I received a thoughtful comment after my last post about incentives for R&D workers and the practicality of implementing them at a time when there are so many pressures on R&D budgets. Ted Liston addressed the bleak outlook of R&D budgets after multiple rounds of downsizing, and the tendency to cut low hanging fruit like travel/training budgets, hiring of consultants, and science/technology development1. I also received a question from James Cone about what specific incentives work for R&D workers who are motivated more by intrinsic rewards rather than extrinsic rewards2. James’ question dovetails nicely into the question of whether spending cuts on incentives for R&D workers provide meaningful savings to budget constrained R&D leaders.
What sort of incentives work in R&D? … Studies corroborate what most scientists understand intuitively i.e. academic scientists will engage in research commercialization when they are incentivized by a combination of “gold” (financial), “ribbon” (reputational/career) and “puzzle” (intrinsic satisfaction) rewards3.
What many senior managers may not realize is that many scientists rank reputational and intrinsic rewards ahead of financial rewards. However this does not mean that “gold” or financial rewards are not important. An R&D leader who not only offers R&D colleagues intrinsic satisfaction gained through developing products that will better society or solving an interesting intellectual problem, but also offers opportunities for reputational/career rewards, as well as a great compensation package will be well positioned for innovation.
Many people in R&D feel that their work is largely controlled by factors beyond their control and by leadership that has little experience or understanding of the product development process and what drives innovation. This in turn, leads to job discontent and stagnation. Like everyone, people in R&D need to feel that they are valued in the company and not just cogs in a machine. Treating R&D people as backroom geeks, uninterested in understanding the business landscape, is a sure way of demotivating R&D. Consequently, I have seen incentives such as one-on-one meetings with the CSO or CEO resonate well in R&D. So James, although your conclusion that R&D workers can be incentivized by management not getting in their way is true, I also believe R&D workers need direction from senior management, but not in a “top down” manner and more from an interactive, consultative approach. An organization where R&D and Marketing are tightly engaged, and are interested in each other’s ideas is normally a sign of a high-performing company in terms of innovation.
Incentives that give control back to R&D workers, or enhance their reputations also work well. For example, funding travel to a scientific conference, supporting the presentation of a research paper, or asking R&D workers to lead projects they have proposed. Incentives to remove bureaucracy, delayering management and simplifying complex processes also resonate. For example, focus more on eliminating duplicative and complex paperwork required to execute approved innovation projects. Status and prestige, especially in front of peers, but also the company at large, are also good incentives. So for example, rewarding and recognizing R&D workers when a new product is launched with awards or patent presentations will work well. Company-wide challenges from upper management, such as “We really need R&D to come through on this project or we’ll lose our market dominance” are likely to motivate people in R&D. They love to solve the “puzzle”. Also company-wide recognition of successful R&D teams and financial incentives directly linked to the success of projects work well.
Incentives are a huge component of Innovation, but understanding how to leverage them to improve motivation is crucial. Turning now to Ted’s comment, let’s discuss whether the cost of providing R&D incentives is impractical in today’s budgetary constraints.
Be positioned to make the best of an improving economy … It is true that the reality in R&D right now is bleak for many companies. During and after the economic downturn of 2008 – 2009, many companies went through multiple rounds of reorganizations and layoffs in order to contain operating expenses. Given the sensitivity to further possible layoffs, travel and training budgets and long-term high-risk projects make easy targets for reducing operating expenses. However this is precisely the wrong time to take the foot off R&D spending. As the economy improves, companies with robust R&D portfolios will be best equipped to introduce new products and will be well-positioned to outperform their competitors. In other words, those companies that have made disciplined choices will be best positioned going forward.
Most of the incentives I’ve suggested have small direct costs. The largest cost is probably indirect; primarily time and energy. Even when there is a direct cost, like the cost of travel to conferences, let’s look at its cost relative to the whole R&D budget. Although I am sure that R&D travel budgets vary wildly depending on the company and business sector, travel budgets for R&D are not usually a large component of the R&D budget. In my experience, R&D travel budgets were in the order of $1,000 – $4,000 per R&D colleague per year and more than 80% of the travel budget was used for non-conference travel purposes. Typically the majority of travel budgets would be used for travel related to specific projects, attendance at internal company meetings, due diligence trips for Business Development, review of third party contractor work, and for other investigational trips. This means that for a hypothetical R&D group of 50 people, a travel budget of $100 – $200k would be generous and still allow the R&D Leader to “reward” at least 5 people to travel to external “blue-sky” innovation conferences. So I would encourage R&D leaders to resist cutting these low cost activities because they have a great ROI in the context of both driving innovation through external networking and also as an “incentive” which improves motivation and morale of R&D workers4.
Summary … Incentives are probably one of the quickest and most cost effective ways of having an immediate positive impact on the innovation culture of a company. Incentives which target motivational drivers of innovation workers will jump start your innovation process. As discussed in previous posts5,6, “the throw money at R&D” solution will not work. Talent, innovation strategy, organizational infrastructure, portfolio management all need to be addressed but a rich host of R&D incentives will invigorate your innovation efforts and will push your culture to one that is friendlier to innovation.
1. Ted Liston’s comment: “Nice article, Dennis and thanks for sharing. I think many of your points address the ideal of innovation, social networking and innovation. For example, expanding the breadth of fora that scientists are exposed to in order to evaluate potentially disruptive/innovative technologies or targeting 10-25% percent of operating budget to disruptive innovations. In many cases, the reality in R&D right now is far more bleak than these targets. In a typical R&D organization, compensation (i.e. people) can represent 70% of an operating budget. Many companies have been through multiple rounds of reorganizations/layoffs over the last 5-8 years. The last thing they want to do, or that they do with a heavy heart, is further reduce the compensation line of their budget. That leaves things like travel/training budgets, hiring of consultants, and science/technology development as the lowest hanging fruit to target in order to manage/reduce operating expenses. Obviously, this is a Catch-22. One quickly approaches a situation where the R&D portfolio can only be prosecuted with “current capabilities” and new innovations and research can be reduced down to 5% or lower of an operating budget versus your proposed 10-25% (which I agree with by the way). There are solutions to this dilemma, but they require very hard choices between portfolio deliverables and innovation, or between intellectual property and pan-industry collaborations/consortia, rebalancing so that the remaining portfolio has the best chance of success because it has access to best current science. Unfortunately, in many cases the science/innovation has taken a hit, perhaps to the ultimate detriment of the portfolio.”
3. 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