Think Small and You Come Up With More Useful Ideas

Moneybox
A blog about business and economics.
June 18 2014 9:47 AM

How Small Rewards Bring Better Ideas

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Give them a free lunch, not a jumbo jet.

Photo by Oli Scarff/Getty Images

This story first appeared on Inc.

What rewards do you offer an employee for their disruptive ideas? If it's half the value of the idea, you may be spending too much, and end up with too many ideas.

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Yes, there is such a thing as having too many ideas. And because innovative projects must be implemented efficiently, they can become too unwieldy to manage. 

That's according to Oliver Baumann, an associate professor of management at the University of Southern Denmark, and Nils Stieglitz, a professor of management at the Frankfurt School of Finance and Management, who researched how reward systems can impact idea-generation. Together they created a virtual workplace not unlike Sim City, in which employees were asked to come up with ideas in exchange for rewards. 

The results were intriguing: The bigger the reward, the bigger the ideas that flowed into the company's pipeline, sometimes to the point of excess. When virtual employees received smaller rewards, however, they came up with smaller but more useful ideas. "Our research shows that high-powered rewards are no better than low-powered incentives at producing radical innovations," the researchers wrote in the Harvard Business Review. "They may generate excitement and high hopes, but they result in few breakthrough concepts." 

Big ideas are also harder to implement. "The companies were quickly hampered by what we dubbed the 'congested project pipeline' effect," wrote the authors. "Because taking action would have required investing resources such as management attention, the firms were unable to act on most of the ideas that were generated."

Slow and steady idea generation wins the race. 

In the real world, 3M allows employees to use 15 to 30 percent of their time to work on pet projects. Google goes even further, offering creative employees up to several million dollars in stock for the idea that wins a Founders Award. 

Still, it's important to remember that rewards only go so far. "Past research suggests you might need a culture or organizational structure that encourages play, serendipity, and random interaction," the authors write. "A few companies are experimenting, counterintuitively, with switching the focus from success to failure, rewarding employees who dare to stick their necks out."

Considering how powerful it can be to own your mistakes, that's not such a bad idea. 

Will Yakowicz is a reporter at Inc. magazine.

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