In an increasingly digital and knowledge-driven economy, innovative thinking is highly valued as a key driver of new strategies, products, and services. So what inspires employees to innovate? For several decades, most companies have been rewarding their employees’ innovative thinking with financial incentives. However, research shows that this may be counterproductive. In fact, the principles of behavioral economics suggest that innovation is intrinsically motivated, and has its own set of inherent rewards.
The rules of traditional economics suggest that if you pay your employees more, they will put in more effort. This logic may work in large, mature groups like R&D organizations, where innovation is the routine and primary responsibility of individuals. However, knowledge workers often direct their innovation efforts toward smaller issues that are outside the scope of their daily responsibilities. It is in scenarios like these, where classic monetary benefits are not the primary driver, that innovation becomes intrinsically motivated.
Organizations that deal with this form of “grassroots innovation” should consider incorporating a social dynamic as part of a reward system, either in the form of environmental influences or explicit rewards offered to would-be innovators. Three social dimensions can help drive innovation in a grassroots environment:
- Innovation contests: Innovation tournaments introduce a problem to either an internal or external audience with the objective of crowdsourcing the best solution from the masses in exchange for a monetary or nonmonetary prize for the winning idea. While most innovation contests have a monetary prize attached to it, there are other factors here that also drive innovative thinking, such as reputational validation from peer groups and a sense of community.
- Rewards for intrinsic motivation: Nonmonetary recognition in the form of achievement awards and public acknowledgements is instrumental in increasing employee enthusiasm and effort towards actively innovating. It is also important for organizations to communicate that failure is an accepted part of the process and to encourage smart risk-taking by framing it as the cost of doing business.
- Organizational citizenship: Promoting civic behavior in employees often fosters an eagerness to go beyond prescribed duties on behalf of the organization to achieve new levels of efficiency and innovation. Employees exhibit civic virtues when their commitment to an organization transcends financial motivation and is grounded in positive sentiments and emotions. These individuals identify with the organization’s goals and actively strive to contribute.
Humans are rarely solely motivated by financial incentives, and naturally care about fairness, professional pride, and the greater good of a community. Companies that make an effort to understand their employees’ motivations and think critically about optimizing their incentives and culture to drive innovation will stand to benefit in the long run.
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This article was produced by Deloitte and not by the Quartz editorial staff.