Authoritarianism versus participation in innovation decisions

Abstract

Why do innovation projects fail? The most common answers are (A) the implementation differs from what was planned; (B) despite positive expected payoffs, there is an ex-ante positive probability that payoff can be negative (risk). As a third option, we consider the fallibility of individuals who evaluate innovation projects using their limited information-processing capabilities (bounded rationality). Furthermore, we compare the overall organizational performance of two decision mechanisms. First, an informal Collective Decision as an unanimity participative mechanism to decide on technological innovation adoption and, second, a centralized Authority decision. Authority-based decision-making results in higher commission errors (acceptance of projects that an unbounded rational decision-maker would reject) and lower omission errors (rejection of projects that an unbounded rational decision-maker would accept) than Collective Decision. In a dynamic technological adoption process where a sequence of randomly generated innovation projects is evaluated using the two mechanisms, the simulations show that, in the short-term, omission errors dominate and Authority is preferred to Collective Decision; however, in the mid and long terms, commission errors dominate and Collective Decision is preferred to Authority, especially if Collective Decision does not incorporate social influence. With Collective Decision, the ratio of projects that fail is lower, more innovation projects are rejected, and fewer innovation projects are accepted, which can be interpreted as resistance to innovation.