Creative companies: What are the 10 secrets of innovative offices? Allow Time for Ideas to Emerge; Improvise at the Edge of Chaos; Manage Knowledge for Innovation; Ditch the Organizational Chart; Build Decentralized Networks

Creative companies: What are the 10 secrets of innovative offices?

by Eric Barker

What do creative companies do right?

Keith Sawyer got his PhD studying under Mihaly Csikszentmihalyi — the researcher who coined the idea of Flow. I’ve posted about his research on top creative teams and how brainstorming is broken. What did he find when he studied creative companies?

1) Keep Many Irons in the Fire

“In 1997, Shona Brown of McKinsey and Company, working with Kathleen Eisenhardt of Stanford University’s business school, compared three collaborative organizations with three organizations that didn’t innovate. The collaborative organizations constantly experimented, and they always had several different low-cost projects in the works. But instead of a grand plan that organized all the projects, they responded to what emerged. The contrast with the noninnovative companies couldn’t have been more stark— those companies didn’t have any experimental projects under way. And their managers dealt with the future by planning the future— spending months on elaborate strategy and product development plans. The problem was that if the future didn’t unfold according to plan, they were doomed to fail.”2) Create a Department of Surprise

“One way that collaborative organizations recognize emergent ideas is with “idea marketplaces,” autonomous teams that identify radical innovations. These “departments of surprises” search for ideas throughout the company and are responsible for commercializing them. Royal Dutch/ Shell has been using such teams, called GameChangers, since 1999. The six teams, each composed of about six members, are based in Houston and Rijswijk, the Netherlands, and have the authority to allocate up to $20 million to try out game-changing ideas. Other employees e-mail their new ideas to one of the teams, and the teams meet weekly to sift through the messages. Those teams have created more than half of the company’s innovations, including a new idea for how to use laser sensors to find new oil deposits.”

3) Build Spaces for Creative Conversation

“The open floor design has become more common today; it’s found not only in trendy design firms but increasingly in such places as the BMW factory that opened in Leipzig in May 2005, which has an open layout designed to inspire spontaneous conversations and dense social networks. Open spaces feed into the natural flow of collaborative innovation— helping ideas to move from one area to another, allowing spontaneous conversations to emerge, and strengthening informal information-sharing networks… Google’s Silicon Valley campus features a massive wooden staircase equipped with electric outlets all the way up; programmers are thus encouraged to sit and work right on the stairs, again increasing the potential of chance encounters.

4) Allow Time for Ideas to Emerge

“Many people say that they work better under pressure. At some companies, tight deadlines and long hours are a semiofficial part of the company’s philosophy. But the Harvard researcher Teresa Amabile has found that this management tactic usually kills creativity. Yes, it makes people work harder, but it makes them less creative. In a study of 177 employees in seven U.S. companies— all working in teams where creativity was critical to the success of the group— days that were more hectic were less likely to result in creative thinking. But, paradoxically, the employees reported that they felt more creative when time pressure was high.”

5) Manage the Risks of Improvisation

“Managers have good reason to be nervous about improvisation; after all, improvisation can be risky. The first risk is that when people are improvising, they must take time away from planned projects that have been carefully analyzed. The key is to create just the right balance of planning and improvisation.

6) Improvise at the Edge of Chaos

The successful innovators used limited structures that Brown and Eisenhardt called “semistructures.” The researchers concluded that the critical balance for innovation is at “the edge of chaos”: not too rigid to prevent emergent innovation, but not too loose to result in total chaos. The successful company that they called Cruising had well-defined managerial responsibilities and explicit project priorities. The roles of marketing and engineering were clearly specified. The company also prioritized projects by market potential. But Cruising combined these structures with a culture of cross-project communication; as one engineer said: “Everybody’s borrowing everybody’s stuff.” A second successful company, Titan, had built coffee bars throughout the development areas just so that people from different teams would talk during breaks. And, most important of all, at both Cruising and Titan, the design process itself was not structured; developers had almost complete freedom to improvise as the work demanded. One developer said, “We fiddle right up until the very end.” The most effective structures are those that support what the cognitive scientist Barbara Hayes-Roth calls opportunistic planning: The plan provides you with a general outline of how to proceed, but it leaves enough flexibility to change in response to unexpected developments without throwing out all the advance planning.

7) Manage Knowledge for Innovation

“The collaborative organization excels at transferring to other groups the ideas that emerge from good improvisations. This is difficult because improvisations are ephemeral and memory fades away quickly when they’re over. Successful innovative organizations use procedures that select the good improvisations and then spread them throughout the organization, systems that are known today as knowledge management.

8) Build Dense Networks

When information is shared through collaboration, and decision making is decentralized, there’s no need for a hierarchy to gather and channel information to a single decision maker, as in the 1950s bureaucratic company. Instead, the manager is a catalyst and facilitator, acting as a connector between groups, a cross-pollinator and carrier of knowledge.”

9) Ditch the Organizational Chart

“In the 1980s, managers became familiar with research that showed that more interconnection led to greater innovation. Matrix structures— in which each employee reports to more than one boss, for example, one boss for the Midwestern region and one boss for the accounting division— were one early response to these findings, and U.S. West tried that, too. The problem is that the matrix doesn’t go far enough toward the collaborative organization. Philips, the Dutch electrical giant, was an early advocate of matrix structures, but a few years ago it began to shift its emphasis to flexibility and connectivity. Philips now rewards employees for collaborating outside their own units, and it no longer allows employees to stay in the same region or product area for their entire careers. Finally, Weick’s 1969 vision of the “loosely coupled” organization is becoming a reality.

10) Measure the Right Things

“A 2005 study by Booz Allen Hamilton analyzed the world’s one thousand biggest corporate spenders on R& D. The surprising result? There’s no relationship at all between the amount of R&D spending and the usual measures of performance: sales growth, gross profit, operating profit, total shareholder return. The same study found no relationship between the number of patents issued to a company and its business results… The best measure of an organization’s innovation potential is how successfully it has created a collaborative organization.

What’s a quick sum-up about creative companies that you can put to use?

Via Group Genius: The Creative Power of Collaboration:

First, count the proportion of time spent on small exploratory projects; more is better, up to about 20 percent of total staff time. Second, measure the average length of a project before being terminated (shorter is usually better). Third, examine how well the organization celebrates and rewards failure. In short: Fail often, fail early, fail gloriously.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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