Wednesday, July 16, 2008

Unexpected Innovations

By Elisa Akiko Mann

In his book Innovation and Entrepreneurship, Peter Drucker writes about several ways that firms can innovate. Among them is the idea of watching for the unexpected, being aware of it, and taking best advantage of what it has to offer. Both unexpected successes and unexpected failures, if analyzed and embraced, can lead to good outcomes.

Management can at times overlook a good trend because it does not fit with the perceived norms of the business. For example, one company leader kept trying to get appliance sales more in line with what he expected the industry averages to be, so that fashion sales, the product the store was more closely aligned with, would be a greater proportion of total sales. Drucker pointed out that he had a good opportunity to increase and encourage the growth of appliance sales instead, meeting the needs of the customers and having more fashion sales as a secondary rather than a primary draw.

A competing store took the opportunity to encourage appliance sales, and did well. The customers who came in found what they needed, and appreciated it.

The first store leader had “a good problem to have,” but saw it as something strange rather than something positive. Drucker kept close to his own mantra of paying attention to what the customer considered of value.

In a home building example, a firm was having difficulty trying to sell small homes to young couples. Expectations had changed among the demographic; people did not expect to stay in one house forever, and felt that they would probably buy a new home. Their first home therefore had to be salable to help them with their dream of a larger home, later.

The house builders took the ideas to heart, and made the kitchens nicer and more inviting. They procured permits so that more building could take place with respect to the small homes – they could be expanded over time. They told prospective new owners that when they moved in, the homes would be comfortable, but that they could grow with their families as the years went by. So instead of buying a small house that could probably not help finance their future dreams, home buyers selected a place that could evolve with them.

Even failure has its place in the world of innovation. Of course, not every idea has wings, and most ideas and most businesses do not make it in the marketplace. Competition can be fierce, resources can be scarce, and even the most well funded of concepts does not always have either good execution or the real consent of the marketplace.

Sometimes, however, failure points to an opportunity that is hidden. It shows where a thought was misguided or where the needs of the marketplace were not understood. This was exactly the case in the home building story above: the first “basic house” that was offered was a failure. It was designed to be an affordable option for people to live in. Yet it was offputting to people because it did not meet their dreams – their sense of their own real needs. Instead of merely blaming customers for not understanding the quality and value of the houses, the company asked them what they wanted, and what was important to them. The result was an expansion of the business from one to seven metropolitan areas in five years.

Drucker notes that innovation comes from sideways, not from the center. It is not exclusively in the high technology arena, although that sector understands the importance of the innovation role. He points out that social innovation can be as important as the technological, and points to examples of social, process and managerial organization in Japan as effective examples.

Drucker also notes that things, whether naturally occurring or socially constructed, are not resources until they are recognized as valuable. Penicillin, for example, was seen as a nuisance until its medically beneficial aspect became clear. Drucker constantly looks for insight, for the match between what is and what meets a human need.

Innovation, whether drawn from success or from thought and research after failure, is a bridge between needs and resources. Drucker suggests systematically allowing for innovation, and keeping eyes and ears open, because it can spring from the most unexpected places. Can we recognize it if we see it?

(The Drucker Society of LA)

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