Which mobile phone were you using when the new millennium began? You might not remember the exact model, but you probably remember which company made it. Was it a Nokia, or a Motorola? Chances are it was one of those. At that time, those two companies dominated the mobile phone industry with what were then state-of-the-art products.

Now ask yourself this: Do you still use a Nokia or Motorola today? Probably not. Both companies still make phones, but they are niche players in a market driven by the smart devices from Apple and Samsung. Motorola’s mobile phone division was acquired by Google in 2012 — who has since sold it to Lenovo — and Nokia’s by Microsoft in 2013. Ten years ago, would you have predicted those changes? What does it mean that market leaders can become bit players in a few years’ time?

The rise of the innovation economy

During the last 15 years, the innovation economy has been born. We live in the age of creation. Leading business thinkers and futurists agree that innovation is now key to economic success. “Innovation is the central issue in economic prosperity”, said the US management professor Michael Porter. Similarly, the Austrian-born American management guru Peter F. Drucker said, “An established company which in an age demanding innovation, is not capable of innovation, is doomed to decline and extinction.”

Whether they call it the Creative Economy, Innovation Economy, Age of Creation Intensification, New Value Creation Economy, or Age of Value Creation, these thinkers agree that we have entered a new age of economic development. How did we get here? And what does it mean for all of us to compete in the innovation economy?

Economic evolution: From hunters and gatherers to the innovation economy

As human culture has evolved, so has our economy.

• We started as hunters and gatherers who hunted prey and picked leaves, fruit, nuts and other plants to sustain ourselves, relying on simple tools and weapons as our means of production.
• About 12,000 years ago, agriculture began, we learned to grow crops and herd livestock, and we settled into stable villages.
• 250 years ago, the industrial age began, and we learned to use energy-powered machines to mass-produce goods. Economy of scale was the key to economic success, and achieving low unit costs required standardization of processes and outputs.
• Roughly 40–50 years ago, the information age started. We learned to build computerized systems to process, store and use data in faster and more effective ways. Economic success relied on achieving high economy of scope — the efficient differentiation of products — through computerization of economic activities.
• Now we find ourselves in the age of creation. The means of production that we need to succeed are ideas, know-how, and theories. The key competitive advantage of successful economic players is the ability to create, or to creatively transform know-how into meaningful value propositions. This value creation no longer happens in rigid organizational hierarchies, but rather in networks that flexibly form to work on creative projects. Once a project is complete, the network disbands.

So welcome to the Innovation Economy! “The Innovation Economy represents the largest future threat or opportunity for your career or business — depending on whether or not you prepare for it,” said the US futurist and advisor to several US presidents James Canton. “Twenty-first-century economies will survive and prosper only if they embrace innovation.”

Creativity and innovation rule in the innovation economy

Why have creativity and innovation become so important? With the intensification of global business since the end of the Cold War, and with the exponential advances in information technology made possible by Moore’s law, amplified by the Internet, the modern business environment has become ever more dynamic. The pace of modern business continues to increase, and we have to deal with accelerating change, ever-higher complexity, higher risks, and frequent surprises. Agile, creative, dynamic companies can quickly capitalize on the new opportunities that emerge by innovating and creating meaningful new value. On the other hand, giant corporate behemoths may face their demise faster than seems possible. As Charles Darwin said, “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”

What does the innovation economy mean for you and your business? Think about these questions:

• How fast-moving and fast-changing is your industry?
• What new technologies or trends may change the dominant paradigm in your industry?
• Who’s on the borders of your industry, looking for their chance to invade?
• The US American social philosopher Eric Hoffer said, “In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists”. Are you learning what you need to inherit the future?
• How creative are you? Are you able to create new value? What can you do today to improve your ability to create the future tomorrow?

© Dr. Detlef Reis 2014. This article was published in parallel in the Bangkok Post under the same title on 8 May 2014.