Hack:
Invest, Incentivise, Incorporate – i.e., Implement!

In any system that exhibits increasing returns, it pays to do a few things well rather than a large number of things in a mediocre fashion. This hack asserts that the same is true for implementing innovation. It proposes three areas of focus:

1. Invest in individuals – especially in their psychological well-being;
2. Incentivise with immediate rewards – turning innovation into a keystone habit;
3. Incorporate trust into every interchange – eradicating fear and fostering openness.

The rationale and implications of each of these are explored in more detail below. By addressing barriers to innovation at the level of individual employees (1), processes (2) and the organisation as a whole (3), one can keep it simple while still recognising the whole-system nature of innovation.

1.       Invest in individuals – especially in their psychological well-being

Every year, more than 50% of companies in the UK undertake a staff survey. Yet, 80% of employees think it will make absolutely no difference to their work. [Source: 2] This is despite the fact that companies in the top 100 “great places to work” have outperformed the stock market every year between 1985 and 2011 by 2.3-3.8%. [Source: 3]

So, it may be that few companies actually invest substantially in the most important aspect of their most important asset (people), and few consider themselves responsible for the psychological well-being of their employees. Yet, research shows that positive emotions markedly improve performance and, in particular, enhance innovation, openness and flexibility. [Source: 4]

But how can organisations increase individuals’ positivity? I would like to offer just two suggestions:

• Offer cognitive behavioural therapy (CBT) or mindfulness interventions to improve the resilience and optimism of individual employees [Source: 5]
• Implement the other proposals in this hack under 2. and 3. below.

Much of the motivational literature assumes that it is organisations’ and managers’ job to make their employees engaged. However, if individual employees do not have the skills for resilience and optimism, this may be an impossible task. No wonder managers find it so challenging!

2. Incentivise with immediate rewards – turning innovation into a keystone habit

A vast and growing literature now shows that human beings are not “perfectly rational”, self-interested utility maximisers. Rather, evolutionary history has led to clear biases – in Dan Ariely’s words, we are “predictably irrational”. For innovation incentives to work, they need be in harmony with actual real people, not “homo economicus”.

Let’s highlight some of the behavioural patterns that seem to have most relevance for innovation:

• Risk-aversion combined with parabolic discounting – it is very hard for organisations to commit to the long-term, necessarily risky investments associated with innovation
• Bounded self-control combined with inertia and procrastination – while all humans possess the capacity for innovation, most of them prefer the status quo and habitually stick to it
• Reciprocity and trust – see section 3. Below.

So how might one try to change the habitual behaviour that sooner or later saps the energy from most innovation initiatives? One idea would be to turn innovation into a keystone habit – to rewire the organisation’s brains and processes to constantly cue and reward innovative behaviours. [Source: 6] So what kind of cues and rewards are most likely to be successful?

In the spirit of this hack, let’s keep it simple. (Decisions involving complexity, self-doubt or inconvenience put people off.) Every-day cues that could help are:

• Re-state the organisation’s commitment to innovation at the beginning of each meeting – including ground rules such as aiming for a positive, inquiring style of interaction [Source: 4]
• Institutionalise habits to spend time with customers and suppliers or hearing from them– for example, include a short video of a customer or supplier interview in weekly team meetings

Many readers may think these examples trivial. Others may say that they already do this. What is more likely, however, is that they have decided to do it but actually don’t follow through with 100% consistency. Too often, innovation is a topic that gets priority for a short period of time but then something else – customer satisfaction, cost control, brand – takes over as the next new priority.

The rewards need to be similarly simple and effective. A consistent and immediate reward (eg., praise and appreciation), following a particular action (e.g., innovative behaviour) can change the neural pathways in the brain to “seek” and look forward to opportunities for taking that action again. This way, the whole organisation can adopt the habit of innovation.

The rewards should be frequent (e.g., daily or weekly) and non-monetary (e.g., praise, a treat, senior attention), in order for them to be habit-forming and effective. Ex-ante financial rewards (e.g., bonus schemes) have been shown to lead to myopia, probably due to their impact on stress hormones which encourage “fight or flight” behaviours. [Source: 7] On the other hand, ex-post non-financial rewards are seen by employees as more effective sources of motivation. [Source: 8]

3. Incorporate trust into every interchange – eradicating fear and fostering openness

Trust-based communities across the world are more prosperous. [Source: 9] Why? Because trust encourages co-operation which in turn allows specialisation and reduces transaction costs, leading to a more productive economy. The same dynamics to apply to organisations, and their customers and suppliers, too.

In the context of innovation, I would emphasise the emotional benefits of a trust-based environment. The absence of fear – and hence a fight or flight response from the body and mind – is critical for innovation and creativity. Trust and reciprocity also enable sharing of ideas which leads to an exponential number of new ideas generated.

It is not easy to eradicate fear – the human system is wired to scan for, detect and react to it at the smallest provocation. The steps proposed in 1. above will help, but there may also be a need to more fundamentally revise values and behaviours – especially of those in powerful positions. Actions speak louder than words and staff draw strong conclusions from senior leaders’ smallest gestures.

The top team therefore need to consistently behave in ways that demonstrate their trust in others and their own trust-worthiness. This is at the same time obvious and incredibly difficult. For example, research now shows that power does “corrupt” – people that are given authority behave in more selfish and ruthless ways. [Source: 10] It takes real discipline to never make promises you don’t keep, never threaten anyone and always prioritise the greater good.

This picture will not fit everyone’s idea of leadership in commercially successful organisations – and that is precisely why most of them fail to institutionalise innovation.

You need to make a clear choice either to truly prioritise innovation and act accordingly; or accept that half-hearted implementation will not deliver the same rewards.