Small change: is your reward structure stopping innovation?
It is widely acknowledged that HR leaders have a crucial role to play in shaping and driving business strategy. Less frequently discussed, however, is their vital role in creating successful innovation within an organisation.
?What If!’s recent research,‘Eyes Wide Shut: Leading for innovation in post-recession Britain’ found that almost all HR leaders (96%) at the UK’s largest companies agreed that innovation is one of the top priorities for their business. No surprises there – they recognise that it provides companies with a competitive advantage, a new way of looking at an old problem or a fresh solution that disrupts customer behaviour. More interesting was the common view (55%) that their company struggles to come up with new ideas – they were much less upbeat than their colleagues in any other function of the business on this.
HR leaders were specifically sceptical of how their rewards and incentives promote innovation – an acknowledgement that current reward and recognition tends to focus employees’ effort on more traditional business tasks such as business development or sales.
HR: The gatekeeper to innovation
Our experience suggests that HR leaders tend to recognise the chaotic, capricious and messy reality of innovation. Put simply, it doesn’t behave like the other business functions. It’s inherently disruptive, with unpredictable timeframes and ill-defined end points. The interaction between group and individual endeavour are confusing and difficult to nail down. Working on innovation is a rollercoaster ride where luck plays a greater role than most people like to admit.
If innovation is unique, then the interactions between behaviour, values, skills, physical environment, talent management, learning and reward are critical. As experts on workplace complexity, HR leaders are well-placed to spot the factors blocking innovation – and why incentivising and motivating people to innovate is challenging.
Most reward and recognition policy is concerned with remuneration and pay structures, ensuring that these align with the business goals and help compete for the best employees in the marketplace. Bonus and benefits are linked to more ‘normal’ business functions or hierarchies. If innovation works differently, it requires a different approach to what is rewarded.
With few clear end points on an innovation journey, it’s important to incentivise behaviours and effort at key milestones. It’s more motivating to reward contribution and effort than hitting specific goals.
Experimentation is crucial to healthy innovation and providing a bonus for a ‘successful’ experiment can encourage teams to hone a finely-tuned pilot (which is no more likely to deliver) rather than conducting many small exploratory tests and learning from those which don’t work.
There’s a common conversation around innovation that we should celebrate failure. It’s a counter-intuitive provocation which grabs attention, but in truth it’s misleading. Rewarding a failed innovation or experiment sends out the wrong signals – instead we should incentivise trying, so that people see the importance of iterating and developing a good idea rather than aiming to get it right in one, something which never really happens in real innovation.
Whether or not you can define “success” for innovation, the problem of rewarding at end points remains. How do you define the end of a new idea? At the end of concept development? When it launches to market? When it beats the competition? Time frames are elastic and lengthy, with the average time to get an idea to market being 19.2 months. Keeping an individual or team motivated for that long on the promise of a carrot at the end is ineffective – far better to reward little and often during the whole process.
Traditional rewards are not enough
If we know what to reward to motivate people to innovate, how should they be incentivised? The classic response is to provide financial incentives and promotion. However, there are problems with this approach.
First of all, working on innovation carries its own motivators. People enjoy it – the intrinsic rewards are powerful, with autonomy and opportunities for mastery and creativity implicit in the task. If your innovation process is designed to trust participants and give them some control, you’re already doing something right. If governance, process or other structures are squashing the intrinsic rewards, make changes.
Extrinsic rewards like cash and promotion have some benefits. They’re very visible, so they demonstrate to the organisation and industry that innovative thinking is valued by leaders. 71% of HR leaders told us that recruiting and retaining innovators is hard, so this is important. Both are measurable (compared with ‘praise’) and have strong appeal for pretty much every employee.
However, there are pitfalls. It’s well understood that pay rises, bonuses and promotion can quickly become ‘hygiene factors’ which do a better job of staving off dissatisfaction than motivating. There’s considerable evidence from behavioural economics that monetary rewards are detrimental to creative problem-solving tasks. Pay rises and promotions work on an annual cycle, which makes ‘little and often’ rewards impractical. Finally, promotion can take good innovators into roles where they have little opportunity to exercise their inventive talents. They shouldn’t be held back, so a diagonal promotion to another high profile, exciting challenge with similar intrinsic benefits would be more fitting.
The Route Forward
More than half of HR directors (53%) don’t believe their organisation currently rewards staff sufficiently for innovative thinking. Traditional reward and recognition assumptions are not enough to create healthy innovation - there’s a clear need to design something smarter and more suited to the peculiarities of creating new ideas and bringing them to fruition. The good news is that HR leaders seem to grasp this point. The challenge is to persuade the rest of the business and design something better.