The other day, I caught up with the head of a ventures team at a global bank. She’s smart, accomplished, and making waves, with one successful accelerator programme cohort under her belt and another soon to launch. But when I asked about recruitment for the second cohort, her face fell.
“We’re just not getting any sign ups this time around,” she said.
There was so much interest for the first one, so she was flummoxed by the lack of interest.
“I don’t get it, it’s a great gig. You bring the idea, we give you the time and money to make it happen. What’s not to like? It’s a break from your usual job. Ventures is the sexiest part of the business!”
I had to agree.
Sure, for serial entrepreneurs, a corporate venturing scheme may not be the most attractive option. You’re sharing the risk — and therefore the reward — with your company. But for someone in a steady job, corporate venturing can be a brilliant stepping stone into the world of startups.
So why no signups? Especially after such a seemingly successful first cohort. There had to be a whammy.
“What do they get if their idea works?” I asked.
The list of benefits was long: equity, recognition, the opportunity to lead the idea to scale.
“And what if it doesn’t work?”
“Well, there are no guarantees.”
“Do they get their old job back?”
“We can’t promise that, no.”
“But they stay in the business… right?”
There was a long pause.
And there it was. The whammy.
The first cohort hadn’t been told this, but by the time recruitment started for the second round, word must have spread that some unsuccessful programme members had been let go. Like any venture capital fund, corporate innovation relies on a portfolio of ideas and experiments, the majority of which will fail. This bank’s model for recruiting for the accelerator programme sent an unappealing message: take a big risk but if it doesn’t pay off, you’re likely to be shown the door. You take the risk, we take the reward.
This is why nobody was applying. This is the world of incentives.
A menu of incentives
Getting people to do what you want is a question that governments, NGOs, and businesses ask themselves every day. In a democracy, none of them have the power to force anyone to do anything against their will. Instead, they resort to nudges — gentler ways of influencing behaviour.
In this latest post in our series looking at the heuristics of Behavioural Innovation — the shortcuts our brains make that drive our behaviour and what that means for our innovation efforts — we explore the power of using incentives to make people want to do something, and disincentives to push them away by making something difficult or unattractive.
Specifically, we’ll ask how we can use behaviour design to create a culture that’s more ripe for innovation, and encourage people to become innovators of their own environment, be it their organisation, government, or society.
Don’t show me the money
Not every type of incentive will succeed for every solution.
For example, you’d think money would always be a good motivator. We all like money, right? Even the richest people in the world always seem to want more of it, so what better way to persuade someone to do something than to pay them?
There are two problems with this.
First, for certain activities, people are intrinsically driven. A parent cares for their child because of the loving bond they share. Almost every decision a parent makes for their child is driven by an unconditional desire to do the best for them. As such, they are very unlikely to change their behaviour if offered a cash reward.
In a conversation I had recently with the brilliant NGO onebillion, we were exploring ways to encourage uptake of its tablet computer designed to teach reading, writing, and numeracy to rural children in Malawi. Their first idea? To pay caregivers to use the tablets with children, but it quickly became evident caregivers weren’t motivated by money. Their priority was quality care for the children under their watch. Their motivation was compassionate. So cash rewards weren’t going to be an effective way of encouraging use of the tablets.
Second, offering money can backfire by having what’s known as a perverse effect on some activities. In a 1973 psychology experiment, researchers went to a preschool where children drew pictures every day. They began paying children a small daily amount to draw. But when they stopped giving the children money, the children stopped drawing and refused to start again until they were paid.
Why did this happen?
Introducing the incentive of money stripped drawing of its natural reward of joy for those children. There are some things we as humans are motivated to do naturally, and introducing a financial element can undermine those desires and warp the value system at play.
Similarly, when Swedish researchers introduced payments for blood donations (PDF), the number of female donors halved! But when given the option to donate that money to charity, rates went back up to previous levels. Payment dilutes the feeling of contributing to the greater good, but the option to donate that payment to charity doubles the greater good motive.
As you can see, we overestimate how much people care about money. People often ask me which incentive they should choose. It’s hard to predict how an incentive will play out until you’ve tested it in the real world, and if your go-to incentive is cashmoney, don’t be surprised if it’s not as motivating as you’d hope.
This is often true of how some corporate innovation efforts are designed, too. For example many companies invite colleagues to submit ideas to improve one of their products or services in return for a prize, maybe an iPad or cash. In reality, the true motivation for workers to take part is often more nuanced: it could be making a change that greatly improve your working life, or impacting the lives of the customers that you, as a frontline worker, deal with every day. In the UK’s National Health Service, giving junior doctors the opportunity to suggest improvements, and crucially to be heard, was a significant morale booster even before the pandemic.
In a more sinister example, aggressive organisational incentives with no culture of safety to challenge them can breed fear and cover-up. The fated US Bank Wells Fargo famously set sales goals that were highly aggressive and audacious. Incentive bonus schemes were put in place to motivate teams but no-one could challenge the targets because if you did, you were fired. This cocktail of incentives to outperform plus disincentives to speak up forced unethical behaviour. People who were normally good people, ended up doing things they wouldn’t normally have done.
To hit their targets, Wells Fargo workers were opening fake accounts or worse, unauthorised accounts for existing customers. When it was eventually investigated, 3.5 million fake accounts were found, workers (mostly lower-level) were fined and fired. Wells Fargo was hit with one of the harshest punishments ever handed down by the Federal Reserve.
Aggressive target setting in and of itself isn’t a problem, but in a culture of high pressure to perform and zero ability to challenge with reproach for speaking up, the message teams got was produce, or else. At work we need goals and healthy stretch, but incentives must be designed with the working culture and environment in mind too. To succeed they must be coupled with the ability for teams to challenge leadership if they aren’t working and the safety to experiment and fail.
What about fines as disincentives. Surely we care about those?
So if we know some incentives like cash, bonuses or prizes aren’t always the answer, what about the disincentive version — fines? These, too, aren’t always the appropriate tool.
In a famous 2000 experiment (PDF), an Israeli nursery attempted to reduce the number of parents who were late picking up their children. The problem was that if parents were late, staff also had to stay later, incurring financial costs for the school but also personal costs for the staff who had to forgo their plans to stay late at work. The nursery decided to fine parents who weren’t on time.
You’d think that would fix the problem. It didn’t.
Instead, the school saw an increase in the number of late pickups. What was intended to be a penalty was reframed by parents as a fee. Rather than feeling guilty about being late, they felt like they were paying for the time of the staff who were staying to supervise their children. A fine becomes a price.
Disincentives can also be ineffective for other reasons. Take speeding, another perennial problem which authorities often respond to by issuing fines. You’d think fines would deter the speeding but experiments have found (PDF) that roadside speedometers that give drivers real-time feedback on their speed have been much more effective. In this case, people respond better to a reality check than to a monetary disincentive.
This becomes even more pronounced when we think about incentives or disincentives on a systems level. In a brilliant piece called Leverage Points: Places to Intervene in a System, Donella Meadows breaks down how the traditional and highly visible incentives like subsidies, or disincentives like taxes which we tend to fall back on will be less effective at bringing about enduring change than working to redefine the invisible mindset or paradigm out of which the system arises. The most effective leverage points in a system aren’t the visible (dis)incentives we use so readily. Instead they are those that are less visible, which is another way of saying appealing to intrinsic motivations is much more effective than external or extrinsic ones.
5 types of incentive to pick from
Now we know incentives and disincentives have to suit the desired outcome, but how do we know which one to pick?
If we want to learn how to encourage people to innovate by thinking boldly and improving the world around them, who better to turn to than the organisation behind the original moonshot: NASA? According to Ken Davidian, who worked on the Centennial Challenges — a programme of prize competitions to find innovative solutions to the space agency’s technical challenges — there are at least four types of incentives that drive people to compete in innovation efforts:
- GOALS. Some people are motivated by the pursuit of a particular achievement, and the knowledge that they’re the person who made something happen. For example, the billionaire space race between Jeff Bezos, Richard Branson, and Elon Musk.
- GLORY. Others seek the public recognition they get from achieving something. For them, an achievement would feel much less rewarding if no one knew about it. This incentive is common in areas like academia and sport.
- GUTS. For some, it’s more about the arduous journey. For example, many marathon runners are spurred on by the gruelling hours of training and the mental resilience required to succeed at long-distance running.
- GOLD. Putting aside the goal, the recognition, and the challenges along the way, some people are simply motivated by money, prizes, or some other kind of tangible reward.
I’d add a fifth, which applies to innovation efforts that aren’t a competition:
5. GREATER GOOD. In the cases of climate change, persistent inequality, and other major societal challenges, many people are called to innovate by an inner sense of justice or altruism, care for others, and a desire for a better future.
It’s interesting to note that some of these are external things we can dangle in front of people: gold, glory. Whilst others are purely intrinsic: goals, guts, greater good. These are personal things that spur people on, their own internal drivers.
When we’re designing to encourage or discourage certain behaviours it’s important to think about a blend of these types, so that whatever we design appeals to a range of different people’s motivations.
Thinking back to my friend at the global bank with her accelerator programme, to incentivise more sign-ups for the next cohort she might want to consider any or all of these ideas. Ideally I’d aim for a combination of all of them:
- Goals: having the opportunity to get your idea out into the real world
- Glory: you’ll become one of an alumni network of pioneers, regardless of whether your idea succeeds or fails. Crucially, this was missing from the bank’s design
- Guts: the process will be structured, with mentors and other experienced entrepreneurs to support you along the way. (The Obstacle is the Way and all that)
- Gold: if your idea is successful, you’ll get equity. If it’s not, you’ll get your job back and return to the security of your salary. Again, this step was missing for the bank
- Greater good: your idea has the potential to improve customer experience, the bank’s business model, or other impact measurements
The most important thing is to think about long-term success
For example, take the global vaccine rollout during the COVID-19 pandemic. Countries could have paid their citizens to take the vaccine. This would no doubt have created a surge in uptake early on, but what if the payments stopped? Like children enjoying drawing, once a population gets used to receiving financial rewards for completing a task, it’s much harder to get them to do it for another reason.
The broader question is: what kind of culture do you want to create? A nation where people take the vaccine because of a desire to achieve a successful rollout (“goals” rather than “gold”) may start more slowly, but that sentiment is unlikely to wane, and is much more conducive to sustained uptake over several doses. Similarly, in an organisational setting, encouraging innovation to improve the lives of colleagues and customers is much more likely to lead to sustained success than giving an iPad to the employee with the best idea.
So whether it’s in a team, across an organisation, or on a larger policy-level scale, to harness incentives and disincentives to stimulate innovation efforts, we need to do three things: think long term about the behaviour we want to encourage or discourage, think big picture, and test in a real-world context in order to learn.
It’s only by considering all of this that we can create systems that make people do what we want… and crucially for the right reasons.
- When and Why Incentives (Don’t) Work to Modify Behavior (PDF)
- Man’s search for meaning. Viktor E. Frankl
- The Way American Parents Think About Chores Is Bizarre
- Choosing without choosing: How the defaults around you are shaping what you do and who you are, and how you can rethink them.
- Leverage points: places to intervene in a system. Donella Meadows
- Thanks to Thea Snow for first putting Donella Meadows’ piece on my radar in her brilliant blog about honouring the grout , the space and glue between things
- Illustration credit: audiencestack.com