Rewarding employees for successful, creative ideas is nothing new, but a handful of companies are flipping the traditional model on its head by rewarding failures in order to encourage creativity on a broader scale. While many ideas are submitted by employees at companies like 3M and Google, which allow their workforces to spend 15 to 20 percent of their time on their own projects, those ideas often get caught in a crowded innovation pipeline and never come to fruition. This cycle can instill a fear of failure in employees, crushing their motivation to contribute new projects and reaping nothing for the company. Several companies, including Google X, WPP’s advertising firm Grey Group and Tata Group, have decided to tear down the fear of failure by rewarding duds — as long as the company has learned something from the innovative ideas.
“Programs such as these help people get over the fear of failure and stimulate employees to stretch themselves — to go far beyond the ‘acceptable’ innovations that they think management wants to hear,” Oliver Baumann, associate professor of management at the University of Southern Denmark, and Nils Stieglitz, professor of management at the Frankfurt School of Finance and Management, write on HBR.
Baumann and Stieglitz suggest that the most innovative ideas are born at companies that encourage serendipity, random interaction and play. While companies may feel inclined to set up a workplace culture that encourages constant innovation and new ideas, companies need to resist the temptation to set up highly-trafficked innovation pipelines.
A study by Baumann and Stieglitz found that high-powered rewards (those that share 30 percent or more of the value with the inventor) generate excitement but produce few actual innovations. While they generate more ideas, they often create a congested project pipeline that inhibits the company from sifting through ideas and acting on them due to the extra resources required. When employees’ ideas aren’t put into action, employees become discouraged and reduce their motivation to contribute to these innovations. Baumann and Stieglitz suggest using low-powered rewards (which share 5 to 10 percent of the value) because they result in fewer ideas that are often better thought out and are more realistic to implement.
“Performance-based rewards thus appear to be a blunt tool to harness the long tail of innovation,” Baumann and Stieglitz say in their study.
Companies Continue to Reward Innovation
In spite of research, it’s instinctual for companies to reward employees for coming up with good ideas. Post-it notes were born from 3M's Genesis Grants, which allot $30,000 to $75,000 to six to eight employees with innovative ideas for 12 months of research. Volkswagen uses a tiered approach by sharing up to 50 percent of the value of small ideas but only 10 percent for high-value ideas since smaller ideas are easy to act on, but big ideas require more resources, according to Baumann and Stieglitz.
Other companies including Penn Medicine hold innovation tournaments to encourage new ideas, which David Asch, executive director of the Penn Medicine Center for Health Care Innovation, calls “an employee suggestion box on steroids.” Tournaments work best for well-defined but unstructured problems, and are especially good for smaller companies, says Christian Terwiesch, a professor at Wharton and author of "Innovation Tournaments: Creating and Selecting Exceptional Opportunities." While tournaments don’t work for all companies, they can create new energy and make employees feel like valued team members.
“There’s that old saying: ‘If you build it, they will come.’ But here’s a new one: If you build it with them, they will already be there,” Asch tells Knowledge at Wharton. “People need to be engaged in the process. Intuitively, people want to be asked to make a difference.”
While employees want to feel engaged, providing employees with high-powered incentives to innovate may actually be hurting the creativity pipeline rather than helping it. Instead companies should consider low-powered rewards and innovation that isn't entirely prompted by incentives.
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