Tolerance for Failure and Incentives for Collaborative Innovation

Abstract

M ost organizations employ collaborative teams to manage innovation projects. Although the use of collaborative innovation teams is a good starting point, an organization's ability to innovate can be enhanced by managing risktaking behavior through monetary incentive schemes and through an organizational culture that tolerates failure. This article reports the results of two controlled experiments aimed at understanding how tolerance for failure and incentives impact the decisions of individuals engaged in a collaborative innovation initiative. A key element of our experiments is the notion of endogenous project risk, which we define as the explicit link between resources allocated to a project and the likelihood of project success. We observe that when penalties are low, the amount of risk an individual assumes is fairly insensitive to the rewards that are offered. In an analogous result, when individuals make decisions alone (rather than collaboratively), higher tolerance for failure does little to increase the amount of risk an individual is willing to take. Taken together, these results highlight the importance of implicit incentives that are created as a result of project and organizational characteristics.

Behavioral Operations and Supply Chain Management–A Review and Literature Mapping

“…Studies concerned with behavioral issues in project management have received more attention during the past few years, especially welcomed by the Production and Operations Management and Decision Sciences journals. While there is no single dominant topic in this context, topics such as whistleblowing (Park & Keil, ; Keil, Tiwana, Sainsbury, & Sneha, ), task design, interdependence, and difficulty (Katok & Siemsen, ; Chandrasekaran & Mishra, ; Schoenherr, Bendoly, Bachrach, & Hood, ), and innovation (Lee, Swink, & Pandejpong, ; Hutchison‐Krupat & Chao, ) have been investigated more than others.…”

Innovation and New Product Development: Reflections and Insights from the Research Published in the First 20 Years of Manufacturing & Service Operations Management

“…Experimentation and testing have emerged early on as core topics for the effective management of innovation processes and projects (Thomke 1998(Thomke , 2003Loch et al 2001;Sommer and Loch 2004). Yet it seems as if the literature has gone quiet, with some exceptions recognizing the distributed nature of the innovation tasks and projects (Mihm et al 2003, Sosa et al 2004, Bhaskaran and Krishnan 2009, Gokpinar et al 2010, Mihm 2010, Erat and Krishnan 2012, Hutchison-Krupat and Chao 2014. Recent studies have attempted to look into the behavioral dimension of managing innovation projects (Wu et al 2014, Rahmani et al 2017, Crama et al 2018, Long et al 2019.…”

Human Behavior in Project Portfolio Selection: Insights from an Experimental Study

“…Since the selection of innovation projects and the choice of an adequate portfolio are often conducted by decision makers without widespread application of quantitative models, this lack of behavioral investigations is surprising. The use of experimental methods in NPD research is promising but not common (Kavadias, ) and one of the very few exceptions is the study by Hutchison‐Krupat and Chao (), who conduct controlled experiments aimed at understanding how incentives and tolerance for failure impact the decisions of individuals engaged in a collaborative innovation initiative. Our experimental approach to address project portfolio selection can be positioned in relation to two areas of literature focusing on human behavior in resource allocation settings as well as financial portfolio settings.…”

“…In financial portfolio selection, the information to estimate unknowns is usually acquired from prediction‐based strategies while in the project portfolio context also control‐based strategies, focusing on shaping unknowns via proactive behavior, are applied. While risk might be reduced by internal actions like increasing the data integrity (Cooper et al., ), selecting adequate teams that increase the speed to market (Sarin & McDermott, ), or increasing the probability of success by allocating more resources (Hutchison‐Krupat & Chao, ), risk in NPD will persist (Kavadias & Chao, ). Behavioral finance has had some success in explaining how investors act and, in particular, what kinds of portfolios they tend to choose (Barberis & Thaler, ).…”