To build a portfolio of innovation projects, companies need people that have an entrepreneurial mindset. This is different from the managerial mindset that is needed from people working on your portfolio of existing businesses. Now, imagine an innovator who repeatedly creates new multi-million dollar businesses for an organization but has no real stake in that success. Instead, the reward they get is promotions and incremental pay raises. Will they be motivated to keep creating that value for your company? Will they perform to the very best of their innovation talent? Will they stay at your organization? We believe that companies need to create a reward structure that is unique to innovation.
In our advisory work, we often hear that the drive to innovate is intrinsic to innovators and entrepreneurs. While this might be true, it is also important for entrepreneurs to work in an environment that is supportive of their efforts. Imagine being an innovator in a large company and getting negative feedback every time an innovation project fails.
In our previous blog post, we argued that the best way to build a portfolio of innovation projects is to celebrate failure as much as the successes. While this may be true, it is also important to ensure that when innovation does succeed, the innovation teams that took risks get a fair share of the success. To attract and retain the world-class entrepreneurial talent, leaders need to tap into what innovators care about and give them valuable rewards they couldn’t obtain on their own.
The first thing that companies need to do is allow innovators to participate in the financial upside of the innovation portfolio to which they contributed. For this approach to work, the innovators themselves need to put something on the line. We once worked with a global European bank that has an interesting incentive structure for internal teams that joined the accelerator program. The team members would give up 25% of their salary during the period they were in the accelerator, and in return, they would get a stake in the idea they were working on.
Giving teams a stake in their ideas can sometimes be done through corporate venture capital. In this case, leaders give innovators an investment to explore their idea outside the organization. However, the company retains the option to invest further or potentially buy back the venture once they are successful.
Innovation could also be incentivized by connecting bonuses to stretch goals around new product launches. 3M were famous for their stretch goal bonus structure, where the expectation was that 30% of all revenue must come from new products launched within the last four years. Unlike standard pay rises, this approach means that innovators are incentivized to keep improving and growing the business even after it has launched.
Finding a balance between rewards and incentives
There still remains the possibility that rewards for innovation success could create negative feelings among teams whose ideas don’t succeed. In an innovation portfolio, you make many small bets to double down on the projects and teams that show the most progress. With this systematic funnel approach, the best ideas and teams emerge over time. For this to work, you can’t only reward the winners. You also need to constantly incentivize teams that haven’t succeeded, so they come back and try again with new and promising ideas.
One way to find a balance between the two is to offer financial rewards at the portfolio level. For example, a percentage of all new revenues from winning projects could be distributed among all the projects in the portfolio. The remainder would go to the winning teams only. That way everybody gets to participate in the financial upside and you create a true collaboration and team spirit. If you only reward the winners, you risk creating a disincentive to collaborate and demotivate teams from continuously trying out new directions.
Having the right rewards in place is a good way to attract outside innovation talent. This is why the upside of working in innovation in a large corporation should be made very explicit. Build an appealing company mission to attract world-class innovators. Show how joining your organization will allow them to make a difference in the universe and have a real impact on society.
Companies also need to make it explicit that innovators will also be given access to resources a startup or competitors do not have. Such as infrastructure, brand recognition, or market reach. Often, we find good innovators are deeply curious individuals, which is why allowing them to upskill themselves through innovation and entrepreneurship training can also be seen as a huge plus. It is not enough to provide people with a chance to innovate. Companies also need to give innovators a stake in the successful innovation portfolios they might create.