By Patsi Krakoff, Psy. D.
http://snipurl.com/Ezine_MiniCourse
© 2006
"The business enterprise has two, and
only two, basic functions: marketing and innovation. It is not
necessary for a business to grow bigger; but it is necessary
that it constantly grow better." - Peter F. Drucker
The organization that fails to continually innovate
new products and services will not survive long.
But not all innovations produce commercial success.
A new business idea must offer customers exceptional utility at
an attractive price, while delivering a tidy profit.
Most business opportunities emanate from methodical
analysis of seven areas of opportunity, according to Peter Drucker
(Harvard Business Review, 2002).
1. Unexpected Occurrences and Failures
Unexpected occurrences can be illustrated by what happened in
the early years of computer technology. Univac, which had the
most sophisticated machine, spurned business applications. IBM
quickly realized their potential and redesigned a computer for
payroll applications, making them an industry leader within five
years.
Unexpected failures may also prompt innovation
opportunities. While Ford's Edsel was a colossal flop, company
leaders consequently realized the value of segmentation: categorizing
consumers by "lifestyles." This led Ford to create the
Mustang, which appealed to consumers' tastes and reestablished
the company as an industry leader.
2. Incongruities
Incongruities become apparent during many stages of a product's
life cycle. They can then be used to create better services or
designs.
3. Process Needs
Many innovations develop from process needs - notably, the invention
of Linotype in 1890, which allowed newspapers to substantially
boost their press runs.
4. Industry and Market Changes
When an industry grows quickly - the critical figure seems to
be about 40 percent growth within 10 years - its structure changes.
Established companies, which defend approaches that have consistently
worked for them in the past, tend to ignore challenges from newcomers.
When market or industry structures change, traditional leaders
may shortsightedly neglect faster-growing market segments.
5. Demographic Changes
Demographics are reliable, with predictable lead times. For example,
baby boomers will begin to reach retirement age in a few years.
Business leaders who pay attention to such population changes
can reap great rewards.
6. Changes in Perception
Along with greatly improved health care in the last 20 years,
there has been a growing awareness of personal-care needs. Exercise
equipment, health clubs and natural foods are industry sectors
that have experienced immense growth in the last two decades.
Consumers' perceptions are based on moods that
can be studied, analyzed and exploited for innovative opportunities.
7. New Knowledge
When newfound knowledge is used to create sought-after products,
leaders generate "buzz," publicity and funding. These
innovations have the longest lead time, with a protracted span
between the acquisition of knowledge and its distillation into
usable technology. During a long period of incubation, there is
much talk and little action. Then, all of a sudden, there is a
flurry of activity that produces myriad new products, followed
by a shakeout and survival of only the most viable.
Knowledge-based innovation can be difficult,
but competently managed. Innovators must go out into the field,
observe consumers' behavior and listen to them.
When Innovation Leads to Complexity
The pursuit of innovation, however, can be taken
too far. As a company increases the pace of innovation, its profitability
often begins to stagnate or even erode. The reason can be summed
up in one word: complexity.
The continual launch of new products and line
extensions adds complexity throughout a company's operations,
and as the costs of managing this complexity multiply, margins
shrink.
To meet the complexity challenge, you must begin
at the source: the way your company views customers and their
needs. In most cases, managers overestimate the value buyers place
on having many choices. But some companies have begun to challenge
this belief. They have launched efforts to determine how many
product or service choices customers really want; then, they gear
their operations to efficiently provide that degree of complexity
- and no more.
When organizations prune their offerings to better
fit customers' needs, they do more than cut costs. They often
boost sales, as well.
