Manage your Creative Equity

It seems that one unique feature shared by many successful firms is their ability to respond quickly to or lead the market – an agility directly related to their internal dynamic of managed risk taking and creativity (or creative equity).

Unfortunately, for most particularly matrixed firms this ‘agility’ stands in marked contrast to their internal dynamic of stasis and analysis-paralysis (analytical equity). Indeed, at the end of the day, most organisations, exert energy on actively reducing risk. The reasons for this are not hard to divine when management is faced with questions such as:

• ‘How can I cut costs?’
• ‘How can I reduce complaints?’
• ‘How can I show a return in the 2 years I have in this job?’i.e., by cutting costs
• ‘How can I make sure that my customer satisfaction scores are high?’ i.e., by not taking a chance
• ‘How can I create a role for myself’ i.e., by adding in complexity such as measuring or reporting on ‘stuff’

This all leads to a natural conservatism to corporate decision-making and a ‘glass half full’ view focused on the removal of real or imagined cost or error. Psychologically this approach is also entirely predictable as potential losses will always outweigh potential gains.

What is not realised though is just how damaging this approach can be to value creation. Why? Because the whole process of creating value requires trial-and-error and a cultural openness to innovation that can be crushed and diminished under the weight of ‘control’. If your organisation feels like its measures are there just to give top management a job of ‘looking at the figures’ then you are probably over-emphasising your analytical side (analytical equity or An Equity). It is also making the fatal assumption that innovation can only be led top-down: in fact educational and management attainment is not symmetric to creative potential.

Yet it is exactly this managed risk taking and creativity that is essential for survival. Unless your market is static, moving with the market requires an ability to change; whether this is McDonalds and Tesco making huge investments in shop redesign because they believe it is the right thing to do or Apple releasing world leading and beautifully constructed products because they believe these will lead the market.

This is why the concept of determining and managing a firms Creative Equity is so important: it actively puts creativity ‘on the balance sheet’. Likewise its management requires consideration of the corporate ecosystem e.g., ‘how to ‘ support innovators in rewards systems (and not just controllers); where ideas are generated from and how Analytical Equity can be streamlined away from obsessive metrics and reporting into a more supportive function.

It is true that there are cases where Creative Equity is out of control, such as in the Credit Crunch and the invention of ever more complex derivatives: here there was a need for more An Equity investment (e.g., control functions). In most cases, though, it is arguable that the opposite arises, perhaps the growth debate today is exactly highlighting how the pendulum has swung too far towards an An Equity imbalance, likewise the unfortunate consequence of many matrixed organisations is that by seeking too much control, they actively reduce value creation – the very thing they are trying to ‘control’ for!

The classic if mostly metaphorical left brain/ right brain split demonstrates the point. Creating a left brain culture is not going to suddenly make your organisation right brain centric.

Articulating these cultural intangibles – creativity and analysis – as corporate equities is an important first step in managing for a more balanced portfolio.