To Create An Innovation Company: Focus On Culture Instead Of Cash

To Create An Innovation Company: Focus On Culture Instead Of Cash

08.25.15Ron Ashkenas

Incentivizing innovation: Does it work?

One of the most heated debates involving innovation revolves around how to best incentivize people to develop and implement new ideas. Research on this issue offers a wide range of conclusions. For example, one recent research report suggests that offering financial incentives only raised the number of mediocre ideas and had little impact on breakthrough innovation. On the other hand, an MIT study concluded that group incentives and long-term rewards do have a positive impact on innovation. And still another survey of 20 companies from different industries found that 90% of the respondents thought that incentivizing and rewarding innovation was “something we should be doing better.”

Driving this debate is the fear that employees will not develop and bring forward creative ways to improve the business unless they are given something “extra,” like time, resources, ownership, or money. For example, one manager recently told me about an employee who refused to share her innovative solution with anyone in the firm unless they would sign a non-disclosure agreement to prevent colleagues from running off with “her idea.” An executive in a different company described a situation where the owner of a particular database would not allow it to be used by another business unit unless his team was given a portion of the revenue.

Creating financial incentives for innovation does not necessarily prevent these kinds of issues. In fact, focusing too much on “cash for ideas” may open a Pandora’s Box of unintended consequences – people innovating for their own benefit instead of the company’s, competition arising between individuals or units, employees losing focus on current business, and so on.

This is not to say that there is no place for financial incentives for innovation, but it usually takes a lot of hard work to get them right.

What most companies should focus on first is creating an environment, or a culture, that fosters innovation. For example, in the case of the employee wanting an NDA before sharing her idea, the underlying issue may not have been money, but rather commitment and trust. For some reason, this employee didn’t feel that part of her job was to help the company come up with new ways of working, and she wasn’t excited about helping the company improve; she was only innovating because it was good for her. At the same time, she didn’t trust her manager or colleagues to explore or implement her idea, because she was afraid that she wouldn’t be recognized for her contribution. Paying her for the idea likely wouldn’t resolve these issues; rather, it might reinforce them.

Similarly, in the example involving database ownership, the manager seemed to feel that the database belonged to him (and his business unit) and not to the company. He felt that his team should therefore be compensated for its use by another unit. Giving in to this demand with a monetary reward could confirm this belief and further constrain sharing and collaboration in the future.

Unfortunately, while it’s easy to talk about creating an innovation-friendly culture, it’s hard to do. But here are three ways to get started:

First, educate your people about what innovation means for your business. Particularly in companies that have experienced years of efficiency management, innovation can be seen as just another way to reduce costs and get rid of people – which can exacerbate the defensive “me-first” behavior that is antithetical to real innovation. So take time to talk about the importance of finding new solutions for customers, competing with start-up competitors, ramping up internal growth, or whatever other rationale makes sense for your company.

Second, build innovation into your goal-setting and performance management process, with as much specificity as possible. If you want employees and managers to innovate, then make it clear what that means, how it’s measured, and how it needs to be part of their jobs – not something “extra” to be done in their spare time.

Finally, find some early examples of innovation, where people did the right things, and either got good results or quickly learned from their failures. Publicize and communicate these situations, give the people involved recognition, and make it clear that this is the kind of behavior that’s needed and wanted.

Turning a traditional company into an innovation machine won’t happen overnight. But if you focus on culture rather than just cash, you’ll probably have a better chance of success.

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