Innovation is often portrayed as the organisational equivalent of ‘motherhood and apple pie’, yet in practice we know that it can generate some truly nightmarish outcomes. Yesterday’s report on the HBOS debacle is a striking, yet by no means isolated illustration of how seemingly ‘enterprising’ corporate leaders can overturn long-established organisational structures and practices (in this case, more than a century of socially and economically productive service as a mutually-owned building society, underpinned by financial probity), unleashing innovations whose destructive impact continues to reverberate.
I’m currently leading the team developing a new undergraduate module at The Open University, which explores innovation and entrepreneurship. Given the focus of this blog, you won’t be surprised that I’m keen to engage students with the challenge of examining (economically, socially and environmentally) ‘sustainable’ approaches to innovation and entrepreneurship and how they can be promoted. I’ve selected two sources here, which provide contrasting insights into this question:
Firstly, the entrepreneurship researcher William Baumol (1990) has provided us with a useful historical perspective on the differential (economic) impacts of entrepreneurial activity, distinguishing periods in which it has proved ‘productive’, ‘unproductive’ and outright ‘destructive’. In Baumol’s reading, much depends on the institutional conditions, since these influence the potential payoffs to different types of entrepreneurship – and looking back at the HBOS case, it’s easy to see how this makes intuitive sense. However, while institutional structures are clearly an important factor in these developments, it’s worth recalling that some financial institutions managed to side-step reckless innovation in pursuit of speculative gain, and the catastrophic failures that quickly ensured. This is why macro-level analysis needs to be complemented by an understanding of organisation-level factors.
In considering how to avoid destructive innovation within organisations, I’m drawn to a second, and somewhat different, source. In his (1854) novel, Hard Times, Charles Dickens dissected the damaging societal impact of the new Utilitarian ethic, which was cutting a swathe through Victorian Britain, spawning organisational innovations that ranged from the panopticon to the production line. Dickens’s depiction of the tragic relationship between Thomas Gradgrind and his immediate family may be criticised as overly-sentimental, yet it remains emblematic of modernist organisational cultures that continue to trample over human individuality and creativity in pursuit of ostensibly rational and progressive strategic goals. Here is Gradgrind, in conversation with his daughter Louisa, in a belated attempt to justify and make amends for his actions – before Dickens intervenes to deliver his damning verdict :
“‘I had proved my – my system to myself, and I have rigidly administered it; and I must bear the responsibility of its failures. I only entreat you to believe, my favourite child, that I have meant to do right.’ He said it earnestly, and to do him justice he had. In gauging fathomless deeps with his little mean excise-rod, and in staggering over the universe with his rusty stiff-legged compasses, he had meant to do great things. Within the limits of his short tether he had tumbled about, annihilating the flowers of existence with greater singleness of purpose than many of the blatant personages whose company he kept.” (Charles Dickens (1854) Hard Times, Book 3 – ‘The Garnering’, Chapter 1)
The Gradgrind effect could be interpreted as a case of top-down organisational innovation degrading its intrinsic innovative capacity. There is evidence that a managerial culture of fear, reinforced by metrics-based performance targets, can stifle innovation in today’s knowledge-intensive organisations. If the flowering of ‘healthy’ forms of creative, critical and innovative thinking falters, organisational performance is likely to deteriorate over time. This, in turn, provides both the space and the rationale, for well-meaning yet misguided managerial initiatives that seek to address symptoms of organisational dysfunction, rather than their underlying cause. In short, while HBOS may prove to be largely a case of destructive entrepreneurship driven by institutional pressures, I suspect that elsewhere the spirit of Gradgrind is still abroad – an equally potent driver of catastrophic innovation, whether acting in isolation, or at worst in combination with its Baumolian counterpart.