Research Highlights - March 2020

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How can you use the findings from the latest research studies to improve your performance and the performance of your organization?  We’ll provide the highlights and key ideas you won’t get anywhere else.

Economists and business leaders agree that innovation is the major force behind economic growth, but they disagree about the best way to encourage workers to produce “outside-of-the-box” ideas that create newer and better products and services.  New research from the University of California San Diego indicates that competitive “winner-takes-all” pay structures are most effective in getting the creative juices flowing.

The study involved creating a contest for one of the globe’s largest biotech companies.  Participants in the competition, which was open to all non-management employees of tech companies in the region, were asked to design digital solutions to help share medical equipment across small healthcare clinics in the region.

The competition was intended to test which of two common compensation models produced more novel ideas.  Those who signed up were randomly selected to compete in either the “winner-takes-all” category, in which there was one prize of $15,000 awarded to first place, or the “top 10” category, in which the same amount of prize money was spread out among the top 10 entries.

According to the authors of the resulting National Bureau of Economic Research working paper, participants under the winner-takes-all compensation submitted proposals that were significantly more novel than their counterparts in the other competition.  While the two groups did not statistically differ from one another on their overall scores, the risk-taking encouraged by the competition with a single prize resulted in innovators pursuing more creative solutions.

These findings are significant because the 21st-century economy is one that prizes novelty.  Firms view it as an important source of competitive advantage.  It is also an essential ingredient in the development of technological breakthroughs that transform markets with major impacts on consumers and producers.

This study demonstrates that with identical groups of innovators, companies can increase the innovative...

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