The image of the economy as something alive is powerful. And it is hardly New Age hokum. Adam Smith himself alluded to aliveness with his unseen “hand.” Karl Marx often referred to the organic nature of the economy. Even the legendary no-nonsense economist Alfred Marshall wrote in 1948 that “the Mecca of the economist lies in economic biology.” Marshall was writing at the peak of the industrial economy. The first stirrings of the coming power of information were just being felt.

Living systems are notoriously hard to model and theorize about, and even more difficult to predict. Until very recently economics has gravitated to an understanding that settled on an equilibrium, primarily because anything more complex was impossible to calculate. Ironically, the very same computer technology, which has roused flux in the economy, is now used to model it. With powerful chips, dynamic, learning, self-feeding theories of the economy can be mapped out.

Both in our understanding of it, and in reality, the network economy is a place that harbors little harmony or stasis. Instead, it is a system that will increasingly demand flux and innovation. The art of judicious change, of the dangerous difference, will be rewarded in full.

The first level–changes in the game–produces the kind of changes now visible: new winners and losers. New businesses. New heroes. We see the rise of Wal-Marts, and of Nucor steelmaking.

The second level–changes in the rules of the game–produces new kinds of business, new sectors of the economy, new kinds of games. From this type of change comes the Microsofts and Amazon.coms.

The third level of change, which we are now entering, whips up changes in how change happens. Change changes itself. While the new economy provokes change in the first two levels–all those new business and business sectors–its deepest consequence is the way it alters change. Change accelerates itself. It morphs into creative destruction. It induces flux. It disperses into a field effect, so you can’t pinpoint causes. It overturns the old ways of change.

A company, institution, or individual must remain perched in an almost-falling state. In this precarious position it is inclined to fall, but continually catches itself and never quite topples. Nor does it anchor itself so that it cannot tip. It sort of skips along within reach of disaster, but uses the power of falling to propel itself forward with grace. A lot of people compare it to surfing; you ride a wave, which is constantly tumbling, and perched on top of this continually disintegrating hill of water, you harness its turbulence into forward motion.

Innovation is hard to institutionalize. It often needs to bend the rules of its own creation. Indeed, by definition innovation means to break away from established patterns, which means that it tends to jump over formulas. In periods of severe flux, such as the transition we are now in between a resource-based economy and a connected-knowledge one, change enters other levels.

My own involvement in groups that launched successful change, and my secondhand knowledge of many, many others involved in world-changing innovation, convinces me that all of these ensembles teetered on the brink of chaos at their peak performance. Whatever front they put up to the public or investors, behind the scenes most of the group ran around screaming “It’s pathologically out of control here!” Every organization is dysfunctional to some degree, but innovative organizations, in their moment of glory, tend to slide toward uncoordinated communication, furious bouts of genius, and life-threatening disorganization. Everyone involved swears they will institute just enough structure to prevent flameout in the future, but I’ve never seen radical innovation emerge from an outfit that wasn’t halfway to unraveling at the epicenter of change. Most of the studies of optimal evolution in complex systems confirm this view. The price for progressive change in maximum doses is a dangerous (and thrilling) ride to the edge of disruption.

Although many groups experience these grand moments when creativity flows and things get done well, the holy grail in business and life is to find ways to sustain these periods of supreme balance. Sustaining innovation is particularly tricky since it flows out of creative disequilibrium.

All of these will twist and turn as change, dangerous change, spirals through them. This is why there is such a maniacal fuss about innovation. When management gurus drone on about the imperative of innovation, they are right. Firms still need excellence, quality of service, reorganization, and real time, but nothing quite embodies the ultimate long-term task in this new economy as the tornado of innovation.

Because large systems must tread a path between the ossification of order and the destruction of chaos, networks tend to be in a constant state of turmoil and flux.

In reality, of course, the industrial cortex cannot be undone. But a larger web of new, more agile, more tightly linked organizations can be woven around it. These upstart firms bank on constant change and flux.

Change itself is no news, however. Ordinary change triggers yawns. Most change is mere churn, a random disposable newness that accomplishes little. Churn is the status quo for these times. At the other extreme, there is change so radical that it topples the tower. Like inventions that fail because they are way ahead of their times, it is possible to reach too far with change.

What the network economy coaxes forth is a selective flux. The right kind of change, in the right doses. In almost all respects this kind of change is what we mean by innovation.

The word “innovation” is so common now that its true meaning is hidden. A truly innovative step is neither too staid and obvious, nor too far out. The innovative step is change that is neither random directionless churn, nor so outrageous that it can’t be appreciated. We wouldn’t properly call just another variation of something an innovation. We also wouldn’t call a shift to something that only worked in theory, but not practice, or that required a massive change in everyone else’s behavior to work, an innovation.

A real innovation is sufficiently different to be dangerous. It is change just this side of being ludicrous. It skirts the edge of the disaster, without going over. Real innovation is scary. It is anything but harmonious.