As the year comes to a close, we're awash in bad news: bad earnings. Bad behavior. A stock market in free fall -- and the very real possibility that the market may go sideways for the remainder of the decade. Every executive has to be asking, What's next? And how do we move forward?

If there's one thing we need to understand about this bruised business environment, it's this: Yesterday's success has never mattered less. Today's success has never been more fragile. Tomorrow has never been more uncertain. And the courage to lead the kind of change that it takes to survive -- or, even more important, to win -- in this world has never been in such short supply.

Competing today comes down to a leadership gut check, where the first order of business is to admit that the boom-time 1990s were a once-a-century aberration. During the past decade, earnings and share prices were propelled deliriously upward by five manic forces: a huge run-up in capital spending and IT investment; a mountain of baby-boomer money that was force-fed into the stock market and in turn drove price-earnings ratios to nosebleed levels; round after round of cost cutting; a worldwide merger boom that pushed share prices ever higher; and a record number of share buybacks. To those five forces, you can also add a big dose of aspirational accounting.

While those forces may have buoyed the performance of your company in recent years, you must now confront a daunting fact: Things that can't go on forever don't go on forever. Those forces are spent. Going forward, your only weapon is systemic, radical innovation. In these suddenly sober times, the inescapable imperative for every organization must be to make innovation an all-the-time, everywhere capability.

The Case for Innovating Now
I hear it from executives all the time: "I understand that we need to innovate, but why now? I'm just trying to make it to the next quarter. This is the time to get back to basics." In theory, I don't object to getting back to basics. Every company has to grow revenue, raise prices (if it can), and cut costs. That simple arithmetic never changes.

But here is the dilemma: Most companies today can't grow revenue by flogging the same old stuff to the same old customers through the same old channels in the same old way. People may already be eating as many hamburgers as they are ever going to eat, drinking as much beer as they are ever going to drink, even buying as many plain vanilla personal computers as they are ever going to buy.

You just can't grow revenue significantly -- unless you bring jaw-dropping new products and services to customers. That's not easy, particularly if all of your energy is focused on retrenchment. But customers will always make room for something new, useful, and value packed. Consider DoCoMo, the Japanese company that developed an Internet-enabled mobile phone. Its i-mode service attracted 30 million customers in 30 months. Sure, you can grow today. But only if you bring something unexpected and exciting to your customers.

The same is true when it comes to raising prices. We're living in deflationary times. Most companies can only dream of increasing real prices. On the other hand, Starbucks can charge customers $3.50 for a latte! Starbucks came up with a mind-boggling array of alternatives to boring American coffee. It turned going to the corner coffee shop, hanging out, and drinking coffee into a powerful customer experience. It's not impossible to charge people a premium price for something they love -- but it takes a truly novel value proposition to reverse years of steady margin erosion.