why business needs more than metrics 

 

 By Sir Martin Sorrell,

Chief Executive, WPP

 

Government and the creative industries are not always the happiest of bedfellows.

The most recent manifestation of this sometimes awkward relationship was David Cameron’s “Cool Britannia II” summer garden party, which the press judged to be even less cool than Tony Blair’s 1997 original.

The headlines were all about the celebrities who, anticipating fatal damage to their credibility, found reasons to stay away.

The point of the event, somewhat lost amidst the sniggering of journalists and MPs, was to recognise the important contribution these industries – from TV and film to publishing, music, fashion and advertising – make to the UK’s economy. The government deserves credit for hosting it.

It’s a curious phenomenon that a sector whose output has such a high public profile has been so little talked about as an economic force – certainly when compared with other industries that are rarely out of the news or the political conversation.

Perhaps it’s simply that Westminster, Whitehall and the business pages of national newspapers are more attractive environments to car-makers, financiers and airline bosses than they are to writers, directors and designers – or that creative organisations just aren’t seen as business enterprises.

Whatever the reason, a sector that is estimated by the government to add £71 billion a year to the UK economy, while supporting 1.7 million jobs, should not hide its light under a bushel.

Fortunately, a concerted effort is now underway to make sure this is no longer the case.

June saw a week-long celebration of the UK’s creative industries and the launch of a new pan-sector strategy – all flying under the banner #CreateUK.

The aim of the strategy is “for the first time, to unite the different parts of the creative industries behind common goals and to speak with one voice on the issues that cut across the sector,” with the broader objectives of “inspiring and equipping the next generation of talent, helping creative businesses to start up and grow, and maintaining the UK’s competitiveness against other international markets.” Bravo.

The initiative was the brainchild of the Creative Industries Council, a joint effort between the industry and the government’s business and culture departments.

CreateUK’s reminder of the business value of creativity couldn’t have been better timed.

Since the collapse of Lehman Brothers in 2008 conservatism has ruled in the boardroom. Businesses around the world are sitting on an estimated $4.2 trillion of cash, reluctant to take risks. Often they’re making their numbers not by growing the top line but by cutting costs.

For many finance directors and procurement officers, who have an unprecedented level of influence in today’s ultra-cautious corporate environment, investment in intangibles (and what greater intangible than creativity?) falls squarely into the risk category. This attitude is a huge brake on innovation.

A few weeks ago I attended a fascinating conference hosted by consulting firm Innosight in Boston. Speakers at the event, which included some of the world’s leading business thinkers, traced the current over-reliance on analytical models and spreadsheets to well before the financial crash.

Clay Christensen, the highly influential author and Harvard Business School Professor, argued that corporates are locked in a management doctrine dating back to the middle of the last century when capital was scarce and expensive, and companies found new ways to measure the efficiency of their investments.

He believes that an obsessive focus on metrics like internal rate of return, passed from generation to generation of managers, is leading companies to prioritise “sustaining and efficiency innovations” (incremental improvements that deliver faster, predictable returns) over “market-creating innovations” (entirely new products, categories and services that pay off only in the longer term but create real corporate and economic growth).

Christensen estimates that 50-90% of managers’ time is spent on “the assembly of numbers” and “because we focus on that rather than focus on innovations, growth slows.”

He points to Japan to highlight the dangers of continuing to worship in “the church of new finance.”

Japan boomed during the 1970s and 80s when it was pumping out market-creating innovations like affordable cars and motorcycles, radios and printers. In contrast, having adopted the classic metrics for gauging success, since 1990 it has – according to Christensen – delivered only one market-creating innovation: the Nintendo Wii. And we all know what’s happened to the Japanese economy in that period.

The Rotman School of Management’s Roger Martin, another celebrated writer and thinker in the field, picked up the theme.

Martin’s view is that “the modern world of business has become ever more proud to be ever more scientific, rigorous, analytical; and, at the same time, is complaining more and more about the difficulty of having innovation. Those two things are not unrelated.”

He suggests the rot set in during the late 1950s and early 60s when business education was slammed for being too anecdotal and “not scientific enough”. The business world reacted, swung the other way, and a consensus developed that any decision not based entirely on analytical thinking, featuring deductive or inductive logic, was somehow illegitimate.

The problem with using only the left side of the brain, he says, is that the analysis of past data can only, at best, produce reliable incremental results – not game-changing ideas and fundamental steps forward. In my view, business needs less incrementalism and more fundamentalism.

Martin makes the case for the “appreciation of qualities” as well as quantities, the need to find room in business decisions for subjectivity, intuition and judgement – things more generally associated with creative endeavours. You don’t, as he puts it, “go into the Museum of Fine Arts and say ‘I saw 800 square feet of paintings today’.”

He invites boards to stop asking their executives to prove that an idea will work based on past data, as “if you can prove an idea in advance, it’s because it isn’t new,” and instead to ask “what that is not currently the case could be true in the future?”

Quantitative and qualitative disciplines are often presented as incompatible opposites, but, as CreateUK has shown, you can sometimes get oil and water to mix.

The key, to quote Martin again, “is the form of thinking that takes the best of both, that analyses what is analysable in order to hone and refine what’s known now; and accepts and embraces appreciation of qualities, judgement – even if it includes bias – to invent the future.”

And yes, I am aware of the irony of an infamous beancounter like me making an argument like this. But, as I’ve been saying since I first started in this business, without the pearls of creativity and innovation, you don’t get many beans to count.

This article was first published in the Sunday Telegraph.