Entrepreneurs Seek Ways to Draw Out Workers' Ideas

When Andrew Schuman bought Hammond's Candies in 2007, the nearly 90-year-old candy company was operating in the red. Mr. Schuman, who says he knew nothing about the candy business, soon learned that an assembly-line worker, rather than an executive, had dreamed up the design of the company's popular ribbon snowflake candy.

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Monica Munoz

Hammond's Candies' Andrew Schuman, right, and Gerardo Gutierrez, whose idea reduced candy-cane breakage.
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It was an "aha" moment, he says. "I thought, 'wow, we have a lot of smart people back here, and we're not tapping their knowledge.' "

So last year Mr. Schuman decided to offer a $50 bonus to assembly-line workers who came up with successful ideas to cut manufacturing costs.

"They're the ones making and packing the candy, so I thought they probably know how to do things better and more efficiently," says Mr. Schuman, president of the Denver, Colo., company, which has about 90 employees.

The informal idea program, which is open to all Hammond's Candies workers, has handed out more than $500 in employee bonuses since it began last year. One worker suggested a tweak in a machine gear that reduced workers needed on an assembly line to four from five.

Another employee devised a new way to protect candy canes while en route to stores, which resulted in a 4% reduction in breakage. "It's these little tiny things that someone notices that help us in the long run," says Mr. Schuman, who adds that the company was able to earn a profit this year.
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Mike Hall

As more entrepreneurs turn to employees for innovation to gain even the slightest advantage in a still-sluggish economy, many are discovering the usefulness of cash incentives or other rewards to encourage workers to come forward with ideas. Particularly for small businesses with limited resources, it's a relatively cheap way to gather "lots of ideas and get people proactively thinking about what would make the product, service or company better," says David Hsu, entrepreneurship professor at the University of Pennsylvania's Wharton School.

Mike Hall, chief executive of Borrego Solar Systems in San Diego, introduced two quarterly employee contests this year, each with a $500 prize. Beyond the competition, the company's 55 employees are rated on innovation in their annual reviews.

One contest seeks the best business innovation, which Mr. Hall says must be formalized on paper to include the problem the idea solves, as well as its costs, risks and benefits.

The other competition rewards the best "knowledge brief," which requires employees to share valuable information that can benefit the company as a whole. For example, one worker won for creating a glossary of acronyms in the solar industry.

"It accentuates the importance of disseminating knowledge and trying not to hold it in silos," Mr. Hall says. Winners are determined by a companywide secret ballot.

Prof. Hsu says finding unique ways to reward employees for their ideas is a way to foster esprit de corps. "It's why a lot of people work for small businesses in the first place; there's a closer connection in the effort they put forward and the final product," Prof. Hsu says.

Jared Heyman, founder of Infosurv, a market-research firm in Atlanta, says his company has long turned to employees for business ideas. "In every industry, as soon as one company creates an innovation everyone else is then playing catchup," he says.

Five years ago, Mr. Heyman began awarding a $150 restaurant gift card every quarter to the employee with the best business idea. One employee won for developing a technology innovation that helped the company retain a major client that was about to jump ship.

"The [ideas] program has paid for itself a thousand times over," Mr. Heyman says. "In terms of cost savings, revenue enhancement and efficiencies, it's certainly in the six-figure range."

This year, he upped the ante with a second contest, 100 Days of Innovation, in which the company's 15 employees have to come up with a total of 100 innovative ideas by year's end in order to each receive a $100 reward. Employees write their ideas on post-it notes and stick them on the "Innovation Board," created to provide a visual reminder.

"I think a lot of folks are motivated by the fact that if we fall short nobody wins anything," Mr. Heyman says. "It reminds everybody that we work together and we'll succeed or fail together