Financial projections in innovation selection: The role of scenario presentation, expertise, and risk
Keywords: 
Innovation
Innovation project selection decisions
Financial projections
Finance
Marketing-accounting interface
Marketing-finance interface
New product development
Scenario presentation
Issue Date: 
27-Oct-2021
Publisher: 
Elsevier
ISSN: 
1873-8001
Note: 
This is an open access article under the CC BY license
Citation: 
Avagyan, V. (Vardan); Camacho, N. (Nuno); Stede, W.A. (Wim A.) Van der; et al. "Financial projections in innovation selection: The role of scenario presentation, expertise, and risk". International journal of research in marketing. 39 (3), 2021-10-27, 907 - 928
Abstract
Innovation project selection is a decision of major relevance to firms. Errors in this decision may have serious consequences for firms, especially as many firms struggle with optimizing innovation project selection decisions. In their pitches to innovation decision-makers, project teams invariably present financial projections on their innovation projects, which often include best- and worst-case scenario presentation. Despite the potential influence the presentation of such financial projections has on firms’ innovation project selection decisions, this topic has not received sufficient attention in the literature. This study examines the role of scenario presentation on financial projections in innovation project selection by conducting two conjoint experiments among 2,425 managers and 11 follow-up interviews with senior executives. First, the findings of this study suggest that firms should help project teams present small- rather than large-range scenarios. This is important for at least the 57% of firms surveyed in this study where project teams are reported to present ‘too wide’ and ‘too extreme’ scenarios. Second, firms seeking to promote transformational innovation in their innovation pipeline should make the presentation of small-range scenarios required for an innovation proposal to be presented to a project selection committee. This is relevant for 79% of surveyed firms that would like to select more transformational than core innovation projects and especially for the half of which that currently do not require scenario presentation. Third, project teams with less expertise should develop scenarios analytically rather than intuitively and convey the project’s strategic merit to decision-makers to help increase innovation project selection likelihood.
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