A study published in 2020 in the Journal of Product Innovation Management by three marketing scholars sheds light on the drivers of product innovation by development teams. The study analyzes employee-specific motivators and how they are affected by financial rewards, recognition, and social rewards. What type of reward should be used to boost product innovation?
Christophe Haon is professor of marketing at Grenoble Ecole de Management. Shikhar Sarin is Professor of Marketing at Boise State University, USA, and Stacey Malek is Assistant Professor of Marketing at the Erasmus School of Economics at Erasmus University Rotterdam in the Netherlands. All three co-published a study conducted in the United States with 64 product development teams, totaling 238 people. The companies involved operate in high-tech industries and are among the 1,000 largest US companies. Their results point out with nuance the main levers of innovation, depending on the nature of the rewards lavished by the company on product development teams.
Innovation: A Risky Business
"As marketing scholars, our interest in innovation stems from the fact that it contributes to companies' performance in their respective markets. This phenomenon has already been proven, but innovation remains risky, and many new products fail. The study of factors affecting the success of innovations, of which development teams' performance is a part, is, therefore, an important topic," explains Christophe Haon.
Intrinsic and Extrinsic Motivators
The authors of the study first distinguished three types of extrinsic rewards, i.e., different types of rewards which source is external to the individual: financial rewards, formal recognition linked to the quality of completed work (e.g., a promotion), and social rewards, which are essentially symbolic and focused on strengthening social ties (e.g., a team dinner).
In addition, the researchers measured the degree of individuals' intrinsic motivation for the developmental tasks involved in the study. Intrinsic motivation is the interest that an individual finds in completing a task - in this case, product innovation in the high-tech sector (the task itself interests me because I will learn, develop my creativity, etc.)
"The questionnaires were hand-delivered and processed anonymously. This resulted in a high response rate of 47.6% despite the topic's sensitivity," stresses Christophe Haon.
Finally, based on self-determination theory and the analysis of the collected data, the study uncovers the links between the types of rewards, the level of intrinsic motivation, and the performance of new product development teams. This performance is measured by the novelty and the quality of the new products.
Financial rewards have a negative effect on intrinsic motivation. Why? "The prospect of a monetary reward makes the pursuit of it a priority and weakens the interest for the creative task itself. The material reward thus diverts the team's attention from the task to the short-term financial value of the result," says Christophe Haon.
On the other hand, the study shows that recognition and social rewards are two essential tools that stimulate intrinsic motivation.
With two exceptions: "The effects, negative or positive, on intrinsic motivation depend on the complexity of the task assigned to the development team. Thus, the adverse effects of financial rewards are weaker when the task at hand is complex. In this case, the negative impact of a bonus will be less detrimental to intrinsic motivation, while this material reward is also an extrinsic motivator.
On the other hand, when the task is complex, the beneficial effect of social rewards is less important. The company must therefore think about the nature of the rewards considering the complexity of the task," concludes Christophe Haon.
Which Reward Policy Should Be Put in Place?
By combining the effects of the different types of rewards and the level of complexity of the innovation project to be carried out by product development teams, it is possible to make the following recommendations. It is better to prioritize recognition and financial rewards for a complex project. For a more straightforward project, social reward and recognition are more appropriate.