Complex innovation processes such as drug discovery present challenges to innovators because they must proceed with limited feedback but face a system that involves enormous amounts of information and unknown interdependencies. Organizational scholars suggest that abductive reasoning fits complex situations and may address many of the challenges of complexity. Abductive reasoning is a form of reasoning that generates and evaluates hypotheses in order to make sense of puzzling facts. Existing research on abductive reasoning makes a number of important contributions, but does not explain how innovators can use abductive reasoning to formulate hypotheses for possible new products and then use these hypotheses to navigate in the labyrinth of complex product innovation. We interviewed 85 scientists and managers working in the biopharmaceutical industry and use grounded theory building to develop a new framework. Our framework identifies three social mechanisms that explain how innovators use abductive reasoning to detect useful information despite the noise, avoid competency traps and local optima, and accumulate insights in a holistic way. We contribute to existing research by explaining the systematic process that enables innovators to overcome the challenges of complex innovation and navigate effectively in the labyrinth.
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