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How to incentivize innovation

Every organization aspires to innovate. Or at least wants to reap the benefits: clients that come to you for your unique solutions, high-profit margins because there is more demand than you can service, and great job candidates because they want to work for you. What to incentivize to get from this aspiration to these results?

Organizational outputs to strive for

To achieve the outcomes described above, what would you need to do as an organization? What outputs should you strive for and which behaviors should you incentivize?

Let’s start with the outputs that are needed to get to these results.

  1. A pipeline with innovation projects that will sustain the organization in the future. That means a few projects that guarantee your success for the next 10 years (breakthrough types of innovations). A few more projects that carry the revenues for the upcoming 2-5 years (replacement innovations), and even more projects that help you out the next 1-2 years (incremental innovations). Create a balanced portfolio of projects, to maintain and sustain your innovative performance in the short and long run. You cannot only invest in breakthrough innovation, as that would be too risky and unsustainable. Neither can you invest in incremental projects only, as that would provide you with insufficient leverage.
  2. You need to explore broadly, as successes – especially breakthrough innovations – are to be found in unlikely places. In addition, numbers matter. Innovation is a numbers game, where you have better odds with more projects. The more people involved, the higher the likelihood of creating something unique and invaluable.
  3. You need to be effective and efficient. Thus, you cannot pursue all initiatives, let alone indefinitely. Use discipline in what you go after and how. Effective means making sure you are investing in the right projects – aligned with the strategic goals and risk profile of the organization. Efficient means, time and cost-effective. Especially for service firms, the latter is important, as the return on investment even for your most successful projects are limited.

Exploring broadly and in a disciplined matter is clearly not an easy task.

What are the implications for the individual?

Organizations don’t innovate, employees do. So, what does the above mean for your innovators?

To accomplish the outcomes above, your talented innovators need to:

  • Do the task. Someone – in fact, a team for each project – needs to do the job of innovating. Make sure this is not a thankless job, because it does not generate income today.
  • Get to finish this job. There is no point in starting innovation projects if that is all you do. These projects need to be completed successfully in order to achieve the desired results.
  • Explore various options. You need to get that portfolio filled with a variety of projects with great potential. Cast at a wide net to harvest your future successes.

“Ouch, that will be costly”, you may think, and you are absolutely right. However, if you invest wisely, the returns are worth it.

Right structure in place

In a recent HBR article (March/April 2019), Bahcall explains how the innovation equation can help you put in place the right structure to incentivize the desired behavior, outputs, and results described above.

One of his recommendations is to put a chief incentive officer in place! Below I elaborated a few of his other recommendations.

Take politics out

Celebrate results and not rank. Which is only possible, if you define results. What do you want to celebrate?

Starting or participating in an innovation project should not be celebrated. That is incentivizing busy work. You are looking for outputs and results.

Recognizing that not every innovation project is going to end in a high-value new service, you need to reward and celebrate two types of outcomes. First outcome to celebrate; creating a revenue- generating new service. That is no small feat to accomplish, it requires a lot of persistence and energy. Second outcome to celebrate; lessons-learned rapports of attempts that have been stopped-timely. Reports that enable future attempts to build on the gained knowledge. Both are successful outcomes from an innovation perspective. The second outcome is not easy to obtain either, as it requires a healthy dose of realism and introspection. It is extremely difficult to admit that you are on the wrong path and turn around timely. Timely matters here, you don’t want these projects to drag on endlessly – that would be a failure.

Perfect employee placement

You need to have the right people at the job. Obviously. What Bahcall means here, is that it should make sense for the team members to spend their time on their innovation project and not on advancing their own careers through political games. In short, you should reward what your employees do and not who they know.

The right people can mean two things. First, have ambitious and talented employees learn on the job. There is no better learning experience than participating in an innovation project. Second, free up the right persons for the job. That is, make use of the employees that have the expertise and knowledge to advance your innovation projects. You need both kinds of employees on your innovation teams.

Use (soft) equity

Use all the means, financial and nonfinancial to increase employees stakes in the success of their innovation project

Invest in training benefits

Participating in an innovation project is a fantastic learning opportunity. Make sure personal development, domain expertise training, and innovation project participation are aligned. If you put the needs of the innovation project first, and then align that with the employee’s soft and hard skills training needs, such alignment can be achieved. Whereas, if you try to match it the other way around, starting with the requirements for hard and soft skill training, then alignment becomes really challenging.

Incentivize to enable innovation

Incentivize to engage

Without getting your employees engaged, there is no innovation, no outputs, and no results. In today’s world where instant gratification is ruling, it is not easy to have your employees focus on the revenues and profits that will benefit the organization two to ten year from now, instead of activities that bring in the profit today. A healthy dose of “delayed gratification” is required, just as it is in our personal lives. Not everything you do, will pay off tomorrow.

Engaging in innovation does not mean giving your employees the opportunity to innovate on Friday afternoons. Not in the least because that is extremely inefficient. Even if you could spend all Friday afternoons, it would still take 10x longer than necessary to execute a project. Projects executed on part-time bases lose momentum, even when the most driven and ambitious people are involved. And then we have not even discussed the inefficiencies arising from having to restart every Friday (source).

However, giving people 100% of their time to execute an innovation project is not effective either – certainly not for the initial phases. Nor is having dedicated innovation staff the solution for service organizations (source).

What then?

Short sprints, to move a project forward are most effective and efficient. Sprints that increase in intensity and frequency as the project moves along, with the project team proving that they are on to something. In the end, these sprints may even morph into full-time dedication.

How to incentivize this behavior? Make participating in these innovation sprints the equivalent as participating in training courses. Turn it into something that is expected and part of your career growth goals.

Incentivize to execute

Innovation as a hobby is very popular. People love to participate on innovation projects as long as they are not accountable for delivering results. Innovation activities can be fun and it may be good to get many and a wide variety of projects going. However, this approach is detrimental for the efficiency and effectiveness of your innovation efforts. Don’t turn innovation into a hobby, after all the health and survival of your organization depend on it.

Thus, you need people committed to success and willing to do the work that it requires to get from A to Z. That means that you need to make innovators responsible and accountable for the outputs and outcomes they deliver.

Because not all projects are successful, evaluate the performance of those who participate on the outputs and outcomes they generate along the way. Look for instance to the:

  1. Revenue generated from the newly created service (the ultimate goal)
  2. New service successfully launched (a laudable effort)
  3. Lessons learned (knowing what not to do is invaluable – the goal of these lessons learned should be to advance future projects)
  4. Learnings shared – brown bags, white papers etc produced to enhance the knowlege on the topic within the organization.

Since time is already scarce, don’t’ allow people to participate in more than one innovation project at the time. Overcommitment does not serve anyone well.

Incentivize to implement

It should pay-off to bring an innovation project to the finish line. It should get you more than any promotion you ever make in the organization. You don’t want your talented employees to hunker and play politics to go from junior-assistant, to assistant, to senior assistant, to junior-principal etc. in order to get a slightly better pay each year.

Instead, you want them to be the hungry to become a contributing member of the team that created this awesome new service offering that put your organization on the map.

Driving an innovation project and reaping the benefits – in terms of generated profits, new clients obtained, and talent wanting to join your organization – those are the things you want your employees to aspire to.

They will if you let them have a share of these results!

That is how you incentivize innovation – enable participation, execution, and implementation of innovation projects, and have contributing team members share in the successes.

 

 

 

P.S. Wondering how to incentivize your employees to participate in innovation and reap the benefits of being an innovative organization? Please feel free to set up a first free consult to discuss what we could do for you.