The Tension Between Creativity and Efficiency

Stephen DeAngelis

June 12, 2007

Every time you seal a package with Scotch transparent tape or jot yourself a note on a Post-It you are taking advantage of the creative fruits of the innovative people 3M has hired for years. 3M has always been known as an innovative company. That’s what makes a recent article in BusinessWeek about 3M so interesting [“At 3M, A Struggle Between Efficiency and Creativity,” by Brian Hindo, 11 June 2007]. The article discusses how 3M lost its creative edge in an attempt to be more efficient. The tension began when 3M hired James McNerney, a Jack Welch protégé and one of the most respected executives in America.

“3M’s board considered McNerney a huge prize, and the company’s stock jumped nearly 20% in the days after Dec. 5, 2000, when his selection as CEO was announced. The mere mention of his name made everyone richer. McNerney was the first outsider to lead the insular St. Paul (Minn.) company in its 100-year history. He had barely stepped off the plane before he announced he would change the DNA of the place. His playbook was vintage GE. McNerney axed 8,000 workers (about 11% of the workforce), intensified the performance-review process, and tightened the purse strings at a company that had become a profligate spender. He also imported GE’s vaunted Six Sigma program—a series of management techniques designed to decrease production defects and increase efficiency. Thousands of staffers became trained as Six Sigma ‘black belts.’ The plan appeared to work: McNerney jolted 3M’s moribund stock back to life and won accolades for bringing discipline to an organization that had become unwieldy, erratic, and sluggish.”

That doesn’t sound all that bad. The problem, according to the article, is that the culture created by Six Sigma clashes directly with the culture required for innovation.

“Now his successors face a challenging question: whether the relentless emphasis on efficiency had made 3M a less creative company. That’s a vitally important issue for a company whose very identity is built on innovation. After all, 3M is the birthplace of masking tape, Thinsulate, and the Post-it note. It is the invention machine whose methods were consecrated in the influential 1994 best-seller Built to Last by Jim Collins and Jerry I. Porras. But those old hits have become distant memories. It has been a long time since the debut of 3M’s last game-changing technology: the multilayered optical films that coat liquid-crystal display screens. At the company that has always prided itself on drawing at least one-third of sales from products released in the past five years, today that fraction has slipped to only one-quarter. Those results are not coincidental. Efficiency programs such as Six Sigma are designed to identify problems in work processes—and then use rigorous measurement to reduce variation and eliminate defects. When these types of initiatives become ingrained in a company’s culture, as they did at 3M, creativity can easily get squelched. After all, a breakthrough innovation is something that challenges existing procedures and norms. ‘Invention is by its very nature a disorderly process,’ says current CEO George Buckley, who has dialed back many of McNerney’s initiatives. ‘You can’t put a Six Sigma process into that area and say, well, I’m getting behind on invention, so I’m going to schedule myself for three good ideas on Wednesday and two on Friday. That’s not how creativity works.'”

Does that mean that efficiency and creativity must always be at odds? Can the same company establish efficient processes and foster creativity? The article implies that it may be impossible.

“The tension that Buckley is trying to manage—between innovation and efficiency—is one that’s bedeviling CEOs everywhere. There is no doubt that the application of lean and mean work processes at thousands of companies, often through programs with obscure-sounding names such as ISO 9000 and Total Quality Management, has been one of the most important business trends of past decades. But as once-bloated U.S. manufacturers have shaped up and become profitable global competitors, the onus shifts to growth and innovation, especially in today’s idea-based, design-obsessed economy. While process excellence demands precision, consistency, and repetition, innovation calls for variation, failure, and serendipity. Indeed, the very factors that make Six Sigma effective in one context can make it ineffective in another. Traditionally, it uses rigorous statistical analysis to produce unambiguous data that help produce better quality, lower costs, and more efficiency. That all sounds great when you know what outcomes you’d like to control. But what about when there are few facts to go on—or you don’t even know the nature of the problem you’re trying to define? ‘New things look very bad on this scale,’ says MITSloan School of Management professor Eric von Hippel, who has worked with 3M on innovation projects that he says ‘took a backseat’ once Six Sigma settled in. ‘The more you hardwire a company on total quality management, [the more] it is going to hurt breakthrough innovation,’ adds Vijay Govindarajan, a management professor at Dartmouth’s Tuck School of Business. ‘The mindset that is needed, the capabilities that are needed, the metrics that are needed, the whole culture that is needed for discontinuous innovation, are fundamentally different.'”

There are a couple of ways that companies can deal with this conundrum. The first is to separate creative portions of a company from process-oriented portions and apply different rules to the different parts. The second way to deal with the dilemma is to automate processes while leaving the people free to be creative. One of the reasons Enterra Solutions has attracted the interest of big companies is that they see the benefits of relieving people from the drudgeries of routine processes. Not only is process automation efficient and effective, even those who must deal with the rule automation process can be creative in how they approach their job. Six Sigma and Lean Six Sigma approaches can be used to drive automated processes without having to change an entire company’s creative culture.

“The term [Six Sigma] is now so widely and divergently applied that it’s hard to pin down what it actually means. At some companies, Six Sigma is plainly a euphemism for cost-cutting. Others explain it as a tool for analyzing a problem (high shipping costs, for instance) and then using data to solve each component of it. But on a basic level, Six Sigma seeks to remove variability from a process. In that way you avoid errors, or defects, and increase predictability (technically speaking, Six Sigma quality has come to be accepted as no more than 3.4 defects per million). At 3M, McNerney introduced the two main Six Sigma tools. The first and more traditional version is an acronym known as DMAIC (pronounced ‘dee-may-ic’), which stands for: define, measure, analyze, improve, control. These five steps are the essence of the Six Sigma approach to problem solving. The other flavor is called Design for Six Sigma, or DFSS, which purports to systematize a new product development process so that something can be made to Six Sigma quality from the start.”

It’s easy to see why this approach is great for process-oriented activities and, concomitantly, automated business processes. It simply falls flat, however, in situations where risk, failure, and false starts are all important parts of the creative process.

“There has been little formal research on whether the tension between Six Sigma and innovation is inevitable. But the most notable attempt yet, by Wharton School professor Mary Benner and Harvard Business School professor Michael L. Tushman, suggests that Six Sigma will lead to more incremental innovation at the expense of more blue-sky work. The two professors analyzed the types of patents granted to paint and photography companies over a 20-year period, before and after a quality improvement drive. Their work shows that, after the quality push, patents issued based primarily on prior work made up a dramatically larger share of the total, while those not based on prior work dwindled.”

That’s not a good trend. Other studies have shown that companies with an active patent history (especially patents that others cite often in their patent applications) are generally valued higher than those with few such patents. In other words, Six Sigma can increase efficiency and profits but ultimately decrease company valuation if incorrectly applied to situations where creativity is more important than efficiency. A good executive must know when and where to apply different rules and foster different cultures. In an accompanying sidebar, Hindo and Brian Grow assert that Six Sigma guru Jack Welch railed against such a mix strategy [“Six Sigma: So Yesterday?“].

“Jack Welch has argued that a leader needs to single-mindedly inculcate Six Sigma into every corner of an organization. Should a CEO hedge and say, ‘Let’s do both Six Sigma and also be creative,’ employees will tune out the part they don’t want to hear. Welch has said that even if the concept is applied in areas where perhaps it shouldn’t be, it’ll be worth it in the long run. It can always be fine-tuned once the workforce gets it. Call it the break-some-eggs-to-make-an-omelette approach.”

By applying Six Sigma to processes (where it really makes a difference) but fostering a more creative environment for people, the benefits of Six Sigma can be achieved without sapping the enthusiasm of the work force. Hindo and Grow report that many pundits believe Six Sigma’s time has come and gone.

“So has the Six Sigma moment passed? ‘I think it has,’ says Babson College management professor Tom Davenport. ‘Process management is a good thing. But I think it always has to be leavened a bit with a focus on innovation and [customer relationships].’ The discipline was developed as a systematic way to improve quality, but the reason it caught fire was its effectiveness in cutting costs and improving profitability. That makes it a powerful tool—if those are a company’s goals. But as innovation becomes the cause du jour, companies are increasingly confronting the side effects of a Six Sigma culture.”

This really shouldn’t come as such a shock. From the time that Henry Ford invented the assembly line, we have understood that process efficiency often comes at the expense of worker satisfaction. I wouldn’t give up on Six Sigma; but I would say, apply it to processes not people. This is basically what Jeneanne Rae argues in an accompanying article in the same issue of BusinessWeek [“Have it Both Ways“]. She writes:

“The objectives of Six Sigma seem noble enough for any organization. So what’s the rub with simultaneous efforts to innovate? By its nature, Six Sigma fosters a very low tolerance for risk because risk increases variation. Innovation, on the other hand, seeks to brave undiscovered, uncertain territory. Such fledgling efforts are inherently inefficient. Innovation requires a tolerance for risk-taking and failure. A corporate culture dominated by Six Sigma management theory will be inclined toward inwardly focused, continuous, incremental types of improvements in process, customer service, systems, operations. A culture that fosters disruptive innovation will be more entrepreneurial, outwardly focused on new markets, technologies, and business models. You explore big new growth platforms that add significant chunks of revenue and profit.”

She borrows a term from a Harvard Business Review to describe organizations that can handle both incremental change and bold initiatives — “ambidextrous organizations.”

“In a Harvard Business Review article, ‘The Ambidextrous Organization,’ Charles O’Reilly III and Michael Tushman, business school professors at Stanford and Harvard, respectively, acknowledge the paradox of exploitative vs. explorative efforts. They conclude that smart companies separate the more ambitious efforts at innovation from ongoing efforts at continuous improvement. That allows for different processes, structure, and cultures to emerge within the same company. An ‘ambidextrous’ organization, they write, has independent project teams integrated into the existing management hierarchy. A tightly integrated senior team makes sure the activities of the right hand don’t work at cross-purposes with the goals of the left. Both the traditional business and the fledglings report to the same executive team but are managed under a very different set of rules, depending on where each is in its maturity cycle. Remarkably, in the professors’ study of 35 attempts at breakthrough innovation, ambidextrous structures were successful 90% of the time. Other models, such as cross-functional teams and unsupported skunkworks-style groups, were successful less than 25% of the time.”

Rae concludes her “Viewpoint” with the following principles:

“Here are three strategies for managing incremental and disruptive innovative initiatives simultaneously:

• Separate the efforts. Don’t expect people running mature businesses to behave the same as those in charge of startups. Each type has its own incentives, organizations, and talent needs.

• Appoint an ambidextrous senior manager to oversee both efforts. A general manager with responsibility for both traditional and new businesses will foster efficiency by sharing such resources as HR, marketing, and finance, and by promoting integration of the initiatives when the time is right.

• Support both teams appropriately. Don’t shortchange one over the other. It kills me to see so much investment in reengineering, training, and employee time being poured into Six Sigma initiatives in the name of cost savings when innovation gets starved for critical research requirements like white-space analysis, ethnographic research, or prototyping. It’s as if leadership believes companies can shrink their way to greatness.

Innovation and Six Sigma are different methods that beget different results and require different management styles. They can coexist. Just recognize that each requires its own formula for success.”

There have been (and will continue to be) managerial fads — the next big thing — but leaders need to remember that these are tools that must be applied correctly. The adage — if you only have a hammer everything looks like a nail — applies in business as it does elsewhere. You need to fill your kit with more than a single tool.