Sunday, August 10, 2014

Creativity, Inc., and The Last Liberal Art

I rarely delve into the genre best described as "General Management" since I quickly get annoyed with formulaic nostrums for success and the lionization of specific business leaders, particularly where they appear to have been lucky rather than good. But I'd heard so much positive press about Ed Catmull's "Creativity, Inc." that I decided to dip my toe in just this once. I'm grateful that I did, because Catmull's book is extremely atypical of the genre. Catmull is one of the co-founders of Pixar, and the current President of Pixar, Disney Animation and DisneyToon. He offers a fascinating look at Pixar's history, including its many challenges throughout its history. Steve Jobs fans will find the book worthwhile simply for the anecdotes about him, and an afterword describing his contribution to Pixar. But even more importantly, I think the book has lessons for those outside what we traditionally see as "creative" industries. It won't surprise friends and long-time readers that I think of investing as a creative enterprise to a large degree (note that I said "investing" rather than "finance", since I don't think loan officers, for example, should be too creative in their professional lives - we know how that ends!). That said, I do think that even those who are unambiguously outside the "creative" world (e.g. commercial bankers) can learn a lot about creating strong and flexible organizations from Catmull's deep insights into these issues (as I summarize in the third paragraph).

I imagine there are many people who will take issue with my suggestion that investing should be creative. For some, "creative" investing has the whiff of Madoff-style deception, or Victor Niederhoffer-style volatility. For others, investing is best pursued by mechanical rules, either through index funds, dollar-cost averaging or algorithms tied to valuations. It is difficult to refute each of these individually, and I have a fair amount of sympathy for those who eschew active management at all costs. And it seems that active managers have understood their customers well, realizing that career longevity is tied to avoiding underperformance, rather than maximizing long-term performance, as Porter and Trifts have shown. Nonetheless, I maintain that that rare breed of manager - the alpha generator - must be creative in generating ideas, skilled in adapting to the complex currents of economies and markets, and humble in the face of mistakes. Robert Hagstrom was spot-on when he brilliantly described investing as the "last liberal art", and Catmull echoes this in his book when he writes, "Craft is what we are expected to know; art is the unexpected use of our craft."

Catmull's book touches on many themes close to my heart - uncertainty, randomness, and social dynamics, among others. It is difficult to capture his lessons adequately without the resonance of his anecdotes about Pixar. Nevertheless, here are some of the broader lessons that are applicable to creating strong, loosely "creative" organizations:

- Make a policy of hiring people smarter than you are, no matter how threatening it may seem as a manager. An organization that is committed to seniority is doomed to mediocrity.
- "If you give a good idea to a mediocre team, they'll screw it up. If you give a mediocre idea to a brilliant team, they will either fix it or throw it away and come up with something better. Getting the right people and the right chemistry is more important than getting the right idea."
- Create organizations where people are encouraged to - and see it as their duty to - communicate problems and offer solutions. Many problems lie hidden from the view of management. 
- Candid and bracing (but constructive) feedback and the iterative process allows creativity to be channelled into an end product. "You are not your ideas, and if you identify too closely with your ideas, you will take offense when they are challenged."
- "Mistakes aren't a necessary evil. They aren't evil at all. They are an inevitable consequence of doing something new (and, as such, should be seen as valuable; without them we'd have no originality)."
- Leaders should talk about their mistakes to make it safe for others to follow suit. 
- "While we don't want too many failures, we must think of the cost of failure as an investment in the future."
- "The antidote to fear is trust...Trusting others doesn't mean that they won't make mistakes. It means that if they do (or if you do), you trust that they will act to help solve it."
- "Management's job is not to prevent risk but to build the ability to recover."
- "When someone hatches an original idea, it may be ungainly and poorly defined, but it is also the opposite of established and entrenched - and that is precisely what is most exciting about it."
- "In an unhealthy culture, each group believes that if their objectives trump the goals of the other groups, the company will be better off. In a healthy culture, all constituencies recognize the importance of balancing competing desires - they want to be heard, but they don't have to win."
- "Randomness is not just inevitable; it is part of the beauty of life. Acknowledging it and appreciating it helps us respond constructively when we are surprised."
- "Those with superior talent and the ability to marshal the energies of others have learned from experience that there is a sweet spot between the known and the unknown where originality happens; the key is to be able to linger without panicking."
- Hindsight is not 20-20. "While we know more about a past event than a future one, our understanding of the factors that shaped it is severely limited", so we must be cautious about drawing generalized lessons from events.
- Creativity is "unexpected connections between unrelated concepts or ideas", and we need to be in a certain mindset to make those connections. 
- "Our specialized skills and mental models are challenged when we integrate with people who are different."
- "Measure what you can, evaluate what you can measure, and appreciate that you cannot measure the vast majority of what you do."

As I re-read this, I realize there is the danger of this coming across as a bunch of management-speak platitudes, but I urge you again to read the book for yourself and mull over a book that I hope to return to many times in the future.

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