Visionaries, Managers, and Strategic Direction

This paper shows that a firm’s ability to provide incentives for profitable innovation may be enhanced if it has a “visionary” CEO. We interpret “vision” likely evolution of the industry. The presence of such a bias is helpful when employees can only be compensated for their innovative ideas when they become embodied in implemented projects. Since CEO bias affects which project gets implemented, it encourages the creative effort to employees whose projects fit the CEO’s vision. We also show that the firm sometimes benefits from having objective middle managers decide which projects to investigate. This is true because middle managers will sometimes make decisions that are counter to the firm’s “strategy” in the sense that they differ from what the CEO would have decided if he had to make these decisions as well.