The Paradox of Innovation Incentives

Whether in business or academia, there are usually far more good ideas than there is time and money to explore them. So decisions must be made about who and what will get the limited funds to proceed with a novel idea. In science, these decisions are made via grants and research funding boards. In corporations, these decisions are usually made by executives and middle managers. And for many startups, these decisions are made by venture capitalists and angel investors who network with founders and review business plans and “pitch decks”.

As a result, the culture usually becomes competitive. Researchers compete for limited funds, corporate teams compete for executive approval, and startups compete for venture financing. In some ways, this is like any other market economy. “May the best idea win.” The problem is that scarcity, pressure, and stress inhibit creativity. Many studies have shown that under such conditions our minds tend to focus more narrowly, causing us to perform better at well-practiced tasks but worse at generating new ideas.

By contrast, in order to be maximally creative, we need to be relaxed and feel that resources are abundant — basically the opposite of a competitive situation with limited funds.

This is a major paradox of our innovation economy. The rewards of innovation are huge — businesses and scientific careers succeed or fail on the strength of their ability to innovate. But that very pressure causes these innovators to underperform. The more desperately you want to innovate, the more difficult it is to do so.

For most innovators stuck in an environment of scarcity, a “jedi mind trick” is necessary, similar to the one I wrote about in The Paradox of Customer Focus. Namely: to innovate, stop trying so hard to innovate. Instead, relax, work on hard problems, and assume everything will work out. All while battling off requests for progress reports, 3-year plans, and reminders that your scarce funding and position are up for renewal.

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