Harvard Business Publishing

This article is coauthored by Innosight Managing Director Matt Eyring.

The Major League Baseball draft is a relatively quiet event, at least compared to higher-profiles drafts in football and basketball. But the complexity and minutiae of the MLB draft--and what happens after the draft--deserves the most attention for those looking for innovation inspiration.

Seeing coverage of this week's baseball draft made us realize how much companies can learn about innovation from watching how great baseball teams manage their early portfolio of talent.

Baseball teams have to assemble the best talent possible, just like companies have to bet on the best innovation opportunities. A baseball team chooses between acquiring talent on the free agent market or drafting and building talent. A company chooses between acquisitions or organic growth.

Acquisitions are expensive, but perceived to be lower risk, because the talent (or idea) has proven itself demonstrably in the marketplace (for baseball, that means success on a major-league diamond). Organic growth is typically cheaper, but perceived to be risky because many times highly touted initiatives or prospects don't pan out.

Baseball teams know that talent follows a power-law pattern, where for every 1,000 players there are 100 players that are capable of playing at major league levels, 10 of whom are legitimately good players, and 1 of whom is a true superstar. The same is true for innovation.

The challenge is: Which project or which player? Just as a baseball team doesn't have complete information about what a player's true level of ability is on draft day, you don't know the real potential of any one innovation project.

Both of you are forced to deal with incomplete data. A team has to rely on a mix of limited performance data at the high school and college level and an assessment of a player's inherent skills. Good teams collect as much data as possible. They have sophisticated models to project how rough performance can project to the major league level. Good teams also let past patterns inform their decisions. High school pitchers? Very risky. College hitters? Much less risky.

With a well-organized scouting team, you should gather multiple data points in preparation to "draft" innovation opportunities. Get the very best market data you can, look at past successes and failures to see what lessons you can glean, and use qualitative metrics or patterns to guide decisions.

Teams recognize that not all draft picks will pan out. So they immediately expose them to tougher competition in the minor leagues. Similarly, you must find ways to test your critical assumptions as quickly and cheaply as possible by "exposing" your innovation to simulated market conditions. That might involve showing a customer a prototype, or running a limited test market.

Sometimes players go through the system quickly. Sometimes it takes a few years before they develop their skills. Sometimes it is clear that a projection was wrong and it's time to cut bait. Similarly, you must make quick decisions about which projects to accelerate, which to fine-tune, which to decelerate, and which to shut down.

How about that balance between acquisitions and organic growth? Baseball teams are learning that the quirks of the collective bargaining agreement mean that it's far better to be world-class at talent evaluation and lock up young talent early than it is to seek to acquire talent on the free agent market.

This is because by the time a player is eligible for free agency, their best years are often behind them. A limited free agent market leads to artificial scarcity, which means teams often pay above-market rates for players with declining skills.

You can learn a key lesson from this baseball dynamic. The market for acquisitions that are big enough to impact large companies is very thin, meaning companies often need to pay above-average rates for acquisitions.

Of course, the market for companies is more liquid than the market for baseball players. We bet you if you ran the data (and surely someone at Baseball Prospectus, The Hardball Times, or Baseball Think Factory has) the absolute best return on investment would be acquiring a hitter who has proven himself at a critical midpoint--perhaps at the second-tier double-A minor league level. Passing that hurdle greatly increases the odds that a player will succeed at the major league level. Ask yourself: What is the equivalent inflection point in our market?

As you look at your innovation portfolio, think of yourself as general manager approaching the draft. Place a lot of well-informed bets, using a variety of qualitative and quantitative inputs. Expose those bets to the market as quickly as possible. Recognize that not every bet is going to pan out. Accelerate the development path of the best resources, and shut down the rest.