Incentivizing For Innovation



“Never, ever, think about something else when you should be thinking about the power of incentives.”

— Charlie Munger

One of the most difficult things for any organization is setting up the right incentives. Depending on the product or service, certain incentives do better than others. For instance, incentivizing lawyers in a law firm is different than incentivizing workers on the manufacturing floor. And incentivizing for innovation is different than incentivizing for pure production.

In our book, Standing on the Shoulders of Giants, we tell the story of The Textile Titan: Roger Milliken. In the early 2000s, there were nine textile businesses in the United States with revenues over $1 billion, and only one remains. Milliken & Company.

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Roger Milliken would turn his family’s textile mill into one of the best and largest. When Roger stepped down from day-to-day operations at the age of ninety, in 2005, Milliken had sixty textile manufacturing facilities scattered across the world, employed more than twelve thousand workers, produced $3.3 billion in revenues, and ranked thirty-eighth on Fortune’s “100 Best Companies to Work For” list. When you think of a textile manufacturer, an industry historically beholden to cheap labor, being included on a “Best Companies to Work For” list is quite an achievement.

In addition, Milliken & Company is highly innovative, comparable to the fiber and material science trailblazer W. L. Gore & Associates. At Milliken & Company, similarly to W. L. Gore & Associates, employees are encouraged to pursue their curiosity to develop new innovations.

At Milliken researchers are allowed to spend fifteen percent of their time investigating whatever they may choose. Unlike W.L. Gore, where the corporate hierarchy is flat with no bosses, only mentors with the necessity to gather people to work on your project, Milliken devised a system to overcome bosses as obstacles. Associates have many avenues to which they can petition their idea and get a green light if it initially falls on deaf ears.

Once a Milliken researcher proves themselves to be an innovator, they get their name put up on the Milliken Innovators Hall of Fame next to their patent and can spend up to half their time on projects that they choose. W.L. Gore associates are similarly allowed to spend ten percent of their time exploring their curiosities. The lead researcher becomes the “natural leader” of their projects. Both systems promote an intrinsic ownership mentality helping to retain and motivate their employees to work as hard as any entrepreneur would on their own business.

These side projects often turn into innovations that no one knew had marketability. Take for instance Milliken’s development of VISA Performance Fabric Technology. Associates noticed that some dirty woven samples would come out cleaner than others. Upon some experimentation, they found that adding specific polymers to polyester fabrics enhanced their stain repelling properties. Now many professional sport uniforms utilize the technology.

For W. L. Gore, plastic heart implant engineer Dave Myers took his side project of applying a thin polymer layer on mountain bikes, to make shifting smoother, in another direction. His curiosity lead him to use the same process on guitar strings to control animatronic puppets and subsequently developed the Elixer acoustic guitar string that lasts significantly longer than other strings. No innovation in guitar strings had occurred in the fifty years prior to Myer’s discovery. Nor was Myer a guitarist. He just happened to stumble upon the discovery.

Environments set the way individuals behave. Innovation often is stumbled upon by accident. Roger Milliken and Bill Gore understood these facts and created environments that promoted stumbling upon innovation.

How were the results between the two companies in terms of raw patents issued in the United States since 1972? Keep in mind, W. L. Gore & Associates was considered the most innovative company in 2009 by Fast Company. And later in a 2012 article they listed W.L. Gore for being the most innovative company, pound for pound. At the time of writing, the U.S. patent office lists 1,389 patents assigned to W.L. Gore while Milliken & Co. boasts 1,523 patents. In terms of sheer number of patents, and even size, Milliken is slightly smaller than Gore, but has produced more patents.

In the book, Drive: The Surprising Truth About What Motivates Us, author Daniel Pink talks about our three innate intrinsic motivators: Autonomy, Purpose, and Mastery:


Autonomy: The desire to direct our own lives

Purpose: The desire to do things in services of something larger than ourselves

Mastery: The desire to continually improve at something that matters

Every organization should take these three intrinsic motivators into account when they think about incentives and building culture. If you can retain your talent, you will beat most of your competition. As it relates to innovation, companies should replicate “tinkering in your garage” but in a collaborative working environment.

In the book, Give and Take: Why Helping Others Drives Our Success, author Adam Grant talks about how professional environments are filled with people that act as either takers, givers or matchers. Takers are only interested in self-advancement, basing interactions with others on what they can get out of them. Givers like to give more than they get. They care more about helping others rather than taking from others. Matchers create a balance between giving and taking. They believe in reciprocity and fairness. One of Grant’s conclusions is that the best leaders are givers. They are generous with the their time, energy, and ideas.

Taking it a step further. The issue is that many incentive structures depress “givers” and promote “takers”. They produce cut throat cultures. Now I don’t live in some utopia where I believe “cut-throat” doesn’t work. There are hundreds if not thousands of successful examples of kill or be killed cultures. They do work, for at least a period of time, but most don’t excel past the life of the founder or the second generation management. They work in the short run but not in the long run. They worked 100 years ago, but not today where people want to feel a connection to what they are doing beyond money.

It is difficult to incentivize an organization to promote a giving mentality as it relates to innovation and patents. Patents are awarded to one individual or entity. You can’t have multiple inventors because that leads to infringement issues. The accolades go to one person.

So how do you get a bunch of inventors to work together?

Adam Grant was recently interviewed on The Knowledge Project Podcast [Transcript of Podcast is Available to Farnam Street Members], and he gives a wonderful example of how Corning properly incentivizes “givers” as it relates to innovation:

Adam Grant: …The most fascinating one I’ve seen is at Corning, where they made the Gorilla Glass for the iPhone and the iPad. They have this whole Corning Fellows program, where they say, “Look, if you’re a scientist or an engineer, and you’re a great innovator, we want to motivate you to stay by giving you a job for life in a lab for life.”

Then the question is, how do you become a Corning Fellow? One of the first criteria is, are you the first author on a patent that’s worth at least $100 million US dollars? A lot of companies would stop there, right? If you can drive $100 million US in revenue, then we’re going to lock you up for life, throw away that key, right?

But Corning says that we’re worried that competent takers won’t fit in with the culture, and we also recognize that their contributions will dwindle over time, especially when they have lifetime job security.

So we’re going to say there are other criteria, too, which include, are you a supporting author on other people’s patents?

I think this is genius because it often takes about a decade to get a patent in the world of glass.

There aren’t a lot of takers who are willing to have the patience to say, “You know what, Shane? I’m going to pretend to help you for the next nine years in the hopes that you will reward my generosity by making me the 43rd author on your patent.” It’s the people who day in, day out are helping each other, and solving problems for each other, sharing their knowledge, who support each other’s innovation.

The key for Corning is, they say, “Look, you’ve got to do both. You have to show that you can drive your own success, but you have to also show that you can elevate the success of other people.” The question I love to work with leaders on is, what is your equivalent of later patent authorship?

That’s a real indicator of who the day-in, day-out givers are.

Innovation and failure are brothers. If you plan to increase innovation, you need to fail more. James Dyson, founder of Dyson, is used to failure. Read: The Story of Dyson and Fearless Innovation. In the late 1970’s, it would take him five years and 5,127 prototypes until his cyclone technology was commercially viable. Today, Dyson owns 7,500 patents. James Dyson’s goal is to double its innovation and new products by 2020. This means that failure is also likely to double or triple.

Failure is essential. You need to fail so you know what will work the next time. Perhaps the biggest element of incentivizing for innovation is rewarding for failure, as long as it brings learning to the company or organization.

“Large companies embrace the idea of invention but are unwilling to suffer the long string of failed experiments necessary to get there.” – Jeff Bezos

Innovation is paramount in a changing world. The stories of Milliken & Company, W. L. Gore & Associates, and Corning show us how the most innovative companies produce environments and incentive structures that have allowed them to dominate for decades. Learn from these companies, and formulate incentives that encourage collaboration and curiosity.

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