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Innovation
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The following are quotes from Peter Drucker's Innovation and Entrepreneurship plus an Inc. Magazine Interview on Entrepreneurship and Innovation. The purpose of this introduction is to help readers determine what needs to be on their radar.
Innovation is not a technical term. It is an economic and social term. Its criterion is not science or technology, but a change in the economic or social environment, a change in the behavior of people as consumers or producers, as citizens, as students or as teachers, and so on.
Innovation creates new wealth or new potential of action rather than new knowledge. This means that the bulk of innovative efforts will have to come from the places that control the manpower and the money needed for development and marketing, that is, from the existing large aggregation of trained manpower and disposable money—existing businesses and existing public-service institutions. (calendarize this?)
And it is change that always provides the opportunity for the new and different.
Systematic innovation therefore consists in the purposeful and organized search for changes, and in the systematic analysis of the opportunities such changes might offer for economic or social innovation.
Specifically, systematic innovation means monitoring seven sources for innovative opportunity.
As a rule, these are changes that have already occurred or are under way.
The overwhelming majority of successful innovations exploit change.
To be sure, there are innovations that in themselves constitute a major change; some of the major technical innovations, such as the Wright Brothers' airplane, are examples.
But these are exceptions, and fairly uncommon ones.
Most successful innovations are far more prosaic; they exploit change.
And thus the discipline of innovation (and it is the knowledge base of entrepreneurship) is a diagnostic discipline: a systematic examination of the areas of change that typically offer entrepreneurial opportunities.
These executives know that it is as difficult and risky to convert a small idea into successful reality as it is to make a major innovation. They do not aim at "improvements" or "modifications" in products or technology.
They aim at innovating a new business. See Chapter 9, The Purpose and Objectives of a Business, in Management, Revised Edition
And they know that innovation is not a term of the scientist or technologist.
It is a term of the businessman.
For innovation means the creation of new value (something important) and new satisfaction for the customer.
Organizations therefore measure innovations not by their scientific or technological importance but by what they contribute to market and customer.
They consider social innovation as important as technological innovation.
A successful innovation aims at leadership.
It does not aim necessarily at becoming eventually a "big business"; in fact, no one can foretell whether a given innovation will end up as a big business or a modest achievement.
But if an innovation does not aim at leadership from the beginning, it is unlikely to be innovative enough, and therefore unlikely to be capable of establishing itself.
Strategies (to be discussed in Chapters 16 through 19) vary greatly, from those that aim at dominance in an industry or a market to those that aim at finding and occupying a small "ecological niche" in a process or market.
But all entrepreneurial strategies, that is, all strategies aimed at exploiting an innovation, must achieve leadership within a given environment.
Otherwise they will simply create an opportunity for the competition
The test of an innovation, after all, lies not its novelty, its scientific content, or its cleverness.
It lies in its success in the marketplace
Above all, we know that an entrepreneurial strategy has more chance of success the more it starts out with the users—their utilities, their values, their realities.
An innovation is a change in market or society.
It produces a greater yield for the user, greater wealth-producing capacity for society, higher value or greater satisfaction.
The test of an innovation is always what it does for the user.
Hence, entrepreneurship always needs to be market-focused, indeed, market-driven
Q: Would you define entrepreneur?
A: The definition is very old. It is somebody who endows resources with new wealth-producing capacity. That's all.
Entrepreneurship is not a romantic subject. It's hard work
We have reached the point [in entrepreneurial management] where we know what the practice is, and it's not waiting around for the muse to kiss you. The muse is very, very choosy, not only in whom she kisses but in where she kisses them. And so one can't wait.
Q: You make the point that small business and entrepreneurial business are not necessarily the same thing.
A: The great majority of small businesses are incapable of innovation, partly because they don't have the resources, but a lot more because they don't have the time and they don't have the ambition.
I'm not even talking of the corner cigar store.
Look at the typical small business.
It's grotesquely understaffed.
It doesn't have the resources and the cash flow.
Maybe the boss doesn't sweep the store anymore, but he's not that far away.
He's basically fighting the daily battle.
He doesn't have, by and large, the discipline.
He doesn't have the background.
The most successful of the young entrepreneurs today are people who have spent five to eight years in a big organization.Q: What does that do for them?
A: They learn. They get tools. They learn how to do a cash-flow analysis and how one trains people and how one delegates and how one builds a team. The ones without that background are the entrepreneurs who, no matter how great their success, are being pushed out.
You see, there is entrepreneurial work and there is managerial work, and the two are not the same (and most people can do both). (But not everybody is attracted to them equally. The young man I told you about who starts companies, he asked himself the question, and his answer was, "I don't want to run a business.") But you can't be a successful entrepreneur unless you manage, and if you try to manage without some entrepreneurship, you are in danger of becoming a bureaucrat. Yes, the work is different, but that's not so unusual
Successful entrepreneurs, whatever their individual motivation—be it money, power, curiosity, or the desire for fame and recognition—try to create value and to make a contribution.
Still, successful entrepreneurs aim high.
They are not content simply to improve on what already exists, or to modify it.
They try to create new and different values and new and different satisfactions, to convert a "material" into a "resource," or to combine existing resources in a new and more productive configuration.
The Entrepreneurial Business
"Big businesses don't innovate," says the conventional wisdom.
This sounds plausible enough.
True, the new, major innovations of this century did not come out of the old, large businesses of their time.
The railroads did not spawn the automobile or the truck; they did not even try.
And though the automobile companies did try (Ford and General Motors both pioneered in aviation and aerospace), all of today's large aircraft and aviation companies have evolved out of separate new ventures.
Similarly, today's giants of the pharmaceutical industry are, in the main, companies that were small or nonexistent fifty years ago when the first modern drugs were developed.
Every one of the giants of the electrical industry—General Electric, Westinghouse, and RCA in the United States; Siemens and Philips on the Continent; Toshiba in Japan—rushed into computers in the 1950s.
Not one was successful.
The field is dominated by IBM, a company that was barely middle-sized and most definitely not high-tech forty years ago.And yet the all but universal belief that large businesses do not and cannot innovate is not even a half-truth; rather, it is a misunderstanding.
In the first place, there are plenty of exceptions, plenty of large companies that have done well as entrepreneurs and innovators.
In the United States, there is Johnson & Johnson in hygiene and health care, and 3M in highly engineered products for both industrial and consumer markets.
Citibank, America's and the world's largest nongovernmental financial institution, well over a century old, has been a major innovator in many areas of banking and finance.
In Germany, Hoechst—one of the world's largest chemical companies, and more than 125 years old by now—has become a successful innovator in the pharmaceutical industry.
In Sweden, ASEA, founded in 1884 and for the last sixty or seventy years a very big company, is a true innovator in both long-distance transmission of electrical power and robotics for factory automation.To confuse things even more there are quite a few big, older businesses that have succeeded as entrepreneurs and innovators in some fields while failing dismally in others.
The (American) General Electric Company failed in computers, but has been a successful innovator in three totally different fields: aircraft engines, engineered inorganic plastics, and medical electronics.
RCA also failed in computers but succeeded in color television.
Surely things are not quite as simple as the conventional wisdom has it.Secondly, it is not true that "bigness" is an obstacle to entrepreneurship and innovation.
In discussions of entrepreneurship one hears a great deal about the "bureaucracy" of big organizations and of their "conservatism."
Both exist, of course, and they are serious impediments to entrepreneurship and innovation—but to all other performance just as much.
And yet the record shows unambiguously that among existing enterprises, whether business or public-sector institutions, the small ones are least entrepreneurial and least innovative.
Among existing entrepreneurial businesses there are a great many very big ones; the list above could have been enlarged without difficulty to one hundred companies from all over the world, and a list of innovative public-service institutions would also include a good many large ones.And perhaps the most entrepreneurial business of them all is the large middle-sized one, such as the American company with $500 million in sales in the mid-1980s. But small existing enterprises would be conspicuously absent from any list of entrepreneurial businesses.
It is not size that is an impediment to entrepreneurship and innovation; it is the existing operation itself, and especially the existing successful operation.
And it is easier for a big or at least a fair-sized company to surmount this obstacle than it is for a small one.
Operating anything—a manufacturing plant, a technology, a product line, a distribution system—requires constant effort and unremitting attention.
The one thing that can be guaranteed in any kind of operation is the daily crisis.
The daily crisis cannot be postponed, it has to be dealt with right away.
And the existing operation demands high priority and deserves it.The new always looks so small, so puny, so unpromising next to the size and performance of maturity.
Anything truly new that looks big is indeed to be distrusted.
The odds are heavily against its succeeding.
And yet successful innovators, as was argued earlier, start small and, above all, simple.The claim of so many businesses, "Ten years from now, ninety percent of our revenues will come from products that do not even exist today," is largely boasting.
Modifications of existing products, yes; variations, yes; even extensions of existing products into new markets and new end uses—with or without modifications.
But the truly new venture tends to have a longer lead time.
Successful businesses, businesses that are today in the right markets with the right products or services, are likely ten years hence to get three-quarters of their revenues from products and services that exist today, or from their linear descendants.
In fact, if today's products or services do not generate a continuing and large revenue stream, the enterprise will not be able to make the substantial investment in tomorrow that innovation requires.It thus takes special effort for the existing business to become entrepreneurial and innovative.
The "normal" reaction is to allocate productive resources to the existing business, to the daily crisis, and to getting a little more out of what we already have.
The temptation in the existing business is always to feed yesterday and to starve tomorrow.It is, of course, a deadly temptation.
The enterprise that does not innovate inevitably ages and declines.
And in a period of rapid change such as the present, an entrepreneurial period, the decline will be fast.
Once an enterprise or an industry has started to look back, turning it around is exceedingly difficult, if it can be done at all.
But the obstacle to entrepreneurship and innovation which the success of the present business constitutes is a real one.
The problem is precisely that the enterprise is so successful, that it is "healthy" rather than degeneratively diseased by bureaucracy, red tape, or complacency.This is what makes the examples of existing businesses that do manage successfully to innovate so important, and especially the examples of existing large and fair-sized businesses that are also successful entrepreneurs and innovators.
These businesses show that the obstacle of success, the obstacle of the existing, can be overcome.
And it can be overcome in such a way that both the existing and the new, the mature and the infant, benefit and prosper.
The large companies that are successful entrepreneurs and innovators—Johnson & Johnson, Hoechst, ASEA, 3M, or the one hundred middle-sized "growth" companies—clearly know how to do it.Where the conventional wisdom goes wrong is in its assumption that entrepreneurship and innovation are natural, creative, or spontaneous. If entrepreneurship and innovation do not well up in an organization, something must be stifling them. That only a minority of existing successful businesses are entrepreneurial and innovative is thus seen as conclusive evidence that existing businesses quench the entrepreneurial spirit.
But entrepreneurship is not "natural"; it is not "creative." It is work. Hence, the correct conclusion from the evidence is the opposite of the one commonly reached. That a substantial number of existing businesses, and among them a goodly number of fair-sized, big, and very big ones, succeed as entrepreneurs and innovators indicates that entrepreneurship and innovation can be achieved by any business. But they must be consciously striven for. They can be learned, but it requires effort. Entrepreneurial businesses treat entrepreneurship as a duty. They are disciplined about it … they work at it … they practice it.
Specifically, entrepreneurial management requires policies and practices in four major areas.
First, the organization must be made receptive to innovation and willing to perceive change as an opportunity rather than a threat. It must be organized to do the hard work of the entrepreneur. Policies and practices are needed to create the entrepreneurial climate.
Second, systematic measurement or at least appraisal of a company's performance as entrepreneur and innovator is mandatory, as well as built-in learning to improve performance.
Third, entrepreneurial management requires specific practices pertaining to organizational structure, to staffing and managing, and to compensation, incentives, and rewards.
Fourth, there are some "dont's": things not to do in entrepreneurial management
—Chapter 13 Innovation and Entrepreneurship
Other Innovation and Entrepreneurship pages
Entrepreneurship topic page—a placeholder
Innovation and Entrepreneurship book outline with an exploration of Systematic Entrepreneurship.
Entrepreneurs and Innovation Peter Drucker interview conducted by George Gendron, editor in chief of Inc. magazine
Marketing and Innovation in a society moving in time
Management, Revised Edition contains several innovation and entrepreneurship topics
Peter Drucker book list: Toward tomorrows, comprehensive management and time related
So, what are you going to calendarize?
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List of topics in this Folder
for topics or phrases.
