The Innovation Tournament Handbook: A Conversation with Christian Terwiesch and Karl Ulrich

WHARTON SCHOOL PRESS: What is an innovation tournament?

CHRISTIAN TERWIESCH: Think of innovation as creating matches between solutions and needs. A tournament describes what happens to the many ideas that go through this process. The innovation process really breaks down into two parts: the first is about creating or identifying opportunities and ideas. The second part is the selection piece where you pick the best ideas going forward. An innovation tournament is very much like the world of sports, where ideas (like athletes) compete against each other to see who will win the race.

WHARTON SCHOOL PRESS: What kinds of organizations should be thinking of running an innovation tournament?

KARL ULRICH: The book is very much a how-to manual, and we wrote it for business leaders and decision-makers, though its appeal seems to be very broad. My 85-year-old mother told me she’s been applying the innovation tournament method to an online course in history that she’s developing. So I think if the book works for retired history professors, it probably works for any organization.

TERWIESCH: You don’t have to be the vice president of innovation to be our reader. This is a book for anyone who wants to be innovative, whether you’re a high school teacher or a senior executive.

WHARTON SCHOOL PRESS: The book has broad appeal. But what are the actual, concrete benefits anyone can get from running their own innovation tournament?

TERWIESCH: Framing innovation as a process brings consistency and the promise of repeated success. We believe that implementing innovation tournaments will bring more consistent success. There’s also another nice side effect. We’ve found that running tournaments over the years really helps mobilize change. Organizations loosen up and people get more motivated. And they’re a lot of fun!

WHARTON SCHOOL PRESS: Your book is divided into different chapters, such as “Defining the Challenge,” “The Pitch,” “Developing Opportunities,” and more. What are the different stages or processes that constitute an innovation tournament?

ULRICH: Broadly speaking, there are two components to an innovation tournament. There is the generation or identification of the opportunities —getting great candidates to show up. And then there’s a selection process by which you try to discern which of those candidates are exceptional. A critical step is defining the challenge. In fact, probably the most important step in innovation is not the innovation per se, but figuring out what challenge you’re addressing.

TERWIESCH: I’d add that there are two ways you can read this book. One is very much like a cookbook: systematically going through the stages that Karl describes from problem definition to generating your solution selection to cultural transformation at the end. But you can also use the book as a reference tool and jump into the chapter or stage in the process where you’re struggling.

WHARTON SCHOOL PRESS: So the book lends itself to be read sequentially or cherry-picking advice and insights depending on need. It’s also a funny and engaging read with plenty of real-world examples of tournaments. What are some of the most memorable tournaments you’ve experienced in real life?

TERWIESCH: Between us, Karl and I have probably listened to more than 10,000 pitches. But there’s one I heard here at Penn Medicine, in the healthcare system of the University of Pennsylvania, that I’ll never forget. We were doing a big tournament with thousands of employees on transforming the patient experience. A young nurse from the oncology ward pitched a simple idea based on a day-to-day observation. Cancer patients lose body hair due to chemotherapy, and they have to lie on cold hospital beds to receive injections that also make them feel cold. Her pitch was straightforward: “Couldn’t we buy these patients a warm blanket?”

Now you can debate whether a warm blanket is the greatest innovation in healthcare, but there’s so much passion, empathy, and enthusiasm that it’s a joy to moderate these tournaments. I can promise our readers, you will have similar experiences getting to know the people you work with as well as your customers when you engage them in a tournament.

ULRICH: One tournament that stands out for me was a very narrow challenge around how to reduce water consumption in the production of Bounty paper towels. It was super specific, and we spent three days with a large team of inside and outside experts focused on this one, very narrow issue.

At the other extreme, I had a former student, who was a very successful hedge fund manager, come to me and say, “Hey, Karl, can we run a tournament to figure out how to make more money?” I laughed at that initially, but we actually did run a tournament to select new trading strategies for his hedge fund. Once we’d run it he refused to tell me the idea they’d selected — it was a “proprietary secret.” But that gives you a sense of the extremes; from super-focused problems to extremely broad challenges, like how to improve performance or make more money.

WHARTON SCHOOL PRESS: One of your chapters is called “Creating a Better Pool of Opportunities.” What’s this chapter about?

TERWIESCH: Ask yourself what you would like to see in a pool or set of potential solutions. We think there are three things that really matter. First, you want as many ideas as possible, because the chances are that if you have more ideas, you’re going to find at least one blockbuster. Second, you’ll want to improve the average quality of the ideas you get, and there are things that you can do to become better at ideation. But the thing that has always amazed us the most is the third one: having a more diverse set of ideas.

Like most people with a background in operations management, Karl and I hate variance. We want things to be consistent. But in innovation, it turns out that variance is your friend. In this chapter, we talk about ways you can increase the variance of the performance of your ideas, meaning that you get some ideas that will be lower quality but others that are much, much higher. With variance, your best ideas get better. And these are the ideas you want in your portfolio.

ULRICH: One of the really interesting things about tournaments is you don’t care very much about averages. Say you’re the National Institute of Health and you’re looking at proposals to improve healthcare. You may get 100 “OK” ideas. But compare that to getting 99 bad ideas and one cure for pancreatic cancer. You are going to prefer your second set of ideas.

As managers, we have to get over this idea that we’re looking for average quality. We’re not. We’re looking for exceptional ideas, for real outliers. And that requires some changes in the way we think about the pool of opportunities. We want to embrace variants, including the good and the bad, in the hopes of really finding something exceptional.

WHARTON SCHOOL PRESS: Chapter 9 of the book is called “A Culture of Opportunities.” Again, this is a very intriguing title. What do you mean by a culture of opportunities?

ULRICH: When we talk about how to create a culture of innovation, most organizations just use words. They give speeches. They have slogans. They say we need to embrace diversity. We need to celebrate failure. But beyond making statements, they often feel frustrated as to how to actually move the culture. Our belief is that the best levers for shifting culture are process and structure.

Innovation tournaments themselves are both a visible sign of commitment on the part of senior management, which is really important in moving culture;  but they also allow people to participate. They give people the tools and processes they need to know in order to be more innovative.

TERWIESCH: Scholars of organizational culture and theory distinguish between two types of cultures. There are tight cultures where people like to be orderly or precise: Think German people like me who always arrive on time. Then you have other, looser cultures — American or Israeli, say — which are much more adept at improvising or rule-breaking. Some people think that looser cultures favor innovation. But we argue this is short-sighted. All kinds of companies and cultures innovate very successfully, it’s just a question of processes.

In the book, we find a nice balance between tight and loose processes and improvisations that any company can use to enable an innovation culture.

WHARTON SCHOOL PRESS: The book concludes by pulling everything together around what you call four pillars for future success. What are these four pillars, and how do they work?

TERWIESCH: I ran a tournament about a decade ago in the early 2000s in Moscow for a big energy company. We were looking for growth opportunities in the energy market and I was watching this pitch. There’s a 40-year-old man next to a poster, and on the poster there’s an office building with the logo of the energy company, a state oil company, with a windmill next to it. I thought, great, we are talking about renewable energy, disruption, and going green. Then, he basically pitched the following idea. He said, “My suggestion is that we open the doors of our corporate headquarters building and all the hot air that is produced in that building will flow out and power a windmill which will provide enough energy to fuel the whole country.” Now that’s the type of situation where we can’t prepare you for that, even with this book.

But we believe that there are a couple of things or pillars that have to be in place for an innovation tournament to succeed. First, you need the leadership there: the commitment from the top. For the tournament that I mentioned in Moscow, none of the management team sponsoring the tournament showed up. It was just myself with 30 participants. Then, you need to have the resources, structures, and incentives in place. There needs to be a shared understanding and conviction around the purpose and objectives in innovating. When those things come together, we see the best innovation tournaments happen.

WHARTON SCHOOL PRESS: What would you hope that your reader takes away from innovation tournaments, and from your book?

ULRICH: Our aspiration is that our reader says, I’ve read all these examples and great outcomes, and I want my organization to have that outcome too. I’d like our readers to be able to actually use the book to realize exceptional outcomes.

We’ve quipped that in writing this book, we want to put ourselves out of business as consultants. We really want someone to be able to read this book and say, hey, I can now try this tomorrow. That’s our hope and our aspiration.

TERWIESCH: A lot of people are intimidated by innovation. They reach out to consultants because they think it’s too hard to do in-house. But I think it is actually not hard. It’s really about codifying the process of innovation. I hope that by writing the book we can make this idea more accessible to more readers, get more people out there innovating, and turn this place into a better world.