Creative Leadership

Innovation from the lab

Why Hierarchy Stifles Creativity

Hierarchies are great sometimes, just not necessarily for finding great ideas.

One of the foundational principles in organizations is the notion of the hierarchy. Efficient organizations need an efficient chain of command. Well-managed organizations require the supervision of trained managers running their departments and reporting upward to more senior decision makers. While there is raging debate about how deep or wide the structure of an organization should be, few would argue that the hierarchy should be scrapped all together. For all their efficiencies, hierarchies turn out to be remarkably inefficient when organizations are trying to leverage creative ideas and increase their innovation.

The problem is that the chain of command works well for issuing orders and making decisions. It works so well that creative ideas stand little chance of being utilized unless they’re being shared from the top downward. Creative ideas that come from the middle or lower levels of a hierarchy have to work their way up through a series of managers, each with the power to veto but each lacking the power to implement. Supervisors often reject innovative ideas because the individuals who developed theses ideas understand the novelty and applicability of them better than supervisors. As an idea moves through the different levels, the likelihood of rejection increases, since those managers are further from the domain the idea applies to and less likely to understand its true value in that domain. This turns a chain of command into what Vanderbilt professor Dave Owens calls a “hierarchy of no.” Owens, who worked as a designer for IDEO before joining the academy, asserts that the standard organizational structure contains natural constraints that kill innovative ideas.

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While the tendency for hierarchies to kill creativity is serious, it’s difficult to make a case for abandoning a chain of command entirely. While companies like W.L. Gore stand out for having abolished the hierarchical structure, Gore did so from inception. It’s difficult for current hierarchies to self-destruct in the service of creativity alone. One company has developed a system to leave the traditional chain of command in place, while still building a culture where creative ideas are given room to grow. The company, Rite-Solutions, did it by giving everyone in the organization $10,000. The money isn’t for spending; it’s not even real. The money is for investing on the company’s internal idea stock market. Rite-Solutions developed a system where anyone in the company can propose their idea by listing it as a stock and soliciting investment. No one needs to get approval from management before listing an idea. For every idea listed, the idea’s champion creates an “ExpectUs” (a pun on “prospectus”) which describes the idea and its potential. Each stock also has a “Budge-It” (a more obvious pun) which outlines the steps the ideas champion believes must be taken to move (or budge) forward. The new stock is given a starting price of $10 and even assigned a ticker symbol. As mentioned, each employee is also given $10,000 in virtual currency to invest in whatever ideas intrigue them. In addition to receiving investment money, each stock listing also has a comments thread for discussion on the merits of the idea and any next steps that need to be considered.

Just like in a real market, investment money flows unevenly to the ideas that investors favor and feel has the best chance of becoming a viable project. But employees don’t just invest money, they also volunteer their time and expertise to help the potential project. Once a week, a “market maker” logs into the system and revalues each stock based on the money invested and the time committed. Ideas that fail to attract enough interest are eventually removed. Ideas that gain momentum are given actual funding to help develop them into real projects. When a stock moves from an idea to a money making project, those who have invested their time get to share in the proceeds through bonuses or actual stock options. Anyone who lists an idea, even if it generates no investment, is given credit for doing so on their annual performance evaluation. In its relatively short lifespan, the system has already been a huge success. In its first year alone, the idea stock market accounted for 50 percent of the company’s new business growth.

What Rite-Solutions has created is a system for managing the flow of creative ideas without needing those ideas to make a death march through the hierarchy of no. The decision to green light a project doesn’t rest on any one manager or senior leader. Instead that power is distributed throughout the organization to people who are more likely to understand the ideas utility in its domain. If enough people, regardless of their level in the hierarchy, feel the idea has merit, than it is acted upon. This keeps the hierarchy in place, but democratizes the process of innovation. While the chain of command stays efficient, the creative process becomes efficient too.

David Burkus is an assistant professor of management at the College of Business at Oral Roberts University.

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