The numbers game

In my previous post, I argued that a popular in the corporate innovation circles belief that ideas are plentiful and cheap (“a dime a dozen”) doesn’t withstand scientific scrutiny. A joint Stanford/MIT research team has presented a wide range of empirical evidence showing that research productivity, a scientific term for a layman’s “idea,” is declining. According to the authors’ calculations, the decline rate amounts to an average of 5.3% per year and can be even higher in some areas of the economy. In other words, ideas are not plentiful; in fact, we’re experiencing a growing shortage of ideas.

There are two obvious ways to overcome this shortage of ideas. The first is to increase the number of people generating them—and this is, according to the Stanford/MIT study, exactly how the U.S. economy has dealt with the problem for the past 40+ years. However, we all understand that this approach is unsustainable in the long run.

The second approach, much more appealing from the economic and social points of view, would be to increase research productivity, i.e., to find ways to increase the amount of ideas generated by the same number of people. That’s was drew my attention to a recent Harvard Business Review article by Dylan Minor, Paul Brook and Josh Bernoff. Having analyzed data from 154 public companies, Minor and co-authors show that using “idea management systems”—pieces of software allowing to submit and evaluate ideas and keep track of them—result in companies generating more and better ideas.

The authors further argue that the most important variable predicting the ultimate success of the idea generation process is what they call the ideation rate, which they define as “the number of ideas approved by management divided by the total number of active users in the system.” Minor and co-authors go as far as to claim that higher ideation rates are correlated with a company’s growth and net income.

The authors have identified four factors that drive the ideation rate. The first three would hardly come as a surprise to any innovation practitioner. The innovation rate is higher when more people participate “in the system” and when more idea generation campaigns are held. The innovation rate is also higher when a company engages not only people who’re traditionally involved in the innovation process but also employees from “distant” departments: sales, support and manufacturing.

The fourth identified factor is “engagement.” Minor and co-authors insist that extensive feedback by other employees improves the quality of submitted ideas. (I tend to disagree: in my experience, comments by others often intimidate employees proposing non-trivial, “out-of-the-box,” ideas.)

I’m not a fan of the idea generation process in general, which I call the bottom-up model of corporate innovation and which, in my opinion, has substantial flaws. First, employees, especially at lower steps of the organizational ladder, usually have only a vague understanding of the strategic corporate goals. As a result, the ideas they submit are often completely misaligned with the company’s real needs. Second, the burden of evaluating and implementing submitted ideas usually falls on business units that already have a full load of their own research projects. To make room for “newcomers,” business units should kill existing projects, not something most companies are good at. Third, in large companies, R&D budgets for the next year are usually drafted no later than in the Q3 of the prior year. That means that new projects receive no immediate financial support and should wait for at least a few months to get funded, at which point their utility is often highly questionable–not to mention the detrimental effect this delay will have on the employee morale.

I’m not saying that the bottom-up model of innovation has no right to exist. In innovation-mature organizations it can be remarkably successful–and I covered such a case recently. But if your organization is at the very beginning of an innovation journey, using this model may be problematic.

What can organizations do to increase the efficiency of their idea generation process? I’d recommend three approaches.

  1. Define what innovation means for your organization

Each organization must clearly define what innovation means for them; doing this in the format of an Innovation Charter is usually a good idea. The definition should include the areas of desired innovations (product innovation, business model innovation or operational improvements), time horizons, target customers, the expected size of the market and so on. These parameters will serve as a “mold” that would shape the creative energy of the company’s employees into submitting ideas that really matter to the organization. Yes, the number of proposed ideas is likely to drop, yet their value will almost certainly increase.

  1. Create a pool of ad hoc innovation experts

Organizations would benefit from creating a pool of ad hoc experts that would bring together people from all departments relevant to innovation activities: R&D, manufacturing, marketing, legal, finance, etc. The names of the experts with the area of their expertise could be placed on the company’s intranet. Every employee considering submitting an idea will be able to contact an expert should the need for a specific technical or business advice arise. Again, this will result in improved quality of submitted ideas.

  1. Create a separate Innovation Fund

Organizations should establish a separate Innovation Fund to pay for projects that fall outside the regular budgeting process. The amount of money in this Fund could be adjusted annually to reflect the company’s appetite for additional projects, but it must be fixed for the current fiscal year, meaning that the Fund will not become a “rainy day fund” to cover the company’s short-term financial emergencies (as often happens to “innovation money”).

However, perhaps, organizations should avoid playing the “ideas number game” at all. To this end, I’d recommend them to take a careful look at the alternative to the bottom-up model of innovation: the top-down model (I wrote about it here and here). In my experience, the top-down model will much better serve the innovation needs of most organizations.

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About Eugene Ivanov

Eugene Ivanov is the Founder of (WoC)2, an innovation consultancy that helps organizations extract maximum value from the wisdom of crowds by coordinated use of internal and external crowdsourcing.
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5 Responses to The numbers game

  1. davidwlocke says:

    What we are seeing is innovation as invention plus commerce dying. Management now believes they don’t need science or engineering. They now “innovate” without invention. Ideation isn’t invention. They want to deregulate and call that innovation. Nevermind that we did biz in that deregulated environment until the unethical nature of managers demonstrated the idiocy of their managerial practices. What we get as outcomes is some cash, and M&A signaling management failure, and the generation of absolutedly no economic wealth. Disruption in the Christensen sense is nothing that investors should invest in. Worse, most people’s talk about disruption confuses Christensen’s and Foster’s disruptions. Oh well, all is lost. Just noise, loud noise.

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