Selection Bias in the Adoption of Ideas: The Role of Status, Experience and Idea Radicality on Idea Adoption in the Initiation Stage MASTER S THESIS

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1 Selection Bias in the Adoption of Ideas: The Role of Status, Experience and Idea Radicality on Idea Adoption in the Initiation Stage MASTER S THESIS Jacqueline van Burgsteeden Student No.: Supervisor: Dr. D. Deichmann VU University Amsterdam Faculty of Social Science Master Policy, Communication and Organization De Boelelaan 1105 Amsterdam, 1081 HV, The Netherlands Tel: Fax: jacqueline.vanburgsteeden@gmail.com Amsterdam, August 5, 2013

2 2 Selection Bias in the Adoption of Ideas: The Role of Status, Experience and Idea Radicality on Idea Adoption in the Initiation Stage ABSTRACT The submission of good ideas does not necessarily imply their adoption. This study examines the selection bias regarding the adoption of ideas in the initiation stage. This implies both the influence of the perceived status and the perceived experience of the idea inventor as well as the perceived radicality of an idea on the idea adoption. An experiment was conducted under 244 employees of an international telecom operator. The participants were divided into 8 groups. I confirm the hypothesis that ideas from inventors with perceived high experience will sooner be adopted than ideas from less experienced idea inventors. The perceived status of the idea inventor and the idea radicality do not affect the idea adoption. Furthermore, I unexpectedly find that the perceived status and the experience of the idea inventor jointly moderate the relation negatively between idea radicality and idea adoption. My findings illustrate how idea experience and a triple interaction between status, experience and idea radicality bias the idea selection in the initiations stage of the innovation process and give insights into how managers can restructure their organization to minimize this bias.

3 3 INTRODUCTION For organizations to thrive and survive in an increasingly competitive environment, they need to harness and support idea generation and implementation (Roth and Sneader, 2006; Tellis, Prabhu and Candy, 2009). The need for a continual stream of new products and processes deriving from the input of new ideas is critical to the growth and economic position of the organization (Jaruzelski and Dehoff, 2010). A longstanding interest in the idea generation and implementation by academics and practitioners also reflects this heightened importance (e.g., Hauser, Tellis and Griffin, 2006; Wolfe, 1994; Damanpour, 1991; Kanter, 1983; Schumpeter, 1942). Take for example the study of Hauser et al. (2006) who described how ideas, when implemented, can be beneficial to organizations. Successful adopted ideas raise the quality and lower the prices of products and services. In addition, by finding new solutions to problems, good ideas can attack competitors and enter new markets or transform old ones (Hauser et al., 2006). According to Damanpour (1991) the adoption of new ideas is required for the performance and effectiveness of the organization. Also several other studies state that the development, adoption and implementation of new ideas is an important asset to organizations, because it enables organizations to deal with the tumultuous markets and is one of the key drivers of long-term success in organizations (Baker and Sinkula, 2002; Lyon and Ferrier, 2002; Utterback, 1994). However, before ideas can realize all these benefits, organizations and its managers first need to select the best ideas that they intent to implement. Selection decision are inherently biased. According to Martino, Kumaran, Seymour and Dolan (2006) theories of decision making tend to emphasize the rationality in choice behavior, but several studies show that decision making is more a matter of emotion and intuition than deliberate reasoning (Green and Haidt, 2002; Loewenstein, Weber, Hsee and Welch, 2001). The study of Edwards and Smith (1996) indicates that humans are unable to evaluate independently without being biased. This also applies in the selection of new ideas by which is meant the first evaluation point where the assessor decides whether an idea is, or is not, suitable for further development. An example of rating

4 4 bias in the selection of new ideas is displayed in the study of Licuanan, Dailey and Mumford (2007). They claim that there are many errors in evaluating ideas. One error that is commonly observed is that evaluators have the tendency to underestimate good ideas. Other studies show that the exposure to another person leads people to associate that person with positive feelings and, as a consequence, ideas of the person will be excessively high evaluated (Lawler, 1992; Zajonc, 1968). According to the report of the Boston Consulting Group, less than half of the 2,500 senior executives that participated in the research are pleased with the results on innovation spending, in large part because of poor decision making (Boston Consulting Group, 2007). Overall, it can be stated that idea assessors can grind further development of good ideas to a halt because of biases in the idea selection process. Despite these potentially negative and far-reaching consequences, so far, the literature on ideation and innovation has primarily focused on the antecedents and the driving mechanisms that shape idea generation (e.g., Toubia, 2006; Paulus and Yang, 2000; Amabile, 1996) or implementation (e.g., West, 2002; Woodman, Sawyer and Griffin, 1993). Scant attention has been paid to the actual selection decision about ideas; so the decision managers make about whether they want to implement a specific idea or not. The novelty and usefulness of ideas are two commonly used characteristics of ideas to objectively measure them (Dean, Hender, Rodgers and Santanen, 2006). However, the study of Simonton (1995) shows that individuals who are successful in identifying the novelty and usefulness of an idea are less successful at identifying the eventual success of an idea. Research of Blair and Mumford (2007) indicates that a wider set of characteristics like the fit of an idea to social context, peoples ability to understand an idea, and the requirements for idea implementation influence the final selection decision. Furthermore, individuals are more likely to judge on their sense rather than using numerical criteria (Kuipers, Moskowitz and Kassinger, 1988). In this study, I will further examine the evaluation and selection decision about one particular idea, taking the viewpoint of the idea assessor and his or her perceptions about the idea and the idea inventor.

5 5 In this study several potential explanations will be tested why people perform very poorly at selecting the best ideas (Faure, 2004; Putman and Paulus, in press; Rietzschel, Nijstad and Stroebe, 2006). Specifically, I take the viewpoint of the idea assessor and his or her perceptions about characteristics of the idea inventor and the radicality of the idea. I will take this specific perspective because various studies indicate that ideas may not be evaluated objectively (Licuanan et al., 2007; Michaelowa and Borrmann, 2006) and characteristics of the inventor and the way in which an idea is presented (incremental versus radical) may play an important role in the idea evaluation. By biases in the assessment of ideas, promising ideas may never get a chance to become successful in an organization while innovation has become indispensible in the contemporary society and organizations need good ideas more than ever (Roth and Sneader, 2006). Making the right decisions in the idea adoption process is inextricably linked with the success of the organization (Crawford and Di Benedetto, 2006). Thus, the central question in this study will be: To what extent does the perceived status and the perceived experience of the idea inventor and the perceived radicality of an idea influence the idea selection and thus the adoption of an idea? The inventor will be seen as the employee who submits an idea in the organization. The adoption of an idea will be considered as the approval of an idea in the initiation stage. An idea that is marked as adopted, does not mean that it provides the best solution to a problem, but means that the inventor can pursue with the execution of his or her idea (Deichmann and Van den Ende, 2012). Status of the idea inventor refers to the hierarchical level of the inventor in the organization. Experience of the idea inventor includes the prior idea adoptions and/or rejections which the inventor encountered. While recent research on innovation has provided a number of interesting findings about the idea development process, it still is incomplete. In the literature, much attention is devoted to the generation of ideas (e.g., Amabile, 1996; Paulus & Yang, 2000; Toubia, 2006) as well as to the implementation of ideas (e.g., West, 2002; Woodman, Sawyer and Griffin, 1993). Thus, we know a good deal about idea generation and implementation but little research is done on recognizing and

6 6 selecting the best ideas from the pool of generated ideas. This is a serious shortcoming, because the idea selection process determines the potential of the organization to identify promising new ideas (Goldenberg, Lehman and Mazursky, 2001). Despite this importance though, the idea evaluation process still demands the most improvement (Klink and Athaide, 2006; Barczak, Griffin and Kahn, 2009). This study aims to complement the literature about the entire idea development process by focusing on idea selection. However literature on this issue is rare, there is a limited number of studies that did focus on the idea selection process. Some of these studies assert that idea assessors are able to identify the best ideas (Groborz and Necka, 2003; Runco and Smith, 1992), while other studies claim that the opposite is true (Faure, 2004; Simon, 1993; Putman and Paulus, in press). For example, Simon (1993) believes that decision makers are wittingly or unwittingly influenced by prejudicial beliefs. More specifically, this study support studies of Rietzschel et al. (2010), Licuanan et al. (2007) and Reitzig et al. (in press) by stressing the influence of implicit idea selection criteria. However, so far, the phenomenon of why assessors are incompetent in picking the best ideas from a set of options is still unclear (Rietzchel, Nijstand and Stroebe, 2010). This study also seeks to clarify a part of this unexplained phenomenon of selection bias in idea adoption in the initiation stage of the innovation process. It may occur that some of the potentially most productive ideas never will be realized. Biases may be responsible for that, rather than issues related to the ideas themselves (Reitzig and Sorenson, in press). Organizations and their managers need to be aware of that. When an organization fails in selecting the best ideas from the many good ideas generated by its employees it is as poor as an organization that fails to produce any good ideas at all (Lazer and Friedman, 2007). Hansen and Birkinshaw (2007) state that the selection of ideas is one of the most common weakest links in the innovation process of an organization and state that the success of the innovation is as strong as the weakest link in the process. From the above it becomes clear that the idea selection process is critical for the innovation success of the organization. Another reason why selecting the right ideas is

7 7 important for organizations is because it can save a lot of money. Possible biases in beliefs in the early stage of an selection decision may cause that not the best ideas will be adopted, resulting in the loss of money (Axtell, Holman, Unsworth, Wall, Waterson and Harrington, 2000). While the adoption of new ideas is very important for the competitiveness of organizations it also brings, at the same time, risks and uncertainties for the organization. Unknown factors like competition, customers and economy can affect the success of the new ideas (Ozer, 2005). The idea selection process plays a decisive role for organizations to reduce the risks and uncertainties associated with new products and services by selecting the right ideas to stay ahead of the competition. The awareness of organizations of the fact that idea selection processes are biased, enables them to minimize this bias and only adopt ideas with the most potential to become successful by further development. THEORETICAL BACKGROUND Idea Adoption Given that managers and organizations often have limited resources to move an idea forward and implement it, they need to select among a multitude of submissions a limited number of ideas that they want to pursue further. In this study an idea will be defined as an opportunity to create value through further investment (Kornisch and Ulrich, 2012). Prior literature has identified some criteria that managers could or should consider when assessing an idea. For example research by Dean et al. (2006) who distilled idea evaluation constructs that are commonly used in the literature made a selection consisting of the following constructs: idea quality, idea novelty and idea creativity. Many researchers also use the idea evaluation criteria of MacCrimmon and Wagner (1994) that can be grouped into the following four general constructs: novelty, workability, relevance and specificity. Many of these terms are defined and sampled in different ways and scholars are still working on improving the evaluation tools and methods. Although it is needed to assess ideas on the basis of various criteria, individuals are more likely to use qualitative norms of judgment, for example: if an idea seems more or less good

8 8 (Kuipers, Moskowitz and Kassinger, 1988). Research indicates that evaluation and thus possible adoption of an idea goes beyond idea criteria such as novelty and feasibility including more complicated underlying mechanisms like selection biases (Reitzig and Sorenson, in press). For example, Reitzig and Sorenson (in press) state that: Biases in beliefs can lead the selection stage of the process to deviate substantially from the identification of the best ideas (Reitzig and Sorenson, in press: 7). In literature, different stages of idea adoption are described. For instance, Kwon and Zmud (1987) distinguish four stages of adoption: adaptation, acceptance, routinization and infusion. However, the most common distinction is made between the initiation and implementation stage of idea adoption (e.g., Rogers, 1995; Zaltman, Duncan and Holbek, 1973). This study focuses on the selection bias in the initiation stage of the idea adoption process, in which the initiation phase can be described as the first idea evaluation point which leads to the decision whether or not an idea will be adopted for further development. Selection bias Many concepts of biases in decision making are based on the heuristics and biases theory of Tversky and Kahneman (1987). This theory assumes that individuals are simply unable to make their choices and decisions in a fully rational way. A bias can be defined as: A prejudice in favor of or against one thing, person, or group compared with another, usually in a way considered to be unfair (The New Oxford American Dictionary, 2001). In literature, many different biases in decision making are described. This study only focuses on the selection bias. The selection bias refers to a distortion in making rational decisions, caused by irrelevant information that affects the final decision making (Hernan, Hernandez-Diaz and Robins, 2004). Tversky and Kahneman (1987) believe that individuals simplify their decision by applying systematic thumb rules what allows them to quickly come to satisfactory but irrational choices. Other theories state that positive and negative moods are also related to decision making and influence the decision making process so as to moderate the effects of biases on

9 9 decision making (Watson and Tellegen, 1985). Selection decision can be biased by the organizational climate, culture or work group norms (Wherry and Bartlett, 1982) or by demographic characteristics, such as race, gender or tenure (Kraiger and Ford, 1985). In relation to the selection bias of ideas: recent study of Smith, Kisamore, Stone and Jawahar (2010) shows that there could be errors in each stage of the idea process caused by the selection bias, which might lead to the rejection of the best ideas. In this study the selection bias implies that idea inventors will be unfairly penalized in the idea selection process because of the inventors personal characteristics or by the perceived radicality of an idea. The next section will be used to further define and elaborate these personal characteristics and the type of idea. Perceived Idea Radicality and Inventor Status and Experience According to a various number of scientists, there are two types of ideas: incremental and radical (e.g., Gersick and Hackman, 1990; Tushman and Romanelli, 1985). Radical ideas can be defined as fundamental, ground-breaking changes in the activities of an organization (Gilson and Madjar, 2011). Radical ideas have a high degree of new knowledge (Dewar and Dutton, 1986). For example, switching the nature of a business from a traditional supermarket to a store with only organic products is a radically new way of selling the expertise. In contrast, incremental ideas are those that imply changes in frameworks and adjustments to the existing processes and products (Gilson and Madjar, 2011). Incremental ideas have a low degree of new knowledge (Dewar and Dutton, 1986). In this study one single idea is described in a radical and incremental way by changing several words in the description. Small changes in wording can have big effects on preferences (Mellers, Swartz and Cooke, 1999). People often accept and use information in the form in which they receive it, with the result that this information will only be assessed on the description and not on the quality of an idea. (Slovic, 1972). In addition to the description of an idea, status and experience of the idea inventor also are important constructs in this study. Status of the inventor refers to the hierarchical level which he or

10 10 she occupies in the organization. Other dimensions of status like network abilities, tenure or educational level are not included. Like status, experience can also have different dimensions and sources (Argote and Miron-Spektor, 2011). This study focuses on how experienced the inventor is in the idea generation process. This includes that if the inventor is working actively with idea management and repeatedly submits new ideas, he gaines experience from doing this. HYPOTHESES Perceived Inventor Status and Idea Adoption There are several reasons why one can expect that ideas from inventors with a perceived high status will more easily be adopted than ideas from perceived low status inventors. First, several studies indicate that employees with high status are associated with high quality (Stuart, Hoang and Hybels, 1999; Podolny, 1993). For example, the study of Oldham and Cummings (1996) shows that employees with high status are rated higher on their creativity than low status employees. It is also proven that employees with a high status level are better able to generate ideas on how to improve their work than employees with a low status level (Scott and Bruce, 1994). For this reason, it is likely that ideas that originate from employees with higher status will be seen as more valuable. Secondly, high status employees can exert more pressure on the idea assessors than low status employees by having more power and by being able to threat with unpleasant consequences when the idea evaluator does not want to adopt an idea (Green, Welsh and Delher, 2003). The study of Kirchler and Davis (1986) supports this by stating that high status employees were more effective at fulfilling their desires than low status employees. Finally, various studies suggest that status level of an employee is positively related to the selling skills of a person (Levy and Sharma, 1994; Lamont and Lundstrom, 1977). High status employees are better in formulating and conveying their ideas than employees with lower status. The idea assessor may be influenced in the idea selection process by the selling skills of the idea inventor.

11 11 By the above arguments it is likely that ideas from high status employees will more easily be adopted than from low status employees. This leads to the following hypothesis: Hypothesis 1: Perceived status level is positively related to idea adoption. Perceived Inventor Experience and Idea Adoption The perceived experience of the idea inventor is for several reasons positively related to idea selection. First, the intuition of the idea evaluator causes that ideas from more experienced inventors will more likely be adopted than ideas from inventors with little experience. As a large body of theorizing and research documents, intuitive can profoundly influence decision making processes (Khatri, 2000; Burke and Miller, 1999; Baron, 1998). Individuals seem to make their decisions based on rational considerations, though in practice individuals often take action based on subconscious intuitive processes. Several studies state that expertness is a factor that intuitively leads to more trust, which indirectly may lead to an easier acceptance of ideas (Good, 1988; Giffin, 1967). Secondly, several studies have explored the relation between the number of submitted ideas by an employee and the number of ideas implemented in the organization (e.g., Axtell, Holman, Unsworth, Wall, Waterson and Harrington, 2000); Clegg, Unsworth, Epitropaki and Parker, 2002). The study of Axtell et al. (2000) and Clegg et al. (2002) indicates that the amount of submitted ideas is positive associated with the amount of implemented ideas. Moreover, Frese Teng and Wijnen (1999) investigated how many ideas an employee submitted to the suggestion system over a period of three years and found the same positive correlation. Thus, ideas submitted by inventors with prior experience seem more likely to be adopted than ideas submitted by inventors with no prior experience. Finally, individuals are able to create certain patterns through prior experiences (Gersick and Hackman, 1990). The study of Kim, Kim, and Miner (2009) supports this by stating that individuals can develop a specific mindset by earlier experiences which leads to more success. It may be assumed that prior experience in idea

12 12 submission also leads to a specific mindset which causes indirectly that ideas are more likely to be adopted. The above mentioned arguments lead to the following hypothesis: Hypothesis 2: Perceived experience level is positively related to idea adoption. Perceived Radicality of the Idea and Idea Selection Expected is that perceived incremental ideas will be more quickly adopted by organizations than perceived radical ideas. Idea evaluation is a critical aspect of creative thought. However, a number of biases might occur in the evaluation of radical ideas. One common mistake is that the originality and novelty of radical ideas are being underestimated by idea assessors and therefore radical ideas will not be easily adopted (Blair and Mumford, 2007). Another mistake is that idea assessors do not recognize radical ideas. The study of Rice, Kelly, Peters and O Conner (2001) suggest that idea assessors experience problems in recognizing the potential of radical ideas rather than the potential of incremental ideas. According to Rice et al. (2001), idea assessors have an incremental way of thinking. A possible cause for this behavior could be that the evaluation criteria of organizations are not suitable for the evaluation of radical ideas but focus on the evaluation of incremental ideas (Rice et al., 2001). It is also found that idea assessors prefer conventional ideas that provide short-term growth, while disregarding risky and original and thus radical ideas (Blair and Mumford, 2007). It is given that decision makers are generally risk averse (Pratt, 1964; Arrow, 1965). Risk is an important underlying mechanism in decision making. People feel more comfortable making less risky decisions (March and Shapira, 1987). This assumes that incremental less risky ideas will sooner be adopted than radical ideas. The above mentioned arguments leads to the following hypothesis: Hypothesis 3:Perceived idea radicality is negatively related to idea adoption. Status Level and Experience Level as Moderators of the Relation between Idea Radicality and Idea Adoption

13 13 The perceived status and the perceived experience jointly moderate the relation between the idea radicality and the idea selection. When the perceived status level and the perceived experience level are high, it is expected that the perceived idea radicality is negatively related to the idea adoption. This suggests that incremental ideas from employees with high status and high experience will more likely be adopted. Bantel and Jackson (1989) provided some indirect evidence for status and experience as potential moderators of the association between idea radicality and idea adoption. These authors showed that age and organizational tenure are correlated with risk taking in innovation. Bantel and Jackson (1989) state that young aged employees with short tenure take more risks in the innovation process than older aged employees with long tenure. In literature, age and tenure are linked to experience and status. The study of Koberg, Detienne and Hapard (2003) shows that younger aged employees with short tenure generally have lower status and are less experienced than employees with older age and long tenure. Radical ideas can also be described as risky ideas (March and Shapira, 1987). Previous hypotheses show that one can expect that ideas from inventors with perceived high status or high experience will more easily be adopted than ideas from perceived low status inventors. Hypothesis 3 also suggests that perceived incremental ideas will be more quickly adopted by organizations than perceived radical ideas. For this purpose, it is expected that radicaility of the idea is negatively related to adoption of an idea when the perceived status and the perceived experience level of the idea inventor are high. This leads to the following hypothesis. Hypothesis 4: The perceived status and experience level of the inventor jointly moderate the relation between idea radicality and idea adoption; the perceived idea radicality is negatively related to idea adoption when the perceived status and perceived experience are high. Also relative to inventors with low status and low experience, the relation should be less negative for those who have either high status or high experience. METHOD

14 14 Data and Sample The study was conducted in an international telecom operator established in the Netherlands. The organization provides fixed and mobile telephony, internet and television and is in the process of stimulating their employees to generate and submit more new ideas to improve the organizational effectiveness and to be more innovative. The organization uses an innovation funnel to judge an idea on several fixed evaluation criteria as feasibility, relevance, novelty etc. However, before an idea can enter the innovation funnel, it first will be evaluated by another employee labeled as an idea assessor. Upon reading the submitted idea, the assessor can deem an idea unworthy for further consideration or can decide that it is good enough to follow the subsequent steps from the funnel. Other aspects like reciprocity, future interpersonal interactions, or potential frictions between those who submitted the ideas and those who evaluate the ideas can play a decisive role in the idea adoption process because assessors could see who submitted an idea and the assessors also do not always remain anonymous to the submitters. So, there is a possibility of a quid pro quo trading of favoritism in exchange for employee loyalty in this organization as an explanation for decision making biases (Bower, 1970). In this study a fictive idea inventor is presented, so favoritism will be excluded and that is why this research setting is so appropriate to test the hypotheses. The first idea selection point, where the idea assessor decides if an idea is good enough to go through the innovation funnel, is tested in this study. The unit of analysis is the idea assessor. The purpose of the study is to measure if the participants are biased by the inventor status, experience or the way an idea is presented in selection decision of ideas. To study the relationship between status and experience of the inventor, idea radicality, and the adoption of an idea, a three-factor experiment was designed (2x2x2 factorial design). To control for the reliability, the experiment contained 8 different groups with a minimum of 30 respondents for each group. The level of the presented status of the inventor (low status vs. high status), experience of the inventor (low experience vs. high experience) and idea radicality (incremental vs. radical) rotated. So the experiment is structured as follows:

15 15 Figure 1: 2x2x2 factorial design Employees who participated in the experiment were asked to evaluate one fictive idea related to the operations of the organization. Through storytelling I tried to let the participants visualize that they are truly part of the idea evaluation committee and make them believe that the adoption of the idea truly depended on their evaluation. All participants had substantive knowledge about the presented idea (a question in the experiment asked for this). Half of the groups got the idea presented in a radical way by using radical terms as innovative, extreme, not in line with other services, long-term growth, changing the relationship with the customer, and new service. The other half of the participants were given incremental terms as conventional, continual, in line with other services, short-term growth, strengthen the relationship with the customer, and expand an existing service. The idea itself remained the same in all groups and unchanged. Aside from the presented idea, status and experience of the fictive inventor were described as well. Versions with high status got a fictional high positioned director defined, while low status versions got a mailroom employee who had not been able to achieve a high position in the past ten years. The high experienced inventor was described as someone who is working actively with idea management and repeatedly submitted ideas and gained a lot of experience from this. The low experienced inventor was described as someone who is not working actively with idea management and had no prior experience in submitting ideas. For the reliability an attempt was made to keep the texts of all versions as similar as possible (same length and