A company’s most important asset isn’t raw materials, transportation systems, or political influence.
It’s
creative capital—simply
put, an arsenal of creative thinkers whose ideas can be turned into
valuable products and services. Creative employees pioneer new
technologies, birth new industries, and power economic growth.
Professionals whose primary responsibilities include innovating,
designing, and problem solving—the creative class—make up a third of the
U.S. workforce and take home nearly half of all wages and sala-ries.
If
you want your company to succeed, these are the people you entrust it
to. That much is certain. What’s less certain is how to manage for
maximum creativity. How do you increase efficiency, improve quality, and
raise productivity, all while accommodating for the complex and chaotic
nature of the creative process?
Many academics and businesses have made inroads into this field.
Management guru Peter Drucker identified the role of knowledge workers
and, long before the dot-com era, warned of the perils of trying to
“bribe” them with stock options and other crude financial incentives.
This view is supported by the research of Harvard Business School’s
Teresa Amabile and Yale University’s Robert Sternberg, which shows that
creative people are motivated from within and respond much better to
intrinsic rewards than to extrinsic ones. Mihaly Csikszentmihalyi at
Claremont Graduate University in California has documented the factors
that generate creativity and its positive effects on organizations,
advancing the concept of “flow”—the feeling people get when their
activities require focus and concentration but are also incredibly
enjoyable and rewarding.
While most students of the creative process have focused on what makes
individuals
creative, a growing number of thinkers such as Andrew Hargadon at the
University of California, Davis, and John Seely Brown, former chief
scientist of Xerox, are unlocking the social and management contexts in
which creativity is most effectively nurtured, harnessed, and mobilized.
Eric von Hippel of MIT and Henry Chesbrough of the University of
California, Berkeley, have called attention to the critical role played
by users and customers in the creative process and to a new model of
“open innovation.” Duke University’s Wesley Cohen has shown that
corporate creativity depends upon a firm’s “absorptive capacity”—the
ability of its research and development units not just to create
innovations but to absorb them from outside sources.
Business history is
replete with examples of companies—from General Electric and Toyota to
the design-intensive Electronic Arts, Pixar, and IDEO—that have tapped
into the creativity of workers from a wide range of disciplines, as well
as the creativity of users and customers, to become more innovative,
more efficient, or both.
Despite such insights and advances, most businesses have been unable
to pull these notions of creativity together into a coherent management
framework. SAS Institute, the largest privately held software company in
the world, is a notable exception. Based in Cary, North Carolina, SAS
has been in the top 20 of
Fortune’s 100 Best Companies to Work
For list every year it’s been published. The employee turnover rate
hovers between 3% and 5%, compared with the industry average of nearly
20%. The governments and global corporations that rely on SAS’s
sophisticated business-intelligence software are overwhelmingly
satisfied: The subscription renewal rate is an astounding 98%. And in
2004, the company enjoyed its 28th straight year of revenue growth, with
revenues topping $1.5 billion.
What’s the secret to all this success? As an academic and a CEO, the
two of us approach this question differently, but we’ve come to the same
conclusion. SAS has learned how to harness the creative energies of
all
its stakeholders, including its customers, software developers,
managers, and support staff. Over the past three decades—through trial
and error as well as organic evolution—SAS has developed a unique
framework for managing creativity, one that rests on three guiding
principles:
Help employees do their best work by keeping them
intellectually engaged and by removing distractions. Make managers
responsible for sparking creativity and eliminate arbitrary distinctions
between “suits” and “creatives.” And engage customers as creative
partners so you can deliver superior products.
These principles are driven by the premise that creative capital is
not just a collection of individuals’ ideas, but a product of
interaction. As University of Chicago organization theorist Ronald Burt
has shown, long-term relationships between employees and customers add
to a company’s bottom line by increasing the likelihood of “productive
accidents.” Thus, when SAS nurtures such relationships among developers,
salespeople, and customers, it is investing in its future creative
capital.
Managing with a framework like SAS’s produces a corporate ecosystem
where creativity and productivity flourish, where profitability and
flexibility go hand in hand, and where hard work and work/life balance
aren’t mutually exclusive.
Help Workers Be Great
Creative people work for the love of a challenge. They crave the
feeling of accomplishment that comes from cracking a riddle, be it
technological, artistic, social, or logistical. They
want to do
good work. Though all people chafe under what they see as bureaucratic
obstructionism, creative people actively hate it, viewing it not just as
an impediment but as the enemy of good work. Do what you can to keep
them intellectually engaged and clear petty obstacles out of their way,
and they’ll shine for you.
Stimulate their minds.
SAS operates on the belief that invigorating mental work leads to
superior performance and, ultimately, better products. It does not try
to bribe workers with stock options; it has never offered them. At SAS,
the most fitting thanks for a job well done is an even more challenging
project.
An
InformationWeek survey of tens of thousands of IT workers
confirms that theory: On-the-job challenge ranks well above salary and
other financial incentives as the key source of motivation. This is no
surprise—since the pioneering work of Frederick Herzberg, managers have
known that learning and being challenged motivate workers more than
money or fear of disciplinarian bosses. What’s different about SAS is
that it goes to uncommon lengths to find the right intrinsic motivator
for each group of employees.
Artists are inspired by the desire to create beauty. Salespeople
respond to the thrill of the hunt and the challenge of making their
quotas. Whatever the particular incentives, companies can take steps to
help employees realize their goals. To ensure that its salespeople could
make their quotas, for example, SAS developed a product-knowledge
management system and created the position of sales engineer. That
person’s job is to answer staff questions and solve technical problems,
so the sales reps can spend more time chasing down leads and less time
digging up product specs.
Since developers thrive on intellectual stimulation, SAS sends them
to industry- and technology-specific conferences, where they can hone
their programming skills and build relationships within the larger
software community. SAS stages its own R&D expos, where SAS
developers share their work with the nontechnical staff. The company
also encourages employees to write white papers and collaborate on
articles and books in order to showcase their knowledge. And SAS
maintains a healthy training budget so individuals can keep up with
cutting edge technologies. When employees return to the office, they are
energized to apply what they’ve learned to their own projects.
Another way SAS keeps employees engaged is by frequently updating
their tools. With the most advanced third-party productivity tools on
the market, it’s hard to get bored. Homegrown defect-tracking tools and
source-control tools are continually refined, as well, and help workers
do their jobs efficiently. In all cases, form follows function. As much
as leaders at SAS value technology, they strongly believe that it’s
people who make technology useful, not the other way around. If a tool
is constrictive or makes people change their preferred ways of working,
then it gets scrapped. The goal is always the same—to help workers be
great.
That holds true for all types of positions. Everyone working on the
SAS campus is an employee; the company doesn’t outsource any job
functions. Whether you’re a chef or a programmer, a groundskeeper or a
director, you are a full member of the SAS community, and you receive
the same benefits package. SAS recognizes that 95% of its assets drive
out the front gate every evening. Leaders consider it their job to bring
them back the next morning.
SAS recognizes that 95% of its assets drive out the front gate
every evening. Leaders consider it their job to bring them back the next
morning.
Minimize hassles.
In the creative economy, time is precious. And as much as creative
people like to feel challenged, they don’t want to have to surmount
unnecessary obstacles. The former situation inspires greatness; the
latter, migraines—hardly an ideal condition for creative thought. So SAS
takes great pains to eliminate hassles for workers wherever and
whenever it can, both off and on the job.
People who are preoccupied wondering “When can I fit in time at the
gym?” or “Is that meeting going to waste my whole afternoon?” can’t be
entirely focused on the job at hand. The more distractions a company can
remove, the more its employees can maximize their creative potential
and, in turn, produce great work.
The Oprah Winfrey Show, 60 Minutes,
and lots of newspaper and magazine articles have publicized the perks
SAS lavishes on its employees, but the company isn’t just doling out
treats willy-nilly.
There’s a deliberate process for choosing which
benefits to offer (or, put another way, which distractions to
eliminate). First, by conducting annual surveys and fielding employees’
suggestions, HR finds out what people need. Next, it determines whether
SAS can reasonably meet each need, asking, “Will we get enough of a
return in terms of employee time saved to merit the investment?” If the
answer is yes, SAS provides the benefit. If it’s no, the company
explains why. Even when SAS says no, it earns workers’ trust and respect
by engaging in a dialogue rather than issuing a seemingly arbitrary
decision.
SAS has said yes to quite a lot. On campus, it has medical facilities
for employees and dependents. Additionally, there’s a Montessori day
care center, and children are welcome in the company cafeteria, so
families can eat lunch together. There are also basketball courts, a
swimming pool, and an exercise room on-site, all of which make it easier
for employees to fit a workout into their day.
The company’s Work-Life
Department provides educational, networking, and referral services to
help employees choose the right colleges for their teenagers, say, or
find the best home health aides for their parents. Massages, dry
cleaning, haircuts, and auto detailing are offered on-site and at
reduced costs. (But SAS doesn’t have, for instance, a doggie day care
center because the numbers didn’t add up.)
Obviously, the perks cost the company something, but think about the
net gain. Not only do the benefits make workers more productive, but
they also help retain those workers, reducing the company’s expenses for
recruitment and replacement. SAS saves about $85 million a year in such
costs, according to Stanford University’s Jeffrey Pfeffer, a leading
scholar of talent-based organizations.
It takes roughly six months to
get a new worker up to speed in terms of technical knowledge, but it
takes years for the employee to truly absorb a company’s culture and
forge solid relationships. By retaining workers, SAS protects and
continues to enrich long-standing relationships among sales and support
staff, developers, and customers—and it is in these relationships that
creative capital resides.
Of course, there are other, less tangible advantages.
Having health
care on-site, for instance, reduces the amount of time employees are
away from work for doctor visits. And medical conditions are generally
caught earlier—because if it’s not a hassle to set up an appointment and
there’s no need to travel across town, most people will see a doctor in
the earlier stages of illness. As a result, employee productivity is
bolstered, and less time is lost for medical reasons.
Likewise, subsidizing two-thirds of the cost of day care is an
investment for SAS, not an unnecessary expense. It helps parents afford
to come back to work, which means both the company and the employees
win. SAS acknowledges and respects that employees have lives outside the
office. The corporate philosophy is, if your fifth grader is in his
first school play, you should be there to see it. SAS has earned a spot
on
Working Mother’s list of best companies so many times that professionals are lining up to apply.
SAS takes equal care to reduce administrative and other on-the-job
hassles for its employees. At SAS, you won’t find two-hour weekly staff
meetings slotted into everyone’s day planner. People meet when demands
warrant it, not because “it’s time.” The CEO has been known to stand up
and leave the room when a meeting becomes unproductive. The informal
culture fosters impromptu discussions, and one of managers’
responsibilities is to make sure the people who need to be sharing
information are talking to one another.
It’s not just useless meetings that SAS is out to eliminate—it’s also
outdated beliefs about proper ways of working. Take the standard
workday. Creativity is a fickle thing. It often can’t be shoehorned
between the hours of nine and five; the Muses don’t always show up on
time for appointments. It’s more important to capture the innovative
insight—whenever it strikes—than to keep rigid work hours.
To support
the creative process and meet the demands of family life, flexible
workday guidelines encourage people to start each day at whatever time
is best for them. Some SAS jobs do require set schedules. Landscapers,
for instance, arrive at 6 am to get the bulk of their work done before
the sun gets too hot. But in general, flexibility is appropriate, and it
yields more output from workers, not less.
Creativity can’t be shoehorned between the hours of nine and five. The Muses don’t always show up on time for appointments.
Although the press has played up the company’s 35-hour workweek, the
truth is, employees often put in extra time to complete a project or
fulfill a responsibility. But make no mistake: This is a far cry from
some Silicon Valley start-up. The company actively discourages people
from working 70-hour weeks. “After eight hours, you’re probably just
adding bugs” is a company proverb, repeated often enough by the CEO and
others that managers take it seriously. SAS encourages employees to
disconnect from work for a time and then come back recharged. Creative
people can be trusted to manage their own workloads; their inner drive
to achieve, not to mention accountability among colleagues, compels a
high level of productivity.
We’re All Creatives
Few companies place as high a value on an egalitarian work culture as
SAS does. There’s no artificial dichotomy between suits and creatives
because everyone there is a creative. The fact that the CEO still writes
code is well known, but all of SAS’s managers do hands-on work. Gale
Adcock, the director of SAS’s on-site health care center, for instance,
is a nurse practitioner who sees her own patients one afternoon a week.
The willingness—even eagerness—of managers to roll up their sleeves and
delve into the “real” work of the organization sends an important
message: We are all on the same team, striving toward the same goal of
providing a superior product.
The importance of that point cannot be overstated. Knowing that your
boss thoroughly understands and respects the work you do—because he or
she has actually done it—has many positive outcomes. In addition to
feeling that your contributions are appreciated, you’ll probably be less
hesitant to ask questions, because you know your manager “gets it,” and
you’ll have more faith in your boss’s decisions.
Business life abounds
with stories about managers who’ve failed to earn the respect of
professional, technical, and other creative employees: the university
president with no scholarly credentials, the law school administrator
who’s not a member of the bar, the movie studio executive who provokes a
rebellion among directors, actors, and other talent.
Because colleagues at SAS earn one another’s respect by producing
excellent work, not by having a position near the top of the org chart,
people aren’t overly concerned with titles. Consequently, it’s not in
keeping with the corporate culture to withhold constructive criticism of
higher-ups or hide problems from them; doing so would just result in an
inferior product. In fact, most of SAS’s leaders have an open-door
policy.
People are free to pop in to talk over an issue or pitch a new
product idea. And the CEO might stop by your office to ask you questions
about the project you’re working on.
As egalitarian as they may be, creative companies must find the right
role for their managers. At SAS, that role is to spark the creativity of
the people around them. Managers do that, first, by asking lots of
questions. As Carl LaChapelle, director of the Display Products
Division, explains, “If you tell everyone, ‘Here is how to do it,’ then
all you are really measuring is their typing skills.”
The managers also bring groups of people together to facilitate the
exchange of ideas and to spur innovation. For example, a number of years
ago, the CEO believed so strongly in the importance of creating
Enterprise Guide—a Windows-based forecasting application for business
analysts—that he moved developers from various units down to the
basement of one building so they could collaborate on the project
full-time. To help shepherd it along, the CEO kept a satellite office in
this Skunk Works area. Having him there not only motivated the team but
also broadcast the company’s commitment to the effort.
Finally, the managers clear away obstacles for employees by procuring
whatever materials they need. Larnell Lennon, who leads the
software-testing team, describes his job as “Go get it, go get it, go
get it.” When his people come to him asking for a software package or
financial support, he doesn’t pepper them with questions. If it’s a
reasonable request, he takes care of it. He knows he doesn’t have time
for anything less than complete trust in his employees, and vice versa.
If the outcomes aren’t up to snuff, that’s a different matter. But in
his seven years in the position, he says, he hasn’t been given one
reason to mistrust his people.
That’s not to say that SAS never has difficulties with employees.
With its enticing array of benefits, SAS is bound to attract a few
people who would rather enjoy the perks than do the work. The company
uses rigorous hiring practices to prevent such candidates from getting
in the door; applicants may have to wait months for a decision while the
company conducts a thorough vetting.
Once they make the cut, they enter a highly collaborative work
culture. And since peers as well as managers are technically savvy, it
becomes clear pretty quickly when someone isn’t performing up to
expectations. That person is given a corrective action plan and can
either try to improve his or her behavior in the next three months or
leave immediately with a parting compensation package. Either way, the
process serves both the company and the employee well. Some have
described SAS’s philosophy as “Hire hard, manage soft.” But “Hire hard,
manage open, fire hard” is more apt. SAS, in other words, takes a
relaxed approach toward controls; but the culture is allergic to couch
potatoes.
There’s absolutely no penalty for making honest mistakes in the
pursuit of better products, though. Experimentation is crucial for
breakthroughs, and some paths are bound to be dead ends. In fact, senior
research and development director Deva Kumar gets upset only when
people
don’t do something, because stasis can’t lead to new
insights. A few years back, SAS announced a new video game division, and
managers let developers migrate there. When the department ended up
failing, the developers were welcomed back where they came from. Even
though the initiative didn’t succeed, it taught management some valuable
lessons and reminded employees that their company supported them,
earning their loyalty.
Keep the Customer Satisfied
So far, we’ve shown how SAS keeps workers stimulated and provides
perks that make employees at most other companies green with envy. We’ve
described a management system that builds collegiality and trust. In
the business world, though, it all boils down to deliverables. There are
plenty of companies whose supposedly enlightened, “new age” management
policies led them straight to financial ruin—and where new management
came in and imposed neo-Taylorist controls in an attempt to undo the
damage. Ultimately, if you don’t build a product that people want (or,
better yet, need), you won’t be around for long. Engaging customers—the
final piece of the management framework—is what keeps SAS from turning
into a country club for talented techies.
Every company needs a constituency that holds its feet to the fire.
For publicly held companies, it’s Wall Street. Sure, they have
customers, too, but Wall Street is so quick and ruthless that, in
practice, it’s hard to do the right thing by customers if the Street
wants something else. SAS needs discipline as much as any company, but
being private, it gets that from customers.
That has big advantages, the
greatest of which is this: While the stock price just tells you
thumbs-up or thumbs-down, a customer tells you why, and how to get
better, and will work with you to improve. But because the message from
customers is more nuanced, it can also be more ambiguous. It’s
important, therefore, for management to make sure people throughout the
organization hear customers’ voices loud, clear, and unfiltered—so
they’re as unambiguous as a stock quote.
It’s important to make sure people throughout the organization hear
customers’ voices loud, clear, and unfiltered—so they’re as unambiguous
as a stock quote.
Day in and day out, SAS gathers—and acts on—customer complaints and
suggestions through its Web site and over the phone. The company also
solicits feedback once a year through its Web-based SASware Ballot,
which asks users about additional features they would like. SAS
prioritizes complaints and comments and routes them to the appropriate
experts. Problems and suggestions are tracked in a database.
When it’s
time to develop the next version of software, SAS resolves all recorded
glitches and incorporates as many suggestions as feasible. For most of
the company’s 29 years, it has implemented the top ten customer
requests. It has taken action on approximately 80% of all requests
fielded.
Additionally, SAS collects feedback at an annual users’ conference,
which is quite unlike the usual sales-pitch-in-disguise event. Jeffrey
Pfeffer described it as more like a Grateful Dead show than a standard
software-industry hole-mending session. What it is, really, is a hotbed
of creative energy. It’s a forum for two groups of mutually respectful
stakeholders to challenge each other to improve and innovate.
Imagine for a moment the vast creative potential of millions of
users—highly intelligent professionals hailing from diverse disciplines
and 110 countries. (SAS provides software to 96 of the top 100 companies
on the
Fortune Global 500, and to 90% of all 500.) This is the
biggest and best focus group that loyalty can buy. Since these
customers have access to all the latest software on the market, they’re
in a unique position to think comparatively about what the product they
need should do, as well as what it shouldn’t do.
According to SAS’s
marketing creative director, Steve Benfield, it’s difficult to develop
software “when you don’t have some external validation of one particular
set of ideas over another…. But finding out what resonates with those
beyond the office walls—that’s gold!”
Creative capital is generated every time SAS’s employees and
customers interact. Consultants and technical support staff don’t just
troubleshoot; they collaborate with users to invent new solutions.
Salespeople don’t just sell software; they build long-term relationships
and, in the process, learn surprising things about their clients’
needs. SAS might be the only company that prints the names of its
software developers in product manuals. Customers can—and do—call them
up. And because employee loyalty is so high, the developers actually
answer the phone: They haven’t moved down the road to start-up number
seven.
In large part, SAS can thank its subscription-plan business model for
these regular interactions between employees and customers, and for its
relatively stable revenue flows in a volatile industry. Customer
loyalty is so high that the company saves money on advertising and other
sales efforts. As a result, fully 26% of SAS’s budget gets channeled
directly into research and development. The average for high-tech
companies is 10%. A well-funded R&D department leads to better
products, which leads to happier customers, which leads to—you can see
where this is going.
Another factor in customer allegiance is SAS’s devotion to creating
bug-free products. Users of most software products have been conditioned
to accept glitches as inevitable in new releases; imagine their
surprise (and gratitude) when that isn’t the case. Twenty years ago, a
particularly costly coding mistake was made at SAS. The product was sent
to market, and fixing the error proved to be enormously expensive for
customers and technical support staff alike. Lesson learned.
These days,
SAS performs some of the most robust premarket testing in the business.
Testing teams run through a product from a developer’s standpoint, a
salesperson’s standpoint, and a customer’s standpoint. If the product
isn’t painless to evolve, sell, and use right away, SAS goes back to the
drawing board.
SAS doesn’t waste time and money patching up what it could have
gotten right from the start. An ounce of prevention is worth a pound of,
well, tech support. That doesn’t mean support people aren’t needed. But
those creative professionals should be spending most of their time
working with users to find ways to make the products and relationships
better, not untangling messes that could have been avoided. By all
accounts, that’s exactly what happens. The average wait time on the tech
support line is 34 seconds. And more than three-quarters of customer
issues are solved within 24 hours. These are motivated employees
providing first-rate solutions to very happy customers.
• • •
The creative economy is here to stay, and companies that figure out
how to manage for creativity will have a crucial advantage in the
ever-increasing competition for global talent. We believe that
executives can look to SAS’s management principles for guidance in
boosting innovation, productivity, and business performance. If you
leverage the intrinsic motivation of creative workers by stimulating
their minds and minimizing hassles; if you raze barriers between
managers and workers by ensuring that your managers are creatives, too;
if you tap into the creative talents of your customers instead of
looking just to your workers for new ideas; and if you nurture long-term
relationships with users and employees alike, you will increase your
creative capital manifold.
There’s a virtuous cycle in play at SAS. How quickly other
corporations can readjust the way they manage their own creative workers
will determine how gracefully we are all able to transition into the
creative age.
A version of this article appeared in the
July–August 2005 issue of
Harvard Business Review.
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