Monday, June 2, 2014

Can Money Buy Innovation?

Even in our money-driven society, the power of money has limits: there are certain things money can’t buy. Love and happiness come to mind first, but a popular list of things that can’t be supposedly bought with money is much longer and includes such items as “25-hour day,” “clear conscience” and (my favorite) “an honest politician.”

Some would add one more item to this list: innovation. Innovation, they’d argue, is a thing based on creativity, and creativity feeds on intrinsic motivators: natural curiosity, joy of learning, thrill of solving a difficult problem. Extrinsic motivators, such as money, can do little to make a person more creative. Hence, the argument goes, money can’t buy innovation. Many companies have reduced this concept to practice: they launch innovation initiatives and then expect employees to participate in their spare time, for free.

Unfortunately, academic research on incentivizing innovation is still in its infancy and doesn’t provide much help. In a 2013 article in Strategic Management Journal, Oliver Baumann and Nils Stieglitz showed that companies could increase the efficiency of idea-generating process by offering rewards to their employees. Yet there was a caveat: offering moderate rewards provided “a sufficient stream of good ideas, but few exceptional ones.” Moreover, increasing the size of the reward did nothing to boost the number of exceptional ideas. In other words, monetary rewards did stimulate innovation, but only incremental innovation, not radical.

The fact that money can boost innovation in principle makes this glass at least half-full; the fact that money failed to improve the quality of ideation process leaves it half-empty (if not even emptier, given our obsession with radical innovation and disdain for incremental).

Hopefully, future research will bring more clarity to the topic. In the meantime, I see at least two reasons why incentivizing innovation with money makes practical sense. First, incremental innovation, notwithstanding our feeling about it as intrinsically inferior, still forms the basis of any rationally designed corporate innovation portfolio. None other than Google’s Larry Page, hardly an enemy of radical innovation, told Forbes a few years ago that about 70% of his company’s innovation portfolio was composed of incremental improvements of core products. Now, let’s see: if you can increase the efficiency of two-thirds of your company’s innovation projects with money, would you not consider this money well spent?

Second, some companies (Google and 3M are routinely mentioned in this context) have introduced the so-called 20% time rule, a corporate policy that allows employees to use a fraction of their regular time, usually 15-20%, to pursue “side” projects. Should the employees be paid additional money for generating “side” ideas? Of course, not. The problem, though, is that the vast majority of companies don’t have such a 20% time rule; employees in these companies are expected to innovate in addition to their everyday job responsibilities. In practice, that means that extra work is expected from them outside their regular working hours. In plain business language, this is called overtime. As far as I know, when it comes to “routine” business activities, companies aren’t allergic to paying cash for overtime. Why should innovation be an exception?

We should stop practicing innovation snobbery: to believe that innovation isn’t for everyone, but for a few privileged (a.k.a creative) souls; to insist that only radical innovation matters, while incremental one is for losers; to argue that innovation is fundamentally different from other business processes, and therefore normal performance evaluation metrics don’t apply to innovation activities.

Instead, we should become more assertive in our approach to corporate innovation: to firmly align it with the company’s strategic goals; to define what kind of innovation involvement is expected (or not) from each position within the company; to establish metrics by which this involvement will be assessed at each level, from top to bottom. With this in place, innovation will be rewarded as any other top performance would: with promotions, stock-option grants and, yes, cash bonuses.

We also should stop arguing whether we can or can’t buy innovation; we should simply pay for it.

Like this topic? Attend BEI Back End of Innovation 2014 in Las Vegas, NV in October! Learn more about the event here:

This post was brought you by InnovationExcellence, the online home of the global innovation community, building a growing network with thousands of members from over 175 countries – thought leaders, executives, practitioners, consultants, vendors, and academia representing all sectors and industries. Its mission is to enhance innovation by providing a forum for connection and conversation across this community.

About the Author: Eugene Ivanov is innovation consultant helping organizations establish internal and external innovation programs. He also assists his clients with selecting and defining R&D problems that can be successfully solved by using crowdsourcing approaches. He tweets at @eugeneivanov101. 
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1 comment:

Larry said...

Money CAN aid in fostering innovation - to a point. Lacking money most companies couldn't afford to implement any of the ideas which could gain them a significant ROI.

It certainly doesn't hurt to offer cash incentives to ALL salary and hourly (AND outside 'vendor', 'contractor' or 'temp') employees regardless of their station in the company. However, management MUST first truly adopt the mind-set to REWARD innovators, rather than PUNISH them.

I'd witnessed both sides of the coin where employees were rewarded with sums of 10% of the annual cost savings their innovation accrued the company for radical and incremental ideas which were adopted. One was paid $150k for preventing in-process product damage - damage which could've been avoided by merely obeying company safety policy.

I've also witnessed (and suffered) punishment for saving a company millions in (incremental) process costs as well as earning a company millions more through the (radical) creation of completely new technologies - technologies which became benchmarks in the firm's industrial sector.

This firm rescinded its 'Employee Suggestion Program' shortly thereafter - claiming processing suggestion forms tied-up too much time.

Firing someone who saves/earns your firm millions of dollars through their innovative ideas is akin to 'killing the goose which laid the golden eggs'.

Unfortunately, managers in SOME Fortune 100 firms are more interested in 'playing the game' of corporate politics (climbing the ladder) than in what will benefit the organization and WILL quickly come down on anyone who (they see) as a threat.

The film 'How to succeed in business without really trying' should be made mandatory viewing by shareholders - in both corporate AND governmental organizations because BOTH sectors suffer such fools in management.

For THIS reason both corporate and governmental organizations should have OIGs to whom 'disgruntled' employees can address concerns which, they (the employees) feel, endanger the bottom-line.

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