How can creativity and innovation be stifled?

Companies can kill creativity and innovation many different ways. The first is domineering mindsets about their industry, business model, fear of cannibalizing existing products or channels, and their overwhelming focus on standardization and predictable results, all of which limit creativity, thinking differently, challenging current beliefs, ways of doing business and experimentation.

Another way is when innovation processes are dominated too quickly by financial metrics. Also, no tolerance for failure — ignoring the reality that most innovation experiments fail. And, a maniacal focus on the short-term and quarterly earnings.

Is Wall Street to blame?

Wall Street is only partially to blame. Its beliefs about business growth: all growth is good; bigger is always better; businesses either "grow or die;" and public companies should grow in an ever increasing linear manner as evidenced by ever increasing quarterly earnings are not supported by any empirical research in any science. At best, some are half-truths. At worse, some are just plain fiction.

Growth can be good and growth can destroy value if it is not properly managed. Bigger is not always better because the bigger the organization the more complex it is to manage and the harder it becomes to maintain a "small company soul in a large company body." And "grow or die" is not based on any scientific research. Nonetheless, for nearly 60 years it has been espoused as a "law."

A much better research-based axiom is that businesses must "improve or die" — constantly improve their customer value proposition better than the competition.

What about quarterly earnings?

The quarterly earnings game is just that — a game made up by Wall Street. And since we know from research that consistent real growth is hard and rare, companies engage in the "earnings game" to comply with Wall Street's idiotic game. The result is a laser-like focus on managing in many cases for the short-term. Add to that the facts that most stock is "rented" by institutional shareholders for time periods of 12 months or less and that the average tenure of a big public company CEO is less than 6 years, you have this overwhelming short-term mentality that inhibits long-term investment and innovation in many companies.

I contend that ``short-termism'' promoted by Wall Street inhibits innovation and thus, diminishes national competitiveness and our ability to create an economy that is driven by more than consumer spending and financial engineering.

How is innovation seemingly inefficient?

Innovation generally takes time and results from collaboration and experimentation. Those processes are not efficient or predictable but are necessary for innovation. Multi-functional, multi-disciplinary small teams using discovery and exploration processes with customers are the foundation of an iterative experimental approach to innovation. We call that "Learning Launches" or doing lots of cheap learning experiments. Every organization has a natural proclivity that is anti-innovative. Why? Because the purpose of most organizations is to produce standardized, reliable, predictable low-variance results. The goal is in most cases 99 percent defect free. This runs counter to the "physics" of growth where the only certainty is uncertainty.

How can companies embrace innovation?

Our research shows that innovation requires the right individual and organizational mindsets, the right internal enabling system, and the utilization of the right discovery, exploration, and experimentation processes. The internal system — the alignment of culture, structure, leadership behaviors, measurements and rewards that enable and promote behaviors that drive innovation and growth exploration is key. Behaviors, such as, constructive debate, critical inquiry, challenging underlying assumptions, a willingness to listen and suspend judgment, and humble inquiry are mission critical. So you have to have the right attitudes, create the right environment, and use the right processes correctly. Easier said than done.

Dawn House Edward D. Hess, author.