Innovation Selection

Budgets constrain organizations to the pursuit of only a subset of possible innovation projects. Identifying which subset is most promising is an error-prone exercise and involving multiple decision makers might be sensible. This raises the question of what method to use to most effectively aggregate their preferences.

We thus develop a model of organizational portfolio selection. It shows that portfolio performance can vary widely. Delegating assessment is sensible when firms employ the relevant experts and can assign projects to them. In most other settings, aggregating the preferences of multiple agents leads to greater performance than delegation. In particular, having agents rank projects often outperforms alternative aggregation rules—including the averaging of agents’ project evaluations as well as counting their project votes—especially when organizations have tight budgets and can select only a few of many project alternatives.