The Role of Scenario Presentation in the Selection of Innovation Projects
Vardan Avagyan, Nuno Camacho, Wim A. Van der Stede, and Stefan Stremersch, 2019, 19-114-03
Marketers play an important role in innovation project selection decisions. When innovation project teams make their pitches to marketers and other decision-makers, they invariably include expected cumulative cash flows in their presentations. Project teams may also present best- and worst-case scenarios.
The usefulness of scenario presentation for selection decisions, however, remains contested. On the one hand, innovation decision-makers may feel that presentation of scenarios improves their ability to understand and manage project risk. On the other hand, they may perceive scenario presentation as an “abdication of leadership” that casts doubt on the project team’s capability to successfully execute the proposed project.
In this study, Vardan Avagyan, Nuno Camacho, Wim Van der Stede, and Stefan Stremersch examine the influence of scenario presentation on innovation project selection. They consider small-range and large-range scenario presentations depending on the difference between the cash flows in the best- and worst-case scenarios. The authors test their theoretical framework across two choice-based conjoint experiments among 745 (Study 1) and 1,680 innovation managers (Study 2). They also conduct follow-up interviews with senior executives at five multinational companies, all of whom have extensive experience in project selection committees.
Their findings suggest that firms should help project teams develop small- rather than large-range scenarios. Small-range scenario presentation increases perceived team expertise and reduces perceived risk of an innovation project. Large-range scenario presentation increases the perceived project risk, whereas its effect on perceived team expertise is inconclusive.
As some of their interviewees highlighted, project teams who present small-range scenarios signal that they “have done their homework” by iterating and validating the assumptions of their project to reach a narrower range. In contrast, large-range scenarios may signal that the project team “is dreaming” and lead decision-makers to “fixate on the downside and ignore the upside”. Follow-up interviews suggested that firms can offer tools and coaching to help project teams develop small-range scenarios.
Further, their study suggests that scenario presentation increases the probability that decision-makers select transformational instead of core innovation projects. This is an important finding, since the majority of respondents (79%; Study 2) indicate that senior management at their firms would like to select more transformational than core innovation projects to strengthen their innovation pipeline. Yet, at present, only about half of the project teams at their firms “always” or “almost always” present scenarios. This suggests that firms seeking to promote transformational innovation should make the presentation of small-range scenarios a hard requirement for an innovation proposal to be presented to a project selection committee.
Finally, the authors find that projects with an expert team have a higher selection likelihood than projects with a less-expert team. Project teams with less expertise should use analytical scenario development and convey the project’s strategic merit to decision-makers to help increase project selection likelihood.
Vardan Avagyan is Assistant Professor of Marketing at the University of Stavanger Business School, Norway. Nuno Camacho is Associate Professor of Marketing at the Erasmus School of Economics, Erasmus University Rotterdam, The Netherlands. Wim A. Van der Stede is the CIMA Professor of Accounting and Financial Management at the London School of Economics, United Kingdom. Stefan Stremersch is Chaired Professor of Marketing and Desiderius Erasmus Distinguished Chair of Economics at the Erasmus School of Economics, Erasmus University Rotterdam, and Professor of Marketing at IESE Business School, University of Navarra, Spain.
The authors acknowledge the financial support of ECMI (Erasmus Center for Marketing and Innovation), ESAA (Erasmus School of Accounting & Assurance) and of MSI (Marketing Science Institute). Part of this research was done when the first author was an Assistant Professor of Marketing at the Erasmus School of Economics.
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