In the media recently, the question is being asked: how it is that the wealthy are doing so well while the middle class is suffering in comparison? The usual villains named are outsourcing and the resulting decline of the manufacturing base. Blame also goes to NAFTA and the other trade agreements negotiated by the last three administrations.

But there is another and more fundamental reason why we have this dramatic disparity in income. If you remember Economics 101 in college and the topic about the relationship between commodities and money, you may have seen, as I did, this little formulation written on the blackboard: C-M-C vs. M-C-M. The lecture had to do with a healthy system vs. an unhealthy one. I even recall the professor using the terms ethical and unethical in this context.

In a C-M-C economy, money functions as it was intended as the medium of exchange between commodities, all kinds of raw materials, produce, manufactured goods and services. In this natural system, some of the money made and earned passes into the hands of workers and that money works its way around and through the economy, benefitting many people. In effect wages multiply in value.

In an M-C-M economy, on the other hand, money is perverted into a commodity and real commodities serve only as an artificial and unnatural medium of exchange. In other words, people use money to make more money. In these cases money does not work into the general economy for the general welfare but remains in the hands of the few, sometimes not even involving a commodity except in name only. Combine that arrangement with beneficial tax and loophole policies and the effect is multiplied and protected.

One caveat: some may recognize the M-C-M system as an expression for arbitrage, the business of buying and selling of money, usually with no commodities involved. Sometimes, arbitrage serves a useful purpose in keeping the prices of commodities in balance with different currencies, but in general those in arbitrage have little or no contact with real commodities. But there is still a danger as we have seen in arbitrage manipulation of markets.

The point here is to suggest that using money to make money with little relationship to commodity is an unhealthy practice because it bypasses the makers of products, most of whom are the Middle Class. The result is that workers are left out of the loop and there are no wages to work their magic in the economy as a whole.

Another answer given to the disparity between the rich and the middle class is the failure of so-called trickle down economics. But here again is a misunderstanding. In an M-C-M economy, there is nothing to trickle down because commodity is either not involved or only marginally involved. And if the wealthy choose not to invest in the creation of commodity, the flow of money dries up.

As my professor explained to us in that Econ 101 class, he acquired knowledge and experience to sell to an institution which paid him a salary so that he could offer courses that students were willing to buy in order to acquire knowledge and experience. It was C-M-C working in good order. It worked for me for forty years in education and can work again.

Innovation is an indispensable force that turns ideas into money. It is the lifeblood of any organization. In order to implement sustainable innovation in 2012, you need to define innovation in a manner that makes strategic sense for your organization, and have the know-how to properly construct and use a process, plus the will to keep the process on course.

The task may seem daunting at first, but it’s possible to develop a disciplined strategy that delivers Innovation time and time again for sustained long-term profitability. Make developing that strategy your 2012 New Year’s resolution.

“Robert’s Rules of Innovation” outlines specific steps to implement Innovation. Here are some tips:

1. Define your organization’s needs. What type of innovation are you trying to achieve? An incremental innovation that introduces a new process or feature? Or a transformative breakthrough that completely changes the marketplace? The latter is more difficult to achieve but holds the greatest potential. Choosing the path that makes the most sense for your organization will help in the Innovation process.

2. Formulate a new product development process. Each organization’s NPD process can have a different number of steps, so long as they form a structured plan. A three-stage plan may include: Stage 1 product definition, where a product is examined for its brand strategy, profit potential, and competitive analysis. If the product is a “go” then it moves to Stage 2: the qualification process where a first article product is made and tested for quality assurance. Finally, Stage 3 is Revenue where the product is launched.

3. Create a road map to success. The key elements are examining quality of projects, capability of managing them successfully, and capacity of the organization for maintaining a portfolio of well-managed projects. No matter what NPD process you decide to use, stick to the road map to ensure that each stage, and tasks within each stage, are clearly defined.

4. Some more guidelines for progress: remember to stick to your go/no-go criteria for moving forward with developments. All projects should undergo the same scrutiny, regardless of who suggested it! Also, many organizations are incorporating a “discovery phase” into the Innovation process to allow for more experimentation. This step is beneficial for making decisions based on long-term sustainable Innovation, and not on current budget restraints alone.

In a world of increasing business competition, Innovation is key to a company’s survival. Creating an Innovation strategy that makes sense for your organization is entirely feasible, and an absolute must for creating profit for your company.

Here’s to a New Year of innovation!

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