Carrots or Sticks? The Effect of Incentive Framing on Radical and Incremental Innovation

In this study, we examine the association between incentive framing and two types of innovation: radical vs. incremental innovation. Radical innovation refers to a substantial shift from existing products, services or procedures, while incremental innovation refers to a minor shift from existing products, services or procedures. We predict a positive association between a reward framing and radical innovation, a negative association between a penalty framing and radical innovation, and a positive association between a penalty framing and incremental innovation. Using survey and archival data from 373 companies, we find evidence that an organization’s focus on rewarding success is positively associated with radical innovation while an organization’s focus on penalizing failure is positively associated with incremental innovation. Our results suggest that future research on the link between management control system design and innovation needs to distinguish between different types of innovation.