The Discipline of Innovation (Peter F. Drucker)

Above article was from THE INNOVATIVE ENTERPRISE AUGUST 2002

Peter Drucker write in this article, innovation is real work and that most innovative business ideas come from methodically analyzing seven areas of opportunity, some of which lie within particular companies (intrapreneurship) or industries and some of which lie in broader social or demographic trends.

Entrepreneurship is not about a certain kind of personality but a systematic practice of innovation.

However, in my opinion, personality does play a part in innovation. A person who has high inter- and intra-personal intelligence often observes his surroundings, follows current affairs, asks unconventional questions to conventional systems, discusses new initiatives and ideas, and talks to people and being curious about their lives. These people often have the natural or an “easier” time purposefully searching for innovation opportunities.

There are 7 sources of innovation mentioned in the article.

Four areas of innovation opportunities exist within a company or industry.
1. Unexpected occurrences.
2. Incongruities.
3. Process needs.
4. Industry and market changes.

Three areas of innovation opportunities lie outside a company but in its social and intellectual environment.
5. Demographic changes.
6. Changes in perception.
7. New Knowledge.

Unexpected occurrences
The easiest and simplest source of innovation lies in the unexpected. It could be an unexpected success: IBM developed the first modern accounting machines designed for banks but banks did not buy them in the 1930s. However, the New York Public Library wanted a machine and so IBM’s founder and CEO Thomas Watson Senior sold more than a hundred of his unsalable machines to libraries.

Entrepreneurship is not about an eureka moment (AHA! effect), but rather an eureka insight. It’s a lot of researching, talking to people and sensing the market. No innovative idea will be an innovation until it’s executed and proven by the ruthless market before being accepted as a product. Interestingly, many entrepreneurs started out thinking if it’s a great idea for them, it will be a great idea for others. In this case, IBM might thought the same because it did not consider the trend of the banking industry at that time: they did not have enough money or interest in buying machines. The unexpected success of IBM came about when libraries at that time, have that kind of money and interest! For your business to float above the sea, you need funding!

The next unexpected success came about 15 years later and when people finally believed that computers were designed for advanced scientific work and businesses showed an interest in automated payroll. IBM redesigned its machines to rival UNIVAC’s machine specialized for mundane applications such as payroll. After since, in 5 years, IBM became a leader in the computer industry and it has maintained this position till now.

Unexpected failures may be an equally important source of innovation. Ford Edsel (Car model) was the biggest new-car failure in the automotive industry. However, Edsel’s failure was actually the foundation for the company’s (Ford’s competitor was General Motors) later success. Similar to what the article will mention about psycho-graphic and demographic changes in the market, Ford realized that the automobile’s market can no longer be just segmented by income groups, but “lifestyles” group. Ford’s response was a car with a distinct personality called Mustang. From then on, Ford reestablished itself to be an industry leader.

Do not be rigid with your product, business or past. Mistakes are a huge source of future innovation and success. Take for example, the Post-It. The company 3M initially wanted a super adhesive gluey compound for their new product. However, a mistake happened. A type of gluey compound sticks well but not well enough and it can be removed easily. The mistake wasn’t the end, it became a by-product for a new product called the Post-It!

Marketers and entrepreneurs should understand that not all creations of products/services can serve the current market. Consumers can be educated or be made aware of a new need identified by entrepreneurs. Don’t always think of a product or service that serves an existing need, go beyond that. Have eureka insights and build on them, you will never know if a future need can be met by your current innovation.

I like this source of innovation because I often like to question conventional systems and wisdom. We came a long way before modern technology is pervasive in many societies. Many old ways, processes and legacies were passed down either for “heritage” purposes or best practices purposes. Take for example the ministerial salary review, pension was proposed to be scrapped.

In this section, Peter Drucker showed us that by filling in a gap comes the success and sources of innovation. Incongruity or gaps can happen in processes, the way people work, the way people perceive, and any markets or segments of people un-served or under-served (Similar to Blue Ocean strategy)

Take for example my a year ago initiative with NUS’ Office of Student Affairs. I saw an un-served or under-served segment of special needs students who might struggle to travel from point to point in the campus. The maps and directions of the campus aren’t suited for them at all! Considering this fact, my team and I took the innovative step in identifying wheelchair friendly routes and present them on a 2D map (I used Microsoft Visio to create these schematic maps).

Right now, we are currently in talks to push for an official support and hopefully our initiative can be official. Our goal is to help special needs students (Targeting on the physically challenged for now) to travel in the campus in order to enjoy the school’s facilities as much as possible.

Process needs
In the article, Peter Drucker talked about the process of driving on highways where reflectors on highways and on vehicles allowed cars to “detect” each other and thus enabled smoother traffic and with minimum accidents.

Relating this to businesses and organizations, a new product or an adoption of a new technology may require business restructuring and process innovation. There will always be a process where needs are not met perfectly and thus a source of innovation.

Industry and market changes
Change is the only constant in life. (Heraclitus)

I would relate this source of innovation to rapid advancement of technologies and the famous “The Innovator’s Dilemma”. From mainframes to minicomputers to today’s affordable consumer electronics: Desktops, Laptops, Netbooks, Ultrabooks, Tablets and smart-phones.

When a company has an entrenched and fortified position of serving a particular profitable segment of customers, they usually have a dilemma when something seemingly insignificant (disruptive innovations) “stuns” the market place. This company would have asked itself, “Should I serve this small segment of customers too? Or should I continue on my Business As Usual (BAU) activities?” These companies in history would ended up winding down their business because a disruptive innovation would have destroyed them. Some examples include industries such as Hard-disks and from mainframes to minicomputers to Personal Computers.

Another example I always like to learn from is Nokia. With no doubt, Nokia is still one of the best mobile phone manufacturer and designer. However, it had lost hugely to Apple iPhones and to phones adopting Android OS. Nokia insisted in coming out with their own latest smart phone OS called the Symbian 3 released in Q4 2010 and launched inside flagship Nokia N8 phone. Well, I tried N8 for a day and decided it wasn’t for me, in as much as I was a Nokia fan myself. It grossly lost to the network effects of iOS and the open-sourced Android OS.

Currently, Nokia phones like Lumia 800 and Lumia 710 adopted Windows Phone 7 OS. I respect Nokia’s decision in winning back their smart-phone markets but I believe this mistake is related to its legacy. A huge and entrenched company often takes a long time changing its direction and often gets out-maneuvered by smaller and dynamic companies.

But one thing we all can learn from the article: Markets and industries always change. So, have foresight and have risk management.

Demographic Changes
Population statistics change, education levels change, occupations change, age distribution change, geographic locations can also change. Many due to globalization. According to Peter Drucker, following these types of innovation sources is the most common, most rewarding and least risky among other sources.
People have needs and needs change when the society changes. This is not difficult to understand because we are in the society itself sensing the beats of the population.

Changes in perception
A change of perception DOES NOT change a fact but it changes their meaning.

Take smart-phones as an example, it is essentially a phone combined with music playing, visual entertainment and personal organization tools. However, the mobile phone industry recognized the buying power of the younger population that phones have nowadays become a fashion accessory. For example, the LG Prada Phone.

Apple had been very successful in helping their fans and customers perceive iPhones as a fashionable asset and the feeling of “uniqueness”. Older models of iPhones are no longer produced when the newer ones are launched. This creates a steeper supply curve in order to raises the “value” of demand. In some sense, iPhones are no longer perceived just as a phone, iPhones were perceived as a fashion statement and an “entry-proof” to belong in a community of Apple fans/cults.

New Knowledge
This is one of hardest innovation source to manage. It takes a long lead time for new knowledge to converge and to be converted into an usable and highly demanded technology or social instrument.

It’s so difficult I can’t think of any examples myself. Anyone?

Because innovation is both conceptual and perceptual, would-be innovators must also go out and look, ask, and listen. Successful innovators use both the right and left sides of their brains. They work out analytically what the innovation has to be to satisfy an opportunity. Then they go out and look at potential users to study their expectations, their values, and their needs.

Above all, innovation is work rather than genius. It requires knowledge. It often requires ingenuity. And it requires focus.


This conclusion perfectly coincides to my opinion that the motivation and personality of entrepreneurs does matter for successful innovations. To be effective, an innovation has to be simple, and it has to be focused. It should do only one thing; otherwise it confuses people. (Using the Strategy Canvas to help innovators see if their new product/service is indeed a Blue Ocean Strategy)

You would have realized there are 3 innovation opportunities related to the word, “Changes”. No wonder we often hear, “Get out of that comfort zone!”

==End notes==
The intrapreneur focuses on innovation and creativity, and transforms an idea into a profitable venture, while operating within the organizational environment. Thus, intrapreneurs are Inside entrepreneurs who follow the goal of the organization.


2 thoughts on “The Discipline of Innovation (Peter F. Drucker)

  1. Thumbs up for this article. Enjoyed reading it. Brought back memories, especially the term “intrapreneur” – something which I aspire to be.

    Your point on “New Knowledge” really got me thinking. I’m no expert myself but almost as if on reflex, my first reaction was that a fair number of things which we have today probably lay still in planning room or another for considerable time before it got into our hands. I don’t have a repository for cases like this but here are two things I’ve read about which might be useful (hopefully) in illustrating the cases.

    1) Chicken feathers for a new generation of carbon nanotubes []

    Basically, the idea is to manufacture this high-capacity and strong containers for hydrogen storage – something which on its own, could serve a lot of purposes – by using chicken feathers in a relatively environmentally-friendly process.

    Cars, high powered batteries, enhanced smart grids, laptops with 15-20 hour battery life?

    2) Windscreen GPS

    We have GPS systems in cars right? Now we have transparent film LED screens. Imagine having an overlay on your windscreen to guide you instead of having to look at your device periodically. I’ve actually heard of concerns against this when I shared the idea but I’m still eager for this to happen, if it ever does.

    So those are the few examples I can think of. In response to that part of your post, I’d say that as a whole, we do know A LOT of stuff. The challenge lies in (a) Mixing and matching them to get something really good, (b) Getting past the red tape and without doubt (c) making it worthy of manufacturing.

    Please keep writing. Thanks once again.

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