Unfortunately this description of innovation isn’t mine. It was proposed by Brent Saunders, CEO of Bausch and Lomb, at the 7th CEO Annual Innovation Lecture at the Rothman Institute of Entrepreneurship at Fairleigh Dickinson University but I think it captures a lot of good thinking about innovation.1
Brent Saunders’ presentation examined the “health” of our current healthcare system and concluded that the “incentives” part of the equation was lacking and inhibiting innovation. His premise was that the US healthcare system was organized to provide treatment for patients with diseases and injuries but was not sufficiently incentivized for preventative medicine, which will be required to make the US healthcare system more efficient and cost effective in the long term. The macro issue raised by his presentation was how do we to incentivize and innovate in a healthcare system that works under a Byzantine system of laws and regulations and is resistant to change.
Talent and Culture are not enough to guarantee Innovation … Brent Saunders’ equation for innovation got me thinking about how incentives influence innovation in R&D. Many companies espouse mantras like “Performance = Talent + Culture”2 but innovation is something more than just performance. If you follow my blog, you will know that I have often posted about the importance of both corporate culture and talent for innovation in R&D.
However a company may have all the talent in the world and a great culture but innovation may still be stifled by a lack of openness, bureaucracy, regulations, lack of risk-taking and lack of speed to market. What incentives are there for people within R&D to innovate? How can you use incentives to improve innovation quantity and quality within a company? In this post I am going to focus on the need for incentives for people in R&D (or generally in the company) to improve innovation metrics.
The Relationship between Motivation and Incentives … Self Determination Theory links the question of incentives to motivation.3,4 Both incentives and motivation increase the tendency to successfully develop an innovation. For example, incentives can be financial, such as salary increases, bonuses, stock options. However, incentives can also be prestige or status based such as promotions, lunch with the CEO or being named the project lead on a cross functional project team. Sometimes incentives such as not losing your job or avoiding failure in a project are also powerful.
The incentive theory of motivation states that risk, motivation and incentive are related as follows;
Ts = Ms x Ps x Is
where Ts is the tendency to successfully develop an innovation, Ms is the motivation of success, Ps is the probability of success and Is is the incentive value.
This equation says that an innovation goal is more likely to happen if both the motivation for success and/or the incentive value are high. Paradoxically, often the motivation and the incentive values are higher for a difficult goal than for an easy goal. This means that R&D folks are often more motivated by a difficult project than by an easy one, or by project that will be a disruptive innovation verses one that won’t, or by a project that meets some important unmet consumer need, or by a project that will help others in a philanthropic way. By contrast, line extension projects that involve minor improvements to a product are not going to get R&D workers very motivated. This is where incentives can help.
Intrinsic and Extrinsic Motivational Factors … What motivates innovators? Entrepreneurial motivation is driven by both intrinsic and extrinsic factors. It might seem that commercially-orientated entrepreneurs are motivated by extrinsic factors such as money, power, prestige and/or status. However intrinsic factors such as the search for a disease cure may be a far more powerful motivator than the pursuit of money or power. Steve Jobs and Bill Gates were strongly motivated by the belief that bringing personal computing power into the hands of everyday consumers would make their lives better. Steve Jobs was also strongly motivated by the desire to “build” a product at the intersection of artistry and technology. In fact, when people become distracted by extrinsic rewards for work that they find intrinsically satisfying, they become less creative and productive. Celebrities who “burn out” as fame gets to them are the most obvious examples. Steve Jobs probably best describes intrinsic motivational forces which lead to innovation. “You should never start a company with the goal of getting rich. Your goal should be making something you believe in and making a company that will last.5”
“Necessity is the Mother of all Invention” … Of course one of the best motivating factors and incentives is necessity. Difficult situations encourage inventive solutions. When the need for something becomes imperative you are forced to find ways of achieving it. War is an example of a difficult situation that has fostered many great innovations. World War II was the catalyst for many innovations such as the development of radar and jet engines and the catalyst for “splitting the atom”.
What sort of Incentives would work in R&D? … Studies have found scientists have a diversity of motivations for commercial engagement, but that many do so for reputational and intrinsic reasons and that financial rewards play a relatively small part.6
Since most scientists and engineers in R&D are primarily motivated by intrinsic factors, an R&D leader who recognizes intrinsic satisfaction (e.g. to develop products that will better society), and offers opportunity for reputational rewards, and also offers a great compensation package will be positioned for innovation.
However, many people in R&D feel that their work is largely controlled by factors beyond their control and leadership that has little experience or understanding of product development and this leads to job discontent and stagnation. People in R&D need to feel that they are important in the company and not just a cog in a machine. Treating R&D people as backroom geeks, uninterested in understanding the business landscape, is a sure way of demotivating R&D.
Incentives that give control back to R&D workers work well. For example, funding a project an R&D worker proposed and making them the project lead. Incentives to remove bureaucracy, delayering management and simplifying processes also resonate. Incentives to improve communication skills and training to understand the business landscape will reap benefits. Status and prestige, especially in front of their peers but also the company at large, are also good incentives. Company-wide recognition such as “We really need R&D to come through on this project or the company will be in trouble” is likely to motivate people in R&D. Financial incentives, unless directly linked to the success of projects, are probably the least effective incentives, although financial compensation must always be competitive.
Incentives are a huge component of Innovation, but understanding how to leverage them to improve motivation is crucial.
1. 7th CEO Annual Innovation Lecture at the Rothman Institute of Entrepreneurship on December 10, 2012 at Fairleigh Dickinson University in Madison, New Jersey http://commercemagnj.com/a-vision-for-the-future-incentives-for-innovation-plus-a-culture-that-values-new-ways-of-thinking/
3. Alan L. Carsrud, Malin E. Brannback – 2009 – Business & Economics
Excerpt From: Walter, Isaacson. “Steve Jobs.” Simon & Schuster, 2011-10-23T21:00:00+00:00. iBooks.
6. What motivates academic scientists to engage in research commercialization: ‘gold’, ‘ribbon’ or ‘puzzle’? http://ideas.repec.org/p/pra/mprapa/30849.html
© Dennis Nelson 2013