Impact of component shortages on R&D

In Apple R&D and Steve Jobs Methodology: User Centric Design, we discussed how digital technologies let Apple focus on user experience. The ability to focus on user experience, in turn, made Apple succeed where Japanese manufacturers failed – because Japanese companies focused primarily on components.

Apple’s success has had a big impact on the industry landscape. There has been significant consolidation in component manufacturers. More importantly, other companies have increased their focus on user centric design. The result is that everyone is demanding the same set of components from a decreasing pool of suppliers. The balance of power is now shifting again – from system designers to component manufacturers.

The article Getting Through the Shortages: No More Being Choosy in Nikkei Electronics has some very interesting data for R&D managers and strategy developers: “

The shortage in key components that began in summer 2009 is shaking the electronic equipment industry, and bringing about major change in the balance of power between equipment and component manufacturers. In response, equipment manufacturers are beginning to take action to ensure continued access to essential components at low cost.

Here is a great graphic from the article showing an strong increase in profits at the component manufacturers:

So, what are the lesson for R&D managers:
1. Plan and design modular products: If one component becomes hard to obtain, you should be able to swap it out with another. Modular products are always a great idea, but in case of supplier concerns, they become even more important. The article had a great example of HTC Desire that shipped with an OLED screen, but had to be converted to LCD because of supply problems at Samsung.

2. Find commonalities between products: If you can use same components across all your products, your volumes will increase and it will give you a greater clout with the suppliers. This is a challenge for R&D, because common parts will inhibit complete performance.optimization for each products. Here is the graphic from Nikkei:

3. Secure supply by prepaying for parts: Self explanatory. But still important for R&D managers because you will be locking in a particular component for a long term. Designs around them will need to be robust enough to accommodate the parts from the long term supplier.
There is a lot more about R&D strategy and planning at the R&D Management Blog.

Article first published as Impact of Component Shortages on R&D on Technorati.

The psychology of change management

I have discussed the problem with process improvement and change management in the past. We have seen that 90% of cost cuts obtained through organizational change are reversed within 3 years. It has been shown that senior executives are much more likely to imagine that change management projects are successful than middle managers. I liked this 2003 McKinsey article that has a different take on the problem: The psychology of change management:

Companies can transform the attitudes and behavior of their employees by applying psychological breakthroughs that explain why people think and act as they do.

The article suggests that there are four conditions to make changes stick:

A purpose to believe in: The leaders have to develop and describe a story of why the change is needed and why it is important. The story needs to be communicated to build a sense of purpose within the organization around the change. People are more likely to change their individual behaviors if they believe in the purpose (especially when change might cause some people to loose power / benefits).
Reinforcement systems: We have talked about this previously. Metrics and rewards needs to be aligned to make change stick. However, psychological research shows that people get bored of rewards. Rewards alone are not enough to change behavior over the long-term. Hence, the other four conditions have to be satisfied.
Skills required for change: Changes do not happen because many people do not know how to change. We have seen research suggesting extended involvement of mentors (such as six sigma black belts) to make sure change happens and sticks. This will only work if the organization launches a few, highly visible change programs, with a clear purpose.
Consistent role models: I have seen many change management projects fail because the senior managers did not actually change their behavior. Their words were different from their actions. People can easily see the difference between a real change and one in name only. Again, we have seen research that shows that managers need to stay involved in the change for a long time to make results stick.

Overall a great article and worth reading….

Social networks helpful in improving R&D efficiency?

MIT Sloan Review article The “Unstructured Information” Most Businesses Miss Out On has some interesting benchmark information on the role of social networks in driving knowledge collaboration (and hence efficiency) in R&D environments. The article details an interview with, K. Ananth Krishnan, the CTO of Tata Consultancy Services. As you might remember, I have not been very impressed with the role of social networks in complex R&D. TCS seems to have great success using social networks to share knowledge between geographically disconnected employees:

Well, let’s talk about the use of social webs inside the enterprise. Here at TCS, we are having a lot of success in saying that if you’re dealing with a particular problem and you need help, you go into our social platform and you just ask. You type in a question saying, “This is a problem I’m having. Has anybody solved this before?” And you might get five responses in 30 seconds from people who have done exactly what you tried to do, and they have their solutions.

That is great. Can we replicate this trend in any R&D environment? What are some of the challenges involved in using social networks effectively in an R&D environment? Mr. Krishnan points out one:

Of course, three responses might say one thing and two might say something totally different. So you still have to use the intuition and the judgment.

So, one key problem with social networks is not knowing the veracity or accuracy of solution provided. The other key problem is ability to describe the problem in sufficient detail that someone could suggest a meaningful solution. Let us dig in:
Mr. Krishnan is in the IT business where a more or less common language / jargon is shared between all employees. Most physical system require multiple disciplines (mechanical, electrical, etc) that all speak different jargons. Furthermore, most problems occur at the intersection of different disciplines. It is extremely hard to describe such multidisciplinary problems in sufficient detail in a social network. Even more importantly, there are only a handful of people who could understand the problem and provide a realistic solution. Social media would probably not be the most effective means to reach those people. We should probably consider project networks?
That said, clearly, homogeneous environments such as software development or ASIC design can benefit from social networks. TCS seems to be very enthusiastic about it:

We are today probably one of the largest users of the social web inside the enterprise, and we have improved our ability to look at the structured and the unstructured opportunity. In the last three years we have really launched into the exploitation of the social web as a means for ideation, as a means of finding the expert, as a means of learning. We use the web to form groups to look at specific problems and tapping into a collective intelligence.

TCS seems to have a key innovation in the use of social networks here: They use unstructured information from the social network to supplement structured information and to drive discussion. I think that is a key requirement for the success of social networks in the R&D environment.

All those things supplement the way we look at our structured information, and they get some of these subjective insights into what we should be doing as a business.
For example, I have a blog inside the company, and I just finished writing a blog post which will go live tomorrow morning on the ideation process. There are a lot of things that I as the CTO of India’s largest software company should be looking at. Obviously, I don’t have the bandwidth to look at all of them. So I’m asking my readers to help me find out what am I missing. What are the three things they feel I should be paying attention to? Hopefully I will get a few hundred responses, and then I and my staff will go through and make sure that we pick the top three from there.
I do this quite often to supplement what I’m reading from all the other sources of information. The kind of insights that our business leaders might need for creating a new service offering or going after a new market or whatever, many of those get validated by this softer data.

So, I seem to be coming to the obvious conclusion that all tools can be helpful or harmful. It depends on how one uses them. Hence, if R&D managers want to use social networks, they have to get involved, show the team how to use the social network by example, structure the interactions on the social network AND give it adequate priority (probably by using it themselves).

Impact of Employee Stock Options on Performance

Knowledge@Wharton has a great article Incentive or Gift? How Perception of Employee Stock Options Affects Performance. It appears that the idea that stock options drive people to work harder to increase the stock price is not quite true.

The story is not that people work harder to make the share price go up,’ Cappelli noted. ‘It is that if the share price goes up and people make money, they feel an obligation to work harder. That’s a bit of a surprise.

Employees seem to feel that the company has given them a gift ONLY if they can exercise the options at a profit. Even then, they only work hard in that they feel some gratitude for the gift! This is important for R&D managers to understand because options are increasingly a part of benefit packages.

The issue is significant because over the last two decades, American firms have both greatly increased use of a stock option plan as a form of employee compensation, and broadened the class of eligible employees to include more than just the most elite executives. According to the National Center for Employee Ownership, only one million U.S. employees held stock options in 1990. That figure has since skyrocketed to nine million workers now participating in roughly 30,000 different plans.

We have discussed incentives to drive R&D performance many times. Most recently, we discussed that financial incentives alone might not be the best way to drive performance. That post has a list of related articles that you might want to check out. This article follows the same theme that we have discussed in the past. Lets dig in…
Incentives have to be aligned with required behavior to improve behavior. Most R&D team members can not define what they can do to improve share prices, so they do not actually see options as an incentive to work harder.

Boosting the research effort was a large amount of data provided by a major American public corporation. The firm granted stock options to the 4,500 employees — primarily store managers — based solely on their level within the company hierarchy, as opposed to job performance. Because these lower-level managers were largely responsible only for the sales performance in individual stores, there was little chance that their day-to-day work would actually directly influence share price, or that the manager would perceive such an impact.

So, what are some of the positives of employee stock options? Clearly, employee retention is better – employees are not likely to leave if they have a lot of un-vested options. The impact on performance seems to come from improved morale and is related to the actual profit employees make from the options.

… employees who profited handsomely from exercising their stock options appear to give a lot of the credit to the positive attributes of the company.

The article claims that there is significant improvement in performance. It looks quite small to me and I wonder if a much better improvement can be gained from bonuses tied directly to required behavior…

The researchers found that a doubling of the profits from a sale of options resulted in a 1.3% increase in performance appraisal scores and a 1.1% decrease in performance-related dismissals — numbers that were statistically significant and meaningful in the broader context of the company data. According to Cappelli and Conyon, the data suggests that a company would have to increase the number of options awarded to employees by sevenfold to achieve the same impact on worker performance as a doubling of the profits from options.

The key problem is that profit from options are seen as gifts and any improvement in performance comes only once the profits are realized.

This shows that we’re not strictly economic in our relationships,” Cappelli says. “The proof of that is these folks who feel that they have been given a gift that they didn’t expect for their performance. There is nothing that requires them to reciprocate by performing better, but they do anyway.” Indeed, the research suggests that the improved performance after a profitable exercise of stock options typically lasts for a year or longer.

So instead of driving performance now, when we need it, we will drive performance when the share prices are actually higher… Not quite a direct approach to improving performance and quite unpredictable in efficacy.

But the findings also raise questions for the many firms that offer stock options as a benefit, since the research shows that the impact on employee performance really depends on the price at which employees sell their shares, which changes in ways that are essentially unpredictable — and mostly out of the control of company leadership.

Finally, the most important problem: Employees need to know when to exercise the options to receive maximum profit. The data shows that employees are not good at that (Personally, I have been very ineffective at timing).

One of the most critical variables was showing that the size of the stock profits realized by the managers was essentially the result of good luck in when they decided to sell, and not an indicator of either inside company knowledge or a special knack for timing the stock market. “Even top executives don’t do better than the average investor in making these selling decisions,” Cappelli states, noting that the majority of the employees in the study were store managers, not experienced stock traders. “Markets are pretty unpredictable, and there’s strong evidence that they don’t do well in timing the market.”

In summary, R&D managers should probably look elsewhere to motivate their teams – stock options are not it.

What Will Your Customers Buy Next?

A quick post about an article in Technology Review about What Will Your Customers Buy Next?

Using sophisticated math and vast amounts of data, predictive analytics software can help forecast and influence purchasing behavior. So why aren’t more companies using it?

The thrust of the article seems to be about predictive analysis software that can help companies better forecast evolving customer preferences:

With predictive analytics software, companies can see which customers are most likely to buy a given product. The process begins by ranking customers according to how recently they purchased, how frequently they buy, and how much money they spend.

Clearly, having data is not enough. We need a way to generate knowledge and information out of the data. The idea is to evolve parameters that can be used as a foundation for the predictive analysis. The key question in my mind is how can we link this data about customer preferences into R&D plans? I am not sure if anyone is working on that…

How to Succeed in Distributed Product Development

MIT Sloan Management Review had a somewhat interesting article Putting It Together: How to Succeed in Distributed Product Development. The idea is pretty straight forward: as products get increasingly complex and competitive pressures require companies to work ever faster, more companies are forced to distribute product development across multiple organizations.

COMPANIES HAVE TRADITIONALLY been protective of the innovation activities they use in product and process development, seeing the activities as part of their crown jewels. That thinking, however, is starting to change. The increase in outsourcing, offshoring and alliance building has resulted in innovation efforts that often require the orchestration of multiple organizations separated by cultural, geographic and legal boundaries.

As the article points out, distributed nature of R&D varies:

At one extreme are centralized arrangements, with a clear lead organization and subsidiary “supplier” organizations. At the other are innovation efforts performed by decentralized “open-source” networks. In between is the realm of outsourcing and offshoring — the key building blocks in a trend called distributed product development or DPD, whose success factors are still not widely understood.

We have discussed the impact of distributed R&D on innovation. We have also seen that the impact of distributed teams on learning. We have also seen how virtual teams multiple times in the past. This article points out that distributed development adds significantly to the uncertainty in team performance:

Outsourcing complex product development work subjects companies to significant uncertainty. Companies can make perfectly reasonable decisions and still find themselves needing to make expensive changes, ranging into the millions or even billions of dollars. Our contention is that, by anticipating some of these changes, managers can reduce risk and, ultimately, cost.

So how does the article suggest we manage distributed product development:

The flippant answer — “very carefully” — is also the right one.
1. Communication must be perfectly clear, especially if the project involves people from different cultures.
2. Incentives must be carefully aligned.
3. Despite upfront planning, you still should be ready to adapt and realign as the inevitable snags occur.

We have covered incentives in the past. I guess the key to cross-cultural, cross-organizational and multi-location distributed R&D is communication. May I suggest you take a look at InspiRD?

Sparking creativity in teams

McKinsey Quarterly has a useful guide in Sparking creativity in teams:

In fact, our experience with hundreds of corporate teams, ranging from experienced C-level executives to entry-level customer service reps, suggests that companies can use relatively simple techniques to boost the creative output of employees at any level.

The article has four simple suggestions to increase creativity. Lets dig in:
1. Immerse yourself: As we discussed in Steve Jobs Methodology, an engaged R&D manager is crucial to motivating R&D teams. Many senior R&D managers I have met seem to have a hands-off approach to their teams. As the McKinsey article points out, there is no alternative to clear engagement from the leadership:

The antidote is personal experience:p in ways that abstract discussions around conference room tables can’t. It’s therefore extremely valuable to start creativity-building exercises or idea generation efforts outside the office, by engineering personal experiences that directly confront the participants’ implicit or explicit assumptions.

2. Overcome Orthodoxies: Personal engagement from leaders in required for the success of any organizational change. However, the leaders also need to question conventional thinking and challenge teams to do better:

All organizations have conventional wisdom about “the way we do things,” unchallenged assumptions about what customers want, or supposedly essential elements of strategy that are rarely if ever questioned.
By identifying and then systematically challenging such core beliefs, companies can not only improve their ability to embrace new ideas but also get a jump on the competition.

3. Use Analogies: This is a new and interesting point. As the article points out, leaders need to frame the problem with analogies to actually help the teams do better. The examples include: “How would Google manage this Data?” or “How would Southwest Airline cut these costs?”

Our own experience confirms the power of associations. We’ve found a straightforward, accessible way to begin harnessing it: using analogies. As we’ve seen, by forcing comparisons between one company and a second, seemingly unrelated one, teams make considerable creative progress, particularly in situations requiring greenfield ideas. We’re not suggesting that you emulate other organizations—a recipe for disappointment. Rather, this approach is about using other companies to stir your imagination.

4. Create Constraints: As we have discussed many times, managers are key to driving innovation. Only managers have the cross-enterprise visibility to help frame the challenge for the R&D teams.

Imposing constraints to spark innovation may seem counterintuitive—isn’t the idea to explore “white spaces” and “blue oceans”? Yet without some old-fashioned forcing mechanisms, many would-be creative thinkers spin their wheels aimlessly or never leave their intellectual comfort zones.

Does Wall Street hate innovation?

I found an interesting article in the Star Tribune Does Wall Street hate innovation?

Recent studies by Mary Benner, an associate professor at the University of Minnesota’s Carlson School of Management, concludes that’s often the case for major players in their industries. She examined how analysts reacted when companies like Kodak and Polaroid shifted to digital photography or when telecommunications companies began pursuing Voice over Internet Protocol technology. Analysts showed a preference for incremental change rather than breakthrough innovation.

This is an interesting look at innovation – from the outside and from the financial analyst perspective. The research has some significant lessons for R&D managers. First, for publicly traded companies, innovation is expected/rewarded from growth companies and not from value companies.

The thing that separates the ones that are affected from those that aren’t is whether they’re publicly traded where expectations have been created that earnings, cash flow will be predictable. It’s very hard for them to change and do something entirely new. There are firms that are categorized as growth stocks where analysts and stakeholders are more willing to see them innovate. Even Amazon spent many years being a growth stock without a lot of expectations for predictable earnings. Private companies also have more leeway with their shareholders.

So how do companies get pressured? They get rewarded when they focus on process improvements and efficiency enhancements such as Six Sigma that provide predictable results. These processes actually squeeze out disruptive innovation and only allow companies to focus on incremental innovation.

They focus on mapping processes and predictable, measurable improvement. My research shows that tends to spur more incremental innovation and crowd out radical innovation. The direct effect is that Wall Street tends to react very positively when companies adopt these management practices. They can be wonderful in some parts of companies that need efficiency, stability. But they’re not always wonderful, particularly with technologies that are so new we don’t really know them yet.

Amazing! There is a cause and effect paradox here. Large companies are often blamed for not innovating. Everyone actually expects innovations to come from small nimble firms. But the behavior of large firms is governed by the rewards they get from their boards of directors. These rewards assure that the firms will actually not innovate! This is another reason why financial incentives do not work.
However, only large firms really have the resources and manufacturing capabilities to bring products to market. Knowing this, large corporations should be better served by setting up Xerox PARC-like innovation organizations that do not get hindered by processes. The problem then would be to have effective means of integrating the innovations into the product line. We have discussed that several times in the past.

Nurturing disruptive innovation

First of all, I really loved the ars technical article Is gravity not actually a force? Forcing theory to meet experiments. It has a great explanation of the new (perhaps revolutionary) theory of gravitation by Dutch theoretical physicist Erik Verlinde. I recommend reading the whole article. It has a great explanation of the
theory that made quite a stir last year.

More importantly, it points out how science has been able to take disruptive ideas and get them accepted for hundreds of years:

“How are controversial ideas handled by modern science? A common charge leveled against science (generally by those who are unhappy with its conclusions) is that the only way to get funding or continue your research is by going along with the current theories and not rocking the boat. For those who spend their careers in science, this is laughable—it is those who successfully rock the boat who are the most successful. In this article, we are going to look at a manuscript that purports to overturn hundreds of years of accepted ideas about gravity, and use it as an illustration of how controversial ideas are dealt with in modern physics.”

May be we can learn from science on how to integrate disruptive innovation into new products and over come the not-invented-here rejection plaguing most R&D organizations engaged in open innovation? I think we can. Here are the steps:

Publish the innovative idea (accessed through open innovation) to internal experts. Clearly, internal experts will be circumspect and disinclined to accept the new idea. So, it is critical to provide a compelling argument or test results that back up the actual work.
Invite internal experts to replicate the idea. This is quite common in science as the article points out. This will start getting some buy-in. IP issues will be critical and you will need to ensure that the external idea does not get integrated into your internal R&D without a proper license.
Review results to verify and validate the idea. This again is quite common in science and many people check the new theories on different scientific domains. Similarly, R&D managers need to ensure experts examine the value of the innovation from different perspectives (user experience, manufacturability, etc.). A big advantage of this step would be to reduce risks around integrating the disruptive innovation. This step will also further drive acceptance of the new innovation.
Solicit future involvement from experts and develop a plan to mature the innovation. It is critical that this step is executed very quickly after step 3. A plan and associated metrics will get over the valley of death in product innovation.

Sounds quite intuitive. I hope to try this in the near future. Any thoughts?

The Problem with Financial Incentives

We have often talked about incentive plans and their impact on motivating R&D teams. In”Impact of Incentive Bonus Plan” we discussed that unless the bonus plan can be tightly coupled with real metrics, they may actually reduce performance. The article “You are getting a bonus so why aren’t you motivated,” we learned that bonuses are not effective at motivating R&D teams. We have discussed other forms of motivation for R&D teams and what drives satisfaction in virtual R&D teams here.. Now there is another interesting article in Knowledge@Wharton: The Problem with Financial Incentives — and What to Do About It – Knowledge@Wharton that talks about aligning incentives with work.

Bonuses and stock options often improve performance. But they can also lead to unethical behavior, fuel turnover and foster envy and discontent. In this opinion piece, Wharton management professors Adam Grant and Jitendra Singh argue that it is time to cut back on money as a chief motivational force in business. Instead, they say, employers should pay greater attention to intrinsic motivation. That means designing jobs that provide opportunities to make choices, develop skills, do work that matters and build meaningful interpersonal connections.

There are three important risks that excessive reliance on financial incentives brings:
1. Incentives may enhance performance but do not guarantee that the performance improvement will come with ethical behavior and actual improvements

“Several years ago, Green Giant, a unit of General Mills, had a problem at one of its plants: Frozen peas were being packaged with insect parts. Hoping to improve product quality and cleanliness, managers designed an incentive scheme in which employees received a bonus for finding insect parts. Employees responded by bringing insect parts from home, planting them in frozen pea packages and then ‘finding’ them to earn the bonus.

This is even more difficult when behavior being rewarded (R&D) is so complex that the what expected results to be rewarded are difficult to measure at best and unknown until a much later date at worst.

Research by Wharton management professor Maurice Schweitzer and colleagues demonstrates that when people are rewarded for goal achievement, they are more likely to engage in unethical behavior, such as cheating by overstating their performance. This is especially likely when employees fall just short of their goals. Harvard Business School’s Michael Jensen has gone so far as to propose that cheating to earn bonuses — such as by shipping unfinished products or cooking the books to exceed analysts’ expectations — has become the norm at many companies.

It is the last statement above that I have seen abused often in bonuses in R&D environment.

When strong financial incentives are in place, many employees will cross ethical boundaries to earn them, convincing themselves that the ends justify the means. When we value a reward, we often choose the shortest, easiest path to attaining it — and then persuade ourselves that we did no wrong. This tendency to rationalize our own behavior is so pervasive that psychologists Carol Tavris and Elliot Aronson recently published a book called Mistakes Were Made (but not by me) to explain how we justify harmful decisions and unethical acts.

2. Incentives demoralize employees who do not get them and actually reduce performance and fuel turnover.

Numerous studies have shown that people judge the fairness of their pay not in absolute terms, but rather in terms of how it compares with the pay earned by peers. As a result, pay inequality can lead to frustration, jealousy, envy, disappointment and resentment. This is because compensation does not only enable us to support ourselves and our families; it is also a signal of our value and status in an organization. At Google in 2004, Larry Page and Sergey Brin created Founders’ Awards to give multimillion-dollar stock grants to employees who made major contributions. The goal was to attract, reward and retain key employees, but blogger Greg Linden reports that the grants “backfired because those who didn’t get them felt overlooked.”
This claim is supported by rigorous evidence. Notre Dame’s Matt Bloom has shown that companies with higher pay inequality suffer from greater manager and employee turnover. He also finds that major league baseball teams with larger gaps between the highest-paid and lowest-paid players lose more games; they score fewer runs and let in more runs than teams with more compressed pay distributions. The benefits to the high performers are seemingly outweighed by the costs to the low performers, who apparently feel unfairly treated and reduce their effort as a result.

Similarly, Phyllis Siegel at Rutgers and Donald Hambrick at Penn State have shown that high-technology firms with greater pay inequality in their top management teams have lower average market-to-book value and shareholder returns. The researchers explain: “Although a pay scheme that rewards individuals based on their respective values to the firm does not seem unhealthy on the surface, it can potentially generate negative effects on collaboration, as executives engage in invidious comparisons with each other.”

Other studies have shown that executives are more likely to leave companies with high pay inequality. The bottom line here is that financial incentives, by definition, create inequalities in pay that often undermine performance, collaboration and retention.

3. The final risk is that financial incentives generate a sort of addiction. Better performance requires increasingly higher bonuses.

In the 1970s, Stanford’s Mark Lepper and colleagues designed a study in which participants were invited to play games for fun. The researchers then began providing rewards for success. When they took away the rewards, participants stopped playing. What started as a fun game became work when performance was rewarded. This is known as the overjustification effect: Our intrinsic interest in a task can be overshadowed by a strong incentive, which convinces us that we are working for the incentive. Numerous studies spearheaded by University of Rochester psychologists Edward Deci and Richard Ryan have shown that rewards often undermine our intrinsic motivation to work on interesting, challenging tasks — especially when they are announced in advance or delivered in a controlling manner.

The authors suggest emphasizing the intrinsic reward of doing something interesting and being creative. In fact, I have personally been in situations where the financial incentives were more than adequate, but my creativity, ability to learn new skills and a sense of purpose were completely unfulfilled. I was dissatisfied and had to leave. So, the solution the authors suggest follow rather logically from the risks: provide employees with Autonomy, Mastery and Purpose.

Autonomy means the freedom to create new solutions, when to do it and how to do it. Creativity, in my opinion, is one of the strongest motivators.

Extensive research has shown that when individuals and teams are given autonomy, they experience greater responsibility for their work, invest more time and energy in it, develop more efficient and innovative processes for completing it and ultimately produce higher quality and quantity. For example, in a study at a printing company, Michigan State’s Fred Morgeson and colleagues found that when teams lacked clear feedback and information systems, giving them autonomy led them to expend more effort, use more skills and spend more time solving problems. Numerous other studies have shown that allowing employees to exercise choices about goals, tasks, work schedules and work methods can increase their motivation and performance.

The problem with autonomy is also R&D management. Unless managers are able to generate clear goals and metrics for measuring results, autonomy will not actually produce any results. Since these objectives and metrics are hard to define, many managers just avoid giving autonomy.

Mastery involves ability to learn new skills and develop knowledge / expertise. Ability to learn is limited because it requires exploration of new problems. R&D managers need to setup interesting challenges for their employees – this is probably the single most important driver of innovation.

Research shows that when employees are given opportunities for mastery, they naturally pursue opportunities to learn and contribute. For instance, research by the University of Sheffield’s Toby Wall and colleagues documented the benefits of giving operators of manufacturing equipment the chance to develop the skills to repair machines, rather than waiting for engineers, programmers and supervisors to fix them. The operators took advantage of this opportunity for mastery to create strategies for reducing machine downtime, and worked to learn how to prevent problems in the future. As a result, they were able to complete repairs more quickly and reduce the overall number of repairs.

Purpose is the experience that one is contributing in meaningful ways:

Adam Grant (one of the authors of this piece) has shown that when employees meet even a single client, customer or end user who benefits from their work, they gain a clearer understanding of the purpose of their jobs, which motivates them to work harder and smarter. For example, when university fundraisers met a single scholarship student who benefited from the money that they raised, the number of calls they made per hour more than doubled and their weekly revenue jumped by 500%. And when radiologists saw a photo of the patient whose X-ray they were evaluating, they felt more empathy, worked harder and achieved greater diagnostic accuracy. In The India Way, Wharton management professors Peter Cappelli, Harbir Singh, Jitendra Singh (one author of this piece) and Michael Useem observe that Indian companies have found success in motivating employees by cultivating a strong sense of purpose and mission. As Adam Smith, the father of economics, wrote in A Theory of Moral Sentiments: “How selfish soever man may be supposed there are evidently some principles in his nature which interest him in the fortunes of others, and render their happiness necessary to him, although he derives nothing from it except the pleasure of seeing it.”

Neither the authors nor I think that financial incentives are a bad idea. I believe that bonuses can be a great motivator for R&D teams / managers. However, they have to be tied to real metrics to ensure that the resulting behavior is what the company needs. Many companies decide on short-term measures such as stock prices to determine performance bonuses because metrics that actually measure performance in longer-term R&D / long product development cycles are much harder to develop.

Researchers Amy Mickel of California State University, Sacramento, and Lisa Barron of the University of California, Irvine, have argued that managers should think more carefully about the symbolic power of financial incentives: who distributes them, why they are distributed, where they are distributed and to whom they are distributed.