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It's Innovation, Stupid!

May 1, 2009

It's Innovation, Stupid!

Economists used to concern themselves with how an economy settled into equilibrium, looking at the supply or demand for particular products, their prices, and so forth. When there were more products than demanded, prices would fall, production would slow, and vice versa. In this old model of economic thinking, technological progress was thought to be an "exogenous variable" - something imposed from outside the economy by events not really under the control of the individuals and businesses operating within the economy itself.

The new model of economic thinking, however, is that innovation actually IS the economy. The economy is NEVER in equilibrium, but rather it is always out of balance, as economic players constantly jostle and compete to provide new and different solutions to problems in order to make a profit. Competition itself, then, takes place via innovation.

This is the evolutionary model of economic activity. The economy can best be visualized as a massive ecological system of interdependent but autonomous agents, each working hard to survive in a changing environment. New ideas that create real value soon prosper, and are more likely to be imitated by others, so that they multiply and become more commonplace. Ideas that don't create much value don't get picked up by others at all, and soon become extinct. You see the parallel.

But here's what you may not realize: Because innovation usually comes when people mix and match different business models and technologies, the more new technologies and business models there are, the faster innovation will occur! Yes, it's not in your imagination. Things really are changing faster today than they ever have before, and the pace of this change is still accelerating.

I'll be blogging next week as I cover HSM's World Innovation Forum, featuring speakers like Clayton Christensen, C.K. Prahalad, Paul Saffo, and others. It's a very exciting time to try to figure out how innovation actually works, and how it can be stimulated, nurtured, and used for creating value.

So stay tuned to this station!

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