Innovation and Entrepreneurship

Practice and principles

Peter f. drucker(1985)

Contents

• Preface• Introduction: The Entrepreneurial Economy• The Practice of Innovation• The Practice of Entrepreneurship• Entrepreneurial Strategies• Conclusion: The Entrepreneurial Sociality

The Practice of Innovation• Systematic Entrepreneurship• Purposeful Innovation and the Seven Sources for

Innovative Opportunity• Sources: The Unexpected• Sources: Incongruities• Sources Process Need• Sources: Industry and Market Structures• Sources: Demographics• Sources: Changes in Perception• Sources: New Knowledge• The Bright Idea• Principles of Innovation

1:Systematic Entrepreneurship

• Concept about entrepreneur?• Entrepreneurship, and economic theory,

social theory?• Entrepreneurship ,risk ,and methodology

Concept about entrepreneur?

• Say’s definition: shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.

• U.S. way: one who starts his own, new and small business.

• Drucker’s comments: entrepreneurship does not need small , new and economic affairs

Drucker’s Concept about entrepreneur?

• Entrepreneur create something new, something different; they change and transmute value.

• Entrepreneur see change as the norm and as healthy.

• The entrepreneur always searches for change, responds to it, and exploits it as an opportunity

Entrepreneurship and economic theory, social theory?

• Entrepreneurship rests on a theory of economy and society

• Joseph Schumpeter: dynamic disequilibrium brought on by the innovating entrepreneur ,rather than equilibrium and optimization, is the norm of a healthy economy and the central reality for economic theory and economic practice.

• Entrepreneurship pertains to all activities of human beings, including business, economic and social sphere

Entrepreneurship ,risk ,and methodology

• Entrepreneurship, it is commonly believed, is enormously risky

• Entrepreneurship is risky mainly because so few of the so-called entrepreneur know what they are doing. they lack methodology

• Entrepreneurship does need, however, to be systematic, to be managed. Above all ,it needs to be based on purposeful innovation.

2:Proposeful Innovation and Seven Sources for Innovation

• About innovation?• The theory and practice of innovation?• Systematic innovation?• The seven sources of innovative

opportunity?

About innovation• Innovation is the specific instrument of

entrepreneurship. It is the act that endows resources with a new capacity to create wealth

• Whatever changes the wealth-producing potential of already existing resources constitutes innovation

• Innovation does not have to be technical, it is also an economic or social term

• Innovation can be defined as changing the yield of resources, or defined in demand terms rather than in supply terms, that is as changing the value and satisfaction obtained from resources by the consumer

The theory and practice of innovation?

• Theory: we can not yet develop a theory of innovation

• Practice: we know enough to develop, but still only in outline form

The theory and practice of innovation

• We already know enough: when, where, and how one looks systematically for innovation opportunities

• And how one judges the chances for their success or the risks of their future

From Invention,Research to Innovation

• Invention: one of the great achievements of the nineteenth century was the ”invention of invention.”

• Invention was mysteries ,resulted from ”flash of genius”

From Invention,Research to Innovation

• Research:by1914,the time WW1 broke out, invention had become research

• Research is a systematic, purposeful activity, which is planned and organized with high predictability both of the results aimed at and likely to be achieved

• Something similar now has to be done with respect to “INNOVATION” ,i.e. systematic innovation

Successful Entrepreneur and Systematic innovation?

• Successful Entrepreneur have to learn to practice systematic innovation

• Successful entrepreneur do not wait until “the Muse kiss them” and gives them a “bright idea”; they go to work, they try to create new and different values and new and different satisfactions, to convert a “material” into a “resources” ,or to combine existing resources in a new and more configuration

• And it is CHANGE that always provides the opportunity for the New and Different

•

Systematic innovation

• The overwhelming majority of successful innovation exploit change.

• 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

Systematic innovation

• The discipline of innovation (and it is the knowledge base of entrepreneurship) is a diagnostic discipline: a systematic examination of areas of change that typically offer entrepreneurial opportunities

• Systematic innovation means monitoring seven sources for innovative opportunities

The seven sources of innovative opportunities

• The unexpected—success, failure, or event• The incongruity-reality as it actually is, assumed

to be, and ought to be• Innovation based on process need-• Changes in industry structure or market

structure that catch everyone unawares-• Demographics (population changes)• Changes in perception, mood, and meaning• New knowledge, both scientific or nonscientific

The seven sources of innovative opportunities

• The first four sources lie within the enterprise, and are visible primarily to people within.

• They are highly reliable indicators of changes that already happened or can be made to happen with little effort

The seven sources of innovative opportunities

• The seconded three sources involves changes outside the enterprise or industry

• The seven sources require separate analysis, for each has its own distinct characteristic

3:Sources:The Unexpected

• The unexpected success• The unexpected failure• The unexpected outside event

The unexpected success

• Offered the most richest opportunities for successful innovation ,with less risky and less arduous

• Yet the unexpected success is almost totally neglected

The unexpected success

• The first thing is to ensure that the unexpected is being seen. It must be properly featured in the information management obtains and studies

The unexpected success

• Management must look at every unexpected success with the questions:(1)What would it mean to us if we exploited it?(2)Where could it lead us?(3)What would we have to do to convert it into an opportunity? And (4)How do we go about it?

The unexpected success• The unexpected success is an opportunity;

it demands innovation .It forces us to ask, What basic changes are now appropriate for this organization in the way it defines its business? Its technology? Its markets?

• If these questions are faced up to ,then the unexpected success is likely to open up the most rewarding and least risky of all innovative opportunities

The unexpected failure• If something fails despite being carefully

planed, designed and conscientiously executed ,that failure often bespeaks underlying change, and with it, opportunity

• The assumptions on which a product or service, its design or its marketing strategy, were based may no longer fit reality. Any change like this is an opportunity for innovation

The unexpected failure• The unexpected failure demands that you

go out look around and listen.• It is equally important to watch out for

unexpected event in the supplier’s business, and among the customers

• Failure should always be considered a symptom of an innovative opportunity, and taken seriously as such

The unexpected outside event

• The unexpected outside event are often more important

• It is a condition of success in exploiting the unexpected event that it must fit the knowledge and expertise of one’s own business

• But exploiting the unexpected outside event appears to be something that particularly fit the existing enterprise ,and a fairly sizable one at that

4:Sources:Incongruities

• Incongruous economic realities• The incongruity between reality and the

assumptions about it• The incongruity between reality and the

assumptions about perceived and actual customer values and expectations

• Incongruity within the rhythm or logic of a process

5:Sources:Process Need• Need is a major innovative opportunity• Process need exists within the process of a

business, an industry ,or a service• It perfects a process that already exists,

replaces a link that is weak, redesigns an existing old process around newly available knowledge.

• Incongruities and demographics may be the most common causes of a process need

Five Basic Innovation Criteria of Process Need

• A self-contained process• One “week” or ”missing” link• A clear definition of objective• That the specification for the solution can

be defined clearly• Widespread realization that “there ought to

be abetter way.” that is, high receptivity

Three important caveats

• The need must be understood• We may even understood a process and

still not have the knowledge to do the job• The solution must fit the way people do

the work and want to do it

6:Sources:Industry and Market Structures

• The automobile story• The opportunity• When industry structure changes

6:Sources:Industry and Market Structures

• Industry and market structure sometimes last for many ,many years and seem completely stable

• Actually ,market and industry structure are quite brittle. One small scratch and they disintegrate, often fast

• When this happens, every member of the industry has to act

• To continue to do business as before is almost a guarantee of disaster

• A CHANGE IN MARKET OR INDUSTRY STRUCTURE IS ALSO A MAJOR OPPORTUNITY FOR INNOVATION

The opportunity

• A change in industry structure offers exceptional opportunities, highly visible and quite predictable to outsiders

• But the insiders perceive these same changes primarily as threats

• The outsiders can thus become a major factor in an important industry or area fast ,and at relatively low risk

When industry structure changes:4 indicators

• The most reliable and the most easily spotted of these indicator is rapid growth of an industry

• By the time an industry growing rapidly have doubled in volume, the way it perceives and services its market is likely to have become inappropriate

When industry structure changes:4 indicators

• Another development that will predictably lead to sudden changes in industry structure is the convergence of technologies that hitherto were seen as distinctly separate

• An industry is ripe for basic structure change if the way in which it does business is changing rapidly

Industry and Market Structures• Innovations that exploit changes in industry structure are

particularly effective if the industry and its markets are dominated by one very large manufacture or supplier or by a few

• Again and again, when market or industry structure changes, the producers or suppliers who are today’s leaders will be found neglecting the fastest-growing market segments

• The new growth opportunities rarely fit the way the industry has “always” approached the market, been organized for it, and defines it

• The innovator in this area therefore has a good chance of being left alone