Alexander Börsch, Nicolai Andersen

There are two main factors that make meaningful investment in innovation harder to manage than other corporate activities. First, innovation is fraught with uncertainties. It deals with the future, requiring assumptions about future market needs, market trends, dominating technologies, and many other factors. The outcomes of innovation projects are, therefore, highly uncertain. …

Second, there is a tension between the short term and the long term. Innovation may be crucial for a company’s long-term wellbeing, but it requires investment in capacities and resources without immediate cash flows. This makes innovation activities vulnerable to short-term pressures to allocate capital to more pressing matters, making rational decisions hard to come by. Faced with high levels of uncertainty and tangible near-term needs, most companies forego a promising investment in growth for the more present concerns of value preservation and cost savings.

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