A Managerial Perspective on Risk and Return for Corporate Innovation Projects

Abstract

Virtually all companies today pursue innovation in order to remain competitive. The question facing corporate decision makers is not whether to innovate, but rather which projects to pursue. Conventional wisdom suggests high-risk projects provide the highest returns. We explore this notion with attention to the patent output from a cross-sectional sample of U.S. corporate innovation projects. Project risk is assessed upon project proposal using a managerial perspective. The manager viewpoint is an important one since managers are distinct in their approach to assessing risk, as we expound, and are often the initial filtering point for project proposals. Patent counts are measured 3 to 5 years later as an indicator of project returns. We find that a swing-for-the-fences strategy is effective, but not the sole best path to patent output. Findings inform research on managerial risk construal and provide a fundamental basis for evaluation of potential innovation projects. Copyright © Eastern Academy of Management.