Wharton@Work

April 2024 | Innovation

Brainstorms to Breakthroughs: Innovation Tournaments

What’s your team’s preferred method for uncovering great ideas? Hackathons, idea mapping, design thinking, and blue ocean strategy sessions have their advantages, but they often fall short. These approaches tend to focus too quickly on one or two ideas, solicit input from a small number of people, or seriously consider ideas only from favored members.

Conversely, Innovation Tournaments, developed by Wharton professors Christian Terwiesch and Karl Ulrich, are a research-based approach that transcends these conventional methods to surface, develop, and implement valuable opportunities. Critically, the tournaments sidestep the need to wait for a few in-house creative geniuses to come up with ideas. “The key is to think about the innovation as a process, as opposed to the ‘magic’ of flying sparks and unstructured thinking,” says Terwiesch. “Relying on those sparks is like hoping for a breakthrough, but when your business is on the line, hope is not a good strategy.”

“Many organizations do a great job managing processes like recruiting and sales training, but fail to do much of anything when it comes to innovation,” he continues. “It’s a function typically thought of as illusive and left to chance, the province of a select few highly creative individuals. As a result, you get money thrown at mediocre projects with the hope that some luck will enter in and make them successful. What most companies don’t understand is that there is a very process-driven approach that they can use to drive innovation.”

That process-driven approach typically consists of multiple rounds of competition, beginning with a large set of raw opportunities and ending with a select few. The first round of elimination, when the pool of candidates is large, must be quick and efficient. Later rounds include more scrutiny, research, and modeling.

Since Terwiesch and Ulrich devised the tournaments, they have held them for thousands of business students at Wharton and for many Fortune 500 companies in Latin America, North America, Europe, and Asia. Innovation Tournaments have run in banks; defense, pharma, and energy companies; and professional sports organizations. “We have learned that the demand for innovation isn’t limited to technical organizations,” says Ulrich. “We have had some of our most engaging interactions with executives in financial services and health care. These are sectors that have been ignored historically by the R&D community, but they’re where some of the biggest opportunities in innovation lie.”

Why Run a Tournament: Three Reasons

Innovation Tournaments differ from other methods first because they begin with an inclusive solicitation of hundreds, or even thousands, of opportunities that are generated internally with employees, externally through customers or other communities, and even with the help of generative AI. (Recent research by Terwiesch and Ulrich reveals that generative AI can improve ideas, help manage a better process, and help with prototyping and learning.) They encourage engagement on a large scale in part because the desired result — uncovering great ideas for solving a specific challenge, selecting one or a handful, and then experimenting with and implementing them — is clear from the start. Fairness and transparency are built into the process.

“Innovation Tournaments are not another suggestion box or brainstorming session, which often feel removed from daily work, or even ‘rigged,’ in the sense that the organization almost always chooses ideas from a select group,” says Terwiesch. “[Innovation Tournaments] embrace bottom-up innovation, stressing that the best idea — no matter where it comes from — will win. This can have a strong, transformative effect on the culture, providing a healthy tension between top-down and bottom-up innovation, but it also works. Why would it be that the boss always has the best idea? It’s really the job of the boss to put a process in place so that the best ideas and insights have a way to bubble up to the top.”

A second reason to run an Innovation Tournament is how it supports the selection process and manages uncertainty. “The challenge is that when you see opportunities in their raw form at the initial idea stage, you don't know yet whether they are going to be a blockbuster or not,” Terwiesch says. “So, the idea is to invest a little to learn a lot. From the thousands of ideas that you have, you're not going to pick the top 10, but you say first, ‘Can I judge whether this idea is going to be in the top 200 or 300?’ And you go from 1,000 to the top 300. Then for those 300, you're going to invest a little bit. You try something out, you do market research, you build a prototype, you elaborate a little bit. And then you go from 300 to 50, and from 50 to 10.”

Terwiesch continues, “Step by step, you're investing more, you're learning more, and you’re comparing the opportunities to each other. It makes the company behave like a venture capitalist, fully acknowledging at the beginning that you have no idea which of the 1,000 ideas that you create are the best and which are the worst. Oftentimes at this early stage, you don't have objective metrics such as net present value. You rely instead on relative comparisons by asking, ‘Do you like idea A better than B? We can only do one.’ Then you vote on which ones are going to get prioritized. That's how you work yourself from the thousands to the hundreds to the tens, to the handful of ideas that you're ultimately going to launch.”

Embracing the uncertainty of innovation is part of the process. “Instead of naively assuming it away, uncertainty becomes your friend,” says Terwiesch. “Like in a venture capital portfolio, you want to see a range of very different, wacky, and risky ideas, as opposed to having 100 boring ideas. By behaving like a venture capitalist, you make risk your friend as opposed to your enemy.”

The final benefit of an Innovation Tournament comes both during and after the event. Terwiesch explains, “The concept of learning is a unique aspect of the tournaments. Successful innovation isn’t a one-shot deal, and tournaments allow for iterative refinement. First, there is learning at the idea level. This is where you say, ‘This looks like a good idea but the payoff is clouded by lots of uncertainty. Let’s see if we can reduce some of it.’ That means you try out something, you build something, you ask consumers about something.”

Terwiesch says the effort to reduce some of the uncertainty may reveal that you might have missed the mark, “and the sweet spot is not over here, but over there. As a response, you can adjust, you can pivot, you can move the idea to a more attractive position in the innovation landscape. That means that every idea gets better throughout the tournament. It’s a significant difference from a simple filtration exercise where you pick the best idea out of 1,000.”

The learning then continues once the tournament is over. As organizers come together for a debrief, they can determine what worked and what didn’t. Plans for the next tournament can then iterate, building on the strengths while reconfiguring what didn’t work as well.

Best Practices

Running a successful tournament involves clarity about objectives, planning, judging, engagement, and more. That’s where the Mastering Innovation: Strategy, Process, and Tools program and The Innovation Tournament Handbook come in. In both the program and the book, Terwiesch says the goal is to “share the skills that we've learned over the years and decades with our participants and readers to make their own organizations more creative and successful.” From discouraging applause during pitch sessions (it wastes time) to deciding who to include and how to score and select ideas, these resources guide business leaders in crafting and running their own tournaments.

Keith Angell, CFO of sustainability consulting company Code Green, says the program delivers. He plans to implement an annual Innovation Tournament that will include all of their employees. “We have some tremendous engineers and sustainability experts and are excited to see what kind of breakthroughs they come up with. That’s powerful!”