People perform the way they are compensated to perform. If an enterprise is structured and compensates its people to be creative, it receives creativity, or innovation, or status quo. With all the right-sizing, down-sizing, off-shoring, and Six Sigma/Lean that people have been living through for the past 20 years, they have learned to, “keep their eyes inside the boat” and not to stray too far from their defined goals and objectives.
People who are engaged in profit-orientated businesses are, for the most part, employed to perform specific types of tasks. Whether the task is on a production line or producing invoices, people develop a set of skills and sell those skills to an employer. So it should come as no surprise to anyone that the employees of a company are focused on what they are compensated to produce.
If people are not compensated or rewarded in some way to be creative, to produce changes that delight a customer, and to find new opportunity areas, why would anyone expect them to do so?
A variety of tools have emerged over the years to assist managers in directing their employees’ efforts. Key performance indicators, 360 degree performance, management by objectives. Do any of these ring a bell? Performance management should be focused on setting goals that are aligned with business strategy, extending a person’s skill set, and aligning resources to achieve business strategy. Most people are compensated based on their ability to achieve a predetermined set of goals and objectives. Managers review employee performance based on their ability to meet the goals.
Many, many words are being written currently about organizations delivering innovation. Executives are refocusing their attention on delivering new value to their customers, but how many executives are looking at the way they compensate their people? It doesn’t make much sense to tell people to be creative, to discover opportunities, to increase customer value when these same people are being paid to deliver completely different things.
If business strategy requires new products, services, or business models to extend its competitive advantage, it also requires new ways to focus and reward the people who work for the enterprise. If people are compensated based on their ability to complete tasks, it isn’t logical to also expect them to create new things unless they are rewarded and recognized for this ability.
The ability to deliver new value to the customer (aka innovation) requires systemic evolution in business strategy, culture, organizational design, and customer awareness. Employees (aka people) can and will deliver new customer value, but the way they are paid and directed must change first and then the results will follow.
Roy Luebke is an innovation expert focused on discovering new, customer-driven opportunity areas to help define the future of a company. He is inspired by knowledge and learning, and applying structured tools and methods at the crossroads of strategy and innovation to achieve business growth.