TM600.88 Spring 1997

Module 2

Instructional Overview

The following material distinguishes between types of innovations and describes innovation as a process. The sources of innovation are also identified. Specific emphasis is placed on innovation within existing organizations. 

Introduction

As we discussed in the first class, whatever changes the wealth-producing power of existing resources constitutes and innovation, e.g., using weeds as phytomedicines. Innovations can be technical or social; some of the most profound innovations are social. For example, the hospital, in its modern form a social innovation of the eighteenth century, has had a greater impact on health care than many advances in medicine (Drucker, 1985, p. 31).

Innovations can be classified any number of ways. Northwestern professor Dr. Donald N. Frey, former chairman of Bell+Howell, has developed one useful taxonomy. (Click here for his Taxonomy of Innovation.) He distinguishes between incremental and seminal innovations, and whether their source is the market's pull or the technology's push.

Acknowledging the serendipity of the bright idea, Drucker (1985, pp. 35-36) identifies seven sources of innovation, four internal to the organization:

Each of these sources should be viewed in the context of a deliberate, thoughtful process. Innovation rarely occurs as a result of a "divine inspiration"; rather:

Systematic innovation … consists in the purposeful and organized search for changes, and in the systematic analysis of the opportunities such changes might offer for economic or social innovation (Drucker, 1985, p. 35).

Therefore, an important part of technology management is monitoring and analyzing these sources of opportunity. Let's examine the seven sources more closely. Try to think of examples as you read.

Source: The Unexpected

Unexpected successes tend to be overlooked, or discounted, rather than capitalized upon. Drucker suggests several reasons for this:

The lack of attention in management reporting to "doing better than expected".

Failures, unlike successes, cannot be rejected and rarely go unnoticed. But they are seldom seen as symptoms of opportunity (p. 46). They should be!

One example that Drucker describes is the failure of the Edsel, and how Ford regrouped and used the Thunderbird to approach the targeted market.

Source: Incongruities

An incongruity is a discrepancy, a dissonance, between what is and what "ought" to be, or between what is and what everyone assumes it to be… [An] incongruity is a symptom of an opportunity to innovate…, a symptom of change, either change that has already occurred or change that can be made to happen (p. 57).

These incongruities are usually manifest in the assumptions a company makes about its operating environment, industry, or customers. The challenge is that this source can really only be monitored from within -- yet assumptions are best identified and questioned from without.

Examples here might be the advent of the mini mills in the steel industry, the use of cargo containers in the shipping industry and the creation of superstations in the television industry.

Source: Process Need

Again, incongruities can highlight specific needs in a process. For example, in the early 1900's, telephone use projections indicated that every American woman of working age would have to work as a switchboard operator if calls continued to be switched manually.

Another way in which process need drives innovation is in "program research", where a process is converted from potential into reality (p. 73), e.g., the light bulb.

Drucker suggests that the trick is to find a weak or missing link in a process that is fairly self-contained and well understood. The key to success is a clear definition of the objective (e.g., distributing electric power to the masses) such that specifications for the solution can be defined clearly. Of course, this assumes that the requisite knowledge is available to fix the link.

Source: Industry and Market Structures

Industry and market structures may appear stable over the long term, but in reality can be quite dynamic. A change in industry structure offers exceptional opportunities, highly visible and quite predictable to outsiders (p. 81), such as MCI and Sprint in the long distance communications market.

Drucker identifies four near-certain, highly visible indicators of impending change in industry structure (pp. 83-85):

He cautions that simple strategies work best against these opportunities, and notes that the most successful of these innovations occur in industries dominated by one or few suppliers.

Source: Demographics

Changes in the population characteristics (size, age, employment, education, etc.) are monitored extensively. Interpreting the data correctly to identify opportunities is the challenge. Typically, business people do not factor demographic changes into short-term decisions -- even though the lead times of demographic shifts are often known. Recent demographic changes with a significant impact on industry: the baby boom, the baby bust, the advent of professional women, Latin American urbanization. An example of catering to a new population segment is Club Med:

The success of Club Mediterranee in the travel and resort business is squarely the result of exploiting demographic changes: the emergence of large numbers of young adults in Europe and the United States who are affluent and educated but only one generation away from working-class origins… Unsure of themselves, they are eager to have somebody… organize their vacations… They are not really comfortable either with their working-class parents or with older, middle-class people. Thus, they are ready-made customers for a new and "exotic" version of the old teenage hangout (p. 95).

Source: Changes in Perception

Drucker advocates a change in perception, looking at the glass as half-empty as opposed to half full, to identify potential opportunities. When a change in perception takes place, the facts do not change. The meaning does. (p. 104).

One example that I like is about Citibank, the first truly national bank in the US. It was their practice to recruit the best male business students in finance and marketing. In the 1970's they noticed that the best students in these fields were increasingly women. Most companies told their college recruiters to try harder to get the best men; Citibank started to aggressively recruit women (p.105).

Source: New Knowledge 

Innovations stemming from new knowledge are the most sensational and tend to receive the most publicity. They are long in coming, and are less predictable. There is often a long lead-time between the emergence of new knowledge and its application.

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… The computer required the convergence of five different knowledges: a scientific invention, the audion tube; a major mathematical discovery, the binary theorem; a new logic; the design concept of the punchcard; and the concepts of program and feedback. Until all of these were available, no computer could have been built (pp. 111-112).

This convergence makes knowledge-based innovations uniquely challenging.

Nurturing Innovation

As a technology manager, it is your responsibility to maintain the balance between the "relentless quest for predictable performance" and the "constant probing for change" (Steele, 1989, p. 69). You can nurture innovation by deliberately and routinely considering and assessing the seven sources. Doing so requires the full commitment of the organization to invest the necessary resources in the inherent uncertainties. It also takes the full attention of the innovator(s):

Innovation must be set up as a separate activity, with people charged solely with that task. Additional operating responsibilities divert attention; they become excuses for less than all-out effort (Steele, 1989, p.279).

As with most endeavors, focus seems to be a key element for success in managing innovation.

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