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Tolerance for Failure and Incentives for Collaborative Innovation
Author(s) -
HutchisonKrupat Jeremy,
Chao Raul O.
Publication year - 2014
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.12092
Subject(s) - incentive , business , point (geometry) , element (criminal law) , key (lock) , knowledge management , marketing , industrial organization , microeconomics , economics , computer science , geometry , mathematics , computer security , political science , law
Most organizations employ collaborative teams to manage innovation projects. Although the use of collaborative innovation teams is a good starting point, an organization's ability to innovate can be enhanced by managing risk‐taking behavior through monetary incentive schemes and through an organizational culture that tolerates failure. This article reports the results of two controlled experiments aimed at understanding how tolerance for failure and incentives impact the decisions of individuals engaged in a collaborative innovation initiative. A key element of our experiments is the notion of endogenous project risk, which we define as the explicit link between resources allocated to a project and the likelihood of project success. We observe that when penalties are low, the amount of risk an individual assumes is fairly insensitive to the rewards that are offered. In an analogous result, when individuals make decisions alone (rather than collaboratively), higher tolerance for failure does little to increase the amount of risk an individual is willing to take. Taken together, these results highlight the importance of implicit incentives that are created as a result of project and organizational characteristics.