We are naturally inclined to cheer on a dramatic success and reward the winning outcome – the basketball player who makes the game winning shot at the buzzer, or the salesperson with the highest sales.  When a success is big and dramatic, easily measured, or highly visible, it is easy to reward with applause and money!

What people often don’t stop to think about are the hours of homework, dead end leads and missed opportunities the top sales rep endured before rising to the top of her profession. And, for the basketball player, the many missed shots in practice that led to the high percentage of shots made during the game. Michael Jordon said it eloquently himself:

“I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”

You need to reward failure on the road to innovation.

But what about the innovation team that every day is failing with their experiments? Do you reward them appropriately? Like Michael Jordon and the sales professional, they are doing their homework. They are refining what they know and what is and is not possible. If your innovation team is rapidly prototyping and failing, and if their failures are generating a trail of learning for the next innovation, then yes, reward them. Because with innovation, rapid, furious failure and learning is the path you want to take. It leads to a clearer understanding of what works and what doesn’t work. And, what works becomes your next new product, service or business model.

Rewarding failure is counter-intuitive, but the failures that result from rapid prototyping, collaboration and learning are required for building a culture of innovation, and the next big thing.

Here’s how to reward innovation in your performance management and rewards system.

Innovation flips our normal intuition on its head in many ways, including rewards and performance management.

I applaud the recent changes I see many companies making in their performance management and rewards systems. These organizations are moving away from ratings, “rack and stack,” (forced ranking of employees) and the once-a-year-performance-review-here-is your-rating-and-pay-raise discussion—and all of the destructive competition and hallway grumbling these practices engender. Instead, they are moving toward ongoing performance feedback and recognition, coaching and development. They are documenting quarterly performance, but without ratings and “rack and stack.”

If you are revamping your performance management system in the new year, I applaud your efforts. If innovation is part of your business focus, how are you systematically including innovation in your performance management changes?

I have a few recommendations for you.

  1. Goal setting. Classic goal setting uses SMART goals. The “S” stands for Specific, “M” for Measurable, “A” for Action orientated, and “R” for Realistic and Relevant. Finally, “T” for Time based. This is a great method to use for standard goal setting in sales and operational functions because it provides much needed clarity. But when your company needs to figure out the “next big Idea” by being innovative, you have to take a different approach. Big ideas and innovation involve great uncertainty about outcomes. Innovative companies and innovators thrive in learning environments that put an emphasis on experimentation, rapid prototyping and failure, and learning from failure. Employees on innovation teams should have a compelling vision to work towards, and “experimentation and learning goals” rather than SMART goals.
  2. Collaboration. Research shows that successful, innovative companies foster ongoing leaning, collaboration and teamwork, and with a heavy foot on the accelerator pedal
    [i]. Does your performance management system encourage the compliance of bureaucracy? Or, does it incent employees to creatively share ideas and compare and contrast ideas without destructive arguments? In your culture, is it cool to collectively solve problems, or do employees avoid taking risks?
  3. Overcoming dark matter. In order to commercialize innovation and launch a new business model, product or service, companies need to align many functions and processes across the dark matter of their organizations. These functions span manufacturing to customer service, finance to supply chain, and human resources to information technology. Does your performance management system align these functional organizations, from top-to-bottom, to commercialize your innovation? Or, does it allow them to remain in the comfort of their own functional silos and last year’s objectives?

Rewarding success comes naturally. It is essential for reinforcing your cultural values, strategy execution, and the behaviors you want to see in the future. If you want to nurture innovation, you need to do more than articulate a vision, map a strategy, and align your investment with your annual budget. You need to incorporate the essentials of innovation in your performance management and rewards system so that everyone understands their role in supporting innovation and is appropriately rewarded for it.

Do you have an example to share? I would love to hear from you.

Victor Assad is a Managing Partner of InnovationOne and the CEO of Victor Assad Strategic Human Resources Consulting. He works with key decision makers and human resources leaders on talent management, innovation, accelerating change, leadership development, executive coaching, and other strategic initiatives. Please e-mail Victor at victorassad6@gmail.com or visit www.InnovationOne to learn more about Innovation.

[i] Dr. Brooke Dobni and Dr. W. Thomas Nelson, Jr, (2013), “Innovation Health Inside the Fortune 1000,” Strategian; Marc de Jong, Nathan Marston, Erik Roth and Peet van Biljon, (No 2013) The Eight Essentials of Innovation Performance,” McKinsey and Company; and Stephan H. Thomke, (2003) Experimentation Matters, Harvard Business School Publishing Corporation.