Can Capital Constraints Restrain Creativity? The Effect of Budget Constraints on Employee Creativity.

• In Event: Behavioral Managerial Research

Abstract

When setting budgets, managers may place constraints on how resources can be used in an effort to mitigate opportunistic behavior by subordinates. These restrictions can affect the ability of the subordinate to succeed in the budgeted task but may also have an unintended spillover effect on subordinates’ ability to innovate. Using an experiment, we find that individuals working under stricter budgetary constraints are more efficient in their use of budgeted resources, but are less successful in the budgeted tasks, than their counterparts who are allowed to draw from one pool of resources across tasks. Importantly, we find that imposing budgetary constraints also causes employees to subsequently generate fewer highly original and creative ideas in an unrelated activity. These findings suggest that the budget structure may have unintended consequences on the innovative capabilities of organizations. This paper contributes to the expansive budgeting literature by showing budgetary control design has organizational performance implications beyond the specified budgeted activity.

Authors

• Jordan Samet, Georgia Institute of Technology

• Jeffrey Hales, Georgia Institute of Technology

• Gilles Hilary, Georgetown University

• Francis de Vericourt, European School of Management and Technology