Once again, can money buy innovation?

downloadThe question whether companies should incentivize innovation remains one of the most controversial topics in the innovation management field. Some people argue that innovation does not need to be motivated because it’s 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 or other “material” rewards, can do little to make a person more creative. Hence, the argument goes, incentivizing innovation is pointless. Daniel Pink’s book “Drive” is often invoked to justify this point of view.

I happen to disagree. I believe that innovation should not be treated differently from other business processes. Therefore, employees who distinguished themselves in innovation activities should be recognized and rewarded as any other top performers within the organization: with promotions, stock-option grants and, yes, cash bonuses.

Unfortunately, academic research on incentivizing innovation is still in its infancy and doesn’t provide much help. In 2013, Baumann and Stieglitz used a computational model to show that companies could increase the efficiency of idea-generating process by offering rewards to their employees. Yet there was a caveat: offering 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.

More recently, Harvard Business Review published an article describing a case study conducted in a “large Asian information technology service company.” The goal of the study was to see if rewards (in the form of points that could be used at an online store) would encourage the company’s employees submit more and better ideas. The study found that when rewards were introduced, more people participated in innovation activities, resulting in overall increase in the number of submitted ideas. But what was very interesting is that on average each person submitted fewer yet better ideas.

To gain more insight into this issue, Doug Williams of IX Research and I conducted a study to evaluate whether employee engagement increases the efficiency of innovation programs. The research was aimed to answer three key questions:

  1. Does employee engagement have a positive impact on the success of innovation programs?
  2. Do organizations provide incentive to employees to encourage participation in innovation programs?
  3. What specific forms of recognition or reward do organizations use to encourage employee participation in innovation programs?

The study is now completed, and the final Report is posted to the IX Research website.

The Report’s major finding can be summarized as follows:

  • Organizations that consider innovation as their top or top-3 priority choose to establish formal innovation programs as a way to organize innovation process. The report provides evidence that such formal innovation programs improve corporate performance.
  • A variety of monetary and non-monetary rewards are used by companies to incentivize employee engagement in innovation activities.
  • Such incentivizing does have a positive impact on the efficiency of innovation programs by improving some (but not all) outcomes of these programs.

So, my answer to the question I asked last August–“Can Money Buy Innovation?”–is: yes, it can. It just doesn’t mean that you should use money only.

Image credit: http://www.texasenterprise.utexas.edu

About Eugene Ivanov

Eugene Ivanov is a PMI-certified Innovation Management Consultant who helps organizations increase the efficiency of their internal and external innovation programs.
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2 Responses to Once again, can money buy innovation?

  1. Scott Keith says:

    I agree. While I don’t think money or other “rewards” can increase ones creativity, it can encourage him/her to engage in the process and share their ideas with the broader organization. In most companies innovation is an “extracurricular” activity that tends to take a backseat to the more urgent daily tasks. I believe offering an incentive can create just enough motivation to compel employees to spend the extra time required to develop and share their creative ideas.

  2. Hi Scott, exactly my points! Thank you very much for your comment.

    Best,
    Eugene

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