Click here to load reader

  • date post

  • Category


  • view

  • download


Embed Size (px)




  • In busmess, innovation rore/y springs from a

    flash of insptration. lt arises from a cold-eyed analysis of seven kinds of opportunities.




    The Discipline of lnnovation by Peter F. Drucker

    How much of innovation is inspiration, and how much is hard work? lfit's mainly the former, then management's role is limited: Hire the right people, and get out of their way. lf it's largely the latter, management must play a more vigorous role: Establish the right roles and processes, set clear goals and relevant measures, and

    review progress at every step. Peter Drucker, with the masterly subtlety that is his trademark, comes down somewhere In the middle. Yes, he writes in this article, lnnovation is real work,

    and lt can and should be managed like any other corporate functlon. But that doesn't mean it's the same as other business activltJes. lndced, lnnovation ls the work of knowing rather than doing.

    Drucker argues that most innovative business ideas come from methodically analyzing seven are as of opportunity, sorne of which lie within particular com panies or industries and sorne of which le in broader social or demographic trends. Astute managers will ensure that their organizations maintain a clear focus on all seven. But analysis will take you only so far. Once you've idcntified an attractive opportunity, you still need a leap of imagination to arrive at the right response-cal! it ''functional inspiration:

    DESPITE much discussion these days of the "entrepreneurial personaJity," few of the entrepreneurs with wbom 1 have worked during the past 30 years had such peronalities. But I have known many people salespeople, sur geons, joumalists, scholan,, even musi cians - who did havc them without being the lcast bit cntreprcneurial. What all the successful entrepreneurs 1 have met have in common is not a certain kind of personality but a commitment to the systematic practice of innovation.

    lnnovati{m is thc specific function of entrcprt!neurship, whcthcr in an E!lUsting busincc;s, a public service institution, or a new vcnturc startcd by a Jone inctividual in thc family kitchcn. lt is the means by which thc cntrcprcneur either crea tes ncw wc.llthproducing resources or endows existing re


    great many well-established businesses engage in highly successful entrepre-neurship. The term, then, refers not to an enterprise's size or age but to a cer-tain kind of activity. At the heart ofthat activity is innovation: the effort to cre-ate purposeful, focused changc in an en-terprise's economic or social potential.

    Sou rces of 1 n novation There are, of coursc, innovations that spring from a flash of genius. Most in-novations, however, especially the suc-cessful ones, result from a conscious, purposeful search for innovation op-portunities, which are found only in a few situations. Four such areas of op-portunity exist within a company or in-dustry: unexpected occurrences, incon-gruities, process needs, and industry and market changes.

    Three additional sources of opportu-nity exist outside a company in its social and intellectual environmcnt: demo-graphic changes, changes in pcrception, and new knowledge.

    True, these sources overlap, different as they may be in the nature of their risk, difficulty, and complexity, and the potential for innovation may well lie in more than one arca at a time. But to-gether, they account for the great ma-jority of ali innovation opportunities.

    11 Unexpected Occurrences 1 Consider, first, the easiest and simplest source of innovation opportunity: the unexpected. In the early 193os, IBM de-veloped the tirst modern accounting machi ne, which was dcsigncd for banks. But banks in 1933 did not buy new cquipment. What saved the company-according to a story that Thomas Wat-son, Sr., the company's founder and long-tcrm CEO, often told - was its ex-ploitation of an unexpccted success: The Ncw York Public Library wanted to buy amachine. Unlike the banks, libraries in those early New Ocal days had money, and Watson sold more than a hundred of his otherwise unsalable machines to libraries.


    Fifteen years later, when cveryone be-l ieved that computers wcre designed for advanced scientific work, business un-expectedly showed an interest in a ma-chine that could do payroll. Univac, which had the most advanced machi ne, spurned business applications. But IBM immediately realized it faced a possible unexpectcd success, redesigned what was basically Univac's machine for such mundane applications as payroll, and within five years became a leader in the computer industry, a position it has maintained to this day.

    The unexpected failure may be an equally important source of innovation opportunities. Everyone knows about the Ford Edsel as the biggest new-car failure in automotive history. What very few people seem to know, however, is that the Edsel's failure was the founda-tion for much of the company's later success. Ford planned the Edscl, the most carefully designed car to that point in American automotive history, to give the company a ful! product line with which to compete with General Motors. When it bombed, despite ali the plan-ning, market research, and design that had gone into it, Ford realized that some-thing was happening in the automobile market that ran counter to the basic as-sumptions on which GM and everyone else had been designing and market-ing cars. No longer was the market seg-mented prirnarily by income groups; the new principie of scgmentation was what we now call "lifestyles: Ford's re-sponse was the Mustang, a car that gave the company a distinct personality and reestablished it as an industry leader.

    Uncxpccted successes and failures are such productive sources of innovation opportunities because most businesses dismiss them, disregard them, and even resent them. The German scientist who around 1905 synthesized novocaine, thc first nonaddictive narcotic, had in-tended it to be used in major surgical procedures like amputation. Surgeons, however, preferred total anesthesia for such procedures; they still do. lnstead, novocaine found a ready appeal arnong

    dentists. lts inventor spent the remain-ing ycars of his life traveling from den-tal school to dental school making speeches that forbade dentists from "rnisusing" his noble invention in appli-cations for which he had not intended it.

    This is a caricature, to be sure, but it illustratcs the attitude managers oftcn take to the unexpected: "lt should not have happened." Corporate reporting systems further ingrain this reaction, for they draw attention away from un-anticipated possibilities. The typical monthly or quarterly report has on its first page a list of problems-that is, the areas whcre results fall short of expec-tations. Such information is needed, of course, to help prevent deterioration of performance. But it also suppresses the recognition of new opportunities. Thc first acknowledgment of a possible opportunity usually applies to an area in which a company docs bctter than budgeted. Thus genuinely entrepreneur-ial businesses have two "first pagcs" -a problem page and an opportunity page - and managers spend equal time on both.

    fj lncongruities 1 Alcon Laboratories was one of the suc-cess stories of the 196os because Bill Conner, the company's cofounder, ex-ploited an incongruity in medica! tech-nology. The cataract operation is the world's third or fourth most comrnon surgical procedure. During the past 300 years, doctors systematized it to the point that thc only"old-fashioncd" step left was the cutting of a ligament. Eye surgeons had learned to cut the liga-

    Peter F. Drucker is the Mari e Rankin C/arke Professor of Social Science a11d Ma11age-me11t at Claremo11t Graduate U11iversity's Peter F. Drucker Graduate Sclwal of Ma11-ageme11t i11 Claremont, California. He has written more titan two dozen articlesfor HBR. This article was original/y adapted from his book lnnovation and Entre-preneurship: Practice and Principies (Harper & Row, 1985).


  • ment with complete success, but it was so diffrnt a procedurt! from the rest of the opcration, and so incompatible with it, that they often dreaded it. lt was incongruous.

    Doctors had known for so years about an enryrne that could dissolve the ligament without cutting. All Conner did was to add a preservative to this enzyrne that gave it a few months' shelf 1 ife. Eyc surgeons immediately accepted the new compound, and Alcon found itself with a worldwide monopoly. Fif-


    teen years later, Nestl bought the company for a fancy price.

    Such an incongruity within the logic or rhythm of a proccss is only one possibility out of which innovation opportunities may arise. Another source is incongruity between economic realities. For instance, whenever an industry has a steadily growing market but falling profit margins as, say, in the steel industries of developed countries between 1950 and 1970- an incongruity exists. The innovativc response: minimills.

    The Discipline of lnnovation

    An incongruity between expcct.ations and results can also opcn up possibilities for innovation. For so ycars after the turn of thc century, shipbuilders and shipping companies wurked hard both to make ships faster and to lower their fuel consumption. Even so, the more successful they wcre in boosting speed and trimming thcir fuel needs, the worse the economics of ocean freighters becamc. By 1950 or o, the ocean freightcr was dying, if not al ready dead.



    All that was wrong, however, was an incongruity betwt!en the industry's assumptions and its realities. The real costs did not come from doing work (that is,