How to in­cen­tivise cre­ativ­ity

Should peo­ple in cre­ative jobs be sub­ject to com­pet­i­tive mar­kets forces? Pop­u­lar be­lief says no. But re­search sug­gests that com­pe­ti­tion, in fact, in­creases cre­ative out­put - up to a point.

Finweek English Edition - - Con­tents - By Jo­han Fourie Jo­han Fourie

How to in­cen­tivise cre­ativ­ity

your com­pany wants a new logo. Do you: 1) ask the top brand man­age­ment firm for a few sug­ges­tions, 2) get two or three com­pa­nies to com­pete in a tour­na­ment set­ting, 3) launch a na­tional com­pe­ti­tion to get as wide a se­lec­tion of en­trants as pos­si­ble? The op­tion you choose de­pends on your be­lief about the cre­ative process. Ask any man­age­ment guru about the fac­tors that drive cre­ativ­ity and they’ll say some­thing like: Cre­ativ­ity is an ex­traor­di­nar­ily com­plex phe­nom­e­non al­most en­tirely stim­u­lated by in­trin­sic mo­ti­va­tion in­stead of ex­trin­sic pres­sure.

They might even ar­gue that high-pow­ered in­cen­tives may sti­fle cre­ativ­ity by crowd­ing out in­trin­sic mo­ti­va­tion. Creatives, they would say, should be left alone, free from com­pe­ti­tion, mo­ti­vated by their own artis­tic com­mit­ments. Re­gard­less of the num­ber of con­tes­tants, the win­ner will al­ways be the one with the most in­trin­sic mo­ti­va­tion. You might as well go for the best firm (within your bud­get) from the start.

This is clas­sic so­cial psy­chol­ogy the­ory, which has gained wide trac­tion in busi­ness schools and publi­ca­tions like the Har­vard Busi­ness Re­view. It is also not true. Economists know that com­pe­ti­tion is the bedrock of a mar­ket econ­omy, in­cen­tivis­ing those who utilise their re­sources most ef­fi­ciently. Those who can­not keep up with com­peti­tors are re­placed by them. Yet the be­lief is wide­spread that cre­ative en­ter­prises – writ­ing lit­er­a­ture, per­form­ing an opera, de­sign­ing a logo – shouldn’t be sub­ject to com­pet­i­tive mar­ket forces.

Cre­ative peo­ple, it is ar­gued, can­not be mo­ti­vated by big re­wards or in­cen­tives – if any­thing, it may pre­vent the cre­ative juices from flow­ing. Com­pe­ti­tions aimed at stim­u­lat­ing cre­ativ­ity in the workspace, for ex­am­ple, might ac­tu­ally crowd out the most cre­ative peo­ple by those only in­ter­ested in the fi­nan­cial re­wards.

The be­lief per­sists be­cause it has been al­most im­pos­si­ble to test. For one, how does one mea­sure cre­ativ­ity? We can of­ten mea­sure the in­puts to the cre­ative process (R&D spend­ing) or its out­puts (patents, for ex­am­ple), but we know very lit­tle about what hap­pens in-be­tween.

In a new Na­tional Bureau of Eco­nomic Re­search (NBER) work­ing pa­per, Daniel Gross of Har­vard Busi­ness School of­fers one pos­si­bil­ity. He makes use of on­line logo de­sign com­pe­ti­tions to test whether com­pe­ti­tion leads to more orig­i­nal de­signs. Firms so­licit cus­tom de­signs from free­lance de­sign­ers who com­pete for a win­ner-take-all prize. The prizes are typ­i­cally a few hun­dred dol­lars and at­tract on av­er­age 35 play­ers and 100 de­signs. Firms pro­vide real-time feed­back to de­sign­ers in the form of a one to five-star rat­ing. De­sign­ers can also see the de­signs of, and feed­back on, other con­tes­tants.

Gross uses image com­par­i­son al­go­rithms to cal­cu­late sim­i­lar­ity scores be­tween pairs of im­ages in a con­test. He quan­ti­fies the orig­i­nal­ity of each de­sign rel­a­tive to prior sub­mis­sions by the same player and com­peti­tors.

The firms’ rat­ings of the logo de­signs are crit­i­cal to the suc­cess of the com­pe­ti­tion. Gross di­rectly es­ti­mates a de­signer’s prob­a­bil­ity of win­ning, and show that the rat­ings are mean­ing­ful. A high­est-rated de­sign may not win, but a five-star de­sign “in­creases a player’s win prob­a­bil­ity as much as 10 four-star de­signs, 100 three-star de­signs, and nearly 2 000 one-star de­signs”.

Be­cause each de­signer can sub­mit their logo mul­ti­ple times, Gross can test the ef­fect of more or less com­pe­ti­tion on the orig­i­nal­ity of lo­gos. He finds that com­pe­ti­tion has ma­jor ef­fects on the con­tent of de­sign­ers’ sub­mis­sions. “Ab­sent com­pe­ti­tion, pos­i­tive feed­back causes play­ers (de­sign­ers) to cut back sharply on orig­i­nal­ity: play­ers with the top rat­ing pro­duce de­signs more than twice as sim­i­lar to their pre­vi­ous en­tries than those with only low rat­ings. The ef­fect is strong­est when a player re­ceives her first five-star rat­ing – her next de­sign will be a near replica of the highly-rated de­sign. […] How­ever, th­ese ef­fects are re­versed by half or more when high-qual­ity com­pe­ti­tion is present: com­pet­i­tive pres­sure coun­ter­acts this pos­i­tive feed­back, in­duc­ing play­ers to pro­duce more orig­i­nal de­signs.”

There­fore, when two de­sign­ers com­pete, and both re­ceive five stars, they are far more likely to come up with a more cre­ative and orig­i­nal de­sign in the sec­ond round than if they were the only one to re­ceive a five-star rat­ing. Com­pe­ti­tion in­duces cre­ativ­ity.

But – too much com­pe­ti­tion can be bad. Gross finds that heavy com­pe­ti­tion dis­cour­ages fur­ther in­vest­ment. “Em­pir­i­cally, high per­form­ers’ ten­dency to pro­duce orig­i­nal work is great­est when fac­ing roughly 50-50 odds of win­ning – in other words, when neckand-neck against one sim­i­lar-qual­ity com­peti­tor.” Too many five-star rat­ings will limit cre­ativ­ity, be­cause many de­sign­ers will sim­ply exit the com­pe­ti­tion. There is thus a del­i­cate ‘Goldilocks’-level of com­pe­ti­tion: too lit­tle com­pe­ti­tion equals no cre­ativ­ity; too much, and cre­ativ­ity is sti­fled by de­sign­ers (of­ten the good ones) ex­it­ing the game.

The key les­son, says Gross, is that com­pe­ti­tion can mo­ti­vate cre­ativ­ity in pro­fes­sional set­tings, pro­vided it is bal­anced. “In de­sign­ing con­tracts for cre­ative work­ers, man­agers ought to thus con­sider in­cen­tives for high-qual­ity work rel­a­tive to that of peers or col­leagues, in ad­di­tion to the more tra­di­tional strat­egy of es­tab­lish­ing a work en­vi­ron­ment with in­trin­sic mo­ti­va­tors such as free­dom, flex­i­bil­ity, and chal­lenge.”

The ap­pli­ca­tions are per­va­sive: Need an en­gage­ment ring to stand out from the crowd? Need a dra­matic mu­sic score for your ad­vert? Need a new plan for those un­fin­ished bridges in Cape Town? Need a new logo? If we be­lieve Gross, then op­tion 2 – us­ing two or three com­pa­nies to com­pete in a tour­na­ment set­ting – seems like the best bet if you want the most cre­ative so­lu­tion. ■ ed­i­to­rial@fin­

is as­so­ci­ate pro­fes­sor in eco­nom­ics at Stel­len­bosch Uni­ver­sity.

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