A Model for Managing the Intangibility of Organizational Creativity

By Ralph Kerle © December 21, 2011 Executive Chairman, the Creative Leadership Forum

Executive Summary

This paper explores the organizational dilemma of intangibility in innovation and the consequences of ignoring it; proposes a case for a systems thinking approach to organizational creativity; reviews the emergence of organizational economics as a new field of research for analysing intangibility in organizations and offers a model for benchmarking and measuring organizational creativity, a prime resource for success for an organization or business in 21st Century.

The Organizational Dilemmas of Intangibility and Creativity

In“How To Measure Anything - Finding the Value of Intangibles in Business”, author Douglas W, Hubbard, a former management consultant with Coopers and Lybrand describes the tension he felt as a member of the organization’s steering committee at which they were charged with accepting or rejecting new business investment proposals. The proposed investments ranged from IT to new product research and development, from major real estate development to advertising campaigns. What concerned Hubbard was the regular rejection of “soft” proposals. Proposals that contained language such as “reduced strategic risk” or “premium brand positioning” simply because they “were considered immeasurable”.

As Hubbard states “It wasn’t as if the idea was being rejected because the person proposing it hadn’t measured the benefit (a valid objection to a proposal): rather it was believed that the benefit couldn’t be measured – ever. Consequently some of the most important strategic proposals were being over looked in favour of minor cost-saving ideas simply because everyone knew how to measure some things and didn’t know how to measure others. Equally disturbing, many major investments were approved with no basis for measuring whether they worked at all.[1]”

In this statement, Hubbard is highlighting the fact that most companies see organizational creativity as being tactical. We have a problem, let’s call a meeting and come up with as many ideas as possible to solve it.  Yet if organizations base their strategic innovation on ideation then the records show they do so at their own peril. Generating lots of ideas without first understanding the organization’s economic resources, constraints and behaviours can result in a substantial waste of time with no apparent outcome, confirming the often negative experience of organizational creativity. “Just another idea workshop”; “nothing came out of the last one”; “they never follow  through”; “a complete waste of time” appear regularly in the anecdotal responses to research collected from Management Innovation Index[2] surveys on innovation effectiveness.

The Chief Information Officer of one of Australia’s leading telecommunications companies recalls the expensive construction and application of an on-line suggestion box that was initially overloaded with ideas. The organization’s management had not anticipated this response and had no real management processes or mechanisms in place to respond to the deluge. Time poor as most senior managers are meant decisions were deferred on how to deal with the ideas and in many instances no response was offered at all. Quickly the ideas stopped coming and the expensive on-line system now sits idly and unused on managers’ browsers.

Worse, still, is the selection of the wrong idea to invest in, sending an organization or product on the path to oblivion with the resulting financial catastrophe.

Google’s failed Google Wave project is one example.

The Rasmussen brothers, developers of the highly successful Google Maps app, convinced Google management they could repeat their successful efforts – this time in communications.  Their initial idea was vague and tactical in construct – a new communications model that embraced all previous forms of digital communications – and overhyped from the very first press release announcing the project.[3] Here was an opportunity in Google’s mind to catch-up and dominate in the social media communications market, not properly serviced by Twitter and Facebook and cluttered with a myriad of hopeful start-ups, using the power of their existing platform.

With an initial investment of $20million, Google Wave was hardly rudimentary prototyping. The company commenced by engaging 60 software engineers and general staff, housing them in an expensive new set of offices. Google Wave was launched officially in May 2009 and was dead by August 2010 because it was based on a badly articulated idea, imbued with nothing more than unbridled optimisim - this team had been successful in the past, naturally it would be successful again!

You only have to search the web to read the comments from users to discover how badly Google Wave failed[4].

Most revealing is the press conference[5] Google CEO Dr Eric Schmidt gave concerning, in part, Google’s new product development process. When questioned about how it worked, he gave a far from convincing display appearing uncomfortable and tense at times in describing a rudimentary prototyping process steeped in tactical thinking lacking any strategic foresight.  “When launching a new product, we wait to see how well it is initially adopted, followed by the tracking of the correlation between the number of initial launch adopters and the number of new user uptakes on the second iteration of the product to determine whether the product is going to work or not,” he summed up.

Harvard Assistant Professor Karim R. Lakhani in his article “Google Wave Decision Shows Strong Innovation Management”[6] argues that as companies get bigger their latitude for employees to be creative meaningfully is often unfortunately drowned by more rigid management structures, philosophies and protocols. These more rigid management structures and philosophies act as impediments to creativity rather than the facilitation of it, clouding and confusing important aspects of data gathering, sense making and ultimately decision making.

Lakhani captures the unsurfaced apprehension leaders of 21st Century organizations now face and will start to face more frequently. Their deep concern in the new era of information and knowledge overload is how to facilitate meaningful creative thinking around the intangibility of services and organizational processes whilst seeking to co-ordinate and mitigate their risks successfully across a multitude of organizational systems, strategic alliances and stakeholders to produce successful innovation.

Co-incidentally, Google Australia reported a loss of $3.08 million in its accounts for the 2010 calendar year.

The Case for a Systems Thinking Approach to Organizational Creativity

Identifying organizational creativity, though, as a concept is highly problematic.

Metaphorically, an organization is a humanist environment driven by a series of cumulative behaviours. Subsconscious in their formation, the cumulative behaviours, like the brain and creativity itself, are constrained by a system that supports and directs it for the benefit of the organization’s existence.

These cumulative behaviours need to be identified and defined in order to enable meaningful measurements to model the system of creativity operating in an organization. In addition, if the measurements are to have any value, they need to be economically and behaviourially cogent in context and reflective of the organization as a whole. The ultimate test being whether through measuring organizational creativity, the organization will obtain a better knowledge of how it can become a more efficient, productive and successful innovator, the driving force behind all successful organizations.

It may seem odd the first clues in finding solutions to these quandaries do not come from an humanities discipline where you might expect a discussion on creativity to reside but from the total quality movement (TQM) and, in particular, work pioneered by the American author, statistician and management consultant, Dr W. Edward Deming during the post World War 2 industrial expansion of Japan.

Largely unrecognised in his native US until much later in life, Deming died in 1993 the same year his most celebrated book, The New Economics for Industry, Government, Education, was published  - a life time’s work condensed into a management philosophy grounded in systems theory.

The underlying principle of Deming’s theory, which he called a System of Profound Knowledge[7], is that a system cannot understand itself and “any transformation (in it) requires an outside view – a lens – that I (he) call a system of profound knowledge. A map of theory by which to understand the organizations we work in.”

Each organization, according to Deming, is composed of a connection of interrelated processes and people which make up the system’s components. The success of all managers and workers within the system is dependent on the leaders’ capability to orchestrate the delicate balance of each component for optimization of the entire system.

An essential element of Deming’s theory was what he called The Appreciation of a System[8]. This “involved understanding how interactions (i.e., feedback) between the elements of a system result in internal restrictions that force the system to behave as a single organism that automatically seeks a steady state”[9]. It is this steady state that determines the output of the system rather than the individual elements. Thus it is the structure of the organization rather than the employees, alone, which hold the key to improving the quality of output[10].

However, if the system’s basic components are creative behaviours, notoriously chaotic, risky, uncertain, uncontrollable, intractable and intangible, how can we observe and describe how these human frailities  combine to influence and cohere to produce a steady state of organization with a quality output?

Whilst Deming was starting out on his journey of systemetising industrial production in Japan post World War 2, American sociologist C Wright Mills was expressing his concern about the potential of the corporation to dehumanise work.

In his book White Collar: The American Middle Class (1951) he contended that bureaucracies were now developing in a way that “overwhelmed the individual city worker, robbing him or her of all independent thought and turning him into a sort of a robot that is oppressed but cheerful. He or she gets a salary, but becomes alienated from the world because of his or her inability to affect or change it.”

For Wright Mills, who was constantly trying to reconcile the individual and society, the ideal corporate environment was one in which “the labourer with a sense of craft becomes engaged in the work in and for itself; the satisfactions of working are their own reward, the details of daily labor are connected in the worker’s mind to the end product; the worker can control his or her own actions at work; skills develop within the work process; work is connected with the freedom to experiment; finally family, community, and politics are measured by the standard of inner satisfaction, coherence and experiment in craft labour…”

This was a radical view at the time but could be the basic advertising copy for an employee job description for those wishing to join to-day’s information, knowledge and technological industries.

60 years hence, Wright Mills description of the idealised environment in which an individual’s creative endeavours can be recognized, expressed and encouraged is emerging as a vital consideration in the development and success of 21st Century organizations.

Important to Wright Mill’s thinking is the notion of experimentation in the work context and its importance to the worker’s identity.

Creativity is only ever understood through imagination (the what if) and experimentation (how), states that in turn are driven by a loop of practice, implementation and perception and the conversations that occur around the perceptions of the genesis of the practice.

Through this process, the sense of craft associated with an individual’s work endeavours develops along with his/her understanding of their practice and abilities.

The lasting legacy of Wright Mill’s work is that it describes the humanity and value individuals are seeking to bring to their work in organizations in the 21st Century with the resulting personal freedom that gives them, and the organizations or networks, within in which they work.  The lasting legacy of Deming’s philosophy is that it has been able to build an important connection between the mechanistic and logico-rationalism of the world of systems thinking and the human aspect of management.

But wait‼  A prominent voice from the ghosts of the Industrial Age is questioning our hypothesis.  Lord Kelso, British physicist and member of the House of Lords, 1824 – 1827 booms out almost sarcastically from the floor of the chamber.  “When you can measure what you are speaking about and express it in numbers you know something about it. But when you cannot express it in numbers, your knowledge is a meager and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in your thoughts advanced to the state of science, my friends.”[11] 

The Emerging Influence of Organizational Economics in Business

In the 1970s and 1980’s,  a new breed of economists began to realise the neo classic view of economic theory based on the rules of a market economy was ignoring an essential component -  the “black box”of production ie the firm in which the capital and labour came together to produce the outputs for the market. With the rediscover of Nobel Prize winning economist Robert Coase’s article “The Nature of the Firm” (Coasce, 1937), economists began to devise new analytical tools around concepts such as agency theory, transaction cost economics and game theory to develop “a collection of ideas and models, with the potential to be integrated, to guide managerial activity, and to inform organization theory and behaviours.”

These new analytical tools initially focused on issues such as information asymmetrics (the study of decisions in transactions where one party has more or better information than the other), opportunism and behaviorial constraints as opposed to the tools of traditional organizational studies, with their sociological biases, focusing on behaviorial norms such as power and trust.

This new approach with its reliance on econometrics and theory building as opposed to the familiar mode of generalizing from empirical evidence and systemic data analysis was warmly welcomed by managerial theorists, who were not unfamilar with economics and the use of formal mathematical modelling to explain economic theory, and were suffering criticism about their one-dimensional focus on theory and the use of case studies to support the theory.

What began to emerge at the turn of 21st Century were organizational economists aided by the numbers contained in these new analytics, joining with their managerial theorists and organizational studies colleagues with their empirical studies to inform business directly in more meaningful ways.  

Suddenly business leaders found themselves able to engage with economists, examining the tasks of motivating and coordinating human activity, exploring the nature and effect of efficiencies, the processes of creating, sharing and exploiting knowledge; designing incentives, contructing intellectual property rights and ways of disseminating and processing information that structured productive processes and activities – all matters with the potential of adding substantially to an organization’s bottom line, in this new era of valuing and commercialising the intangibles of knowledge and information.

Given this context, could it be possible, then, to use this new thinking in organizational economics and apply it to benchmark and measure the cumulative management innovation behaviours that drive an organization and, in the process, locate Deming’s steady state of equilibrium from which a leader can begin to meaningfully reflect on and manage the intangibility of organizational creativity to drive sustainability, growth and success?

A METHODOLOGY FOR BENCHMARKING AND MEASURING THE INTANGIBILITY OF ORGANIZATIONAL CREATIVITY

In a very practical way, the impact of creativity in an organization affects its success. Yet, creativity in any organizational system is fuzzy - intangible. Rather like a theatrical production, organizational creativity is the sum of all the inputs involved in the organization’s system with the outputs being the organization in performance.

A method for modelling organizational creativity, the Management Innovation Index ™ (the MIX) has been developed to enable organizations to map, benchmark and measure their management innovation performance in the process giving a tangibility to the organization’s creative fuzziness. 

Management innovation is made up of two elements – the creative inputs produced by the employees and the organizational sociology which supports or impedes the flow of their creative inputs.

Creative inputs in an organization evolve from a moment in time when a single thought manifested, picked up by a person who did not initiate the thought, coalesces into a concrete idea. Once this occurs, the idea has a life of its own and begins a never-ending journey that is dependent for its survival and acceptance on its flow within the system.

To ensure the idea is given a good chance to germinate regardless of its intrinsic merit, managers seek clarity around four elements of ideation.

• Purpose – I know why I am working on this idea and it has a chance of being developed within the system.
• Motivation – I am committed, passionate, ready to take a risk, go the extra mile to make new things happen. There is a flow in my work environment that means I am not impeded and I am supported, recognized and rewarded for my ideas.
• Orientation – I am empowered to develop my own ideas.  I know who to work with to advance them. I recognise where the constraints are around my ability to advance them. I am OK with that and know how to resolve it.
• Implementation – my ideas will get implemented in some form or another.

A survey containing a series of questions administered across all levels of the organization enables sufficient raw data to be collected to grade managers’perceptions of these elements and using Deming’s concept, to obtain an appreciation of the system and its feedback mechanisms.

The second element – the organizational sociology – seeks to discover the managers’ cumulative perception of how the environment in which they operate influences the way they think and apply their creativity.  

To observe this phenomenon, the MIX, again using data collected from the survey, benchmarks the organization’s management innovation behaviours seeking to observe any biases in patterns that may strengthen or weaken the organization’s overall strategic  innovation capabilities.

The management innovation components benchmarked are  

• the organization’s culture and environment and its managers’ skills in envisioning, leadership, communication and reflection
• the organization’s strategic leadership and thinking styles and its managers knowledge and understanding of the concepts of emergence, design, collaboration and analysis
• the organization’s practices in strategic implementation and its managers experience, skills and techniques around strategic and tactical ideation  

and

• the cumulative beliefs and traits of the organization’s leaders and managers associated with their creative thinking styles and practices

The quantative analysis, the mapping of the organization’s creativity flows and the benchmarking of the management innovation behaviours, is supported by qualitative analysis through the collection of a series of anecdotal responses to questions around managers’ current creativity and innovation experiences in the work place.

The results are compiled into a Management Innovation Assessment Report containing a series of management innovation benchmarks against the organization’s culture, environment, strategy, strategic implementation and cummulative management creative capabilities. Independent specialist innovation experts offer assessment and recommendations based on the benchmarks, the outcome being a simulation of Deming’s map of profound knowledge, a lens - in this instance - onto the organization’s creativity.

In this way, the MIX makes visible the organization’s “steady state” of creativity.  Once the steady state has been benchmarked, senior leaders have tangible evidence from which they can make informed strategic and tactical decisions about the future development and direction of the organization’s innovation goals and objectives.

In a comprehensive interview on the MIX’s strengths and weaknesses as an analytic, Harvey Wade, Manager of Strategic Innovation, Allianz UK said

“The way the collected data and details were interpreted and presented meant that it gave Allianz real numbers and measures, assisting them to re-enforce what they felt intuitively. The importance for the innovation team, though, was in obtaining real measures with genuine rigour as it represented the views of over 150 people across the business that gave meaning to their intuition. For example, its qualitative data revealed a blockage in middle management and the reasons for the blockage that had not been clear before.

The most important point of difference for the Management Innovation Index as a form of measurement was its clear perspective on the strategic dynamics of organizational creativity.  Whilst it did recommend the use of tools and methodologies, like other providers, it was distinctly not the Management Assessment Report’s main focus.

What the Management Innovation Index did was put innovation into a proposition that enabled focus .” [12]

How well this focus is understood, interpreted and supported by senior leaders defines the organization’s capacity to be creative, to change, to adapt, to produce and to manage a system of continual creative inputs, the source of the organization’s innovation - its growth and success.

The biggest challenge for leaders once the intangibles of organizational creativity have been benchmarked and measured is how to communicate and emphasize its strategic and tactical importance against all the other processes and forms of measurement in which the organization is currently engaged.

Don’t expect creativity in an organization, if the lead indicators are driven by employee engagement and/or behaviorial thinking style surveys.

These diagnostics impede the empowerment of managers to think differently - the lifeblood of

creativity - and emphasize conformity - the coffin for creativity.  

THE SUMMARY

As the world becomes globalized and as a consequence market and economic conditions change even more rapidly, 21st Century organizations will need to have the internal management skills and knowledge capabilities to move in and out of markets rapidly to compete and survive.

The emphases on market competitiveness will no longer simple reside in the cliched marketing slogan of “identifying and satisfying customer needs”. Rather the competitive edge will focus on researching and defining problems that need to be solved. Resolving problems requires creative thinking and behaviours. Importantly, resolving problems creates business opportunities. Allianz UK’s Innovation Team promotes the notion organizationally “When there is a problem and there is a solution, there is an idea”. Those leaders that are able to harness and develop their organization’s unique creative capabilities in a strategic manner to solve problems will gain competitive advantage in the 21st Century.

The Management Innovation Index™, a way of modelling an organization’s creativity, makes tangible the flow of creativity within the organization and benchmarks management innovation behaviours that drive the flow.  Amongst other aspects, the MIX enables a leader to assess the organization’s management innovation behaviours that present the best opportunity for strategic and tactical development in line with the organization’s goals and objectives; reveals the organization’s inherent creative strengths and weaknesses across all levels of management and informs the leader as to where the impediments to the organization’s creativity specifically occur.

With the knowledge obtained through this process, a leader has data and a set of numbers from which to commence making informed decisions about the future strategic direction of the organization.  

Managers and teams have a clear sense of what they need to do to develop their creative practice contextually to facilitate meaningful contributions to the growth and success of the organization overall.  Mills Wright’s notion of the workplace as a social environment in which managers are openly applauded for being creative rather than conforming to policies and procedures, enhances the managers’ personal skills, dignity and well being. Organizational and executive development can focus on alleviating creative blockages impeding the organization’s “steady (and now continual) state” of innovation, whilst deliberately and incidentially developing creative leadership, skills and behaviours across the organization.

The MIT Sloan Management Research Report of Fall 2010 “Analytics: The New Path To Value”[13] revealed senior executives now want businesses to run on data driven decisions. They want scenarios and simulations that provide them with immedate guidance on what best actions to take both when change and disruption occur and when planning the future.

Jeremy Trott, Head of Innovation, Allianz UK leads the way in that practice when he says “With the Management Innovation Assessment Report, the outcome of the MIX, we have enough information to really concentrate on shaping our strategic innovation plan over the next two or three months, that will drive the success of the business for the next five years!”

So when a leader asks about the value of creativity and says show me the numbers, there can now be a meaningful and tangible response.

Bibliography

Coasce, R. H. (1937). The Nature of the Firm. Economica, New Series Vol 4, No 16, Nov. , 386-405.

Deming, D. W. (1994). The Economics for Industry, Government, Education. Cambridge, Mass, USA: The MIT Press.

Drucker, P. (1954). The Practice of Management. New York.: HarperBusiness - A Division of Harper Collins Publisher.

Hubbard, D. W. (2010). How To Measure Anything - Finding the Value of "Intangibles" In Business. Hoboken, New Jersey USA: John Wiley & Sons, Inc.

Mills, C. W. (1951). White Collar: The American Middle Classes. Oxford University Press.

[1] How To Measure Anything – Finding The Value of “Intangibles” In Business, Hubbard, Douglas W. John Wiley and Sons Inc ISBN978-0-470-53939-2 Chapter 1 Intangibles and the Challenge Page 4

[2] The Management Innovation Index www.managementinnovation.net

[3] Google Wave: A Complete Guide. http://mashable.com/2009/05/28/google-wave-guide/

[4] Google Wave: A Case Study on Why Interactive Design Matters http://joannejacobs.net/?p=1818

[5] TechCrunch August 2010 Schimdt Talks Wave’s Death – We Celeberate Our Failures http://techcrunch.com/2010/08/04/google-wave-eric-schmidt/

[6] http://blogs.hbr.org/hbsfaculty/2010/08/google-wave-decision-shows-str.html

[7] The 14 principles of the Deming System of Profund Knowledge http://en.wikipedia.org/wiki/W._Edwards_Deming#The_Deming_System_of_Profound_Knowledge

[8] The Appreciate of A System http://en.wikipedia.org/wiki/W._Edwards_Deming

[9] The Definition of A Steady State http://en.wikipedia.org/wiki/Steady_state

[10] http://www.improvementandinnovation.com/features/articles/link-between-demings-theory-profound-knowledge-and-systems-thinking

[11] Quote from Chapter 1 Page 5 on Intangibles and the Challenge - How To Measure Anything by Douglas W. Hubbard

[12] A Case Study of Innovation in a Mature Financial Services Organization – Allianz UK & the Management Innovation Index By Ralph Kerle, Executive Chairman, the Creative Leadership Forum © September 29, 2011

[13] Analytics: The New Path to Value How The Smartest Organizations Are Embedding Anlaytics to Transform Insights Into Action by MIT Sloan Management Review and the IBM Institute of Business Value Research Report Fall 2010