I’ve said all along that ideas are just one part of a process. The innovation process builds on five foundational elements.
Sticking with the last post’s Kung Fu homage, I present to you the Fist of (Innovation) Fury!
Truth be told, it’s more of an open-handed slap than a fist, but “the open-handed slap of (innovation) fury” just isn’t quite as catchy.
There’s a lot to talk about here, so this is part one of a three-part series.
We’ll begin with the littlest finger – it’s the easiest place to start.
1st Finger: The Doers
Every organization has people who proactively do things. These are the folks you want on your innovation team. Innovation is fundamentally about doing something new. That requires two things: the willingness to “do” and something new. It’s really no more complex than that.
Like the old adage, “you can lead a horse to water but you can’t make it drink”, there is simply no point in recruiting people to the team that aren’t proactive doers. Your innovation process faces enough challenges without adding natural disinclination to the mix.
2nd Finger: Fiscal Alignment
This one is tricky and so much more than simply having a budget. Implementing fiscal alignment varies considerably by organization, depending on how the company is structured.
Fiscal alignment really applies more to big companies. Startups use highly dynamic budgeting (that’s a nice way of saying “many of them don’t have budgets”) and most startup employees are self motivated, rather than motivated by specific incentives. Most early stage startups don’t even have incentive packages beyond stock options and stock grants.
There are two sides to fiscal alignment: budgets and incentives.
The company needs to provide a budget to support the process. But therein lies a huge problem… You won’t know what resources you’ll need until the end product is defined. You won’t have product definition until the idea has been established. You don’t explore the idea until the opportunity has been identified. It’s a house of cards.
I’ve seen several different ways of handling this. What I think makes the most sense is to manage your innovation budget somewhat like a venture capitalist manages an investment fund. Establish a standard budget range per project for the early stages, allow for a set number of projects per year, and make sure you keep a bunch of money in reserve to provide follow on funding for the most promising projects. VCs refer to this as “dry powder” and it can easily be 50% or more of their total fund.
The biggest challenge in budgeting is management sign-off. You basically need a large sum of money that may produce nothing for projects that haven’t been defined on a timeline that hasn’t been established. In the best of times, that is a challenging proposition. When a company is in a distressed state (often the impetus for a company’s innovation process) it’s almost impossible.
This is why an absolute pre-requisite to a successful innovation program is CEO-level buy-in. I’ll talk more about that and Corporate Desire in my next post, but the C-level team has to be on board with the process.
This is tricky too (a recurring theme). How do you incentivize employees to work on something that is largely undefined and may have no end result? The usual performance metrics are hard to apply, not to mention that it seems conceptually difficult to apply typical cash bonuses to work that never generates revenue. But at the end of the day, most big company employees expect to be measured against a clear set of metrics, so you need to come up with something.
There have been a lot of academic studies on incentives. What has been found repeatedly is that for creative work, cash incentives perform very poorly. Yes, you read that correctly. A cash bonus is actually a lousy incentive for any creative work. If you have ~11 minutes, this video does a great job of summarizing the findings. It is well worth watching.
“Money is a motivator at work. But the best use of money is to pay people enough to take money off the table as an issue.”
The speaker goes on to point out that the key motivators for employees are autonomy, mastery and purpose. Not cash. I think this goes hand in hand with the needs of the innovation process.
I suspect that the best approach to incentives for innovation is to avoid cash all together. Compensate team members with cash for the other work they do, not their contribution to innovation. Rewards for innovation should focus more on peer recognition and increased autonomy. If you have an individual or team that has delivered something great, give them more autonomy next time around. Fuel the spirit of innovation.
But there is one more incentive-related issue to keep in mind: Innovation goes hand in hand with increased rates of failure.
If you are trying new ideas, some of them will fail. It is critical everyone from the CEO down understand this. In most big companies, failure is toxic for the employees involved. Within the innovation process, the executive team has to pro-actively support a moratorium on toxic spills. Team members must not be penalized when an innovation project fails to have a successful outcome.
You also need to redefine failure, but more on that another time.
In my next post, I give you the middle finger!