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Can Money Buy Innovation?

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Even in our money-driven society, the power of money has
limits: there are certain things money can't buy. Love and happiness come to
mind first, but a popular list of
things that can't be supposedly bought with money is much longer and includes
such items as '25-hour day,' 'clear conscience' and (my favorite) 'an honest
politician.'
Some would add one more item to this list: innovation. Innovation, they'd argue, is a
thing 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, can do little to make a person more
creative. Hence, the argument goes, money can't buy innovation. Many companies
have reduced this concept to practice: they launch innovation initiatives and
then expect employees to participate in their spare time, for free.
Unfortunately, academic research on incentivizing innovation
is still in its infancy and doesn't provide much help. In a 2013 article in Strategic
Management Journal, Oliver Baumann and Nils Stieglitz showed that companies
could increase the efficiency of idea-generating process by offering rewards to
their employees. Yet there was a caveat: offering moderate 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. In other words, monetary rewards did stimulate innovation,
but only incremental innovation, not radical.
The fact that money can boost innovation in principle makes
this glass at least half-full; the fact that money failed to improve the
quality of ideation process leaves it half-empty (if not even emptier, given
our obsession with radical innovation and disdain for incremental).
Hopefully, future research will bring more clarity to the
topic. In the meantime, I see at least two reasons why incentivizing innovation
with money makes practical sense. First, incremental innovation,
notwithstanding our feeling about it as intrinsically inferior, still forms the
basis of any rationally designed corporate innovation portfolio. None other
than Google's Larry Page, hardly an enemy of radical innovation, told Forbes a
few years ago that about 70% of his company's innovation portfolio was composed
of incremental improvements of core products. Now, let's see: if you can
increase the efficiency of two-thirds of your company's innovation projects
with money, would you not consider this money well spent?
Second, some companies (Google and 3M are routinely mentioned in
this context) have introduced the so-called 20% time rule, a corporate policy
that allows employees to use a fraction of their regular time, usually 15-20%,
to pursue 'side' projects. Should the employees be paid additional money for
generating 'side' ideas? Of course, not. The problem, though, is that the vast
majority of companies don't have such a 20% time rule; employees in these
companies are expected to innovate in addition to their everyday job
responsibilities. In practice, that means that extra work is expected from them
outside their regular working hours. In plain business language, this is called
overtime. As far as I know, when it comes to 'routine' business activities,
companies aren't allergic to paying cash for overtime. Why should innovation be
an exception?
We should stop practicing innovation snobbery: to believe
that innovation isn't for everyone, but for a few privileged (a.k.a creative)
souls; to insist that only radical innovation matters, while incremental one is
for losers; to argue that innovation is fundamentally different from other
business processes, and therefore normal performance evaluation metrics don't
apply to innovation activities.
Instead, we should become more assertive in our approach to
corporate innovation: to firmly align it with the company's strategic goals; to
define what kind of innovation involvement is expected (or not) from each
position within the company; to establish metrics by which this involvement
will be assessed at each level, from top to bottom. With this in place,
innovation will be rewarded as any other top performance would: with
promotions, stock-option grants and, yes, cash bonuses.
We also should stop arguing whether we can or can't buy
innovation; we should simply pay for it.
Like this topic? Attend BEI Back End of Innovation 2014 in Las Vegas, NV in October! Learn more about the event here:  http://bit.ly/1p0OdNQ
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About the
Author: Eugene Ivanov is innovation consultant helping organizations
establish internal and external innovation programs. He also assists his clients
with selecting and defining R&D problems that can be successfully solved by
using crowdsourcing approaches. He tweets at @eugeneivanov101. 

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