The grass is (not) always greener on the other side: Biased assessments of external ideas in innovation

Christina Raasch

Companies live or die by their ability to innovate. To succeed, virtually all companies draw upon ideas and solutions that come from outside their own walls (e.g., Chesbrough & Brunswicker, 2014). They may incorporate external knowledge on a very large scale, such as in mergers & acquisitions (Cartwright & Schoenberg, 2006), or on a much smaller scale, such as adopting new ideas or solutions from suppliers, user innovators (von Hippel, 2005), or crowds (Afuah & Tucci, 2012). The consulting industry pivots on companies seeking external over internal solutions, at least for some questions or projects. “Open innovation” encapsulates the notion that firms should leverage external as well as internal knowledge to accelerate and enhance their innovation outcomes (Chesbrough, 2003). Selecting and implementing the best new ideas increases companies’ efficiency, competitiveness, and resilience.

The many merits and successes of these approaches notwithstanding, both anecdotal and some scientific evidence suggests that the anticipated benefits of external ideas may not always materialize. Reportedly, almost half of the mergers and acquisitions fail to meet the companies’ prior expectations; and many consulting and open innovation programs never reach their goals (Greco et al., 2022). First studies suggest that decision-makers may systematically overvalue external knowledge and ideas (Dahlander et al., 2023; Menon & Pfeffer, 2003), leading to inefficient resource allocation.

This project seeks to unpack systematic errors in the evaluation of external vs. internal ideas, especially biases favoring external ideas, which are hardly understood yet. In our view, this is an important topic as, according to our industry contacts, such biases among employees lead to defeatism (“our ideas are never good enough”, “all the best ideas come from Silicon Valley”), dependency, and wasted potential.