How Corporations Can Plan for Innovation…And Survive
"The large organization has to learn to innovate, or it will not survive. —Peter F. Drucker
Many books by Peter F. Drucker stressed that the first step in developing a vision for any organization is "getting rid of yesterday." Drucker, who is considered the father of modern management thinking, says this also holds true for innovation.
Too many companies, Drucker observed, continue to devote organizational resources (i.e., money and people) to "preserving the past" when they should be allocated to "creating tomorrow."
The Concept of Planned Abandonment
To create a vision for the future, Drucker said that a company must analyze all its existing products, services, processes, markets, and distribution channels on a regular basis.
He said managers should routinely identify “the old that no longer fit[s] the Purpose and Mission of the business, no longer conveys satisfaction to the customer, and no longer makes a superior contribution."
He argued that these dying products, services, or processes always demand the greatest care and tie down the most productive and ablest people.
He also observed that by keeping a declining product, the new and growing product or market is stunted or neglected. This was illustrated in the case of General Motors.
Although the automaker had a bright star in their new Saturn automobile in the early 1990s, GM continued to commit resources to dying product lines, such as the Oldsmobile, at the expense of really growing the Saturn.
Drucker’s "Concept of Planned Abandonment" needs to be implemented even if the existing but aging product is still making money. Drucker suggested that companies shouldn’t wait until a product is longer making a profit, but rather consider abandoning it before it reaches that point.
Obviously replacing a product creates the need for a replacement and as such, innovation.
Questions to Ask Before Abandoning
Drucker stressed every company needs to ask six questions when it considers abandoning a product or service:
1. Is it still viable?
2. Is it likely to remain viable?
3. Does it still give value to the customer?
4. Is it likely to do so tomorrow?
5. Does it still fit the realities of population and markets, of technology and economy?
6. If not, how can we best abandon it—or at least stop pouring in further resources and efforts?
But before cutting the fat of any company, it’s important to understand Drucker’s definition of innovation and the many forms it comes in.
Drucker on Innovation
He defined it as the task of empowering human and material resources with a greater capacity to produce wealth. He also suggested that innovation is not invention. Innovation is a term of economics rather than technology.
Drucker said: "It is not enough for the business to provide just any economic goods and services; it must provide better and more economic ones."
He pointed out: "The most productive innovation is a different product or service creating a new potential satisfaction, rather than an improvement."
A study conducted by Booze, Allen, and Hamilton identified different types of innovation: new product lines, additions to existing product lines, revisions of existing product lines (which is where most innovative activity takes place according to the study), repositioning of products, cost reductions, and new-to-the-world products (which they identified as consisting of less than 10 percent of all innovations).
Innovation may also be the finding of new uses for old products, such as the old Arm & Hammer Baking Soda that has now been used to remove food odors from refrigerators and as a toothpaste.
The Principles of Innovation
After identifying the type of innovation needed, managers should look at Drucker’s Principles of Innovation to understand why companies must leave yesterday behind to better shape tomorrow. Drucker’s principles consisted of the following:
1. Analyze the sources of innovation for opportunities
2. Determine customer needs, wants, and expectations
3. Innovation should be simple and focused
4. Innovation should start small
5. Innovation should aim at leadership
Determining customer needs, wants, and expectations does not fall in the area of rocket science and reinforces the need for marketing and marketing research.
In addition to Drucker’s principles, he also cited a number of things to avoid when innovating. These included:
1. Don’t try to be clever.
Drucker’s rather pessimistic view of mankind is a general theme that can be found in his writings about innovation gone wrong. He was even somewhat degrading when he referred to unsophisticated innovation that lacked principles to be handled by "morons or near-morons" adding "incompetence, after all, is the only thing in an abundant and never-failing supply.”
A logical extension of this point would lead to a discussion of disruptive technologies (Clayton M. Christensen) that is relevant but beyond the scope of this article.
2. Don’t diversify or splinter efforts.
Drucker also stressed that managers focus on the innovative effort and not chase too many opportunities at the same time.
3. Don’t innovate for the future.
Drucker suggested innovating for the present and not the future—the innovation should have immediate application.
Here, he tended to talk out of both sides of his mouth when he added, "Innovative opportunities sometimes have long lead times. In pharmaceutical research, ten years of research and development work are by no means uncommon or particularly long. And yet no pharmaceutical company would dream of starting a research project for something which does not, if successful, have immediate application as a drug for health-care needs that already exist.”
Finally, managers who want to innovate should ask: "If we did not do this already, would we go into it now?" This question pertains more to assessing an industry or a market the organization is presently in and whether this should be abandoned as well.