History Shows That Incentives Drive Technological Innovation

One of the constant themes I hear marketers share with me is that of innovation. "Imran, we’d like our digital marketing to be more innovative!" My response, with my consulting hat on, is consistently the same. “What does innovation mean to you, your brand, and most importantly your customer?” A moment of silence ensues. Without answering my question, I’m often given another. "How are other companies innovative?"

Innovation starts with people. Thus, for an organization to be innovative we need to look at the people and ask these questions:

  • Does the culture to foster new ideas exist?
  • Is curiosity and the ability to fail at the core of its tenants?
  • How does the organization define risks?
  • Does the organization incentivize innovation?

The concept of incentives is not a modern day phenomenon. It has existed for hundreds, if not thousands of years. What fascinates me about incentives is the power and impact they have made in almost all aspects of our life. They have an ability to touch the core of what makes us tick and inspire us to push further, think differently, and defy the impossible.

In the early 1700s, the British Parliament wanted some help crossing the Atlantic by ship. They were confident in having the resources, vessels, and manpower to achieve this goal, but what they lacked was a simple and practical method for determining the precise longitude of a ship at sea. The use of measuring longitude became an increasing necessity as man ventured to go farther and crossed oceans. In 1765, horologist John Harrison invented the marine chronometer and solved the problem of calculating longitude at sea. This accomplishment is still marveled at today. But beyond opening the oceans to more precise navigation, this competition brought incentives — as a method of driving innovation — into the public eye.

In 1795, Napoléon I offered a 12,000-franc prize for a method of food preservation to help feed his army on its long march into Russia. The winner, Nicolas Appert, a French candy maker, established the basic method of canning, which is still in use today.

Lastly, and perhaps the most well-known, the Orteig prize: a $25,000 prize for the first person to fly solo from Paris to New York (or vice versa). Cumulatively, nine teams spent $400,000 trying to win Raymond Orteig’s purse. That’s sixteen-fold leverage. Orteig didn’t pay a cent to the losers, instead his incentive-based mechanism automatically backed Lindbergh, who was, by most accounts, the least qualified of all the entrants.

So why do incentives fuel innovation? Peter Diamandis, author of Bold, and founder of X Prize shares these four insights into the power of incentives:

  1. Large incentive prizes raise the visibility of a particular challenge, attracting innovators and nontraditional thinkers.
  2. Prizes break bottlenecks. In areas where market failures have hindered investment of entrenched incumbents.
  3. Incentives create the ability to cast a wide net.
  4. Appetite for risk increases, driving further innovation.

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