Firms with tighter budgets produce more creative products than companies with unlimited spending power, new research suggests.
Business school researchers found financial constraints boost, rather than blunt, creativity when it comes to generating new products. The findings follow a study by Cass Business School on the effect of budget restrictions on the creation of new childrens toys.
“We found that individuals subject to financial constraints not only designed more creative products, but did so using a lower budget and fewer resources,” said co-author Dr Irene Scopelliti of Cass Business School.
The researchers tasked two groups with designing a new childrens toy from a list of 20 objects. One group was left to choose freely among the items while the other was told they could choose any objects provided they stayed within a fixed budget.
Individuals given freedom to choose any objects picked a greater number of items using a larger budget, while the reverse was true for those subject to financial constraints, who ultimately produced more creative products.
The findings suggest that in a financially constrained environment, innovation teams may be more likely to find creative combinations that would otherwise be hidden if an abundance of resources are available,” said Scopelliti.
“When facing a budget constraint, people also tend to pay more attention to the actual value of resources. This prevents them from overspending on items that would not enhance the creativity of the product.
The authors also discovered that individuals with novelty-seeking tendencies were the most creative under financial restrictions. By contrast, their creativity dimmed when they were faced with open-ended budgets.
Novelty seekers are individuals who tend to seek out new information. Therefore, they can access a wider stock of experience and perspectives when generating a solution to a problem,” said Scopelliti. Intriguingly, this stock of experience also puts them under stress when facing an unconstrained problem. Choice overload taxes novelty seekers cognitive capacity therefore reducing their ability to focus on the creative task.
For individuals characterized by high novelty-seeking tendencies, the adage less is more is true. By restricting the problem space, financial constraints enhance the opportunity for novelty seekers to focus on the task, thus improving the creative outcome.”
Scopelliti said the findings could have implications for companies hiring new employees or selecting project teams.
“While creativity is enhanced by financial constraints, the ability to exploit the opportunity may well only be available to novelty seekers whose creativity is heightened by the challenge,” she said.
Novelty seekers may also be more productive under these constraints because they can focus better on the creative task without being overwhelmed by information overload.
She said the findings also have implications for a companys innovation policy in a downturn.
“When the market shrinks in a recession, the strategy of betting on innovation may be the right one, especially under resource constraints. This condition may push companies to better exploit the resources they have and enable them to perform better than companies reluctant to adopt changes in periods of crisis.