The happy accident of profitable creativity

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Fast Company has started a series on “profitable creativity” and the first article – How to achieve profitable creativity, the secret of exceptional companies1)Charles Day (11 May 2015), How to achieve profitable creativity, the secret of exceptional companies, Fast Company – is out now.

While interesting, the article – and the F.O.R.M. methodology behind it (named for Focus, Organisation, Resources and Measurements, the four principles behind the method) – follow the pattern of “if you implement these best practices then you too will dominate your chosen industry” that’s so common in business writing. Unfortunately life, and business, isn’t so simple.

Everyone is after the silver bullet, and there’s a long history of business writers and academics who pander to this. Some of the most revered business books – such as Good to Great2)Jim Collins (2001), Good to Great, Harper Business – are subject to these failings. Indeed, I’ve written about this before.3)The myth of sustainable competitive advantage @ PEG.

In this case it’s claimed that a particular type of creativity (represented by the best practices that the authors have uncovered) that is the secret to success. Creativity is all the rage at the moment. The article even leads with a quote on the importance of creativity from a captain of industry.

Capital is being superseded by creativity and the ability to innovate.
—Klaus Schwab, Founder of the World Economic Forum

Rather than pull apart the limited information the article provides on F.O.R.M. I thought it would be more productive to point out the questions that you need to ask to determine if what you’re seeing is snake oil or solid research whenever you come across yet-another claim for a silver bullet.

First you need to look for disconfirming research. It’s not enough to show that companies using these practices were successful. We need to see evidence that these practices are more strongly associated with successful companies than unsuccessful. Were these practices used by a significant number of companies that did fail? Or were they limited to successful companies? Can, therefore, we conclude that these practices were necessary for success? Or are just they just more noise in the crowded thought leadership marketplace and uncorrelated with success?

Consider, for example, if the CEOs of the successful companies we considered wore red socks on Tuesdays. We might conclude that wearing red socks on a Tuesday will give us the edge we need. Humans have a natural confirmation bias so when you reach a conclusion you need to ask yourself ‘What would it take to prove this conclusion false?’ Can you find a significant number of firms where the CEO religiously wears red socks on Tuesday and which were not successful? Did the CEOs of failed firms also wear reds socks? How do we know that the correlation they you’ve found isn’t just a happy accident, and that we’re reading a lot more into it than we should?

Next we have to consider survivorship bias. Someone has to win, but coming out on top does not imply that you were more skilful. There’s a lot of dumb luck in business; it’s not enough to be good at what you do, you need to be at the right place in the right time with the right product(s) and you still need a healthy does of luck.

Did the successful companies survive because they were good at what they do? Or is their success the result of happy accidents that took down their competition, or lucky coincidences that enabled them to leap ahead? Were they in the right places at the right time, moving into Asia when their competitors moved into South America, for example? Where they part of a rapidly growing industry were a rising tide raised all boats? Someone must survive, but there’s no rule that says that their skill was the only determinant of their survival.

Next we have the unknown unknowns. How do we know that the practices identified are the right practices?

Perhaps the successful companies that we’re looking at were more financially savvy and managed their cash flows more effectively, something which is hard at the best of times and even more challenging in the current turbulent environment, but which is inherently boring. Or perhaps they made a couple of astute (or just plain lucky) bets on which sectors to play in, nudging them past their competition. How do we know the survey or practices was complete? What was the framework used to identify these practices, and link them to changes in the environment. Correlations don’t cut it.

Ultimately, identifying a common set of practices for a group of companies that performed well over a given time period does little more than confirm that over the last time period these companies did well. That was already obvious.

What we, as practitioners, need to know is which practices can make a difference, and which are just fashions peddled by thought leaders who need to sell another book, who are trying to build an audience for the conference circuit, or are looking for consulting work.

Image: Split Shire.

References   [ + ]

1. Charles Day (11 May 2015), How to achieve profitable creativity, the secret of exceptional companies, Fast Company
2. Jim Collins (2001), Good to Great, Harper Business
3. The myth of sustainable competitive advantage @ PEG

Posted under: Strategy

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