Last week I wrote about Peter Drucker’s views on the three major Innovation Strategies that businesses have used to drive profitable growth. It’s fairly simple actually, one of the great things about Dr. Drucker in my opinion:
- First to the market
- Second to the market
- Finding niche strategies
Drucker also says there’s a fourth minor strategy: Designing a product as a carrier of more profitable products or services. Most of us experience this strategy daily, examples are:
- Inexpensive printers and expensive printer cartridges
- Razors and expensive razor blades (think Gillette)
- Expensive pens and moderately priced ink refills
- Newer pod-style coffee makers and then buying the coffee pods
But what about the Sources of Innovation? Drucker says there are four Internal Innovation Sources and three External ones.
Internal to the company or industry Innovation Sources:
- Unexpected occurrences
- Process needs
- Industry and market changes
External to the company Innovation Sources:
- Demographic changes
- Changes in perception
- New knowledge
Let’s take a closer look at these:
Unexpected Occurrences (or Taking Advantage of Successes)
One of the problems companies have as they grow, according to Dr. Drucker, is that they begin to know too much. In other words sometimes they can’t see opportunities because they’re not open to them, sort of “the can’t see the forest for the trees syndrome”. Think about the monthly financial reports businesses generate which report variances from budget, Drucker says that in many cases these reports actually give a false impression about the current state of the business.
What happens when you launch a minor product or service that performs better than expected? The first tendency inside many companies is to discount the success, some in the company may even resent its success because it wasn’t expected. In many cases these types of products or services resulted from someone understanding that an opportunity or a problem had presented itself and then they badgered management to act on it. This is what taking advantage of unexpected occurrences is all about, it’s about taking advantage of success and “not looking the gift horse in the mouth”. Do you think it might make sense to experiment with more of these by actually having two front pages on your monthly reports, one for problems and another opportunities?
This approach focuses on looking for where markets or the environment in which a business operates doesn’t behave the way you think it should. In other words where the world simply doesn’t listen to your logic and behaves differently.
A perfect example of this is the development of the well known IBM PC. In the late 1970’s IBM thought it knew exactly where the market for computers was going, and their marketing staff had the data to prove it. They thought computers needed to be centralized and sort of like power plants, you could plug in all sorts of peripherals, monitors, work stations, etc. The data showed that the market for personal computers (PCs) was nonexistent. What happened?
IBM noticed that children were using PCs to play video games and the market was growing rapidly (remember Nintendo?), and there were two guys in a garage building PCs too, who called themselves Apple Computer (Jobs and Wozniak). To their credit, IBM realized that they were wrong. They immediately redoubled their efforts to build a PC product that they had been saying internally was a mistake for 20 years. The result was the best selling PC for the next 20 years, the good old vanilla IBM PC and its incarnations. This is a perfect example of exploiting incongruities in a market to drive innovation and profitable business growth.