How Companies Can Select the Best Innovation Projects

Companies regularly face a difficult decision: they may have many ideas for new products, technologies or other innovations, but rarely have enough resources to pursue them all. They therefore need to decide which projects are most promising and should receive funding. This is particularly challenging for innovation, as future success is often difficult to predict. 

In their study, Lucas Böttcher and Ronald Klingebiel from Frankfurt School examine how companies can improve these decisions. Their research focuses on how the assessments of different decision-makers should be combined when only a limited number of innovation projects can be selected from a larger pool. 

The researchers compare several approaches. A company can, for example, leave the selection to a single person or ask the most suitable experts to evaluate individual projects. Another option is to involve several people and combine their assessments through voting, averaging scores, or ranking.

Why Rankings Lead to Better Decisions

The results show that considering multiple perspectives can lead to better decisions than relying on a single person's judgment. One particularly effective approach is relatively simple: asking decision-makers to rank the projects. Each decision-maker puts the projects in order of preference, and these individual rankings are then combined to identify the most promising projects. 

One advantage of this approach is that rankings are less vulnerable to individual misjudgements. With numerical assessments, a particularly high or low score can have a stronger influence on the overall result. Rankings limit this effect and can therefore help identify particularly promising projects more reliably. This is especially relevant when there are many projects to choose from, but only a small number can be funded.

When Rankings Work Best

However, rankings are not the best solution in every situation. If a company can reliably determine which expert has the relevant expertise to assess a particular project, it can be particularly effective to leave the evaluation to that expert. With innovation projects, however, it is often unclear who has the most relevant expertise. If projects are assigned to the wrong experts, this approach quickly loses its advantage. 

Simple voting also performs less well in the scenarios examined. One reason is that a yes-or-no decision provides only limited information about the differences in quality between projects. Yet when budgets are tight, and only a few projects can be selected from many alternatives, making precisely these distinctions is crucial. Rankings provide more detailed information about how decision-makers assess the different projects. 

The findings are also relevant for companies operating in changing market environments. New technologies and other developments can mean that existing expertise is less well-suited to new projects. The study shows that rankings can remain effective even when conditions change. Under certain conditions, this approach can even outperform relying on individual experts. 

What Companies Can Learn from the Findings

The findings offer practical guidance for companies selecting innovation projects. When there are many alternatives, budgets are limited, and it is difficult to determine who has the right expertise, involving several decision-makers and combining their individual rankings can be an effective approach. It also has a practical advantage: rather than estimating the future value of each project as precisely as possible, participants simply need to decide which projects they consider more promising than others. 

Overall, the study shows that the quality of innovation decisions depends not only on who is involved but also on how their knowledge and assessments are combined. Particularly when uncertainty is high and resources are limited, simple rankings can help companies identify promising innovation projects more effectively and make better use of the resources available to them.