I left the corporate world years ago not only because I managed to raise funding to pursue my own startup idea but mostly because there was little to no incentive for managers to encourage new ideas or change.

Managers were simply incentivised to deliver simply what was in their position description and more often than not, that had nothing to do with discovering new ways of doing things, much like the organisations they work for.

Change is risky after all, or so they say.

Many managers wonder why on earth they should take a risk on change when they’re sitting pretty on a six figure salary, probably have mouths to feed, are comfortable with “the way things have always been done around here” rhetoric and have no real desire to rock the boat.

But with more than 50% of today’s S&P500 facing replacement in the next 10 years alone and with one in three listed companies at risk of being de-listed in the next five years, it’s no secret that organisations need to start incentivising innovation if top-down calls from senior executives to “be bold, be innovative!” are to be heeded. This need is even more pronounced at a middle manager level which can either be the lifeblood or ring the death knell of corporate innovation.

The question often becomes one of how to incentivise innovation without compromising the core business model. After all, the core business model is where we make money today (but not necessarily tomorrow - just ask Kodak, Blockbuster, Borders, Compaq and countless others who have fallen by the wayside thanks to technology and/or business model disruption).

The following post should serve as a guide as to how you might go about structuring employee incentives for innovation.

Every organisation is different and when it comes to corporate innovation, there are no silver bullets but my hope is that the following triggers your thinking and supports the development of incentives that truly incentivise innovation, in line with the corporate strategy, and provides a much needed move away from rudimentary and input focused metrics such as “number of ideas raised” which seem to be gaining prominence in many organisations.

Define Your Objectives

Why is your organisation looking to incentivise innovation?

This may sound like an arbitrary question but stay with me.

In the early stages, most companies might harbour desires to become the next Google or Apple, much like most cities want to become the next Silicon Valley.

As ridiculous as this might sound, aspirations can be a great source of motivation and the real desire here is to become more innovative and create more impact.

Step one for most is not going from zero to one and bringing new products to market that blow people’s minds but shifting mindsets and culture from one planted in 20th Century industrial revolution-grounded management science to one that supports the behaviours required to drive innovation today, you know... in 2017.

The rate of change is simply too fast for companies to rest on their laurels and continue to treat people like widgets on an assembly line whose sole priority is survival. This may have made sense in the post-war 20th Century, but not today.

So how do we identify our objectives?

Figure out where your company sits on the Hierarchy of Needs for Corporate Innovation pyramid when defining your overarching overarching organisational objectives.

Clearly defined objectives will go a long way to defining the backdrop for the types of initiatives your company will pursue and the KPIs and incentives used to monitor these initiatives and reward contributions accordingly.

The very bottom of the pyramid is all about raising awareness and culture change and as we make our way up the pyramid, we focus on capability uplift, incremental innovation and eventually adjacent and disruptive innovation.

Sample objectives:

• Culture change
• Capability uplift
• Brand uplift (association with innovation and creativity)
• Tangible outcomes (cost savings or new revenue lines)

Type Of Innovation

In addition to our overarching objectives, the type of innovation being sought will also play into the types of KPIs and incentives you’ll use to assess people’s individual performance.

The 3 types of innovation

Horizon 1 incremental innovation: extend and defend the course business (eg. iPhone 7S)

Horizon 2 adjacent innovation: build new lines of business by combining your core assets with new technologies or business models (eg. Uber Eats)

Horizon 3 disruptive innovation: create new breakthrough businesses

This could be doing something radically better or cheaper (eg. Netflix) or creating an entirely new market (eg. Apple iPad).

While it will be different for every organisation, conventional wisdom suggests that the split of R&D investment across the three horizons should resemble something like the following:

Horizon 1: 70-80%

Horizon 2: 10-20%

Horizon 3: 5-10%

Now it stands to reason that the workforce distribution and education the organisation delivers should also reflect this (eg. not everybody needs to learn the lean startup methodology, some might get by with a traditional waterfall product development lens).

The old Facebook mantra of “move fast and break things” might work well when exploring disruptive innovation, but not so much for those focused on improving core assets that already make money.

I don’t imagine a banking architecture lead in charge of core personal banking assets would want to break anything anytime soon and perhaps that’s why Facebook too, now a listed company with a US$492B market cap has updated its mantra to “move fast with stable infrastructure”.

The good news for most organisations is that more than half of the organisation still need to focus on delivery and incremental improvement of the existing business model, which is what they’re pretty good at doing already. It comes back to that “what we make money today with” thing.

Highlighting the different mindset between H1 and H3 innovators

The above table makes it clear why we can’t measure everybody with the same yardstick because the attitudes and behaviours required to be successful when exploring the different types of innovation are almost diametrically opposed.

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