In peter drucker’S excellent book Innovation and Entrepreneurship, he describes the seven major sources of innovation for businesses of all kinds. As you look for creative ways to grow your business, start with these seven sources of innovation.
The Unexpected Event
The unexpected event—the unexpected success, failure, or outside event that leads to or indicates a new business opportunity—is often the breakthrough innovation that changes an entire industry.
Pierre Omidyar had a collection of Pez candy dispensers that he wanted to sell in the open market. Because there was no website available for him, he created eBay to sell them to the highest bidder. The response was so immediate and enormous that he decided to offer additional products for sale using the eBay auction model. This unexpected success, which he recognized and capitalized on quickly, made him one of the richest men in the world.
Many innovative breakthroughs in business are triggered by an unexpected failure as well. Often, an unexpected product failure leads to a rethinking and redesign that drives the creation of a product that becomes hugely popular.
Incongruity
Another source of innovation is an incongruity between the reality of what is and what “ought” to be. In other words, an incongruity develops when things are supposed to happen in a certain way and they don’t.
Look around your business today. Is there anything that is happening in your business, and in market demand, that is different from what you had originally expected? These incongruities could all be sources of innovative products and services that could transform your business.
Process Need
Another major source of innovation is process need. There is a breakthrough in technology, a technique, or a system that you need inside the company to overcome a problem or a shortcoming, which often requires the development of a process with commercial applications. It may be something you can use to overcome a limiting factor that is holding you back from market dominance.
When Tom Monaghan came up with the idea of delivering pizza in thirty minutes or less, the owners of the pizza restaurant where he worked told him that it simply could not be done. Each pizza had to be prepared to order before being baked, boxed, and sent out to the person who ordered it. The process could not be done in less than thirty minutes.
Monaghan’s breakthrough was simple. Based on his experience delivering pizzas and some market research, he found that 20 percent of the pizzas offered accounted for 80 percent of the pizzas ordered. He then decided to open his own pizza restaurant and produce only eight pizzas— the most popular in terms of size and ingredients. He preprepared the most popular pizzas and had them ready for baking when the orders came in. Before the dust had settled, Domino’s Pizza had 8,000 restaurants worldwide.
How could you change or develop a process that would allow you to serve your customers better, faster, cheaper, or more conveniently than your competitors? One small change or improvement in the process of producing or delivering your product can give you the “winning edge” in your industry.
Changes in Industry Structure
Changes in industry structure, as a result of a variety of different causes, are a fourth source of innovation. A good example is the introduction of the Apple iPhone in 2006, which spurred Samsung into the market with its Android-based smartphones. Within five years, both BlackBerry, which dominated the world of business phones, and Nokia, which dominated the world of cell phones, were down to less than 10 percent of their previous market shares.
Every new discovery, every new breakthrough in technology, every competitive initiative that changes or disrupts an industry, opens up opportunities for new products and services that can be hugely profitable in today’s fast-changing markets.
Demographic Changes
Demographic changes are generating major innovations in the public and private sectors of our country and worldwide. Over the next twenty years, baby boomers are going to be retiring at a rate of 10,000 per day. The needs, wants, and desires of senior citizens—in lifestyle, health, medicine, travel, transportation, and every other field—are creating huge markets for new products and services and making fortunes for many innovative executives and companies.
The shift in population in the U.S. toward the warmer states of the south and the west, away from the north and the East Coast, has created tremendous changes and opportunities in home construction, retail, medical care, lifestyle products and services, Medicare, and countless other areas.
One of the most profound changes is the population movement away from high-tax, high-regulation states to low-tax, low-regulation states. Texas alone, with no income tax and a business-favorable regulatory system, has created more new jobs in the last five years than all the other forty-nine states put together. These trends will continue.
Changes in Values and Perceptions
Changes in perceptions can also lead to innovation. For example, there is a much greater emphasis on health foods and fitness today than there was in the last generation. This concern for longer life, better health, and more energy has fueled the organic food craze and the vitamin industry. The average life span has increased from 60 years of age in 1935 to 80 years in 2014. More people want to live longer, better, and healthier lives than ever before. This desire on the part of millions of relatively affluent consumers is creating unlimited business opportunities for innovative entrepreneurs who can develop new products and services to satisfy these needs.
New Knowledge
New knowledge, both scientific and nonscientific, creates new economic trends, opportunities, and even completely new industries.
The ability to put most of the functions of a personal computer on a tablet device such as the Apple iPad has transformed the world of mobile computing, leading to ever-declining sales of PCs and price wars that are decimating many of the leading companies in the personal computer industry. At the same time, many millions and billions of dollars of sales and revenue are being created by those companies creating new mobile applications and services for tablet owners.
At the same time, new knowledge is the least dependable source of innovation because it takes so long to get into the marketplace, and it is very difficult to know exactly what will happen as a result of this new knowledge.
ACTION EXERCISES
1. Imagine that you were starting your business over again today, with your current knowledge and experience and with the world changing rapidly around you. What would you start up, and what would you discontinue?
2. Identify the most important trends in your business world today and project forward five years to determine the products and services you will have to be offering to survive and thrive at that time.