Large organizations are struggling to keep up with the ever increasing rate of innovation. We propose a framework to support an idea marketplace. The marketplace would enable these large organizations to improve their rate of innovation by tapping into the ideas of their employees.
- Redefine the work of leadership
- Amplify imagination
- Capture the advantage of diversity
Innovation is challenged in large organizations by 3 barriers:
- Monopoly on Capital Allocation
- Centralized Decision Making
- Too Many Big Bets, not Enough Little Ones
Monopoly of Capital Allocation defines the barrier that inhibits unconventional ideas being funded due to strategies, objectives, and other financial and business constraints. Projects that do not meet the criteria and chain of command approval simply die on the vine. Thus many good ideas never surface, and worse workers don’t bother to suggest them. The marketplace circumvents these problems by decentralizing decision making across many customers and investors. Good ideas find funding.
Centralized Decision Making captures the constraint that senior managers dominate the strategic planning process. Large organizations are constrained by their current processes and limited decision making bandwidth. Decision making has been centralized to ensure good stewardship and management of public funds. Senior managers were rigorously vetted and trained to meet governance and legal standards. The increasing need for innovation and adaptation puts tremendous pressure on this model. The “new idea” bandwidth is too narrow.
Too Many Big Bets extends Centralized Decision Making. The narrowness of the bandwidth leads to fewer, larger, more conservative bets. In the marketplace, lots of small changes or bets are the norm. These bets then face evolutionary discrimination to determine worth. Good bets live and propagate, bad bets die. The betting size limits the risk.
This hack outlines a process to develop better betting governance for organizations and enable them to tap their employees as market makers. The hack additionally lays out a process to transform into this model.
The betting governance model has 3 components:
- Funding Grants
- Separate Idea and Experiment
- Peer Review
To start, everyone in the company would be given some investment capital based on position, track record, etc. A framework would be provided to assist workers in the process. Collaborative tools would provide visibility so that workers and see examples of successes and failures. Each worker would make a decision on the success factors essential for the bet and to what extent they are willing to co-invest. Workers are free to attract other workers to their “project” and accumulate resource capital. Those workers with successful track records would have additional sources of capital available for them to invest in projects of other workers. Publishing a league table of success with periodic small tangible reward for top players could encourage people to contribute and make careful choices.
Over time, a portion of an employee’s salary would shift into investment money (which could be lost or returned plus winnings). This would incentivize employees to make good bets and take this seriously (good stewardship). Senior executives could then monitor these betting pools to increase the size of the bets, as the ideas prove out. Successful investments (or bets) return real money, which ultimately forms a portion of the employee’s salary.
Separate Idea and Experiment
In academia, theory and experimentation are normally separate activities done by different people. You can win a Nobel Prize for coming up with a great theory or a great experiment.
Create a similar division for crowdsourcing testing and measuring “new ideas”. This separation allows specialization (ideation and innovation) and additionally ensures that the best ideas have been vetted from different angles
All participants would participate in the winnings. The person that devises the test and measures the “new idea” adds tremendous value to an idea, perhaps even as much as the idea itself. Ideas need to be tested for funding. This ensures that we remain good stewards of corporate and government money.
Peer review is an essential part of the experimentation model. New science is verified through independent peer review. Peers are a source of validation of both financial and human capital.
Similarly, people can participate in a “new idea” and its winnings by reviewing and confirming the test results. Confirming an idea test would also payout, but potentially at a lower rate. Disproving the viability of an idea should also payout in some fashion (e.g. anti-winnings), as this would be a means for a company to avoid loss and reduce risk.
Measuring and publishing results from previous ideas taken through the process would provide part of the validation process of the hack process (i.e. are ideas developed in this way giving a better, equal or poorer return than the conventional process), as well as giving employees a view of how their ideas have worked out, ideally with some indication of why, that can inform their next bets, similar to tracking form in horse racing.
Peers are potential customers. Peers can be experts or participate is wisdom of crowd reviews,
Investments should be staged through the development process, enabling early investors to get a better return than someone coming into the idea late in the process
Innovation is mostly about speed, succeed or fail fast. Keep risk low. By reducing the size of the initial bets and forming a governance structure around these bets we can more cheaply identify good ideas and kill bad ones. The betting structure incentivizes employees to seek, vet, and confirm the success of these ideas. Thresholds for proceeding or killing ideas would need to be clearly set and communicated
Much like the work in science today controls and structures are implemented to ensure good stewardship, while opening up innovation and the championing of ideas to the crowd.
The largest issue will be culture change. Employees will need to be willing to forgo part of the guaranteed salary to bet on their ability to ideate and innovate. Similarly, companies will become less predictable in their revenue and expense, as employee ideas succeed and fail. Both present very real barriers to adoption. This hack proposes a model that allows for a steady development of the risk and reward profile as the organization and the individual staff members gain familiarity, experience and confidence with the process, thus avoiding the need for a “big-bang” culture change to implement.
The other barrier is in the details. This hack actually lays out a framework for a model. Determining how bets are made, assessed, and paid will ultimately determine success.