Monday, 6 August 2012

Creativity, Innovation and reward systems

Interesting management story.

In 1945 the Raytheon Company faced a tremendous demand for magnetron tubes to power the new radar system used to detect enemy aircraft. One day when a Raytheon engineer named Percy L. Spencer stepped too close to a magnetron tube, he noticed that the chocolate bar in his pocket had melted.
Other engineers had noticed the same thing, but didn’t give it much thought. Spencer, on the other hand, despite having only a grammar-school education, was intensely curious. He tried placing popcorn kernels in front of the tube—and a few minutes later, for the first time since cave-dwellers tamed fire, human beings cooked food in a new way.

A year earlier, anyone might have laughed at the idea of Raytheon selling ovens driven by magnetrons to restaurants and, eventually, households. “Absurd!” “Ridiculous!” “We’re in the defense business!” The Raytheon organization took a chance and listened to Percy Spencer. He wasn’t just a resident weirdo providing comic relief—on the contrary, Spencer’s input was constantly solicited, and he eventually served as a senior member of Raytheon’s board. In this case, his idea was rewarded with a shift in production, and within two years the company took the first Radarange® to the market.

History books rightly credit Percy Spencer with the invention of the microwave oven, but in fact his story also includes dozens of unsung heroes, starting with members of Raytheon’s management. They’d hired and promoted Spencer despite his lack of education. They didn’t chastise him for playing with his food in the middle of a serious engineering laboratory. They listened to him and built the Radarange—and then they searched within that market for new discontinuities.
Raytheon tried licensing the technology to other companies, such as Tappan Stove. (Its $3,000 refrigerator-sized microwave ovens were sold to customers with gigantic commercial kitchens, such as on ocean liners, that had to heat a lot of food quickly.) Raytheon then purchased its own domestic-appliance distributor, Amana Refrigeration, in 1965. In addition, Raytheon continually encouraged engineers to tinker with the magnetrons. Finally they figured out that an expensive, military-grade magnetron unit was somewhat over-engineered for the task of thawing frozen steaks and popping popcorn. They developed a smaller, cheaper, simpler, safer and more reliable oven for household use. Amana’s first countertop microwave oven, sold for $495 in 1967, represented a serious discontinuity in household kitchen behavior. In taking risks, Raytheon and Amana were uniquely prepared to take advantage of the huge societal discontinuities of the 1960s: urbanization, women entering the workforce and families devoting less time to meal preparation. Again, it seems obvious in retrospect: cheap and ubiquitous ovens, microwaveable food categories representing $75 billion in annual sales based on the premise of quickly thawing and cooking food. But at the time, the discontinuous mindset at Raytheon and Amana gave them long-term dominance in the home microwave oven business. There are plenty of other examples of unconventional thinkers thriving within traditional companies: Art Fry and Spencer Silver invented the Post-it note while working at 3M, and teams at Apple, and General Foods invented the iPhone, Kindle and Tang, respectively. On the other side of the coin, there are also plenty of examples of people like A.P. Giannini—mavericks and free spirits who made their fortunes as entrepreneurs because they were not rewarded in traditional organizations. To encourage a discontinuous mindset, companies must have the proper reward structure to make the maverick’s suggestion of new ideas worthwhile.

Even today, many companies claim to encourage creativity and innovation, but their measurement and reward systems rarely support it. Creativity is messy. It leads to mistakes. (In Raytheon’s case, it took nearly 20 years of mistakes and “not-quite-enoughs” before the microwave’s big payout.) However, measuring results, rather than effort—and rewarding certainty, rather than potential—forces out the unconventional thinkers. It promotes those with modest aspirations, those who are slow and plodding. Reward mediocrity and you never exceed the mediocre.

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Blog Editor and Owner: Luis Aparicio Fernandes (or Mikey) is a Business Expert and a Traveler based in Sydney, Australia. He is a member of The International Honor Society Beta Gamma Sigma due to his achievements in business. You can follow Luis on Google+, and LinkedIn.