I once attended a university symposium on entrepreneurship at which a number of psychologists spoke. Although their papers disagreed on everything else, they all talked about an “entrepreneurial personality,” which was characterized by a “propensity for risk taking.” A well-known and successful innovator and entrepreneur who had built a process-based innovation into a substantial worldwide business in the space of twenty-five years was then asked to comment. He said: “I find myself baffled by your papers. I think I know as many successful innovators and entrepreneurs as anyone, beginning with myself. I have never come across an ‘entrepreneurial personality.’ The successful ones I know all have, however, one thing—and only one thing—in common: they are not ‘risk takers.’ They try to define the risks they have to take and to minimize them as much as possible. Otherwise none of us could have succeeded.”
This jibes with my own experience. I, too, know a good many successful entrepreneurs. Not one of them has a “propensity for risk taking.” Most successful innovators in real life are colorless figures, and much more likely to spend hours on cash-flow projections than to dash off looking for “risks.” They are not “risk-focused”; they are “opportunity-focused.”
The starting point to know the future is the realization that there are two different, though complementary, approaches:
Finding and exploiting the time lag between the appearance of a discontinuity in the economy and society and its full impact—one might call this anticipation of a future that has already happened.
Imposing on the yet unborn future a new idea that tries to give direction and shape to what is to come. This one might call making the future happen.
The future that has already happened is not within the present business; it is outside: a change in society, knowledge, culture, industry, or economic structure. It is, moreover, a major trend, a break in the pattern rather than a variation within it. Looking for the future that has already happened and anticipating its impacts introduces new perception in the beholder. The need is to make oneself see it. What then could or should be done is usually not too difficult to discover. The opportunities are neither remote nor obscure. The pattern has to be recognized first.
Predicting the future can only get you in trouble. The task is to manage what is there and to work to create what could and should be.
Innovative ideas are like frogs’ eggs: of a thousand hatched, only one or two survive to maturity.
The innovative organization understands that innovation starts with an idea. Ideas are somewhat like babies—they are born small, immature, and shapeless. They are promise rather than fulfillment. In the innovative organization executives do not say, “This is a damn-fool idea.” Instead they ask, “What would be needed to make this embryonic, half-baked, foolish idea into something that makes sense, that is feasible, that is an opportunity for us?”
But an innovative organization also knows that the great majority of ideas will turn out not to make sense. Executives in innovative organizations therefore demand that people with ideas think through the work needed to turn an idea into a product, a process, a business, or a technology. They ask, “What work should we have to do and what would we have to find out and learn before we can commit the company to this idea of yours?” These executives know that it is as difficult and risky to convert a small idea into successful reality as it is to make a major innovation. They do not aim at “improvements” or “modifications” in products or technology. They aim at innovating a new business.
The technologies that are likely to have the greatest impact on a company and an industry are technologies outside its own field.
Many changes that have transformed enterprises have originated outside the specific industry of that enterprise. Here are three notable examples. The zipper was originally invented to close bales of heavy goods, such as grain, particularly in seaports. Nobody thought of using it for clothing. The clothing industry did not think it could replace buttons. And the inventor never dreamed it would be successful in the clothing industry.
Commercial paper (that is, short-term notes originated by nonbank financial institutions) did not originate with banks, but had a tremendous negative impact on them. Under U.S. law, commercial paper is considered a security, which means that commercial banks cannot deal in it. Because financial services companies, such as Goldman Sachs, Merrill Lynch, GE Capital, and so on, discovered this, they have largely replaced commercial banks as the world’s most important and leading financial institutions. Fiberglass cable, the invention that has revolutionized the telephone industry, did not come out of the great telephone research labs in the U.S., Japan, or Germany. It came, rather, from a glass company, Corning.
Measure innovations by what they contribute to market and customer.
The test of an innovation is whether it creates value. Innovation means the creation of new value and new satisfaction for the customer. A novelty only creates amusement. Yet, again and again, managements decide to innovate for no other reason than that they are bored with doing the same thing or making the same product day in and day out. The test of an innovation, as well as the test of “quality,” is not “Do we like it?” It is “Do customers want it and will they pay for it?”
Organizations measure innovations not by their scientific or technological importance but by what they contribute to market and customer. They consider social innovation to be as important as technological innovation. Installment selling may have had a greater impact on economics and markets than most of the great scientific advances in this century.
The most effective way to manage change successfully is to create it.
One cannot manage change. One can only be ahead of it. In a period of upheavals, such as the one we are living in, change is the norm. To be sure, it is painful and risky, and above all it requires a great deal of very hard work. But unless it is seen as the task of the organization to lead change, the organization will not survive. In a period of rapid structural change, the only ones who survive are the change leaders. A change leader sees change as an opportunity. A change leader looks for change, knows how to find the right changes, and knows how to make them effective both outside the organization and inside it. To make the future is highly risky. It is less risky, however, than not to try to make it. A goodly proportion of those attempting to will surely not succeed. But predictably, no one else will.
The final question needed in order to come to grips with business purpose and business mission is: “What is value to the customer?” It may be the most important question. Yet it is the one least often asked. One reason is that managers are quite sure that they know the answer. Value is what they, in their business, define as quality. But this is almost always the wrong definition. The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.
For the teenage girl, for instance, value in a shoe is high fashion. It has to be “in.” Price is a secondary consideration and durability is not value at all. For the same girl as a young mother, a few years later, high fashion becomes a restraint. She will not buy something that is quite unfashionable. But what she looks for is durability, price, comfort and fit, and so on. The same shoe that represents the best buy for the teenager is a very poor value for her slightly older sister. What a company’s different customers consider value is so complicated that it can be answered only by the customers themselves. Management should not even try to guess at the answers—it should always go to the customers in a systematic quest for them.
“Who is the customer?” is the first and the crucial question in defining business purpose and business mission. It is not an easy, let alone an obvious question. How it is being answered determines, in large measure, how the business defines itself. The consumer—that is, the ultimate user of a product or a service—is always a customer.
Most businesses have at least two customers. Both have to buy if there is to be a sale. The manufacturers of branded consumer goods always have two customers at the very least: the housewife and the grocer. It does not do much good to have the housewife eager to buy if the grocer does not stock the brand. Conversely, it does not do much good to have the grocer display merchandise advantageously and give it shelf space if the housewife does not buy. To satisfy only one of these customers without satisfying the other means that there is no performance.
