Performance Management and Innovation Value

This post is a bit of thinking piece where I explore the implications on how organizations mirror/reflect their value for innovation in their performance management system. My inspiration is from Nassim Taleb’s answer to the question: “How do you innovate?” His purported reply: “First try and get into trouble.”

There have been various forms of parallel replies from many others over the years noting the value/importance of “many experiments” and “failing quickly”.

Yet when we look at the mantra of many HR sponsored performance management systems, what do we see? We see the value of rewarding for results. So how do schemes like these support an organization’s desire for fostering the value of innovation?

My thought is the two do not marry well. A performance rewarding scheme that recognizes success by “meeting expectations” is going to bonus the status quo. Also, if the performance management scheme uses some form of stacking or forced distribution of performance ratings, then risk taking (which is the behavioural underpinning of innovation) is to say the least risky.

I recall many years ago I was in a room full of people where we were talking about the need to be more innovative. A manager during the discussion said that (in sincere support of the innovation proposition) said: ” What is important is we have “practical” innovation!” I along with numerous others were astonished by the statement. By definition, innovation is not practical because we have no (or at the very best little) experience with the new idea, hence it cannot be determined up front that it is practical. /the consequence for this manager’s viewpoint (I was eternally grateful for his candour) was to never to be bothered by having to decide if a new idea was worth undertaking.

So, how can we reconcile innovation as a sincere value and a conventional performance management system? One way is to have an objective concerning innovation that is prepared to reward failure. Am I suggesting that we should have circumstances where the whole firm is at risk if an innovative idea turns out to be impractical? No. We can take calculated chances that are matched to the potential pay-offs and the accountability within the organization for such risks. We can also put in place means for determining as quickly as possible (i.e., before we have put too much at risk) whether the idea merits further risk taking.

The focus should be on how to “practically undertake” innovation risks not on “practical innovations”.

The fundamental issue with innovation efforts, is they expose the person/organization to new sources of uncertainty. We live with uncertainty regardless, only death relieves us of having to deal with it. If we use Taleb’s notion of uncertainty then doing what we always have means we understand the risks, and have a pretty good idea of “grey Swan” event uncertainties. The black swan events are the uncertainties we are practically speaking (yes pun intended) oblivious to. When we innovate, depending upon its significance< we can get exposed to new risks only after we have experienced them and new grey swan events which we may have a harder time envisaging (because of lack of related experiences). As for the black swan events, “Who knows?”. Because we sure don’t.

I would be interested in any reader who has direct experience with the incorporation of rewarding failure (actually rewarding effort of trying something new) and how it worked out in practice.


About 123stilllearning456

As a management consultant I am passionately interested in talent management and risk/uncertainty issues. In the area of talent management I propose that we seek strategies that look beyond the staffing/employee centric frames of reference. I have been frustrated at the "closing down on possibilities" by these more conventional staffing/employee centric approaches. I have been impressed where people have found systematic solutions to their talent management issues by going beyond the conventional approaches. In the area of risk and uncertainty, I am interested in making this topic relevant to more normal decision making situations. My conceptual foundation is to use the micro-economist's fixed/variable cost theme. I also think it is important to look at these issues for people through their emotional and psychological lens. As a premise I think risk and uncertainty only exist where there is a person who cares about possible events and its consequences. Hence, risk and uncertainty are social based concepts (no sentience, no risk and uncertainty). A major influence on my thinking in this area is Nassim Taleb of "Black Swan" fame. This BLOG provides me with an opportunity to express my thoughts on topics that interest me. As this is an online diary, content is more important to me than polish. I apologize if this distracts from readers' enjoyment and learning. Still I find this a useful way to live up to my namesake, learn more from others and hopefully provoke creative thoughts and ideas in others.
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