The recent news that Toyota has surpassed General Motors as the world’s leading car manufacturer has created a stir – and some unease here at home. Is this event another indicator that the American way of doing business needs to change?

American carmakers had another near-death experience like this back in the ‘80s. Back then the American companies responded vigorously by adopting Total Quality Management and other best practices. The irony about TQM was that the Americans were borrowing back what was an American innovation. The Japanese had simply embraced it much more than Americans ever had heretofore.

Now, some twenty-five years later, the American carmakers are reeling once more. GM and Ford are trying to cut their way back to profitability, becoming smaller companies in the prospect. Despite these efforts, skeptics are questioning the long-term viability of these American icons. So we need to ask, What went wrong – again?

There are surely multiple reasons why Detroit (which Americans often use as a symbolic stand-in for much of American manufacturing and other traditional businesses) is struggling. There is certainly some truth in the companies’ assertions that the American system of employer-provided health insurance increasingly puts them at a competitive cost disadvantage. There is also a fair amount of truth in the observations by many outraged commentators that the domestic car companies made some incredible strategic blunders. In particular, choosing to manufacture lots of highly profitable but gas-guzzling light trucks and SUVs, in effect, betting the farm that gas prices would stay low.

Let me put forward what I believe is an overlooked culprit: the “little C” creativity gap. Little C creativity is, generally, a novel, useful idea (the fundamental definition of a creative idea), which represents an incremental improvement to some existing product, service, or production process. Typically, TQM teams generate Little C ideas. An example of a Little C idea is finding a way to eliminate a step or two in a process to build a car.

A Big C idea, on the other hand, is the kind of intellectual breakthrough that changes a domain of knowledge or practice. An obvious example is how Einstein’s theory of relativity changed physics. To choose an example from the business world, consider Alfred Sloan’s conceptual breakthrough in the 1930s at General Motors. His insight was to develop a pricing structure that aligned the various GM brands (from Chevrolet on the low end to Cadillac on the high end), so that people could “trade up” as their incomes increased, all the while remaining loyal GM customers. This brilliant marketing strategy helped propel General Motors ahead of Ford and made GM the largest car company for over eighty years.

Things change. Consider the case of Toyota. The company has never been the source of any Big C innovations. (Even the company’s notable Prius hybrid does not represent any great advance, but relies on existing technology.) What Toyota, and Japanese manufacturers in general, are masters at is cultivating Little C creativity from their workforces. Eventually, lots of little C ideas taken together can have the impact of one Big C idea.

Let’s take a look at some interesting data from a survey done a few years ago comparing American and Japanese workers in manufacturing companies. The survey showed the average American worker offered far less than one work-improvement idea per year (0.16), while our Japanese counterparts offered 18.5 ideas per worker per year.

A big part of the explanation for this abysmal showing by American workers is participation rates within companies. Barely over ten percent of U.S. workers were likely to contribute an idea in a year’s time. In the meantime, nearly three-quarters of Japanese workers contributed ideas to help ensure the prosperity of their organizations.

Since there is a strong prevailing belief in American executive suites that people are motivated by money, let’s take a look at what the survey found about rewarding people for contributing ideas. Those few Americans who contributed ideas received an average reward of $458 per accepted idea. In stark contrast, a Japanese worker got a paltry $3.88 for her accepted idea.
Surely, this means Americans had better ideas. Here is what the data show: once implemented, the net savings per idea were $334.66 for the Americans versus $3,249.71 per idea for the Japanese. OOPS!!

We need to remind ourselves that the United States is still the world’s leader in creativity and innovation. I can support this statement by pointing to, among other things, our leadership in information technologies, genetic engineering, Nobel Prize laureates, and the quality of our universities. We excel at supporting daring entrepreneurs and researchers who chase after the opportunity to make the “Big C” breakthroughs.

What the survey also graphically and painfully illustrates is we don’t do so well at fostering “Little C” creativity. This means that one of our nation’s great challenges -- and a tremendous opportunity as well -- is to create or recreate vibrant organizations in all industries that take advantage of every worker’s brainpower. This effort will require us to do many things to be successful, including training workers in creative thinking techniques, reeducating managers on how to establish creativity-fostering organizational climates, and setting up systems to collect, track and evaluate suggested ideas. But it all starts with being advocates for creativity and innovation as one of the keys, if not the key, to business success in a changing economy.