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2WHAT DRIVES EMPLOYEE CREATIVITY?• Job design• intrinsic motivation• learning• Collaboration• team: size, composition• brainstorming culture: ideation + debate• Environment• complexity, uncertainty, change• physical proximity• culture

3HOW DO INCENTIVES AFFECT CREATIVITY?• Psychologists argue that incentives “crowd out”intrinsic motivation• There is abundant evidence that incentives can reducecreativity …• … but that does not mean they always do• performance measures may focus on “non-creative” tasks• incentives may cause employees to be more risk averse• both problems can be fixed

4THE COMPANY• Asian technology services co.• outsourcing; SW/HW solutions; R&D• most clients are multinationals• Strategy• from short-term engagements to strategic partner• Desired cultural change• continuous creation of client value, innovation• variety of policies to focus employees on client / innovation• including new idea portal & reward program

5IDEA PORTAL• Intranet system for collecting employee ideas• anything that adds value for client or internal process• 1000+ per year• abstracts of ideas accessible to all employees• Stages for a new idea ideation brief description & classification of idea submitted to Portal 1 mgr. evaluates in 3 days, may speak w/ideator to refine/clarify idea vetted by panel of managers if approved: client approval if appropriate, then implemented implementation tracked / evaluated

6THE EXPERIMENT• Existing rewards program• points for various contributions• employee can use to buy consumer goods• For Pilot teams: add rewards for new ideas• Control teams w/ no rewards for ideation• random assignment to Control or Pilot

7RESEARCH QUESTIONS• Who ideates?• Experience?+ deeper knowledge of client─ higher hanging fruit; complacency• Hierarchical level?+ bigger picture / integrative; strategic view of client─ distanced from detailed client work• Collaboration?• Did the Pilot reward program affect ideation?• quantity & quality of ideas likely tradeoff

8DATA• 13 months before & 13 months during Pilot study• Ideas• brief verbal description / category• up to 3 ideators• accepted? Implemented?• total & net dollar value; customer rating• Employee• age, experience, gender• hierarchical level, team• Team• # of employees, revenue, Pilot or Control

9Ave. # of ideas per periodamong employees who ideateBeforePilotDuringPilotPilot Teams 1.02 1.15Control Teams 1.19 1.28Pre-Pilot Period: July 2009-May 2010 Pilot Period: June 2010-June 2011

10METHODOLOGY• Control for trends, team & employee characteristics “Difference in Differences”1. measure change in ideation before / during Pilot period2. compare change for Pilot v. Control teams• 3 potential effects• # of employees who ideate (about 10%)• # of ideas per employee, conditional on ideating (about 1.5) eliminate selection bias: include those never ideating estimate 2 effects separately• quality of ideas

111. WHO IDEATES?• Age: negatively related to ideation• Tenure: +1 year • odds employee ideates ↑ 1.9% (average = 10%)• if ideates, # ideas ↑ 0.2 (average = 1.5)• tenure effect 8× > age effect … “client human capital” important• Gender• no effect on odds of ideation• men who ideate submit 0.2 fewer ideas; 10% higher acceptance• +1 Level: ideate more; higher value & implementation• +1 author: odds accepted 7% higher; higher $ value

122. DID THE PILOT AFFECT IDEATION?• Odds employee ideates ↑ 1.6 points (average = 10%)• # of ideas per ideator ↓ 0.3 (average = 1.5)• Net effect approximately zero same # of ideas, spread over more employees those ideating before were less likely to during Pilot• Lower level employees: ↑ ideation & $ value of ideas• higher level employees decreased both

133. DID THE PILOT AFFECTIDEA QUALITY OR TEAMWORK?• Increased idea acceptance by 19% (average = 64%)• after controlling for $ value good evidence of qualityimprovement• No effect on # of authors of an idea

14CONCLUSIONS• No inherent conflict between incentives & creativity• Improperly designed, incentives will undermineinnovation• Properly designed, incentives reinforce other policiesto drive innovation• ideation is a broad, outcome-based performance measure• reward is for ideas, good or bad; does not cause risk aversion• small rewards for all employees spread innovation to lower ranks• quality improved

15NEXT RESEARCH PROJECT?• Experiment• formal method for cross-team knowledge sharing• “Idea Leader” oversee team ideation• Team composition• size• variety of backgrounds• rotation of members• co-located or dispersed• Social networks• effects of network structure on ideation

• Questions?• New Ideas?