The innovation economy is starting to emerge as a powerful driver of value. It is edging out the knowledge economy that used to be this source of value, and the replacement is happening despite companies best efforts to ignore it. You can see this happening in companies such as, for example, Microsoft and General Motors who are superb knowledge companies, but did little better in the recent global crisis than organisations based on industrial age economics such as agriculture.

Industrial age economics are founded on the thought that companies win if they have bigger stocks of money and physical assets like factories than their competitors. A knowledge economy company, though, acknowledges that stuff that’s not physical and financial, such as patents, brands, and goodwill are also valuable. They can calculate this value by subtracting their physical and financial assets from their market valuation. The result is the market value of their knowledge assets.

However, even organisations with very large knowledge capital valuations experienced poor performance during the downturn. Its obvious that something else is needed to explain what happened.

What’s missing is “Innovation Capital”, defined as the set of people, infrastructure and processes a company organises to translate its knowledge capital assets into unique new value. The structures and systems that result from this, generally, mean the company starts work on things which are outside of “business as usual” – the day to day activities companies do which drive most of their value.

Innovation Capital is generated whenever organisations make investments which let them do things which aren’t business as usual. As you’d probably guess, organisations with significant innovation capital are very good at responding to situations which are unique or unusual.

This is why organisations with very good knowledge assets didn’t always perform as well as expected during the recent global crisis. Faced with an unexpected crisis, they weren’t able to do much when their business-as-usual production underwent major change overnight.

What is the best way to accelerate the creation of innovation capital? Easy. You invest in tools, processes and people to create a programme to do structured innovation.

Structured innovation programmes usually take effort and time to set up, and can appear very difficult if you’ve never done it before.

However, help is at hand, and there are many good resources online. Doing your research before you start will definitely pay dividends.

Interested in further information on the Innovation Economy? Read my free online innovation book.

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