Tuesday, April 3, 2012

Innovation Déjà vu – Insights from Peter Drucker that hold true even today.

Over the past few years I have read many books on the subject of Innovation. I have even written my own book titled “Living in theInnovation Age” and have spoken on the topic at several conferences and professional events. One book to which I had not given adequate justice was “Innovation and Entrepreneurship” by the legendary Peter Drucker. Well, I spent this weekend (March 31-April 1, 2012) reading it from cover to cover. All I can say is that the man is a genius! No wonder he was awarded the Presidential Medal of Freedom in 2002 and is considered the Father of Modern Management.

To be honest, I had fairly high expectations of the book to begin with. After all, who hasn’t heard of Peter Drucker, the author of over 35 well-known and best-selling books on a wide array of subjects from management to executive leadership to today’s concept of endearment – innovation? But as I read through the pages, I was amazed by the clarity and depth of his insight on the topic of innovation almost 27 years ago (in 1985). In fact, as I read through the book, I was astounded by just how many modern “innovation concepts” are actually rooted in his insights including two of the most popular theories that form the basis of our understanding of innovation today; namely “Disruptive Innovation” and the “Three-Box Model.”

Disruptive Innovation

The terms disruptive technology and its successor disruptive innovation have made the man who coined these terms, Clayton Christensen, a well-recognized personality in the field of innovation. Disruptive innovation refers to innovation that begins its life in relatively simple applications at the bottom of a market and then relentlessly moves upstream until it gradually usurps the established leaders in that market. A classic example that Christensen has often used is that of how steel mini mills have “disrupted” the established, vertically integrated, huge steel mills of the 1960s and 70s.

It turns out that while Christenson coined a very catchy term for the phenomenon, he was not the first to recognize its existence. In fact, Peter Drucker talks about the exact same phenomenon in his book in at least two places. First in chapter two he recognizes that while most innovations exploit a change that has already occurred or is happening, there are some innovations that in themselves constitute a major change. In other words, these latter innovations are disruptive (he does not use this term). Then in chapter 17, he talks about the concept of “Entrepreneurial Judo,” which is identical to our modern concept of “Disruptive Innovation.” One example, he gives, is how Sony moved into the low end of the radio market with cheap, small, and reliable “transistor” radios. The existing market leaders ignored Sony as it was selling to a low profit segment that they did not care about anyway. Once Sony had established itself in the lower end market, it kept moving into other market segments until it completely displaced the market leaders of the time. Isn’t this exactly similar to disruptive innovations stories you might have heard from Christensen? Entrepreneurial Judo aims at establishing a beachhead, one that established competitors will either not defend at all or only defend half-heartedly. From there, these newcomers gradually take over the whole beach and ultimately the entire island! Once again, we now know this theory as disruptive innovation – a catchier name for a recycled concept!

The Three-Box Model

Vijay Govindrajan’s three box model seems so obvious once you read it. To summarize, successful enterprises have mastered three specific practices – managing the present (Box 1), selectively forgetting the past (Box 2), and creating the future (Box 3). While Vijay deserves much credit for popularizing the model with a simple, yet perceptive framework, the credit for the origins of the theory goes, once again, to Peter Drucker. In chapter 12, Peter Drucker identifies that “it takes special effort for existing businesses to become entrepreneurial and innovative... the temptation is always to feed yesterday and to starve tomorrow.” Therein lays the origins of the three box model where organizations are not designed for innovation but rather for efficiencies and the resulting underpinning for the classic catch-22 between Boxes 1 and 3 with too much attention on managing the present and not enough on creating the future. Chapter 12 further explains Box 2 with a description of a process Peter Drucker calls “Selective Abandonment,” in which every three years or so, the enterprise must put product, process, technology, market, channel, and staff activity on trial for its life. The organization must ask, “Would we now go into this market, product, channel, technology, etc. today? If not, the next question becomes, “How do we stop wasting resources on it?” Selective abandonment not only helps free valuable resources for the “new” but helps an enterprise relieve itself of the burden of “near misses” and “half successes.”

Living in the Innovation Age

Besides the two examples I described above, there are many other popular concepts about innovation today that I found to have origins in Drucker’s book. These include the concepts of “understanding the true job of customers”, “accidental innovations”, and “the importance of an innovation strategy” (which he calls an innovation plan). Interestingly, while he never mentions the word “culture” he does discuss the importance of a foundational framework of policies, practices, and structures, which essentially is what we now know as an organization’s culture.  

As I read his book, I was overcome by a natural curiosity to explore more about how my ideas, and more importantly, my recent book matched up with his ideas and writings. I was delighted to see that Part 2 of my book mapped very neatly to his chapter 11, Principles of Innovation.  A key difference, of course is that while his discussion about the principles in chapter 11 is just eight pages of “Do’s” and “Don’ts,” my book covers the topic in much more detail with close to 60 pages devoted to discussing five core principles that can help lead to a more disciplined mindset for innovation

Not surprisingly, I also found the origins of several concepts that I discuss in my book in Peter Drucker’s book. The one that intrigued me the most was a concept that I call “First Mover Advantage Fallacy” in which I talk about how contrary to popular belief successful innovators don’t always have to be first to market. Often times these first movers are overtaken by copycats who learn from the first mover’s mistakes and missteps. Well, this is very similar to what Drucker called “Creative Imitation” in chapter 17 of his book. One example he provides is how IBM has practiced creative imitation throughout its history starting back in the 1940s when it abandoned its own computer design in favor of rival ENIAC and then later again as it  took over the PC marker from Apple.  

The Bottom Line - Peter Drucker’s book, “Innovation andEntrepreneurship,” is truly a must read for any student or practitioner of innovation. Of course, if you would like to learn more about the “principles for innovation,” I would highly recommend a more recent addition to the knowledge body of innovation, namely my book “Living in the Innovation Age.”  J

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