If the incentives are aligned properly, then the correct decisions will be made. Large bets are not permitted without multiple layers of approval. Middle managers have limited personal downside risk if an initiative fails. Middle managers have limited upside benefit from an innovation that succeeds. This incentive structure encourages middle managers to promote innovations that have low risk and modest expected return.
Large bets require financing from a venture capitalist.
The entrepeneur has considerable downside risk, but some of the risk is borne by a venture capitalist. The entrepeneur has considerable upside benefit, but some of the upside benefit is shared by the venture capitalist. This incentive structure encourages entrepeneurs to promote innovations that have high risk and high expected return. The incentive structure that middle managers want, as embodied in a' - c' above, also would promote innovations that have high risk and high expected return. However, in addition, it would encourage innovations that have high risk and low expected return.