2

Why creativity?

Why creativity? Put the question to the state-owned Swedish bank SBAB, which has gone through a radical transformation from the old, established Sveriges Bostadsfinansieringsaktiebolag (Swedish Domicile Financing Ltd) to an aggressive building society with the acronym SBAB. SBAB has totally transformed its business for itself, its competitors and Sweden's population. Since as recently as 2000, by means of pioneering financial products and marketing programs such as ‘canned’ mortgages and mortgage blogs, the company has almost doubled its market share and tripled its customers. Annual sales have tripled, and according to investment bank Goldman Sachs, the value of the company and the SBAB brand have increased by several billions. Financial services in Sweden will never be the same again.

Another organization that has reaped the harvest of its creativity since 2000 is the pharmaceutical company Pfizer. Around the millennium shift, they reformulated a blood pressure medicine and marketed it instead as a man's best friend. With this creative twist, Viagra was born. It has since been sold for billions – annually.

Why creativity? Ask 3M that question, who like Pfizer managed to create one of the world's best-known and successful products. By thinking creatively about how to use a glue that did not work, the Post-it note was born. Today it sells more than all the functioning glues the company markets put together.

If you ask the people behind the Swedish free newspaper Metro the same question, you will hear a story of the future that became a reality thanks to a combination of an established product and a new business and distribution model – owing to insights about people's behaviour patterns and changing habits. The first edition of Metro was distributed in the Stockholm underground in 1995, and within 10 years the free daily had grown to over 60 editions in 19 countries with a readership of more than 18 million.

Apart from their success, these examples have one thing in common. They have been successful by being creative within their existing areas of activity. Instead of looking beyond what they already knew and trying to think up radically new products, they have used and developed their existing products, their know-how and their experience to achieve a creative result. Instead of thinking outside the box they have thought inside the box. Thinking inside the box increases the likelihood of achieving creative results and also strengthens the impact and value of the creativity.

The above examples provide some anecdotal evidence of the enormous power of creativity and the revolutionary effects it can have. The list of examples could be considerably longer (and we will see many examples later in the book), but I do not want to concentrate on individual cases. If we spend too much time on particular, brilliant examples, there is a risk that they become just that, brilliant examples, and that these companies may be seen as companies that had special advantages and, perhaps, special luck.

But this book is not about luck. It is about how you can systematically work with creativity, for the effects are systematic to a high degree. Creativity is not about taking a chance, it is about ensuring success. Figure 2.1 shows the result of a systematic analysis of 350 European, American and Asian brands within every area from cars to computers, cosmetics, clothes, drinks and cleaning products. Over a two-year period, researchers examined how creativity affected the company's outcomes in the form of sales growth, market share, profit levels and return on investment (ROI). They also measured product outcomes in terms of customer satisfaction with the products, and the perceived quality of the products. The percentages in Figure 2.1 show the extent to which creativity accounts for a company's earnings and how much the customers like the product.

At the top of the figure, you can see that when companies with high earnings are compared with those of lower earnings, 26% of the difference can be accounted for by the fact that the successful companies' products are improvement innovations. Considering all the factors that can affect a company's financial results (its market segment, the actions of its competitors, relations with suppliers, pricing of parts, yield conditions and much more) 26% is a surprisingly high figure. In the illustration, we can also see that improvement innovations account for 35% of the reason why certain products are regarded as being of higher quality and have more satisfied customers (this is also remarkable considering all the attributes of customers and their usage of the products that affect the result).

Figure 2.1

It also appears that for paradigm-challenging innovations the connections are evident, but not as strong. In contrast to improving innovations, which are products that the market and the customers can easily accept as a development of existing habits and buying patterns, paradigm-challenging innovations are products that completely alter people's behaviour and habits. In others words, you may already begin to suspect that it is better/easier to develop people's existing patterns and behaviour than to alter them. This important piece of the puzzle will be explored in depth later in the book.

If you are still not convinced about the enormous impact of creativity, then consider the sum of USD 405 million. This figure captures the net present value of an innovative pharmaceutical product according to systematic analyses that researchers have conducted over a 10-year period of 255 ground-breaking products in the USA, UK, Japan, France, Germany, Belgium and Switzerland.

Pharmaceuticals are an extreme branch, with very long development and patent times. At almost the other end of the spectrum we find cars, where existing models are constantly being improved and new models are developed at a furious pace. But even in these areas the connection between the companies' results and creativity are just as striking. American researchers analysed a total of 399 large and small product innovations over a six-year period and were able to summarize the results, as shown in Figure 2.2.

Figure 2.2

If one considers that the numbers in the figure show how the marketing of a single product affects the whole company, the effects are remarkable. If, for example, Ford makes a minor update to its Escort model, one can expect the whole company's sales figures to improve by 4.3%, profit by 0.6% and the value of the whole company by 1.1% within two months. If Ford were even more creative and marketed a completely new model, they could within a week expect to achieve the figures in brackets (which illustrate the average effect of big innovations), that is, a 6.0% increase in sales, a resulting profit improved by 2.1% and an increase in the total worth of the company of 1.2%.

Concentrating on creativity is the best investment you can make. The numbers speak for themselves. In a study of the 3000-plus stocks that were traded on the New York Stock Exchange from 1979 to 2001, researchers found that the major factor that clearly reduced a company's systematic risk (i.e. strengthened its independence of trade cycles and other external factors that can diminish its value appreciation and gave the company control of its future) was the amount and time invested in research and development (R&D). Table 2.1 shows clearly how investment in creativity gives a company considerably more security than, for example, its assets, age, liquidity, growth and financial strategy (the last two in fact increase the risk!). And even if the creative investment leads to products that do not reach the market for some years, you can probably reap your rewards immediately. An American study shows that simply announcing that a company is developing a new product raises its share price. In a study of 419 new product preannouncements from 1984 to 2000 in the high tech industry, it was found that yield increased, on average, by 14% for a whole year after the creative investment was made public.

Without even developing or promising new products, a company can gain a high return on its creativity. In a wide-ranging experiment, we conducted marketing campaigns for well-known and established products, including items from headache pills to coffee and washing-up liquid. By varying the amount of creativity in the campaign we could measure how people's reactions to the same companies and products were affected by the creativity the company signalled. The effects were striking. The more creativity there was in the marketing of the product, the higher the quality that people attributed to the product (in spite of the fact that these were established products that had been used before!) But even more interesting was the fact that people had higher expectations that future products from that company would be interesting, of high quality and satisfy their needs. Creativity in itself acted as a signal that the company was smart and flexible and had the ability to find superior solutions and solve problems far into the future.

Table 2.1 Effect on systematic risk

You have now seen some interesting examples and evidence – both for yourself and for whoever you might wish at some future time to persuade or convince – of the very tangible power of creativity, and it is now time to start some serious training.

We will now look more closely at how and why creativity works. We will look at market-related reasons for why creativity is so important, proceeding from concepts such as leaking buckets, market ceiling, efficient complexity and suitability. We will also see how in fact you can become a happier and healthier person. We will start in the usual way when designing a training programme – that is, by assessing your fitness. How creative are you and how creative is your company?