Innovation in Employee Based R&D: EF in Me-conomics Theory

Open innovation is part of the justification for Me-conomics theory that creates higher levels of innovation and efficiency within intellectual capital companies. The use of open innovation relies on the concept of communication technology that capitalizes on new ideas and prior research, an open innovation management structure, and synergy of effort that develops strong corporate culture. The following article will discuss the concept of Employee Freedom (EF) as a function of maximizing research and development functions within organizations without allocating large research and development budgets.

Me-conomics Theory in Brief: OS=(ES+ER+EF)/3

Organizational Success = (Employee Satisfaction + Employee Rewards & Compensation + Employee Freedom)/3. The use of the numbers 1-100 are used to rank each of the aspects of the theory (ES, ER, EF) and this number is divided by 3 to create an average ranking for an organization. Employee Freedom (EF) is the ability of employees to bring up new ideas and have time and resources allocated to those new ideas for further innovative development of the organization.

Creating the Concept of Employee Freedom:

In order to create Employee Freedom (EF) there are two major components which include communication and open project time. Silo or functional structure knowledge lives within a compartment and must be opened to access and adjustment from other internal and external sources of information. The use of knowledge based technologies and teams will help organizations share knowledge and ideas to connect and further develop ideas.

The Use of Communicative and Knowledge Based Technology:

“Firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology” (Chesbrough, 2003). It is through these open forum communication networks that strong knowledge underpinnings to innovation are created. Likewise, “open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively” (Chesbrough 2003). Ultimately, all knowledge is sold on the market in terms of products/services, investment opportunities, and taxable improvements.

The technology available to create open discussion and knowledge sharing throughout an organization are readily available. In today’s world such networks often take the form of internal Facebook like or Google type search engine functions that allow for easy information recall and forum level collaboration. In order to develop innovation it is this technology that allows for a medium that furthers the innovative process (Cohen & Levinthal, 1990).

Open Project Organizational Structure:

Having the technology to foster innovation is one step in the process while allowing research and development time is another. “A framework is less rigorous than a model as it is sometimes agnostic about the particular form of theoretical relationships which may exist” (Teece, 2006, p. 1138). Such models are looser and allow for more freedom than traditional models. For example, an 80/20 model would require employees to spend 80% of their time completing company sponsored tasks and 20% of their time in individual or group related research tasks. Other models may include 85/20, 75/25 or any other appropriate portion ratio depending on the industry and nature of the work.

Synergy and Compounded Effort:

Synergy is a concept that relates to the output of the whole organization adding up to more than the sum of the parts. In most organizations the traditional wisdom allocates a research and development (R&D) budget and a small percentage of the workforce is engaged in this activity. However, in the Me-conomics model each employee has a percentage of their time allocated to research which provide the following benefits: 1). Compounded use of research time; 2.) Smaller R&D budgets; 3.) Solving of practical day-to-day problems associated with operations (i.e. innovation); 4.) Development of collaborative employee problem-solving (i.e. Employee Satisfaction and Culture); and 5.) Development of pay for performance and survival of the organization (i.e. bonus or compensation based in part on performance).

Essential Principles of Employee Freedom (EF):

1. Communicative and Knowledge Based Technology: In today’s market it is necessary to have innovative technology that allows for the capitalization of previous research and strong networks of communication to allow for connections between that work.

2. Open Project Organizational Structure: Managing an open project time where employees are free to work on projects of special interest have worked well at Google and will work well in other organizations as well. Ten to twenty percent of work week time may be open to special projects of individual or group work that relates to developing new concepts.

3.) Synergy and Compounded Effort: The use of the entire organization to solve practical operational problems and development of new products can create compounded benefits that single allocated R&D budgets cannot. The Me-conomics approach can further develop tertiary benefits such as loyalty, satisfaction, and a collaborative culture.

Dr. Murad Abel

Chesbrough, H. (2003). Open innovation: The new imperative for creating and profiting from technology. Boston: Harvard Business School Press.

Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128–152.

Sakkab, N. Y. (2002). Connect & develop complements: Research & develop at P&G. Research Technology Management, 45, 38–45.

Teece, D. J. (2006). Reflections on “Profiting from innovation.” Research Policy, 35, 1131–1146.