Why Some Innovation Tournaments Succeed and Others Fail

innovation-tournaments

A few years ago, Penn Medicine — the umbrella group that includes the University of Pennsylvania’s Perelman School of Medicine and the University’s Health System — set out to improve its patient satisfaction rates. Like many health care organizations, Penn Medicine’s senior managers and clinicians were typically in charge of thinking up new ideas. But for this particular challenge, a top-down approach wouldn’t work. The hospital needed fresh thinking from the front lines –including doctors, nurses, clerical staff and transporters, who had an intimate understanding of patients’ experiences.

“All health care organizations worry about the patient experience,” says David Asch, executive director of the Penn Medicine Center for Health Care Innovation. “When you’re in the hospital, the food seems terrible, your room is unfamiliar, you’re scared and you’re sick.”

And at a time when hospitals already face intense pressure from insurers to constrain costs, winning plaudits from patients has become an urgent imperative. Unhappy patients mean reduced revenue. “There is increasing recognition of the importance of improving the patient experience,” says Asch.

So the hospital enlisted a team of researchers at Wharton to launch a system-wide innovation tournament — an American Idol-style competition where new ideas compete with one another in numerous rounds of vetting, and only the strongest and most promising ideas make it to the final round. The tournament, which involved 5,000 employees, generated more than 1,700 new suggestions ranging from patient service kiosks in the waiting room, to a bereavement room for family members of people who died in the hospital, to a concierge to fill patient prescriptions.

“It was like an employee suggestion box on steroids,” says Asch. “There’s that old saying: ‘If you build it, they will come.’ But here’s a new one: If you build it with them, they will already be there. People need to be engaged in the process. Intuitively, people want to be asked to make a difference.”

“I was struck by how the event was culturally very energizing to the organization. It created a new agenda for ideas that might not have happened in a top-down fashion.” Kevin Volpp

In recent years, innovation tournaments have become an increasingly popular way to give new energy to creativity. “Tournaments are a way to start an innovation push,” says Christian Terwiesch, a professor at Wharton and the author of the book, Innovation Tournaments: Creating and Selecting Exceptional Opportunities, with his colleague and Wharton professor Karl Ulrich. “Companies know that innovation is important. They know that they don’t have all the answers. They want to democratize innovation — to get ideas from the front lines. They want to grow their business and to look for customers that they have not served before.”

Despite their growing popularity, however, innovation tournaments have limitations and are not applicable to every problem. They work best on well-defined but highly unstructured problems, according to Terwiesch. Moreover, innovation tournaments are not suitable for every company. Some companies opt for a more selective approach to fueling innovation by handpicking a group of employees to work on a given problem. At many other big companies, internally funded innovation is seen as “too risky,” and so they focus instead on buying innovative competition or recruiting new talent.

Turning Work into a Marketplace of Ideas

Since writing their book, Terwiesch and Ulrich have run innovation tournaments with a variety of companies in a diversity of industries — including financial services, material sciences, mining, law, health care and universities — and a variety of organizations, from a government agency looking for new educational initiatives to young researchers looking for research opportunities.

Typically, the companies they work with are very large and somewhat conservative, and perhaps have been reliant on certain individuals for innovation. Oftentimes, the primary innovator was the company founder. “These companies want a process that gets people involved and energized,” says Terwiesch, who is co-director of the Mack Institute for Innovation Management. “They want ideas from people who are close to the customer.”

While the goal of innovation tournaments is ostensibly to solve problems, their benefits transcend simply coming up with solutions, according to Kevin Volpp, professor of medicine and health care management at Wharton, who helped run the tournament at Penn Medicine. “I was struck by how the event was culturally very energizing to the organization,” he says. “It created a new agenda for ideas that might not have happened in a top-down fashion.”

Tournaments have an egalitarian air, adds Volpp, who is also director of the Center for Health Incentives and Behavioral Economics at the Leonard Davis Institute of Health Economics. The very fact that the organization is having a tournament signals to employees that management wants to hear from them. “It gives people an equal playing field. There is a sense of energy and excitement. It’s an engaging team-building exercise.”

The tournaments are most successful when they pose a highly unstructured question; they work less well for questions that require linear thinking. “If you face a cost cutting situation or you have a ton of customer complaints, you don’t run a tournament,” says Terwiesch. “Traditional methods such as quality management and Six Sigma [the set of techniques and tools for process improvement made famous by Jack Welch, the former head of GE] work just fine for those.”

Innovation tournaments are “about bringing a massive number of eyeballs to a problem,” states Narinder Singh, president of Topcoder, a company that conducts contests in computer programming. “We’re trying to take the community-driven approach that the open source community pioneered and operationalize it for commercial development. We’re turning work into a marketplace of ideas.” They can be used for problems large and small, internal or external. “It’s all in how you break it down and frame it.”

Terwiesch, for instance, has run innovation tournaments that asked nitty-gritty questions like: “What should a large pharmaceutical company call its new blockbuster drug?” He has also run contests with more open-ended questions such as: “What should a global bank do to grow its top-line business?” Innovation tournaments “are for provoking creativity and creating new ways of thinking.”

Defining the Question

When it comes to innovation tournaments, “it’s not what you do; it’s how you do it,” says Daniel Burrus, founder and CEO of Burrus Research Associates, a consulting firm that specializes in the creative application of technologies. “Think about: What kind of guidelines are you giving people? What kind of parameters are you setting? How are you stimulating good ideas? A well thought out, well-planned, well-designed tournament that is seeded with guideposts has the best chance of succeeding.”

“If you face a cost cutting situation or you have a ton of customer complaints, you don’t run a tournament.”– Christian Terwiesch

Problems arise when the tournament’s central question is poorly defined, says Stephen Shapiro, a Boston-based consultant and author of Best Practices Are Stupid: 40 Ways to Out-Innovate the Competition. “If a company were to run a tournament asking: ‘What’s the next big thing in mobile phones?’ that’s too broad. A lot of the ideas [they get] will be pretty bad.”

At the height of the Gulf of Mexico oil disaster in 2010, for example, BP conducted a crowdsourcing exercise by inviting members of the public to propose ideas for sealing off its ruptured well and cleaning up the millions of barrels of oil that had leaked into water, marsh and beaches. The oil giant received ideas from more than 123,000 people from more than 100 countries. But in the end, the responses yielded relatively little. “A lot of effort for little result” read a headline in the Guardian newspaper at the time.

Netflix is another cautionary case in point. In 2007, the company announced a $1 million bounty to anyone who could improve its movie and TV recommendation engine. In 2012, however, Netflix said that despite paying the prize money to a winning team of multinational researchers, it never implemented their solution because the “additional accuracy gains that we measured did not seem to justify the engineering effort needed to bring them into a production environment.”

The vetting process is another potential sticking point. Crowds are good at finding solutions to complex problems, but they are not necessarily good at selecting the best solutions because there are so many variables, according to Shapiro. “Sometimes, voting can become a popularity contest or a chance to choose a self-serving solution. However, you can use a crowd to eliminate bad solutions, and then use a more specialized panel to select the best of the remaining ones.”

The Penn Medicine challenge used this formula. The initial round of the tournament yielded a total of 1,739 ideas. Employees commented and rated those ideas, and 200 of the best ones — according to those scores and the opinion of a panel of 29 experts from various parts of the health system — moved on to the second round. The two criteria suggested for rating ideas were the potential to improve patient experience and whether it could be implemented in six months.

The second phase of the tournament consisted of five workshops representing the best 200 ideas. Participants pitched their proposal with a short poster summarizing their idea. Teams then refined their ideas, and the best 10 were selected to advance to the third round. The final round of the tournament involved a presentation of the 10 best ideas to an audience of about 200 employees and a judging panel of 15, which included the CEO and the chief medical officer. A panel selected two winners, and the hospital later implemented several of the top ideas.

The tournament “jumpstarted a lot of activity,” says Penn Medicine’s Asch. “We want to change the culture of medicine — to think in an organized and disciplined way about how to further our mission. This was the first step in that direction.”

“Sometimes, voting can become a popularity contest or a chance to choose a self-serving solution.” –Stephen Shapiro

Terwiesch says he runs tournaments by looking at which opportunities generate the most enthusiasm. At the early stage in the innovation process, financial terms and feasibility are elusive, so it’s not worthwhile to get caught up in those concerns. “The best tournaments are those that get thousands of ideas, then arrive at a top 100 based on a crowdsourced vote,” he says.

Next, the company should run small-scale experiments to see what solutions move the needle the most. “At some point, you have to stop planning and start doing,” he says. “You evaluate the opportunities based on the delivery, not on their promise. You can validate ideas, oftentimes in a matter of hours.”

Transparency in the voting process is key to running a successful tournament, according to Burrus. After all, the vast majority of ideas get voted down — that’s the very nature of a tournament. But they are not wasted: Management learns from these ideas about where the organization faces unmet needs and where pockets of creative energy lie within the organization. “You need to give people the ability to see the results and to see what won,” he says. “And you need to acknowledge and thank those who participated so they know their idea was considered.”

Alternatives to Contests

Innovation tournaments, while increasingly popular, are not the only way companies spur innovation. Amid intense pressure to innovate in both the startup world and in established companies, some of the “big ones acknowledge that they’re not going to be able to [do it],” says David Yates, professor of computer information systems at Bentley University.

Their strategy: Buy the competition. “They punt and say: ‘We can’t do this because we’re too big, and internally funded innovation is too risky,’” says Yates, who notes that Microsoft and Cisco are two examples of companies that employ this strategy. “Cisco and Microsoft have very vibrant CTO and product management functions. They are constantly looking at trends that shape the industry and the future. And they’re looking at potential acquisitions to assimilate them into their product lines.”

Yates, an entrepreneur who has started and sold three different companies, says for large companies like these, acquiring younger, more nimble rivals is a “strategy that’s proven to work” and “a great way” to solve the internal innovation challenge. “You often see Cisco buy companies in the $100 million to $10 billion range. Microsoft snaps up companies even earlier,” he says.

In some cases, companies need not buy an entire firm; they might recruit a star employee or team. “You’re not hunting for typical talent to run your business; you’re looking for people who are proven difference makers,” says Michael D’Eredita, a professor of practice at Syracuse University’s School of Information Studies. “Yahoo is probably one of the more recent and widely known companies to employ this strategy.”

Another technique companies use to spur internal innovation is to handpick a team of employees to work on a specific mission or cause. These chosen ones are not always experts on the topic — though sometimes they are. More often, though, the individuals have impressed leadership as top-notch problem-solvers who bring fresh thinking to a particular issue, according to D’Eredita. The company “puts them on a mission-critical problem that needs to be solved and says: ‘We’ve assembled you to figure out X.’”

Whereas innovation tournaments democratize innovation by “giving more people a voice,” this strategy is far more selective. It gives these elite employees an opportunity to step back from their daily obligations and concentrate on solutions, D’Eredita adds. “It gives this handpicked group the space to innovate away from their day-to-day jobs.”

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