The Seven Wins of Innovation

by Rob White

In an article published in the Harvard Business Review in August 2002, author Peter F. Drucker talks about the “seven areas of opportunity” in creating innovation ecosystems in companies. The article, aptly named “The Discipline of Innovation,” discusses how “despite much discussion these days of the ‘entrepreneurial personality,’” few entrepreneurs seem to have such personalities. https://hbr.org/2002/08/the-discipline-of-innovation/ar/1

He goes on to write that he has “known many people—salespeople, surgeons, journalists, scholars, even musicians—who did have them without being the least bit entrepreneurial. What all the successful entrepreneurs” seem to “have in common is not a certain kind of personality but a commitment to the systematic practice of innovation.”

Drucker explains that “Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.”

He then draws a distinction about entrepreneurs by stating that “today, much confusion exists about the proper definition of entrepreneurship.” He notes that “a great many well-established businesses engage in highly successful entrepreneurship. The term, then, refers not to an enterprise’s size or age but to a certain kind of activity. At the heart of that activity is innovation: the effort to create purposeful, focused change in an enterprise’s economic or social potential.”

Drucker goes on to explain that some innovations “spring from a flash of genius” but “most innovations, however, especially the successful ones, result from a conscious, purposeful search for innovation opportunities, which are found only in a few situations.”

Drucker notes that four areas of opportunity exist within a company or industry:

1. Unexpected occurrences
2. Incongruities
3. Process needs, and
4. Industry and market changes.

He also notes that three “additional sources of opportunity exist outside a company in its social and intellectual environment”:

5. Demographic changes,
6. Changes in perception, and
7. New knowledge.

He also recognizes that “these sources overlap, different as they may be in the nature of their risk, difficulty, and complexity, and the potential for innovation may well lie in more than one area at a time. But together, they account for the great majority of all innovation opportunities.”

Under the first opportunity (internal), Unexpected Occurrences, Drucker notes that “unexpected successes and failures are such productive sources of innovation opportunities because most businesses dismiss them, disregard them, and even resent them.” To illustrate his point, he relates that story of a “German scientist who around 1905 synthesized novocaine, the first nonaddictive narcotic, had intended it to be used in major surgical procedures like amputation. Surgeons, however, preferred total anesthesia for such procedures; they still do. Instead, novocaine found a ready appeal among dentists. Its inventor spent the remaining years of his life traveling from dental school to dental school making speeches that forbade dentists from “misusing” his noble invention in applications for which he had not intended it.”

For the second opportunity (internal), Incongruities, Drucker explains that “incongruity within the logic or rhythm of a process is only one possibility out of which innovation opportunities may arise.” He goes on to illustrate that “incongruity between economic realities” may also result in opportunity. He illustrates his point with the example by stating that “whenever an industry has a steadily growing market but falling profit margins—as, say, in the steel industries of developed countries between 1950 and 1970—an incongruity exists. The innovative response: minimills.”

The third opportunity (internal), Process Needs, is illustrated by Drucker as he relates that “what we now call the media had its origin in two innovations developed around 1890 in response to process needs. One was Ottmar Mergenthaler’s Linotype, which made it possible to produce newspapers quickly and in large volume. The other was a social innovation, modern advertising, invented by the first true newspaper publishers, Adolph Ochs of the New York Times, Joseph Pulitzer of the New York World, and William Randolph Hearst. Advertising made it possible for them to distribute news practically free of charge, with the profit coming from marketing.”

To define the fourth opportunity (internal), Industry and Market Changes, Drucker states that “when an industry grows quickly—the critical figure seems to be in the neighborhood of 40% growth in ten years or less—its structure changes. Established companies, concentrating on defending what they already have, tend not to counterattack when a newcomer challenges them. Indeed, when market or industry structures change, traditional industry leaders again and again neglect the fastest growing market segments. New opportunities rarely fit the way the industry has always approached the market, defined it, or organized to serve it. Innovators therefore have a good chance of being left alone for a long time.”

For the external sources of opportunity, the fifth of Drucker’s seven areas is Demographic Changes. He notes that demographic innovation opportunities are the “most reliable,” explaining that “demographic events have known lead times; for instance, every person who will be in the American labor force by the year 2000 has already been born. Yet because policy makers often neglect demographics, those who watch them and exploit them can reap great rewards.”

The sixth opportunity (external) is Changes in Perception. Using the traditional glass half empty/glass half full analogy, Drucker points out that “all factual evidence indicates, for instance, that in the last 20 years, Americans’ health has improved with unprecedented speed—whether measured by mortality rates for the newborn, survival rates for the very old, the incidence of cancers (other than lung cancer), cancer cure rates, or other factors. Even so, collective hypochondria grips the nation. Never before has there been so much concern with or fear about health. Suddenly, everything seems to cause cancer or degenerative heart disease or premature loss of memory. The glass is clearly half empty.”

His seventh (and last) opportunity for innovation (external) is New Knowledge. He points out that “among history-making innovations, those that are based on new knowledge—whether scientific, technical, or social—rank high. They are the super-stars of entrepreneurship; they get the publicity and the money. They are what people usually mean when they talk of innovation, although not all innovations based on knowledge are important.”

But it is with this seventh opportunity area for innovation that Drucker notes that “knowledge-based innovations differ from all others in the time they take, in their casualty rates, and in their predictability, as well as in the challenges they pose to entrepreneurs. Like most superstars, they can be temperamental, capricious, and hard to direct. They have, for instance, the longest lead time of all innovations. There is a protracted span between the emergence of new knowledge and its distillation into usable technology. Then there is another long period before this new technology appears in the marketplace in products, processes, or services. Overall, the lead time involved is something like 50 years, a figure that has not shortened appreciably throughout history.”

He goes on to point out that “to become effective, innovation of this sort usually demands not one kind of knowledge but many.”

He cites the example of the computer, noting that its success “required no fewer than six separate strands of knowledge:

• Binary arithmetic;
• Charles Babbage’s conception of a calculating machine, in the first half of the nineteenth century;
• The punch card, invented by Herman Hollerith for the U.S. census of 1890;
• The audion tube, an electronic switch invented in 1906;
• Symbolic logic, which was developed between 1910 and 1913 by Bertrand Russell and Alfred North Whitehead; and
• Concepts of programming and feedback that came out of abortive attempts during World War I to develop effective antiaircraft guns.

Drucker notes that “although all the necessary knowledge was available by 1918, the first operational digital computer did not appear until 1946. Long lead times and the need for convergence among different kinds of knowledge explain the peculiar rhythm of knowledge-based innovation, its attractions, and its dangers. During a long gestation period, there is a lot of talk and little action. Then, when all the elements suddenly converge, there is tremendous excitement and activity and an enormous amount of speculation.”

Drucker concludes his article by noting that “in innovation, as in any other endeavor, there is talent, there is ingenuity, and there is knowledge. But when all is said and done, what innovation requires is hard, focused, purposeful work. If diligence, persistence, and commitment are lacking, talent, ingenuity, and knowledge are of no avail. There is, of course, far more to entrepreneurship than systematic innovation—distinct entrepreneurial strategies, for example, and the principles of entrepreneurial management, which are needed equally in the established enterprise, the public service organization, and the new venture. But the very foundation of entrepreneurship is the practice of systematic innovation.”

I think there are many parallels with Davis – the city, the community and the university – and we need to look no further than our own efforts at being purposeful innovators to successfully realize the opportunities.

Thank you for considering these ideas and I look forward to your thoughts and input. My email is rwhite@cityofdavis.org if you choose to email me directly or you can follow me on Twitter @mrobertwhite.

Author’s Note: Due to shifting needs and workload at City Hall, I will not be able to continue to contribute regular weekly articles to the Davis Vanguard after the holidays. I will be spending much of my foreseeable writing time working with the City Manager and staff on a strategy for the Council’s Goals and Objectives for 2014-2016. Though I have enjoyed engaging this online community, there are limited staff resources and my priority right now must shift. As my second to last regular article, I am hoping to provide some inspirational insight and suggested actions so that if you choose, you may carry on the conversation regarding innovation in Davis. Thank you for your support in my writing over the last 18 months and I hope to still occasionally provide articles as time allows.

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