Rewarding Value-Creating Ideas in Organizations: The Power of Low-Powered Incentives

Forthcoming, The Strategic Management Journal

38 Pages Posted: 25 Apr 2011 Last revised: 2 Jul 2014

See all articles by Oliver Baumann

Oliver Baumann

University of Southern Denmark - Strategic Organization Design Unit (SOD)

Nils Stieglitz

Frankfurt School of Finance & Management; University of Southern Denmark - Strategic Organization Design Unit (SOD) - Department of Marketing & Management

Date Written: January 9, 2013

Abstract

Ideas from employees are a major source of value creation in firms, yet the merits of rewards for incentivizing the generation of ideas are highly contested. Using a computational model, we show that firms can improve performance by offering low-powered rewards for the selection and implementation of employee ideas. Low-powered incentives provide a sufficient stream of good ideas, but few exceptional ones. Higher-powered incentives, in contrast, do not systematically translate into exceptional ideas either, but generate an excessive number of good ideas. Performance-based rewards thus appear to be a blunt tool to harness the long tail of innovation. We develop propositions to guide empirical research and discuss their implications for strategy and organizational design.

Keywords: Organizational search, reward systems, value creation, employee innovation, strategy process

JEL Classification: C63, D83, M20, M52, 031

Suggested Citation

Baumann, Oliver and Stieglitz, Nils, Rewarding Value-Creating Ideas in Organizations: The Power of Low-Powered Incentives (January 9, 2013). Forthcoming, The Strategic Management Journal, Available at SSRN: https://ssrn.com/abstract=1776886 or http://dx.doi.org/10.2139/ssrn.1776886

Oliver Baumann (Contact Author)

University of Southern Denmark - Strategic Organization Design Unit (SOD) ( email )

Campusvej 55
Odense, DK-5230 M
Denmark
+45-6550-4433 (Phone)

HOME PAGE: http://www.sdu.dk/staff/oliv.aspx

Nils Stieglitz

Frankfurt School of Finance & Management ( email )

Sonnemannstra├če 9-11
Frankfurt am Main, 60314
Germany

University of Southern Denmark - Strategic Organization Design Unit (SOD) - Department of Marketing & Management ( email )

Campusvej 55
DK-5230 Odense M
Denmark

HOME PAGE: http://www.sdu.dk/sod

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