The eureka effect

the third and final article in his innovation masterclass series, Professor
Amin Rajan focuses on ‘eureka’ creativity – highlighting HR’s role in measuring
and rewarding its positive impact on business 

The first article in this series identified four kinds of creativity –
structured, non-linear, provoked and eureka. It argued that creativity can
result in product, process and organisation innovations, as new ideas get
converted into profits.

The type that is easiest to "measure" is eureka. It impacts on
products and services and produces breakthroughs that mark a radical departure
from the norm.

It’s possible to assess its business worth through a number of standardised
ratios that are widely used in benchmarking exercises across industry. To start
with, when assessing the market value of any organisation, many investment
analysts use the simple formula shown below.

Book value relates to the physical and financial assets that can be
quantified. Intangibles, on the other hand, are more observable than measurable.
They are also among the areas that are most affected by process and
organisational innovations.

Respondents to Create’s survey across all regions identified a number of
proxy indicators of assets where they expect the impact of creativity to show,
directly or indirectly.

Direct measures

Those used in the UK include:

– The proportion of income from new product introductions

– Number of new product innovations

– Average length of time for product design and development

In other regions, the same direct measures are used. But some go further

– In Latin America the number of multifunctional teams is used as a measure

– In the Middle East and Africa they look at the five-year trend of product

Indirect measures

Direct measures have one major limitation – they focus on product
innovations and ignore the benefits of process and organisational innovations.
As a result, a number of indirect measures are also used in ways that have
major implications for the HR function.

They focus on four distinct classes of intangible assets that are commonly
linked with the creativity process (see box below).

All the regions show a close similarity in the nature of measures used under
each asset class. Overall, in the UK and the rest of Western Europe, overt
measures like patents and proprietary know-how are used more widely. Elsewhere,
the intangibles such as trade secrets are more prevalent.

The fact that most the asset classes are not easily measurable does not
detract from their importance. Today, for example, 92 per cent of the market
value of Microsoft and 85 per cent of Coca-Cola is accounted for by
intangibles. Nearer home, in 1975, the intangibles comprised 4 per cent of the
market value of FTSE 100 companies. Today, that proportion has leapt to 44 per
cent, according to Create’s research. Reputable companies that are as diverse
as BP, Barclays, GSK, Lloyds TSB, WPP and Vodafone have over 50 per cent of
their value locked into intangible assets.

Of course, given the way the formula on market value is structured, the bulk
of the day-to-day gyrations in the market value are reflected in the
intangibles. This is because the book value of a company does not fluctuate
noticeably from one year to another. But that does not detract from the fact that
the underlying trend in the worth of intangibles has been upward over the last
25 years. The implication is clear. Creativity pays – it increases the market
value as well as the bottom line.

HR’s crucial role

Against this backdrop, what is the role of HR in promoting creativity? It
can and must do three things.

1. It needs to audit the existing culture of its organisation. Create’s
study has identified over 50 tools that can be used to influence business
practices that collectively constitute corporate culture. More than half of
these practices come directly under the influence of HR.

2. HR needs to understand how the market value of its company is determined.
In particular, it needs to see itself as a value creator because all the HR
effort goes towards creating one or more of the four asset classes. In our
research, we were surprised that even corporate accountants played a more
prominent role than HR professionals. Specifically:

– So few HR professionals were involved in the overt creativity process of
their organisations, and

– Even fewer recognised their role as asset creators

3. HR needs to challenge the existing reward systems. The research shows
that the best way to reward creativity is by offering three sets of incentives
that enable employees to cope with an environment beset by rules and procedures
(see below):

– An employer brand that makes people feel they are part of a winning team

– Autonomy and space within a stretching job

– Hard and soft rewards – money and non-money

Fresh challenges

Not surprisingly, the study concludes that the current wave of globalisation
can be a golden age for HR. As the City accepts the importance of intangibles
in measuring the market value of a company, all manner of fresh opportunities
beckon HR.

Asset classes resulting from creativity

Market assets

– Repeat business

– Customer loyalty

– New products

– New services

– Company name

Aim: to raise the bottom line

Intellectual property assets

– Proprietary know-how

– Patents

– Trademarks

– Design rights

– Proprietary software

Aim: to sustain a high performance

Cultural assets

– A can-do culture

– Employee competency

– Visionary leadership

– Employer-employee relations

– Alliances and collaborations

Aim: to create a climate for breakthroughs

Physical assets

– IT systems

– Management processes

– Financial systems

Aim: to improve the delivery platform

Rewarding creativity

In particular, personal recognition, financial reward and psychic benefits
are – or are becoming – important motivators in all the regions, irrespective
of national cultures. After all, globalisation has ensured that, like all else,
motivation carries its own price tag. Notably, fun at work does not feature
high on the agenda, except in Latin America, reflecting the ever rising work
pressures elsewhere

Amin Rajan is chief executive of Create. Contact: 01892 526757

Harnessing Creativity to Improve the Bottom Line is available from The
Chartered Institute of Management Accountants. 
Contact Chantal Masters 020 7969 3407

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