Home / News / Business Of Life /  Michael Gibbs: Create a culture of innovation

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How does innovation happen? And can companies create the conditions in which it thrives? Michael Gibbs, clinical professor of economics and faculty director of the executive MBA programme at the University of Chicago Booth School of Business, US, tracked 5,000 ideas from conception to end (execution being the best-case scenario, and discarding the idea if it’s found without merit, the worst) generated by some 11,000 employees at an information technology (IT) company over 26 months to understand how rewards affect the quantity and quality of ideas workers generate—the IT company where the research was conducted did not want to be named.

In New Delhi recently for a Chicago Booth alumni meet, Prof. Gibbs spoke to us about his research, and how companies can train employees to formulate, sharpen and submit an idea. Edited excerpts from an interview:

What is the idea portal?

The idea portal is if you have an idea, you log on to the system, you submit the idea. What that involves is a short abstract of the idea, a short discussion of who you think would be necessary to implement the idea, which might include the customer, an estimate of the cost and the number of people involved and the likely risks, and an estimate of the benefits which could be revenue or quality or service or new technologies.

Your supervisor is required to review your idea within three days, they are supposed to help you refine the idea (many of these ideas are submitted by low-level employees who don’t have a lot of management experience and aren’t going to be sophisticated about measuring the impact of the idea). Only then is it formally submitted.

At that stage, every 20 days, a panel of senior executives evaluates all the ideas that have been submitted and everyone votes up or down. Ideas that are voted down are rejected and not implemented—they are forgotten. Ideas that are voted up will be then sent to the customer if the customers’ approval is also necessary, as is true for many ideas. The company tracks the implementation of the idea and when it’s finished, it tries to measure the profitability of the idea—where appropriate, the company asks the customer to rate the idea on a scale of 1-5.

And the last thing that is useful here is that all of the ideas are visible to all of the employees (unless there’s some information about a customer that is confidential and then that’s blocked out). So, you can log on to the portal and look at all the thousands of ideas that anyone in the company anywhere in the world has suggested. And the hope is that that will spur people to start thinking creatively too.

Is this too time-consuming for the supervisors and executives vetting these ideas?

When I did this study, only about 10% of employees were submitting an idea each year. And if they did submit an idea, they were submitting 1.5 ideas on average per year. So it’s not a huge number for a supervisor. Given the importance of innovation to your company, if your staff, your team, is suggesting a lot of ideas, that may take more of your time, but it’s probably valuable
time anyway.

Can rewards and incentives help improve the quality of ideas coming from employees?

If rewards are designed carefully, you can improve innovation. Psychologists have often been critical of rewards and their effect on creativity—that’s one reason I wanted to do this study. And the results are not what a psychologist would have predicted. What we found was this company offered rewards for ideas that were implemented. The reward didn’t come for the suggestion but for the implementation. Though we found that employees suggested fewer ideas, more employees started participating in ideation—on the Net, there was no change in the quantity of ideas. But the quality of ideas rose dramatically. In other words, people were more creative. They spent more time thinking about a smaller number of better ideas.

If they had instead given rewards for suggesting ideas, but not for whether the idea was approved or rejected, that would have motivated employees to come up with lots and lots of low-quality ideas. The key is to pick the performance measure that matches what you are trying to motivate—in this case, creativity. It’s often hard to measure creativity or the quality of creative innovations. But when you can do that, then innovations can reinforce the kind of creativity that employees may have.

Were there any patterns emerging in terms of whether younger or older employees generate more, or better, ideas?

When you control for other effects, the younger employees are more likely to suggest ideas than older employees. But employees who have been with the company longer are more likely to suggest ideas than employees who have been with the company a shorter period of time (irrespective of age). So those two effects work in opposite directions in terms of time.

The company tenure effect is eight times larger than the age effect. The company tenure effect is interesting. What we looked at was the amount of time an employee had worked for a specific client. That suggests that a lot of innovation comes from working closely with the client—understanding their business, their clients and their needs better.

When I teach this in my classes, students say young people are more likely to suggest ideas because they have a fresh perspective and if existing employees had new ideas, they would have suggested them already. And we found the opposite: It seems at least that good ideas come from experience and from the deep knowledge of the client that comes with that. That doesn’t imply that the best thing to do is assign an employee to one client and leave them there forever.

Probably the best thing is to keep most employees working closely with clients, developing deep understanding and long-term relationships, but have another set of smaller number of employees who change clients, who bring in the fresh ideas and perspective, and can help bring an idea from one client to another client. You can use both approaches at the same time.

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