Employee treatment, innovation and the bottom line
As many as 72 percent of high school students say they want to start a business someday. Nearly 40 percent aspire to invent something that changes the world. And in response to demand from both students and industry, colleges are increasing entrepreneurial opportunities on campuses across the United States.
With this explosion of entrepreneurial pursuits, companies are responding with a variety of in-house opportunities designed to promote employee innovation. Adobe’s Kickstart program offers employees a two-day innovation workshop and $1,000 to experiment. Whirlpool’s ideation sessions are open to any employee who wants to contribute. AT&T’s Foundry has employees pitching ideas to executives for funding akin to venture capital.
So what is the bottom line for these efforts and how can a company harness innovation while maintaining day-to-day operations for its core products and services? According to research from Dr. Jamie Weathers, assistant professor of finance, this is an area where companies can improve their efforts by treating employees well.
“Innovation is a long-term process that relies on nuanced strategies,” says Weathers, whose research placed second at a Temple University Ph.D. Program Research Competition.
“Our research highlights employee treatment as one area where management can have a direct impact on the innovation process,” says Weathers. “While treating employees well is typically a subjective ideal, whether an organization’s leadership style is autocratic, democratic, facilitative or laissez-faire also has an impact on an intended culture of innovation.”
In her research, Weathers examines employee treatment as a new channel by which innovation affects firm value. Weathers’ research looks at employee treatment within organizations and measures innovative activity using patents related to a firm’s core business, citations and innovative focus, which previous research indicates does correlate to increased firm value.
Weathers’ research supports three practical premises:
- Failure tolerance represents job security, layoff policy and longer employee tenure. Innovative projects often involve many failures before success. Job security promotes a failure tolerant working environment, which in turn provides motivation for employees to innovate (i.e. partake in tasks with a high probability of failure) and for management to shift its strategy toward development of firm-specific resources that support innovation.
- Protection from exploitation represents a positive culture of managerial ethics and integrity. A culture of “keeping your word” helps alleviate the moral hazard at workplaces where top managers may be tempted to renege on their commitment to reward firm-specific investments made by employees.
“Eliminating fear of being exploited or having their ideas expropriated will encourage employees to invest more in firm-specific human capital to develop innovative projects,” says Weathers.
- Work environment reflects an atmosphere that focuses on teamwork and engages employees in decision making. Because innovation often involves collaboration, a corporate culture of good teamwork and respect will foster productivity.
“Organizations that find a way to recognize and reward efforts can benefit from increased employee innovation—even when the rewards are non-economic,” adds Weathers. “This process can lead to a corporate culture of citizenship.”