High-stakes innovation: When collaboration in teams enhances (or undermines) innovation in professional service firms

Professionals need to develop increasingly innovative solutions to complex problems, which are often cocreated through client–professional collaborations, but this demand creates a theoretical and practical tension. On the one hand, professionals need to establish long-standing relationships with clients so they can deeply understand their client’s business and develop more effective solutions. On the other hand, such strong relationships can breed similar perspectives that undermine their ability to develop more innovative ideas. To resolve this conflict, we introduce a new contextual condition to the literature that is fundamentally associated with innovation in organizations—the stakes of an innovation project—and develop theory explaining how it creates conditions under which familiarity either enhances or undermines innovation in teams. Using a mixed-method approach to study an innovation contest held in the legal industry, we found that under lower-stakes conditions, collaboration in new teams was positively associated with innovation and produced significantly more innovative outcomes than collaboration in long-standing teams. But under higher-stakes conditions, these effects reversed. When exploring the mechanisms underlying our results, we found that familiarity was valuable for innovation under higher-stakes conditions primarily because teams with shared perspectives took greater risks on more innovative ideas during the selection stage of the innovation process.