Business leaders agree that innovation is vital to the success of their business, but there’s confusion about turning ambition into a healthy, productive function of their organisation.
Many of the problems arise when innovation is treated like any other mode of working, with similar approaches to process, measurement, recruitment and so on. Unfortunately, innovation is a slippery, unpredictable task which doesn’t respond well to the structures and incentives that motivate people in less disruptive aspects of business life.
When a company aims to create and implement a new idea, a whole range of complications arise from the unique nature of the challenge. More than any other business practice, there are ill-defined end points, fluctuating cross-functional teams and experimentation. Creative problem-solving is important in all business tasks to some degree, but it is the engine of successful innovation. Most of all, innovation is inherently disruptive – often playing badly with ‘business as usual’.
No surprise that motivating people to innovate is complicated. It’s tempting to throw money at the problem by appealing to employees’ wallets to unlock innovation. Cash is universally popular and sends a clear signal that leadership values contributions to successful innovation. If only it were so simple.
Research by Ariely, et al, (2009) shows that high level cash incentives actually damage performance on creative problem-solving tasks. Financial incentives turn innovation practice into a primarily transactional relationship with the business, which is detrimental to such a messy and unpredictable endeavour, sometimes requiring long hours of work or extra dedication. Worse still, transactional relationships crowd out the inherent intrinsic motivators: autonomy, mastery and creativity are the building blocks of a healthy innovation project and cost nothing.
There’s also risk for the decision maker in choosing who and when to reward. The story of successful innovation is inevitably one in which many hands and brains played a part over a timeline dotted with failed experiments, false starts, periods of inactivity and acceleration.
With a sprawling ‘team’, who do you reward without violating principles of perceived fairness? At what point is an innovation considered successful? First concept? Launch? Profitability? This is a challenge for any kind of incentive, but it’s considerably worse when cash is introduced.
So, are there circumstances in which financial incentives can help innovation? It depends on how you sustain an innovation culture, but there are certain specific conditions when it can motivate the right behaviours and performance.
As part of a wider recognition system, cash bonuses can encourage innovation. To avoid the lack of clear end points they should be awarded little and often to mark way points on the journey. It’s preferable to award at group level rather than to individuals – there are circumstances where specific individuals should be singled out, but monetary rewards will create division. Most important with cash bonuses is openness and scrupulous attention to fairness, perhaps using a system voted by peers rather than management.
The worst financial incentive is probably permanent pay rises for innovation as all the risks outlined above apply, along with an increased cost base, diminishing returns for those who are already well paid and a weak link between achievements on the innovation journey and the annual pay review.
That said, someone who is consistently good at innovation should be well compensated, but this should be true career advancement to a role where their skills can bring them the most job satisfaction.
Money is a blunt instrument for motivating innovation within a large organisation. Just like the mercurial process of inventing and implementing new ideas, we need to be more creative in rewarding and recognising our innovators.
Campbell Macpherson is managing director of Campbell Macpherson & Associates