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Updated: Jul 7, 2026

The Innovation Arena: A Method for Comparing Innovative Problem-Solving Across Groups

The Innovation Arena: A Method for Comparing Innovative Problem-Solving Across Groups

Published on: May 13, 2022

Innovation killers: how financial tools destroy your capacity to do new things.

Clayton M Christensen¹, Stephen P Kaufman, Willy C Shih

¹Harvard Business School, Boston, USA. cchristensen@hbs.edu

Harvard Business Review

|February 15, 2008

Summary

Financial tools like discounted cash flow and net present value often hinder innovation by underestimating returns. Companies must adopt alternative methods to accurately assess future value and foster innovation.

Related Experiment Videos

Last Updated: Jul 7, 2026

The Innovation Arena: A Method for Comparing Innovative Problem-Solving Across Groups

The Innovation Arena: A Method for Comparing Innovative Problem-Solving Across Groups

Published on: May 13, 2022

Area of Science:

Business Strategy
Financial Management
Innovation Studies

Background:

Many companies struggle to achieve desired levels of innovation.
Traditional financial evaluation methods may inadvertently stifle innovation.

Purpose of the Study:

To identify financial tools that impede innovation.
To propose alternative methods for evaluating innovative investments.

Main Methods:

Analysis of common financial tools (e.g., discounted cash flow, net present value).
Examination of how these tools are applied in investment decisions.
Comparison of incumbent and entrant strategies in innovation.

Main Results:

Discounted cash flow and net present value often underestimate innovation benefits.
The default assumption of 'doing nothing' ignores competitive deterioration.
Short-term earnings focus restricts long-term innovative investments.

Conclusions:

Current financial evaluation practices create a bias against innovation.
Alternative methods are needed for more accurate future value assessment.
Managers should adopt astute approaches to foster innovation.