Employees Treated Well by Their Companies are More Innovative

Harvard Business Publishing logoIn an interesting article in the Harvard Business Review, author Walter Frick cites several studies whose results suggest that where companies treat workers better, there is more innovation. Sound crazy? Not a connection you’d usually make? Actually, the article notes a few studies where researchers directly correlated a company’s score of worker treatment against their patent filings. The results appear to hold up, across different studies in different industries in different countries.

See more on another reason why you want to treat your workers well…

HBR’s article, titled When Treating Workers Well Leads to More Innovation, suggests that some in the innovation game who attempt to drive their product teams with mandatory, but often unrealistic, goals may be taking the wrong approach. It seems that tech companies with all those squishy benefits they offer their employees – massages at your desk, game rooms, basketball courts, etc – may actually be on to something.

Perhaps one of the best examples of a company that takes a different approach is Google, which has a program called “20% time.” This program allows Google employees to use 20% of their time on the clock to work on whatever they want. Think your team will sit and contemplate their navel? Maybe not – the company says that Gmail and Google Earth are just two products that came out of employee-directed 20% time.

The Correlation Between Stock Options…And Innovation

Photo of happy employeesIn particular, HBR mentioned one study¹ out of Australia led by Xin Chang at Nanyang Business School in Singapore, which directly correlated a score for how well a company compensates their non-executive employees with stock options to data on their patent filings. The results, which are currently under review for confirmation, were pretty astonishing. If ultimately confirmed, this study could cause companies to reconsider changing their approach to motivating their technology and product development teams.

And what were those results? Companies in the 75th percentile in terms of stock options per non-executive employee applied for 96% more patents! Not only that, but those firms received 105% more quality-adjusted patent citations than firms in the 25th percentile.

Giving Employees a Positive Reason to Innovate

Researchers suggest that your employees have more reason to innovate when their incentives are tied to the long-term success of the company. And again, this result is reinforced in multiple studies.

Compare this result with the opposite situation. Imagine working for a company that pressures employees for innovation. It’s more common than you may think, as companies struggle to maintain market position versus competitors.

As the HBR article noted, when workers feel pressured to deliver results, either through fear of losing their jobs, or under the threat of having a promotion held up – they will take the safer path to development. Fearing retribution, they will avoid pursuing more radical routes to innovation…or directions that require longer-term study for greater breakthroughs. Yet it is often initiatives like this that represent the most innovative thinking.

Summing up their findings, HBR notes: “Treating workers well is part of building an innovative company, but it isn’t enough. Employees also need to have a long-term stake in the company’s success.”

¹Chen, Chen and Chen, Yangyang and Podolski, Edward J., Employee Treatment and Corporate Innovative Success: Evidence from Patent Data (June 30, 2014). Available at SSRN: http://ssrn.com/abstract=2461021 or http://dx.doi.org/10.2139/ssrn.2461021

About Ted

A sales and marketing specialist - primarily in the technology industry - I've experienced a sort of "circle of life" in business. I've been a mass merchant retailer, a specialty retailer, a specialty manufacturer, a large volume manufacturer, a distributor, and even represented sales representatives. Now the owner of a marketing company that works with a variety of businesses on improving their strategic marketing and business development - I analyze issues from all angles to develop holistic solutions.

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