In most companies, incentives are tied to success (e.g. sales targets, revenue). But this approach does not work for innovation. In order to succeed at innovation, companies need to build a portfolio with a pipeline of projects and accept that most of these will fail before you find one that works. As such, in order to succeed you can't just incentives and reward the successful projects. It is just as important to celebrate as failures as much as the wins.
Incentives by definition are externalities to promote certain behaviors. In the context of innovation, it is about incentivizing people to be entrepreneurial in order to continuously build and grow your Explore portfolio. You want to encourage innovators to try out new ideas, take calculated risks, even if they fail. This is why we believe that companies should reward all innovation outcomes that help build out your innovation engine, even the failed projects. A common mistake we see is that promotion or career progression is tied to successful projects alone.
Successful Explore portfolio management means you can’t pick the winning ideas on day one. It takes investing in many projects that will fail in order for the winners to emerge. The larger the return you expect, the more projects you need to invest in. Since you can’t pick the winners, tying someone’s career progression to innovation success alone could feel like too large a hill to climb. Just as important to incentives, is the ability to kill unsuccessful innovation projects. Being decisive and killing projects that are not showing traction can free up valuable resources. This is why it is important to reward teams involved in the entire portfolio of innovation projects, not just a few big winners.
For innovation teams, rigorous testing and experimentation will help determine whether to progress with an idea or not. The entrepreneurs’ number one task to reduce risk and uncertainty. If through this process, you are unable to come up with enough evidence to support your direction then you should be able to pivot or kill the business idea without negative consequences.
Failure from experimentation should not be a career-limiting move. If a promotion is tied to innovation success only, entrepreneurs will be far less willing to let their project go, even if it does not make sense to continue. Entrepreneurs can always continue pivoting their idea hoping something will stick. However, the opportunity cost of this is potentially working on other ideas with a strong value proposition and business model.
Additionally, a key trait you want in entrepreneurs is the ability to take calculated risks and try something new. If they’re only recognized and rewarded when they succeed, they will be far less likely to venture into new territory. This will severely limit the companies ability to build a good pipeline of innovation projects.
If successful portfolio management is about how many projects leaders can progress through the innovation pipeline, it is important to give those leaders the freedom to kill projects. We created the Innovation Project Scorecard to help leaders assess if a project is making progress from idea to a profitable business. By comparing the scorecard of projects against one another, leaders will be able to make clear and evidence-based evaluations in order to know which projects to progress and which ones to kill. This clear evidence-based thinking is the kind of behavior you would want to incentivize in senior decision-makers. Leaders should be recognized and celebrated for the projects that fail in the same way they are recognized for projects that succeed.