Not long ago, I was approached by a giant media company that had been on a 15-year tear, but whose growth was starting to slow in the face of competition with digital upstarts. The firm wanted to set up a new “growth engine.”
The executive envisioned forming a small team to explore new market spaces. The innovation team would be given a multimillion-dollar budget and report directly to the CEO.
The company appointed an up-and-coming manager to run the growth engine. As they began their 18-month journey, I helped the manager and her team as they explored numerous market spaces and selected 10 new business opportunities to pilot.
Each venture received a small amount of seed capital to test key assumptions. Most of the pilots were shut down within six months of funding, but two demonstrated solid long-term potential, even if near-term revenues remained small.
By producing eight failed ideas and two iffy but promising ones, had the growth engine leader done a good job?
The answer, as HR leaders know, depends in part on how she was rewarded.
At most well-managed companies today, employees are rewarded strongly on the basis of results. The bigger the win, the better.
So if the assessment criterion was, “Did the manager deliver tangible results?” then chances are you and senior management would deem the growth leader’s performance decidedly subpar. And indeed, that’s exactly the view her company management took. One Friday afternoon, it shut down the group and fired the manager.
But what if her company had a different method of assessing performance, one based on behaviors, not outcomes?
If the assessment criterion was, “Did the manager follow behaviors that are consistent with innovation success?” then the leader would have appropriately earned rave reviews. She followed many of the best-practice innovation behaviors: She cost-effectively tested a range of ideas, developed a portfolio of interesting businesses and learned a substantial amount about a range of markets.
Companies seeking to become world-class innovators need to take the latter approach and build reward and incentive programs that focus on innovation behaviors, not outcomes.