Transcript Innovation and Entrepreneurship

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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Chapter 7: Demographics
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Demographics
• It defines as changes in population, its
size, age structure, composition,
employment, education status, and
income.
• They are unambiguous. They have the
most predictable consequences.
• Demographics have major impact on what
will be bought, by whom, and in what
quantities.
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For example
• American teenagers buy a good many
pairs of cheap shoes a year.
• They buy fashion, nor durability, and their
purses 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 occur
without advance warning.
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For example
• The most prominent American experts called
together by F.D. Roosevelt predicted
unanimously in 1938 that the U.S. population
would 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 large
families, only to turn just as suddenly in 1960
into a “baby bust”, producing equally
unprecedentedly small families.
• The shift is not only dazzlingly sudden. It is
often mysterious and defy explantion.
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Rewarding opportunity
• Demographic shifts in this century may be
inherently unpredictable. Yet they do have
long 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-service
staffs, or governmental policymakers.
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Other important demographic
changes
• Analysis of demographic changes begins with
population figures. But absolute population is
the least significant number.
• Particularly important in age distribution are
changes in the center of population gravity, that
is, in the age group which at any given time
constitutes both the largest and the fastestgrowing age cohort in the population.
• Segmentation by education attainment; labor
force participation; occupational segmentation;
income distribution.
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Chapter 8: 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 for
newborn babies or survival rates for the very old) of
physical health and functioning have been moving
upward.
• And yet the nation is gripped by collective hypochondria.
Never before has there been so much concern with
health, and so much fear.
• Suddenly everything seems to cause cancer or
degenerative heart disease or premature loss of memory.
The glass is clearly “half empty”.
• It created, for instance, a market for new health-care
magazines: one of them, American Health, reached a
circulation of a million within two years.
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For example (II)
• Around 1950, the American population began to describe
itself as being “middle-class.”
• William Benton went out and asked people what the
words, “middle class” meant to them. The result: “middle
class” in contrast to “working class” means believing in
the ability of one’s children to rise through performance
in school.
• Benton brought up the Encyclopedia Britannica company
and started peddling it mostly through high school
teachers, 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 do
not change. Their meaning does.
• Economics do not necessarily dictate such change; in
fact, they may be irrelevant.
• What determines whether the glass is “half full” or “half
empty” is mood rather than facts. It results from
experiences that might be called “existential.”
• The American blacks feel “The glass is half empty” has
much to do with unhealed wounds of past centuries as
with anything in present American society.
• The American health hypochondria expresses far more
American values, such as the worship of youth, than
anything in the health statistics.
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The problem of perception-based
innovation
• The critical problem in perception-based
innovation is “timing”.
• There is nothing more dangerous than to
be 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 they
talk of innovation.
• The knowledge is not necessarily scientific
or technical.
• Social innovations based on knowledge
can have equal or even greater impact.
• Knowledge-based innovation is
temperamental, capricious, and hard to
manage.
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The characteristics of knowledgebased 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, and
anther 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 going
back to the 17th century.
• It was applied to a calculating machine by Charles Babbage in the
first 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 North
Whitehead 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 knowledgebased innovation – convergence
• The knowledge-based innovations are almost
never based on one factor but on the
convergence of several different kinds of
knowledge, not all of them scientific or
technological.
• Until all the needed knowledge can be provided,
knowledge-based innovation is premature and
will fail.
• Until all the knowledge converge, the lead time
of a knowledge-based innovation usually does
not 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, or
perceptual factors.
• The analysis must identify what factors are not yet
available so that entrepreneur can decide whether these
missing factors can be produced or whether the
innovation had better be postponed as not yet feasible.
• Scientific and technologists are reluctant to make these
analyses precisely because they think they already know.
• This explain why, in so many cases, the great
knowledge-based innovations have had a layman for
their father.
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What knowledge-based innovation
requires? – focus on strategic position
Three major focuses for knowledge-based
innovation
• Complete system
• Market focus
• Key function
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What knowledge-based innovation
requires? – entrepreneurial management
• Entrepreneurial management is more crucial to
knowledge-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 with
their own technology, often believing that “quality” means
what is technically sophistically rather than what gives
value to the user.
• They are still, 19th century inventors rather than 20th
century entrepreneurer.
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Unique risks
• It’s turbulent. The combination of the two characteristics of
knowledge-based innovations – long lead time and
convergences – give these innovations their peculiar rhythm.
• For a long time, there is awareness of an innovations about to
happen – but it does not happen.
• Then suddenly there is a near-explosion, followed by a few
short years of tremendous excitement, tremendous startup
activity, 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-based
industry.
• The window is becoming more and more crowded. A great
many countries have today what only very few small places
has 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 the
“window” closes.
• High tech companies need to plow more
and more money back into research,
technical development, and technical
services to stay in the race.
• There is only one prescription for survival
during the shakeout entrepreneurial
management.
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The receptivity gamble
• All other innovations exploit a change that has
already occurred. They satisfy a need that
already exists.
• In knowledge-based innovation, the innovation
brings about the change. It aims at creating a
want. And on one can tell in advance whether
the user is going to be receptive, indifferent, or
actively resistant.
• The authorities can be right or wrong. Only
hindsight can tell us whether the experts are
right or wrong in their assessment of the
receptivity.
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Chapter 10: Bright Idea
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The bright idea
• Innovations based on a bright idea probably
outnumber all other categories taken together.
• Bright ideas are the riskiest and least successful
source of innovative opportunities.
• This belief that you’ll win if only you keep on
trying out bring ideas is no more than rational
than the popular fallacy that to win the jackpot at
Las Vegas one only has to keep on pulling the
lever.
• The entrepreneur is therefore well advised to
forgo 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 be
taught 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 by
the Muses,” and whose innovations are
the 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. It
belongs in the history of ideas and not in
the history of technology or of innovation.
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The Do’s (I)
• Purposeful, system innovation begins with the
analysis of the opportunities.
• Innovation is both conceptual and perceptual.
Successful innovators look at figures and they
look 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 didn’t I think of it?”
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The Do’s (II)
• Effective innovations start small. Initially
innovations rarely are more than “almost
right”. The necessary changes can be
made only if the scale is small and the
requirements for people and money fairly
modest.
• A successful innovation aims at leadership.
It does not aim necessarily at becoming
eventually a “big business”.
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The Dont’s
• Simply not to try to be clever.
Incompetence is the only thing in
abundant and never-failing supply.
• Don’t diversify. Don’t try too many things
at once.
• Don’t 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, purposeful
working making every great demands on
diligence, on persistence, and on commitment.
If these are lacking, no amount of talent,
ingenuity, or knowledge will avail.
• To succeed, innovators must build on their
strengths. And in innovation, as in any other
venture, there must also be temperamental fit.
• Innovation is an effect in economy and society.
It has to be close to the market, focused on the
market, indeed market-driven.
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The conservative innovator
• “Entrepreneurial personality”, which was characterized by a
“propensity for risk-taking”.
• In fact, they are not “risk-takers”. They try to define the risks
they have to take and to minimize them as much as possible.
• Of course, innovation is risky. But so is stepping into the car
to drive to the supermarket for a loaf of bread.
• All economic activity is by definition “high-risk.” and defending
yesterday – that is, not innovating – is far more risky than
making 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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