From the December 2003 issue of Entrepreneur

The shrinking U.S. manufacturing sector exposes a maxim of the modern economy: The work we once did with our hands is done increasingly in our heads. The United States is transitioning into an idea economy where innovation is replacing industrialization, and creativity is the key to selling products and services.

Employees with a creative side are leading the way into the idea economy. About 38 million workers-roughly 30 percent of the work force-are employed in creative professions, and the number keeps growing, says Richard Florida, author of The Rise of the Creative Class (Basic Books). Over the next decade, "we're going to see the 'creativization' of our entire economy," Florida says.

Today, highly skilled workers from biologists to engineers see themselves as artists who need space to think and create. Heavy-handed management just gets in the way of the creative process. So how do you oversee creative employees and keep everyone in harmony?

Managing the creative enterprise is as much art as science. Creative people are driven by exciting work more than by a paycheck, and they need to express themselves through their work-a mind-set foreign to many employers. "The workplace of today isn't set up to manage creative people," Florida says. "It's a recipe for competitive disaster to manage creative people like they're industrial workers."

Chris Winfield, co-founder of 10E20 Web Design LLC, a Web development firm in New York City, is learning how to manage a staff of 15 that includes nine Web designers. "[Creative employees] can be more sensitive," says Winfield, 27, whose background is in business and government. For example, point-blank criticism of projects doesn't work with creatives, he's found. "No artist wants to hear that you didn't like his painting."

Winfield is learning to offer freedom within structure. He acts as the intermediary between client and designer, then he lets the designers create. He praises each designer's work as he critiques it. "I say, 'I love it, but we need to make changes because this client is really picky.' It's telling them it's wrong [without] making them feel bad," he says. "If you do that, I don't think you'll go wrong." 10E20 estimates sales of $1.3 million for this year.

Gentle feedback is important, because creative employees are more emotionally involved with their work, says Donna Dessart, director of career services at The Art Institute of California in San Francisco. She suggests including creatives in the brainstorming and planning process to increase the chances a project will be delivered on time and on budget. "Articulate the vision and goals so the artist can demonstrate it back to you," she says. "Let them be involved from the beginning."

But also know where to draw the line. Rick Garofalo, founder of Repertoire, an 18-employee interior design firm with locations in Boston and New York City and annual sales of $9.5 million, has stopped overloading his five designers with the financial aspects of the business. "If I get too deep, sometimes they look at me like the RCA dog. They really don't understand it," says Garofalo, 48, whose background is in sales and marketing. "It's that left-brain, right-brain thing." Instead, he makes sure designers understand a client's budget constraints before turning them loose on a project. He also wants designers to have a good mix of projects-from the splashy to the mundane-so they stay motivated. "Too much of one thing can be dangerous for a creative mind," he says. "I make sure we balance projects."

Time management is another area where creatives may need solid direction. "Creative people are not the best time managers," says Winfield. He's found that having Web designers collaborate as a team on projects increases efficiency, spurs even more creativity and helps the company meet deadlines.

Innovative employers are structuring work iteratively, rehearsing and trying again until valuable results emerge-the opposite of how things get done in most companies, says Robert Austin, an assistant professor at Harvard Business School and co-author of Artful Making: What Managers Need to Know About How Artists Work (Prentice Hall). "Creativity requires exploration," Austin says. "Create a lab environment where [creatives] can explore."

Also be flexible with scheduling, because creatives, especially true visual artists, need to get away from your four walls to come up with new ideas. "They need time to go somewhere where they can get inspired and be creative, because that's what we're paying them for," Dessart says. This means letting a designer catch an afternoon art exhibit, for example. The employee is working; it's just a different way of working.

Florida predicts the "boring, punch-a-clock 9-to-5 workplace" won't survive long in the idea economy. "It doesn't matter if you're making widgets, wine, cheese or software products," he says. "The key is to unleash the creativity of all your people."