The April 14, 2008 issue of Time Magazine has two brief articles that reference innovation. The first is about the current financial crisis: “Holding Back the Flood: More financial regulation will mean less financial innovation. Maybe that’s not such a bad idea.” The second is about people who are working toward peace and social change: “Peace (at Least a Little) on Earth: Making war is easy; avoiding it takes imagination. Here are a few who have figured out how.”

The first article takes a time-honored view that innovation opens up Pandora’s Box, “The simple truth is that innovation leads to financial crises. That’s because the risks of new financial products are so easily glossed over.”

This view frustrates me. Microloans in developing countries and direct banking are innovations. It seems like both have improved the quality of people’s lives. Mutual funds made investing accessible to people who did not have the means or know-how to create a diversified portfolio. Where’s the crisis? Sub-prime lending and high risk derivatives have created crises, but not because they were innovative. They created crises because people didn’t think through (or care about, attend to, etc.) the risks. That’s a cultural problem, that’s not a problem of innovation.

Many leaders are afraid of letting people become “too innovative.” I worked in one organization where senior leaders repeatedly discouraged providing creativity/innovation training for entry-level staff. “They are doers, we don’t want them thinking about what we tell them.”

I once went to a fast food restaurant with a friend. This restaurant offered a “combo deal” where you could combine any two menu items into a meal. I chose two salads. My friend did the same. When we picked up our orders on the other end, I had a salad and soup. My friend had two salads. I asked how she managed to get two salads. When I tried, the manager told me that they system wouldn’t accept two products from the same category and that I had to get something else. My friend said that the person who took the order (different from the person who took my order) also put in a soup and salad. Here is where the innovation occurs. The person then went to the end of the counter where they fill the orders. She crossed off “soup” on the receipt and wrote “salad”. She then told the person who was putting the order together to use the receipt and not the computer screen.

Who was glossing over the risks in this case? The quick thinking of the 18 year cashier overcame the constraint, solved the problem, and improved customer service. The maanger who was following the process was creating the risk. My poor customer experience was created by someone who executed without questioning. Which is more dangerous for the organization?

The article also argues that regulation is the answer to innovation. Constraints don’t stifle innovation. In the case of the fast food company, the constraint is what created the opportunity to innovate.

The second Time article points this out quite well. It’s the story about Ricardo Sanchez. Sanchez is leading a coalition to help improve democracy in Venezuela. He couldn’t get his radio station’s license renewed and the government ultimately shut it down – how’s that for regulation! Yet, Sanchez’s movement continues to grow as they find new channels and new ways to get their message out.

Don’t be afraid of innovation. Letting people think and overcome constraints will ultimately help your business.