Innovation and Entrepreneurship

By Peter F. Drucker

 

Synopsis

Take the mystery out of entrepreneurship and innovation with this book. The author provides a series of case studies to demonstrate that the best innovations are those that emanate from understanding the root cause of the changes that naturally occur around us. With case studies from McDonald's to Macy's, Peter Drucker drive home the point that adapting to our environment is one of the best ways to innovate.

 

Summary

The successful collaboration of entrepreneurship and innovation is evident in the story of McDonald's. The great success of this fast food giant is the result of the company's desire to create a better customer experience. By identifying areas where processes could improve and provide better value for their clients, McDonald's revamped the entire concept of fast food. By changing the whole process, from the product itself to how it was marketed and sold, they were practicing innovation. There was no "aha" moment here, only the willingness to see things differently to find better and different opportunities to create new value.

 

Areas of Opportunity

Before jumping into areas of opportunity, it's important to understand some fundamentals. Great ideas are focused on doing one thing extremely well. Great ideas aren't necessarily cutting-edge or even game-changers. The best creations are often ones that simplify rather than create some technological wonder. It's not so much about creating some new, never-seen-before invention as it is about creating value with something incrementally better.

 

The Unexpected

Looking at the market place is the best way to identify opportunities. Does a particular product have higher demand than expected? How can an unexpectedly popular product be cultivated and the opportunity exploited? Consistently studying the market and product performance will often reveal some unanticipated results. Turning those results into successful offerings requires the humility to question the current status-quo.

“The unexpected success is a challenge to management's judgment.”

Macy's tied their success to being a premier fashion store until their numbers began to fall. Appliance sales were increasing, and there was a positive impact on the bottom line that couldn't be ignored. The company's leadership saw these increased sales as an “embarrassing success.” Macy's didn't want to be an appliance store, but when they finally accepted the impact of appliance sales, they began to regain some of their financial stability.

 

Incongruity

Incongruity is the gap between what is and what should be. This gap provides an opportunity to improve an established product or service. Customer feedback, mainly negative responses, is one of the best sources for finding incongruity. Fixing those areas of dissatisfaction is the first step to closing the gap.

 

Process Need

Process need focuses on the search for broken processes and fixing them. This kind of innovation isn't market-driven, it begins within an organization instead. Long lines and wait times are prime examples. Chic Filet is currently researching new ways to decrease those long lines with two critical efforts. The first effort is having teams of employees armed with tablets walk up to cars in the drive-thru to take orders and payments right there in line. The second approach is to have other team members deliver food to the cars in line before they get to the window. Nothing cutting-edge here, just the willingness to identify weaknesses and improve them.

 

Industry and Market Structure Change

Industries and markets are always changing, often because of external influences like changes in regulations or technology. Businesses must be ready to take advantage when industries inevitably expand or falter. The deregulation of Interstate banking changed the face of banking by removing many of the obstacles that prevented entry except for a select few. This deregulation increased entry rates and allowed smaller startups to get into the game. External forces can create opportunities and present new risks, so they must be monitored just like every other influence.

“Entrepreneurs, by definition, shift resources from areas of low productivity and yield to areas of higher productivity and yield. Of course, there is a risk they may not succeed. But if they are even moderately successful, the returns should be more than adequate to offset whatever risk there might be.”

 

Demographics

Demographics regularly change and capitalizing on those changes requires awareness and flexibility. The demographic focus has to be more diverse and more creative to take advantage of the constant changes. Antonio Swad opened up a traditional pizzeria in Dallas, Texas and discovered early that the area had a large Hispanic population. He changed the restaurant's name to Pizza Patron and focused on marketing to the Latino community. He hired bilingual employees and even allowed customers to pay in pesos. Today, Pizza Patron has 95 stores in six states and is poised to open 13 more. By understanding specific demographics and being flexible enough to change his original concept, Swad built a successful, multi-unit enterprise.

 

Changes in Perception, Meaning, and Mood

Just like demographics, people's perceptions about what they need and want is in constant flux. This changing landscape is prime territory for innovation because products and services that were once considered “must-haves” eventually become obsolete. The changes in what matters to people create a demand for new and different offerings. Life expectancy has increased over time, and concepts like “50 is the new 40” reflect the changing attitudes on aging. The cosmetic and personal care industry has prospered by recognizing this new view on aging and tapping into customer's desire to look younger. 

 

New Knowledge

Staying abreast of research and studies, whether it's from the scientific community or market observers, is one of best tools for discovering innovation opportunities. The technology that helped create the Internet came from new knowledge that was simply not available until someone discovered it and put it to use. New knowledge isn't just relevant in the technology industry; it reveals ways to improve processes, services, and most other aspects of business. Products like LCD TVs and electric powered vehicles, or the ability to market through social media wouldn't be possible without new knowledge.

“Still, entrepreneurial strategy remains the decision-making area of entrepreneurship and therefore the risk-taking one. It is by no means hunch or gamble. But it also is not precisely science. Rather, it is judgment.”

 

Conclusion

Innovation and entrepreneurship aren't elusive concepts reserved for “creatives;” they contain measurable and actionable steps that can be learned. When you take the time to understand how and where innovation can happen, you can find plenty of opportunities to create improvements. Nearly any product line, marketing campaign, or customer service process can be changed for the better if you know where to look. Great ideas are rarely isolated discoveries that just suddenly appear; they are the result of seeking out opportunities both inside and outside an organization.