Innovation and Entreprenuership

8/7/2019 Innovation and Entreprenuership

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Innovation and

Entrepreneurship

Peter F. Drucker


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The external sources of innovative

opportunity Demographics

Changes in perception, meaning, and

mood New knowledge


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Demographics

It defines as changes in population, itssize, age structure, composition,employment, education status, and

income. They are unambiguous. They have the

most predictable consequences.

Demographics have major impact on whatwill be bought, by whom, and in whatquantities.


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For example

American teenagers buy a good many

pairs of cheap shoes a year.

They buy fashion, nor durability, and theirpurses are limited.

The same people, ten years later, will buy

very few pairs of shoes a year. But they

will buy them for comfort and durability first

and for fashion second.


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Dangerous error

Populations changes were thought to

occur so slowly and over such long time

spans as to be of little practical concern. Twentieth-century societies, both

developed and developing ones, have

become prone to extremely rapid and

radical demographic changes, which occurwithout advance warning.


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For example

The most prominent American experts calledtogether by F.D. Roosevelt predictedunanimously in 1938 that the U.S. populationwould peak at around 140 million people in 1943

or 1944, and then slowly decline. In 1949, the U.S. kicked off a baby boom that

for 12 yrs produced unprecedentedly largefamilies, only to turn just as suddenly in 1960

into a baby bust, producing equallyunprecedentedly small families.

The shift is not only dazzlingly sudden. It isoften mysterious and defy explantion.


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Rewarding opportunity

Demographic shifts in this century may beinherently unpredictable. Yet they do havelong lead times before impact and lead

times moreover are predictable. What makes demographics such a

rewarding opportunity for the entrepreneur

is precisely its neglect by decision markers,whether businessmen, public-servicestaffs, or governmental policymakers.


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Other important demographic

changes Analysis of demographic changes begins withpopulation figures. But absolute population isthe least significant number.

Particularly important in age distribution arechanges in the center of population gravity, thatis, in the age group which at any given timeconstitutes both the largest and the fastest-

growing age cohort in the population. Segmentation by education attainment; laborforce participation; occupational segmentation;income distribution.


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Chapter8: Changes in

Perception


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Perception

In mathematics there is no difference

between The glass is half full and The

glass is half empty.

If general perception changes from seeing

the glass as half full to seeing it as half

empty, there are major innovative

opportunities.


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For example (I)

For the years from 1960s, all indicators (mortality rate fornewborn babies or survival rates for the very old) ofphysical health and functioning have been movingupward.

And yet the nation is gripped by collective hypochondria.Never before has there been so much concern withhealth, and so much fear.

Suddenly everything seems to cause cancer ordegenerative heart disease or premature loss of memory.The glass is clearly half empty.

It created, for instance, a market for new health-caremagazines: one of them, American Health, reached acirculation of a million within two years.


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For example (II)

Around 1950, the American population began todescribe itself as being middle-class.

William Benton went out and asked people what thewords, middle class meant to them. The result: middle

class in contrast to working class means believing inthe ability of ones children to rise through performancein school.

Benton brought up the Encyclopedia Britannica companyand started peddling it mostly through high schoolteachers, to parents whose children were the first

generation in the family to attend high school. If you want to be middle-class, your child has to have

the Encyclopedia Britannica to do well in school.


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Existential

When a change in perception takes place, the facts donot change. Their meaning does.

Economics do not necessarily dictate such change; infact, they may be irrelevant.

What determines whether the glass is half full or halfempty is mood rather than facts. It results fromexperiences that might be called existential.

The American blacks feel The glass is half empty hasmuch to do with unhealed wounds of past centuries aswith anything in present American society.

The American health hypochondria expresses far moreAmerican values, such as the worship of youth, thananything in the health statistics.


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The problem of perception-based

innovation The critical problem in perception-based

innovation is timing.

T

here is nothing more dangerous than tobe premature in exploiting a change in

perception. And it is not always apparent

which is fad and which is true change.

Perception-based innovation has to start

small and be very specific.


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Chapter 9: Source: New

Knowledge


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Knowledge-based innovation

It is what people normally mean when theytalk of innovation.

The knowledge is not necessarily scientificor technical.

Social innovations based on knowledgecan have equal or even greater impact.

Knowledge-based innovation istemperamental, capricious, and hard tomanage.


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The characteristics of knowledge-

based innovation long lead time Knowledge-based innovation has the longest

lead time of all innovation, a long time span

between the emergence of new knowledge and

its becoming applicable to technology, andanther long period before the new technology

turn into products, processes, or services in the

marketplace.

The lead time for knowledge become applicable

technology and begin to be accepted on the

market is between 25 and 35 years.


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For example

The earliest was the binary theorem, a mathematical theory goingback to the 17th century.

It was applied to a calculating machine by Charles Babbage in thefirst half of 19th century.

In 1890, Herann Hollerith invented the punchcard, going back to an

invention by the early 19th century Frenchman J-M. Jacquard. In 1960 an American, Lee de Forest, invented the audion tube, and

with it created electronics.

Between 1910 and 1930, Bertrand Russell and Alfred NorthWhitehead created symbolic logic.

During WWI, the concepts of programming and feedback were

developed. By 1918, all the knowledge needed to develop the computer was

available.

The first computer became operational in 1946.


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The characteristics of knowledge-

based innovation convergence

The knowledge-based innovations are almostnever based on one factor but on theconvergence of several different kinds of

knowledge, not all of them scientific ortechnological.

Until all the needed knowledge can be provided,knowledge-based innovation is premature andwill fail.

Until all the knowledge converge, the lead timeof a knowledge-based innovation usually doesnot begin.


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What knowledge-based innovation

requires? careful analysis It requires careful analysis of all the necessary factors,

whether knowledge itself, or social, economic, orperceptual factors.

The analysis must identify what factors are not yet

available so that entrepreneur can decide whether thesemissing factors can be produced or whether theinnovation had better be postponed as not yet feasible.

Scientific and technologists are reluctant to make theseanalyses precisely because they think they already know.

This explain why, in so many cases, the greatknowledge-based innovations have had a layman fortheir father.


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requires? focus on strategic position

Three major focuses for knowledge-based

innovation

Complete system Market focus

Key function


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requires? entrepreneurial management

Entrepreneurial management is more crucial toknowledge-based innovation than to any other kind.

Yet knowledge-based, and especially high-tech,innovation tends to have little entrepreneurial

management. They tend to be contemptuous of anything that is not

advanced knowledge. They tend to be infatuated withtheir own technology, often believing that quality meanswhat is technically sophistically rather than what givesvalue to the user.

They are still, 19th century inventors rather than 20thcentury entrepreneurer.


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Unique risks

Its turbulent. The combination of the two characteristics ofknowledge-based innovations long lead time andconvergences give these innovations their peculiar rhythm.

For a long time, there is awareness of an innovations about tohappen but it does not happen.

Then suddenly there is a near-explosion, followed by a fewshort years of tremendous excitement, tremendous startupactivity, tremendous publicity.

The it comes a shakeout, which few survive.

There is a window of a few years during which a new

venture must establish itself in any new knowledge-basedindustry.

The window is becoming more and more crowded. A greatmany countries have today what only very few small placeshas a hundred years ago.


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Two implications

Science-based and technology-based

innovators alike find time working against

them.

Because the window is much more

crowded, any one knowledge-based

innovator has far less chance of survival.


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The shakeout

The shakeout sets in as soon as thewindow closes.

High tech companies need to plow moreand more money back into research,technical development, and technicalservices to stay in the race.

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here is only one prescription for survivalduring the shakeout entrepreneurialmanagement.


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The receptivity gamble

All other innovations exploit a change that hasalready occurred. They satisfy a need thatalready exists.

In knowledge-based innovation, the innovationbrings about the change. It aims at creating awant. And on one can tell in advance whetherthe user is going to be receptive, indifferent, oractively resistant.

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he authorities can be right or wrong. Onlyhindsight can tell us whether the experts areright or wrong in their assessment of thereceptivity.


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Chapter 10: Bright Idea


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The bright idea

Innovations based on a bright idea probablyoutnumber all other categories taken together.

Bright ideas are the riskiest and least successfulsource of innovative opportunities.

This belief that youll win if only you keep ontrying out bring ideas is no more than rationalthan the popular fallacy that to win the jackpot atLas Vegas one only has to keep on pulling the

lever. The entrepreneur is therefore well advised toforgo innovations based on bright ideas.


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Chapter 11: Principles of

Innovation


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miracle cures

Miracle cures for terminal illnesses.

No physician is going to put miracle cures

into a textbook or into a course to betaught to medical students.

They cannot be replicated, cannot be

taught, cannot be learned.


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flash of genius

There are innovators who are kissed bythe Muses, and whose innovations arethe result of a flesh of genius rather than

hard, organized, purposeful work. There is no known way to teach someone

how to be a genius.

All the genius had was a brilliant idea. Itbelongs in the history of ideas and not inthe history of technology or of innovation.


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The Dos (I)

Purposeful, system innovation begins with the

analysis of the opportunities.

Innovation is both conceptual and perceptual.

Successful innovators look at figures and theylook at people.

An innovation, to be effective, has to be simple

and it has to be focused. The greatest praise an

innovation can receive is for people to say: This

is obvious. Why didnt I think of it?


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The Dos (II)

Effective innovations start small. Initiallyinnovations rarely are more than almostright. The necessary changes can be

made only if the scale is small and therequirements for people and money fairlymodest.

A successful innovation aims at leadership.It does not aim necessarily at becomingeventually a big business.


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The Donts

Simply not to try to be clever.

Incompetence is the only thing in

abundant and never-failing supply.

Dont diversify. Dont try too many things

at once.

Dont try to innovate for the future.

Innovate for the present.


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Three conditions

Innovation is work. When all is said and done,innovation becomes hard, focused, purposefulworking making every great demands ondiligence, on persistence, and on commitment.

If these are lacking, no amount of talent,ingenuity, or knowledge will avail.

To succeed, innovators must build on theirstrengths. And in innovation, as in any otherventure, there must also be temperamental fit.

Innovation is an effect in economy and society.It has to be close to the market, focused on themarket, indeed market-driven.


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The conservative innovator

Entrepreneurial personality, which was characterized by apropensity for risk-taking.

In fact, they are not risk-takers. They try to define the risksthey have to take and to minimize them as much as possible.

Of course, innovation is risky. But so is stepping into the carto drive to the supermarket for a loaf of bread.

All economic activity is by definition high-risk. and defendingyesterday that is, not innovating is far more risky thanmaking tomorrow.

The innovators are successful to the extent the extent to

which they define risks and confine them. Successful innovators are conservative. They have to be.They are not risk-focused; they are opportunity-focused.

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