Fostering innovation in knowledge based organizations: role of incentive programs and recognition mechanisms

Abstract

The focus of this research is on analyzing prevalent incentive and reward programs in knowledge based companies like IT Products, ITeS and IT consulting firms and understanding the pitfalls of these systems. The scope includes the study of mechanisms, existing and proposed, especially with an objective to create a long lasting environment for fostering creativity and innovation. As a starting point, the study focused on prevalent incentive and reward programs, analysis of the same and what are the pitfalls of such a system. The analysis shows that there is no direct correlation between incentive programs and productivity and quality since the rewards tend to be extrinsic in nature. Additionally, the programs do little or nothing to improve goals like cooperation, customer satisfaction and innovation which are more critical factors in today s competitive business environment. There is a wide gap between intrinsic motivators which would make the job more enjoyable and thus leading to better results on creativity and risk-taking and the prevalent rewarding mechanisms. In the second half of the research, the focus was on understanding how rewards and the goals can either be delinked, so as not to form a prescriptive path towards the end objective, or complement (and re-evaluate) existing reward programs to recognize creativity. The organization which was used to study this subject is a relatively small IT consultancy which specializes in Custom application development, especially using the Agile and Lean development practices. The company takes pride in being the home for some of sharpest technical and analytical minds. The organization maintains a flat hierarchy and encourages open feedback and communication. By using surveys, there is a better understanding of what the people consider as valuable to them at work in terms of rewards, recognition, type of work, management style and decision making. The key theme that emerged from this exercise were how people prefer peer recognition, do not view financial rewards as a motivator, and would like to be rewarded by creative license and sometime and resources to build on their idea. Several interviews were also conducted to gauge what are some of the qualitative reasons people feel motivated. These discussions also shed light on the type of work which the people would like to do, and the type of innovation which is needed and what sort of recognition mechanisms are currently utilized. Some recommendations have been made with an objective to recognize some of the innovative sparks in the company. One such idea is to create an Innovation Chair, a post to which people will be selected by the employees on a rotating basis. The job of the person in charge is to seek out innovative things being across the company, recognize these in public forums (both internally and externally) and to liaise with other community leaders and management to foster some of these ideas for further investment. The thought is to pick someone from the community to get a sense of peer recognition, and not put a management flavor to it by charging the CIO with this responsibility. And the rotating basis of this assignment is to allow multiple people to play thisrole. The idea of starting an Incubator chamber is essentially a way to recognize some sparks which need some management backing in terms of resources or budgets. The Incubator should be setup and run by a partnership between management and employees. The key is in selecting the right idea and people, and the conscious focus should be on recognizing people who have initiated such innovation and also people who need to be recognized for their work and ideas. There is also a need to get the right mix of projects so to allow for several different types of learning experiences and breeding ground for innovative ideas. In addition to this, the recommendation is to use project assignments as a reward. Project assignments primarily focus on finding the right people to solve the client s business problems and bring in valuable revenue to the firm. In conjunction with this, assignments can be used to reward people who have delivered results but also shown the creative flair to solve problems. Careful thought around project assignments can also be used as a way to groom employees, which in turn will lead to and encourage innovation. The organization can also consider providing employees with sometime to experiment on their pet projects (flexible hours) an idea which has helped some other firms in creating the next generation technology and solutions. While this may seem counterintuitive to revenue garnering initiatives it does have several long term benefits and assists in other initiatives like retention. The final recommendation is around paying for a little bit more than just performance. Financial rewards are not found to be motivating but the lack of suitable remuneration can be demotivating. In that sense, suitable pay scales are a hygiene requirement. The idea is not to reward explicitly for innovation as that can not only set a precedent but it is costly and leads to ill feeling amongst the other people. The suggestion is to include innovation outputs as a criterion in performance reviews, and the weightage determined by the role and grade of the individual. The management is also advised to use certain qualitative aspects in the review process to allow for the fact that some of these assessments are not numeric in nature. Since the pay review is based on the performance review, this does form a loose financial incentive but is still under the overall umbrella of professional skills such as delivery excellence, collaboration and ownership. So, in some sense the recommendation is to not think in terms of rewards but along the lines of how employees can be incentivized for their performance and creativity by recognition, opportunity, training, and more fertile ground for further innovation. The bedrock of this is a combination of suitable pay scales, an effective and collaborative organization culture and a mix of talented people all of which are present in the organization under study.