools and techniques useful for generating opportunities internally from creative individuals and groups. Chapter 3 elaborates on the external sensing of opportunities from customers, competitive products and strategic partners of the firm. The authors also discuss the need for sensing opportunities from lead users, independent inventors, small companies, social networks, scientific journals, and from products obtained from different geographic regions.

Chapter 4 covers screening for the most promising opportunities based on efficiency and accuracy. Most organizations get bogged down due to their inability to move quickly through the selection process in an efficient and accurate manner. The authors discuss the importance of making decisions quickly despite the imperfect information on the available opportunities, and elaborate on their web-based tool called "Darwinator" for collecting the ideas and selecting according to the merits of an idea. The tool also provides a graphic display based on the quality of the ideas and is an excellent learning tool for students (several similar tools exist for use by corporations that protect the intellectual property rights).

The authors also discuss the importance of traditional innovation workshops to evaluate the opportunities and select ideas based on "is the opportunity real"? or "can you win the opportunity"? They emphasize such important criteria as market size, potential pricing, availability of technology, the ability to produce and sell the product in high volume, ability to gain sustainable competitive advantage, ability to patent or brand an idea, etc. They also emphasize the bucketing of ideas and resolving the dilemmas associated with the market and technological uncertainties of innovations and the process of sorting them out.

Chapter 5 examines the importance of aligning the opportunities with the business strategy to ensure that the opportunities fit with the corporation's overall innovation strategy and do indeed utilize the firm's resources. A resource is defined simply as valuable, rare, inimitable, and non-substitutable. The second half of the book focuses on the filtering of innovation opportunities. In chapter 6 the authors discuss the use of financial modeling tools to evaluate the early-stage opportunities based on a variety of possible inputs, and estimate the average expected financial value of each opportunity. They discuss the applicability of Monte Carlo simulation techniques to perform thousands of different scenarios based on the uncertainty of each variable to determine the probability of success and failure and the associated expected values of the projects. In addition, they discuss the use of decision models and decision trees to determine the expected payoffs from opportunities with different uncertainties.

The authors discuss portfolio approaches in Chapters 7 and 8 and elaborate on the need to exploit some of the high-risk exploratory opportunities along with incremental innovations and adjacent growth opportunities. Chapters 9 and 10 deal with the structure and shaping of an innovation funnel, along with "soft" aspects of innovation such as culture, rewards and recognition, and building a sustainable innovation organization.

The content of this book is suitable for students of innovation; it follows a step-by-step procedure of combining the creative process of innovation with the scientific and financial disciplines. This reviewer attests to that since he listened to several lectures by the authors at The Wharton School.

Their book is also useful as a reference for product developers, marketers and executives in charge of innovation. Application of the principles taught here does require building a new organizational structure based on several different disciplines such as product development, marketing, packaging, and finance, along with a few creative individuals. While the steps described in each chapter are simple, a reasonable understanding of the underlying reasons is needed to facilitate and manage the innovation process in a corporation. For example, most product developers and even some finance professionals remain unfamiliar with the Monte Carlo simulation techniques despite their having been used in physics and chemistry for quite a while. The book is a useful addition to the libraries of Research-Technology Management readers who innovate in the core business, in an adjacent area or in a radically different space.