Free market economies constantly generate new ideas, which with the pervasiveness of digital technology today can go from initial insight to commercial realization to billion-dollar valuation in no time flat. Any enterprise that cannot keep up with this pace of value creation needs to shelve its way of managing, pure and simple, and come up with a way of being more creative – at least as creative, in fact, as its surrounding ecosystem. Anything short of that is a prescription for failure.
So far we have covered the first two laws of managing, the law of potential and the law of meaning, respectively derived by addressing who creates value for the enterprise (workers) and why they come together to do so (to satisfy needs – customers and their own). These laws both relate to humanity; following them results in a way of managing that unleashes the potential of the people within the enterprise because it fulfills their innate needs while aligning their actions through meaningful purpose.
The next four laws relate to the activities of the enterprise, for as stated in the Introduction, the enterprise = humanity + activities. And here we see that no enterprise is an island; it must compete and/or cooperate with other enterprises, each one (ideally) seeking where it can create value due to its unique human potential and meaningful purpose. After all, it is within its ecosystems – the configuration of competitors, suppliers, partners, people, communities, customers, stakeholders, and shapeholders(1) that form the economies of the world – that the enterprise creates value in the first place, and where new value-creation opportunities await discovery.
So now we direct our attention to the third of our seven questions regarding enterprise value creation: Where does the enterprise create value? The answer arises from the greater context of the enterprise, its ecosystems, where the enterprise sorts out fruitful opportunities from the plethora of possibility. Given this, managing functions to discover opportunities in order to mold its ecosystems, the most expansive domain of enterprise value creation with its infinite possibility for new opportunities. Creating new value from all this comes down to innovation.
The Indigenous Innovation First Principle:
In this light we discovered the indigenous innovation first principle from Edmund S. Phelps, the Nobel Prize-winning economist. He finds that profiting from newly discovered opportunities necessarily draws on “the creativity and intuition that lay inside” all ecosystems within the free economies of the world, rather than from outside forces and discoveries, as conventionally thought. Instead, Mass Flourishing, as he titled his latest book, arises from “the structuring of. . . economies for the exercise of indigenous creativity and pathways from there to innovation.”(2) Phelps thus rightly identifies that the true source of innovation resides within economies, ecosystems, and enterprises, not from external forces.
The Surprise Innovation First Principle:
We also identified indigenous innovation’s sister first principle, surprise innovation, as elucidated by George F. Gilder, the prolific researcher and writer, in his latest book Knowledge and Power. Gilder ties together the exercise of human potential and wealth generation when he observes that “expansion of wealth” arises from “learning and discovery,” where “surprises that arise from the exercise of free will and human creativity” create greater economic value than pursuing monetary rewards.(3) Gilder tells us that the true nature and result of effective innovation is by its very nature unknown beforehand, and therefore remains everywhere and always unpredictable. The element of surprise sets the ultimate standard for enterprise innovation, referring to that which goes beyond predictable incremental improvements, learning curves, and returns to scale to rival that of the ecosystems in which the enterprise participates.
From Phelps’ indigenous innovation and Gilder’s surprise innovation first principles we deduce the third law of managing:
The Law of Creativity
Only the enterprise that lieberates creativity,
through applying intuition and exercising free will,
regularly discovers opportunities for
suprising wealth-producing innovations.
This third law complements the first two. Whole humans, wholly engaged (law one) in the meaningful purpose of the enterprise (law two), exercise their intuition and free will to produce surprising innovations (law three).
Once again, what the law of creativity calls for in identifying opportunities and how conventional managing seeks them stand in stark contrast. Traditional managing, at its best, extends the operation of the enterprise, reacts to external changes, and takes a defensive posture to its existing ways of creating value. Following the law of creativity turns this whole approach on its head.
The enterprise managing in accord with this law essentially surprises itself with disruptive and even devastating innovations. Such enterprises unleash their full human potential to explore and discover value-creation opportunities across the full spectrum of the possibility space that exists within all viable trajectories the enterprise may take.(4) As a result of liberated creativity the enterprise molds its ecosystem as it discovers new opportunities to produce wealth.
Thus the law of creativity points straightforwardly to this imperative for managing:
Imperative to Discover Opportunities: Liberate Creativity
In adherence to the law of creativity, managing must
liberate creativity by applying intuition and exercising
employee free will throughout the enterprise,
in order to discover surprising ecosystem-molding
and wealth-producing opportunities lying ahead.
Exercising this imperative continually opens up new possibility and turns the enterprise into a novelty generator. But with conventional managing, instead of addressing the root of the creativity problem by developing more effective managing, enterprises have for decade after decade turned to charismatic leaders to “fix” their companies, betting they would jumpstart the innovation that should have been there all along. Even the companies that actually put in place those rare heroic leaders that saved them from past folly found that their heroes’ auras waned quickly on their inevitable departure. For rarer still is the leader who transforms the enterprise to rid itself of old ways forever and put in place a way of managing that liberates creativity.
In fact, in regard to creativity conventional managing was flawed from the very beginning. The design of the “system” (enterprise or business) was always optimized to fit specified objectives particular to the time. This made the typical enterprise insensitive to external innovation and incapable of innovating much from within. Managing in accord with the laws of managing, on the other hand, addresses the creativity challenge head on by producing a continually self-organizing enterprise that regularly rediscovers how to pursue its meaningful purpose in its ever-changing context.
So far then, our first three laws of managing yield an enterprise of wholly engaged people exercising their fullest creative potential in pursuit of a common meaningful purpose, which for any enterprise will produce a plethora of new and surprising discoveries. Next, we need to put that creativity to work to generate knowledge in order to truly affect the operation of the enterprise.
(1) “Shapeholders” is used here as Mark Kennedy defines it in “Social media provides a megaphone for organizations intent on shaping the corporate environment,” Strategy & Leadership, Vol 41 No 5, 2013, pp. 39-47.
(2) Edmund S. Phelps, Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change (Princeton: Princeton University Press, 2013), p. 14.
(3) George F. Gilder, Knowledge and Power: The Information Theory of Capitalism and How It Is Revolutionizing Our World (Washington, DC: Regnery Publishing, Inc., 2013), Kindle Edition, loc 221 of 5896 and loc 164 of 5896, respectively.
(4) For more on this, see chapter 9 of Authenticity: What Consumers Really Want (Boston: Harvard Business School Press, 2007), pp. 180-218.