In the theory and practice of innovation and entrepreneurship, the bright-idea innovation belongs in the appendix.
New knowledge is not the most reliable or most predictable source of successful innovations. For all the visibility, glamour, and importance of science-based innovation, it is actually the least reliable and least predictable one. Knowledge-based innovation has the longest lead-time of any innovation. First, there is a long time span between the emergence of new knowledge, and it’s becoming applicable to technology. And then there is another long period before the new technology turns into products, processes, or services in the marketplace.
The introduction of innovation creates excitement and attracts a host of competitors, meaning that innovators have to be right the first time. They are unlikely to get a second chance. Here, even successful innovators almost immediately have far more company than they want and must prepare themselves to weather the storm that lies ahead. For example, Apple Computer invented the personal computer. IBM was able to wrest market leadership from Apple through creative imitation. Apple failed to maintain its leadership position and became a niche player because it failed to predict and respond to the competition it would face. In the theory and practice of innovation and entrepreneurship, the bright-idea innovation belongs in the appendix. But it should be appreciated and rewarded. It represents qualities that society needs: initiative, ambition, and ingenuity.
If general perception changes from seeing the glass as “half-full” to seeing the glass as “half-empty,” there are major innovative opportunities.
In mathematics there is no difference between “the glass is half full” and “the glass is half empty.” But the meanings of these two statements are totally different, and so are their consequences. If general perception changes from seeing the glass as “half full” to seeing it as “half empty,” there are major innovative opportunities.
Unexpected success or unexpected failure is often an indication of change in perception and meaning for the consumer. When a change in perception takes place, the facts do not change. Their meaning does. For example, American health hypochondria represents a change in American values, such as worship of youth, more than a reaction to the health statistics. Forty years ago even minor improvements in the nation’s health were seen as major steps forward. Now dramatic improvements are barely paid attention to. This change in perception has created a vast market for new health-care magazines, alternative sources of medicine, physical fitness centers, and other “wellness” goods and services.
Changing demographics is both a highly productive and a highly dependable innovative opportunity.
Of all external changes, demographics—defined as changes in population, its size, age structure, composition, employment, educational status, and income—are the clearest. They are unambiguous. They have the most predictable consequences. They have a major impact on what will be bought, by whom, and in what quantities.
Demographics shifts may be inherently unpredictable, yet they do have long lead times before impact, and lead times, moreover, that are predictable. Particularly important are age distribution and with the highest predictive value changes in the center of population gravity, that is, in the age group that at any given time constitutes both the largest and the fastest-growing age cohort in the population. In the U.S. in the 1960s, this was a shift to teenagers as the fastest-growing group. With these shifts came a change in what would be considered “representative” behavior. The teenagers of course continued to behave like teenagers. But that was widely dismissed as the way teenagers behave rather than seen as a change in the constitutive values of behavior of society. Statistics are only the starting point. For those genuinely willing to go out into the field, to look and to listen, changing demographics is both a highly productive and a highly dependable innovative opportunity.
Market and industry structures are quite brittle. One small scratch and they disintegrate, often fast.
Industry and market structures appear so solid that the people in an industry are likely to consider them foreordained, part of the order of nature, and certain to endure forever. A change in market or industry structure is a major opportunity for innovation. In industry structure, a change requires entrepreneurship from every member of the industry. It requires that each one ask anew: “What is our business?” And each of the members will have to give a different, but above all a new, answer to that question. Large, dominant producers and suppliers, having been successful and unchallenged for many years, tend to be arrogant. At first they dismiss the newcomer as insignificant and, indeed, amateurish. But even when the newcomer takes a larger and larger share of their business, they find it hard to mobilize themselves for counteraction.
For example, the U.S. Poster Office did not react when UPS and FedEx took away larger and larger shares of its business. What had made the Post Office so vulnerable was rapid growth in the demand for urgent delivery of time-sensitive documents and packages.
The first two possibilities for innovation are opportunity driven. But the third is anchored in the old proverb, “Necessity is the mother of invention.” Here need is the source of innovation. I call it process need. Everybody in the organization always knows that the process need exists. Yet usually no one does anything about it. However, when the innovation appears, it is immediately accepted as “obvious” and soon becomes “standard.”
Process innovation starts with the job to be done and requires the presence of five basic criteria: a self-contained process, a weak or missing link, a clear definition of the objectives, clearly defined specifications for the solution, and widespread realization that there ought to be a better way. Take for example, O.M. Scott and Company, a leader among American producers of lawn-care products. It gained its leadership position based upon a simple gadget called the spreader that user can set to evenly distribute proper quantities of lawn-care chemicals. Without such a tool there was an internal incongruity in the existing process and this incongruity frustrated consumers who were unable to evenly distribute chemicals. There are now many such spreaders.
There is often a discrepancy between “what is” and what management thinks “ought to be” that represents an incongruity within an industry, a market, and a process. The incongruity may be clearly visible to the people within or close to the industry, market, or process. Insiders may notice it but think, “this is the way it has always been,” as a reason for not initiating a change. Change leaders exploit these incongruities to the organization’s advantage.
Take, for example, the unequal information in the hands of buyers and sellers of automobiles. There are a few things about buying vehicles most of us dislike. These include haggling over price, misleading ads, spending hours at a dealership while the salesperson goes back and forth between the sales manager and us, and so on. Several online organizations have created one-stop shopping for used and new automobiles with complete and accurate information about vehicles of all types, including warranties, financing, and insurance. They have leveled the playing field for consumers.
Failure should always be considered a symptom of an innovative opportunity.
The unexpected failure demands that you go out, look around, and listen. A competitor’s unexpected success or failure is equally important. Failure should always be considered a symptom of an innovative opportunity, and taken seriously as such. One does not just “analyze.” One goes out to investigate. A good many failures are, of course, nothing but mistakes, the results of greed, stupidity, thoughtless bandwagon-climbing, or incompetence, whether in design or execution. Yet if something fails despite being carefully planned, carefully designed, and conscientiously executed, that failure often bespeaks underlying change and with it, opportunity.
Unexpected failure often informs us of underlying changes in customer values and perceptions. The assumptions upon which a product or service, its design or market strategy, were based can quickly become outdated. Perhaps customers have changed their value proposition—they may be buying the same thing, but they are actually purchasing a very different value. For example, after the failure of the Edsel, Ford decided that income segmentation no longer applied to the automobile industry. Rather, it was lifestyle segmentation that mattered to consumers.
It takes an effort to perceive unexpected success as one’s own best opportunity.
It is precisely because the unexpected jolts us out of our preconceived notions, our assumptions, our certainties, that it is such a fertile source of innovation. In no other area are innovative opportunities less risky and their pursuit less arduous. Yet the unexpected success is almost totally neglected; worse, managements tend actively to reject it. One reason why it is difficult for management to accept unexpected success is that all of us tend to believe that anything that has lasted a fair amount of time must be “normal” and go on “forever.”
This explains why one of the major U.S. steel companies, around 1970, rejected the “mini-mill.” Management knew that its steelworks were rapidly becoming obsolete and would need billions of dollars of investment to be modernized. A new, smaller “mini-mill” was the solution. Almost by accident, such a “mini-mill” was acquired. It soon began to grow rapidly and to generate cash and profits. Some of the younger people within the steel company proposed that available investment funds be used to acquire additional “mini-mills” and to build new ones. Top management indignantly vetoed the proposal. “The integrated steelmaking process is the only right one,” top management argued. “Everything else is cheating—a fad, unhealthy, and unlikely to endure.” Needless to say, thirty years later the only parts of the steel industry in America that were still healthy, growing, and reasonable prosperous were “mini-mills.”
