Innovation at fault?

First the real estate bubble popped. Then subprime mortgages imploded taking down Bear Sterns, Lehman Brothers, Merrill Lynch, and Washington Mutual and rocking the boat for other major worldwide players such as AIG and UBS. Then it was the fault of Wall Street greed (Bernie Madoff, et al). Most recently the blame is being placed at the door of the US auto industry.

So, we’ve established that there is enough blame to spread around. But what if all of this was symptomatic of a more systemic, underlying problem? What if most of these players were casualties of a fundamental problem with our economy - a problem that no amount of economic stimulus can fix?

That’s the essential point made in last week’s BW cover story about the general lack of innovation across the board from health care to manufacturing. It’s also one of the cornerstones of my latest book The Innovation Zone. Early in the book I talk about how relatively few advances have been made in fields, such as cancer therapies, despite an unprecedented amount of research and money being thrown at the problem.

So, what gives? How can we be falling behind in the area of innovation at a time when we are surrounded by more technology and gadgets than ever before? Simple. Innovation is about creating value not just more stuff. We’ve become great at creating stuff while we seem to have lost sight of how we create value.

GM and Chrysler had no problem rolling new models of automobiles faster than new matchbox cars. But they were lousy at creating vehicles that created new value for consumers. The odd thing about creating value is that it most often comes from the bottom of the pyramid rather than the top. Large corporates are great at scaling new innovations but they are the worst place to look for creating new value. Value comes from new ideas, and thee come from start-ups. And, due to the nature of the current credit crisis, that’s the one part of our economy that is suffering most today when it comes to jump starting a recovery.

If we want innovation we need to pay attention to the place ideas take shape - small business.