What's wrong, you might argue, with keeping costs down? Quite a bit, it turns out. If your objective is to design a product people want to use, or to invent something brand new, you must embark on a journey of creativity and innovation. That might seem like normal, every day business, but don't make the mistake of trying to run your creative organization like a conventional one.

Business sage Peter Drucker asserted creative employees "are not labor, they are capital." This has profound implications on the way you should manage and account for your business. As Drucker also asserted, "What is decisive in the performance of capital is not its costs, but its productivity."

In other words, if there is something you can do to enhance the creative abilities of your people, it doesn’t really matter how much it costs, or how long it takes. If it results in a successful invention, or a compelling design, that’s what really counts.

Business people trained in industrial age thinking cut costs from force of habit. After all, expense reduction was an excellent strategy when manufacturing costs were dominant; they are easy to measure and provide instant benefits. In the post industrial age, manufacturing costs are neither dominant nor elastic, so reducing them reduces your quality without improving your desirability. Today, trying to make your product cheaper just makes it frustrating to use and unlovable without making it any cheaper to buy. It’s no longer a valid competitive strategy.On the other hand, making a product that people love is an incredibly powerful weapon. Most people have figured out that it takes creativity and innovative thinking to make a product that people can fall in love with. The problem is that cutting costs immediately stifles any creative impulses your staffers might have. Real creative product development is a fitful exercise in doing silly, unreasonable things. As Scott Berkun describes in his excellent book, The Myths of Innovation, almost all game-changing, brilliant ideas seemed embarrassingly stupid at the time. Unfortunately, it means that you must give your people the freedom to spend plenty of quality time with truly goofy ideas. While the majority of those goofy, unproven thoughts will prove unworkable, your next conceptual breakthrough might be among them. I guarantee, though, that it will initially appear to be just as silly and unrealistic as the rest.

A tightly constrained problem set can be invigorating to creative thinking. Minimal tools and resources often bring out the best in people, but any externally imposed restriction sends a message. Arbitrary limits levied by management for misguided economy sends a very negative message.

It's just human nature; when you impose a deadline, a budget, or any resource limitations, you are really saying, "This is of marginal value so I'm restricting it." Because you limit new exploration but not the exploitation of known moneymaking activities, you are further declaring, "Don't waste time on any thing risky and unknown." People hear these tacit messages loud and clear and put their time into already proven activities, inhibiting any significant effort towards real innovation.

The counter-argument to giving freedom to creative people is they will fritter it away enjoying themselves but not moving the company forward. This can be a valid criticism in companies that lack a worthwhile corporate goal. However, if creative people know what that goal is, they will work hard to achieve it.

What business leaders must do is make certain creative people know the goal. They must hear it stated clearly, unequivocally, boldly, loudly, unanimously, and frequently. They need to know what successfully achieving the goal looks like. They need to be publicly and positively acknowledged (rewarded is good, too) when they advance the business mission.

You can't save your way to creativity. Creativity isn't necessarily expensive, but it's a human rather than industrial activity, and when you put external cost constraints on it, you put it in an artificial box that simply kills it. Creative people need unfettered time and attention to solve difficult conceptual problems.

In the business lexicon, time is money. That is, the longer it takes to do something, the higher the total cost. To bring costs down, industrial age business doctrine says to do things faster. But as Drucker says, productivity is more important than cost reduction. So, while time may be money, moving faster doesn't mean you are necessarily moving toward success. Moving quickly in the wrong direction is far worse than moving slowly in the right one.

There are two primary imperatives of the go-fast crowd: staying to a predefined schedule and avoiding wasting time traversing blind alleys. On the surface, both of these tactics seem eminently sensible. The truth is both of them are kryptonite to creative thinking. Creativity is spontaneous and cross-disciplinary, unpredictable and elusive. It requires unconstrained time to ponder, play, consider, and experiment. It doesn't necessarily take a long time, but if you try to put a time limit on it, you might as well drive a stake through its heart.

In a recent blog post, I discussed the problem of all good ideas seeming like bad ideas in advance. This makes it virtually impossible to avoid wasting time going down blind alleys. You can theoretically save money by not spending much time and effort on those dead ends, but you cannot detect those dead ends in advance. In practice, you simply have to spend some time exploring each alley to learn if it's a good one.

While it just seems like good, common sense business to keep costs down, this is merely a mirage, a chimera, an illusion left over from the rusty age of manufacturing. There is no longer any connection between what your product costs to make and the price at which you can sell it. Your employees are not turning raw materials into products, and cost accounting no longer works.

Your smart people are your capital, not your factory labor, and as Peter Drucker said, it is their productivity, not their cost that matters. The better you communicate the company mission to them, and the more you encourage them to spend time and money to innovate, the faster they will do so.

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