UCL School of Management is delighted to welcome Morvarid Rahmani, Georgia Tech, to host a research seminar discussing, ‘The Effect of Flexibility in Delegating Innovation’.
In many contexts such as product design and advertising, clients seek the expertise of external providers to generate innovative solutions for their business problems. In such delegated engagements, providers can improve the quality of solutions through the intensity of their efforts, and clients can evaluate solutions and decide when to stop the project. In this paper, we explore how the client’s flexibility in stopping the project influences the progress and efficiency of the delegated innovation. In particular, we compare two structures: Committed, where the client stops the project immediately if the provider delivers an acceptable solution, and an Open-ended, where the client retains the flexibility to continue the project even after receiving an acceptable solution. We show that, when innovation is delegated, the client’s flexibility can lead to lower early efforts by the provider and thus may not always benefit the client. We generate insights regarding the appropriateness of the two structures with respect to the problem difficulty and provider’s capability. In addition, we extend our model and analysis in several directions by capturing the effects of client’s transparency, optimal payments, project timeline, and provider’s capability improvement.