Peter Drucker on Innovation Strategies (3 of 3)
Peter Drucker wrote in 1973 “Because the purpose of any business is to create a customer, the business has two - and only two - basic functions: innovation and marketing. Marketing and Innovation produce results, all the rest are costs”.
However, when I talk to CEOs of all types and sizes of companies, their priorities rarely involve innovation and marketing, their list typically includes: finance, sales, production, legal, and human resources. Where is the disconnect?
Part of the problem is a misunderstanding about what Innovation and Marketing really mean and how they work best. If we work from Drucker’s perspective that without a customer there’s no business, then innovation and marketing become the only two basic functions of the business capable of driving sustainable growth. The main point in this analysis is that businesses need to be more externally focused on finding and retaining customers, discovering what they really want and need, and then flexing their innovation muscles to develop products and services that customers will buy. After this, all the rest of a business’s functions can kick in and do their jobs, without this external customer focus there may not be jobs to do.
Let’s continue to examine what Peter Drucker says are the main components of an Innovation Strategy. He says there are three major and one minor strategies:
- First to the market
- Second to the market
- Finding niche strategies
- Designing a product as a carrier to sell more profitable products or services
Further, Drucker says the following Sources of Innovation generate the opportunities for one or more of these innovation strategies:
Internal to the company or industry Innovation Sources:
- Unexpected occurrences
- Incongruities
- Process needs
- Industry and market changes
External to the company Innovation Sources:
- Demographic changes
- Changes in perception
- New knowledge
During the last two weeks I’ve explored these innovation strategies and sources for innovation opportunities, so see my previous columns for more detail. Today, I’ll cover the External Innovation Sources.
Demographic Changes
Drucker says that of the external innovation sources that Demographic Changes is the most reliable. They have known lead times, such as baby boomers reaching retirement age by 2015, this knowledge is readily available for anyone to explore. The question is, how do demographic changes affect your business, markets, customers and products. There could be substantial opportunities or threats, understanding these elements will give your company a leg up on the competition. Drucker says that innovation opportunities made possible by changes in population, age, eduction, occupations and geographic locations are among the most rewarding and least risky business opportunities most businesses can find.
Changes in Perception
Innovation opportunities thrive when perceptions change about key aspects of people’s lives. Drucker calls this the “glass half full or half empty phenomena. Just think about the current debate about health care coverage and the costs associated with receiving needed services. Demographically in the US, people’s health has been steadily improving at a rapid rate for the last 40 years, even so we are the most health obsessed country in the world and there appears to have never been so much hysteria about health risks, which has driven health care costs through the roof in the US compared to other industrialized countries. Do you think the Health Care industry has leveraged this change in perception to their advantage?
Think about changes of perception over the years about computers, it didn’t take long for most of us to become comfortable with PCs and it has snowballed from there to point that we can’t live without iPhones, Blackberrys and the like.
New Knowledge
This is what most of us think about when we think of innovation, breakthrough or new technologies emanating from new knowledge are the superstars of innovation and business growth. Drucker says that knowledge-based innovations are different from all others:
- In the time they take
- In their casualty rates
- The challenges they pose to businesses, and
- In their predictability
There’s usually a long time span between the emergence of new knowledge and the opportunity to actually commercialize it as functional technology that actually works. Usually there’s an even longer wait to actually see a new technology appear in new products, processes or services. This challenge with converting new knowledge into commercial business opportunities is the main challenge with bringing university-based or federal lab-based technologies to market. So beware of the enticing appeal of new knowledge and new technology, your best bet may be to let someone else take the arrows as the first to market and develop an alternate strategy.
Good luck in applying Peter Drucker’s principles of Innovation in your business!
Charlie Alter owns Bentbrook Advisors LLC based in Sylvania, Ohio. He specializes in Growth Strategy, Innovation and Coaching and can be reached at calter@me.com visit https://bentbrookadvisors.com for more information on his business advisory practice.
