What new products or services should you launch? What should you name your new venture? How can you improve the customer experience? These are just a few of the questions that can be answered with innovation tournaments.
Wharton professors Christian Terwiesch and Karl Ulrich are renowned researchers, successful entrepreneurs, and the foremost experts on innovation tournaments. Their new book, The Innovation Tournament Handbook: A Step-by-Step Guide to Finding Exceptional Solutions to Any Challenge, offers a template to generate winning ideas that drive great outcomes. In this excerpt, Terwiesch and Ulrich explain what an innovation tournament is and why they love them.
Y Combinator is a Silicon Valley accelerator of new ventures. Its alumni include Airbnb, DoorDash, Coinbase, Dropbox, and Stripe — which have a combined value of more than $100 billion. How can Y Combinator be so good or so lucky, or both? Y Combinator, or YC for short, is good … and lucky. But focusing only on its biggest successes overlooks some other remarkable figures. Over its nearly 20-year life, YC has received tens of thousands of applications from aspiring entrepreneurs, and it has bet on and nurtured more than 3,000 companies. With apologies to the great people who run it, YC is a machine that pulls in ideas and pumps out startups. At the heart of this machine is a process that we refer to as an innovation tournament.
Just like sporting tournaments, innovation tournaments seek to identify a clear winner from a multitude of competitors. In sport, players or teams compete until a winner is crowned champion. In business, an innovation tournament convenes opportunities for creating value. These opportunities might be ideas for new products, approaches to process improvement, names for a new venture, or candidates for entirely new lines of business. And they can originate from individuals, teams, or organizations.
How do innovation tournaments work? They typically consist of multiple rounds of competition, beginning with a large set of raw opportunities and ending with a stellar few. The first round of elimination, when the pool of candidates is large, must be quick and efficient. Later rounds, when numbers are smaller, warrant more in-depth evaluation.
For example, the YC innovation tournaments begin with applications from a huge pool of fledgling ventures. The first round is based on the subjective judgments of a panel of YC staffers. The next round includes live interviews with founding teams. Those teams accepted to the YC cohort receive capital and coaching and over the next several months strive to develop their businesses. Investors then view teams’ presentations on pitch day and evaluate whether teams show promise; some teams succeed in raising the cash they need to fuel further commercialization. Eventually, outcomes are realized in the marketplace. This multi-round process winnows thousands of applicants down to several exceptional companies. For YC, the resulting successes, like Airbnb and Dropbox, deliver payoffs large enough to easily offset the investments made in companies that fail to thrive.
Innovation tournaments can be public competitions, or they can play out within the walls of a single organization. Like Wimbledon or the Ryder Cup, they can be contests among people in public forums. When a fire devastated part of the Notre Dame cathedral in 2019, the city of Paris convened an open competition to find a design solution. Back in 2012, the Gates Foundation invited the world to “reinvent the toilet.” The California Institute of Technology scooped that prize with a solar-powered device that netted it $100,000 in prize money.
In reality, however, most innovation tournaments happen within organizations. Take the first successful COVID-19 vaccine. BioNTech is a biotechnology company based in Mainz, Germany. When its founder and CEO, Ugur Sahin, grasped the threat that the coronavirus posed to humanity in early 2020, he quickly sensed that the messenger RNA (mRNA) platform he’d developed with his wife, Ozlem Tureci, to fight cancer might also hold the key to a COVID-19 vaccine.
BioNTech conducted an innovation tournament within the organization to simultaneously evaluate the potential of 20 vaccine candidates, of which just a handful advanced to development. One — BNT162b2, to be exact — was ultimately sent to market. Not only has the vaccine probably saved millions of lives; it has also ensured the company’s financial future.
Earning billions, saving millions: Such a gargantuan win is hard to imagine. But innovation tournaments can be applied to all manner of situations with all manner of outcomes. And the premise is surprisingly simple.
In its simplest sense, innovation is finding a new match between a solution and a need. Thinking about it in this way, you realize that innovation can be applied to most situations.
Innovation can be external (focused on creating new products and services) or internal (doing things better, faster, or cheaper within an organization). By these definitions, pretty much everyone is a potential innovator and can benefit from a better way of innovating. Whether you are an IT manager in a claims processing unit for an insurance company, an entrepreneur launching a fitness app, or an industrialist concerned about the sustainability of your operations, innovation tournaments can help you. They can be used in a number of areas: What should you name your new venture? How can you reuse leftover shipping pallets? How can you increase customer retention? What package design best communicates the benefits of your new fitness tracker? What are some ways to reduce the carbon footprint of your factories?
Start with many raw opportunities. You can’t know which are exceptional, but with a large enough sample, you can be confident a few gems reside in the rock pile. Next, devise a series of development steps and filters. With each stage, you invest a little and learn a lot about the candidates. Then, winnow opportunities for further investment. Eventually, only the exceptional few remain.
As teachers, consultants, and entrepreneurs, we’ve used innovation tournaments for over a quarter of a century. We wrote our first book, Innovation Tournaments: Creating and Selecting Exceptional Opportunities, which laid out the basic concept and established the theoretical underpinnings, more than a decade ago. Since then, we have organized more than 100 tournaments for thousands of business students at the Wharton School and for many of the Fortune 500 companies. We have run tournaments in Silicon Valley and on Wall Street but also in Buenos Aires, Kuwait City, Shanghai, and Moscow. We’ve led tournaments to identify compelling taglines, to identify new product opportunities, to improve patient care in hospitals, and to improve production processes.
Our cumulative experience has taught us that innovation tournaments can address challenges ranging from existential crises, like the COVID-19 pandemic, to the refinement of a single business process in a remote office of a far-flung conglomerate. For most of the organizations we have worked with, the question was not if the organization should run a tournament, but how.
Published as “Game-Changing Innovation” in the Spring/Summer 2023 issue of Wharton Magazine.