Are your managers halting innovation in favor of inner office politics?
Oliver Hart of Harvard split this year’s NoÂbel Prize in ecoÂnomics for his work on incomplete contracts.
ImagÂine an inÂvenÂtor who needs to disÂtribute a new prodÂuct. SucÂcess will probÂaÂbly ride more on the inÂvenÂtor’s choices than on disÂtriÂbÂuÂtion. So it makes sense for the inÂvenÂtor to have the power to make the big deÂciÂsions. The way to do that is for the inÂvenÂtor to be what econÂoÂmists call the “residÂual claimant.” That is, the inÂvenÂtor has the rights not only to the inÂvenÂtion but also to the disÂtriÂbÂuÂtion chanÂnels.
What happens in a company when the managers do not have the incentive for overall firm success, but rather are rewarded on things like profits?
I’ve seen many folks in these positions focus so much on the short term that they often miss opportunities to gain traction by taking a leap that might require a temporary stall in operations or retooling of something internal.
Sometimes you have to give the machine a tuneup or even buy a new machine, and if managers aren’t incentivized in the right way, they can “leave that worry for the next person” who will fill that role and let an opportunity to leap forward pass them by.
All employees at the Ritz-Carlton are famously empowered to spend up to $2000 without managerial approval to solve a problem.
Can we apply this same thinking to innovation? I’ve worked with many companies where employees and managers have great intuition in marketing, but never float the necessary ideas to the top in favor of politics and “picking battles”.
If you are at the top, I implore you to design compensation around encouraging successful innovation; and encourage everyone to speak up when they have these intuitions.
The culture of “They’ll never approve this.” Is of your own making. It’s yours to unmake.
Originally published at Chris Handy.