Innovation and Entrepreneurship

“The temptation in the existing business is always to feed yesterday and to starve tomorrow. It is, of course, a deadly temptation. The enterprise that does not innovate inevitably ages and declines. And in a period of rapid change, such as the present, an entrepreneur period, the decline will be fast.”

- Innovation and Entrepreneurship, page 30

Peter Drucker is renowned as the founder of modern day management. The words “innovation” and “entrepreneurship” are usually associated with chance or luck. Drucker dismisses this notion and makes it evident that innovation and entrepreneurship are principles that can be measured and learned if effective strategies and practices are applied.

The Golden Egg

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Entrepreneurs Search for, Respond to and Exploit Change as an Opportunity

"Entrepreneurs see change as the norm and as healthy. Usually, they do not bring about the change themselves. But—and this defines entrepreneur and entrepreneurship—the entrepreneur always searches for change, responds to it, and exploits it as an opportunity."
- Innovation and Entrepreneurship, page 28

Innovation and Entrepreneurship was originally published in 1985, however the practices and teachings are still relevant today. This book is split into three distinct sections: the practice of innovation, the practice of entrepreneurship, and entrepreneurial strategies. In the practice of innovation Drucker discusses the importance of constantly innovating and actively searching for opportunities, as it is necessary for survival in the marketplace. In the second section, Drucker highlights the notion of entrepreneurial leadership and how it is necessary for any innovations to be successful in business, service institutions or new ventures. In the third section Drucker shares the best strategies to introduce innovations to the marketplace.

The thesis of this book is summarized in the following key themes:

  1. Innovation is purposeful and a discipline
  2. Entrepreneurship is the institution which carries the innovation
  3. Management and entrepreneur strategy is required in order to successfully bring innovation to the market

Gem #1

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The Seven Main Sources of Innovation

"Entrepreneurs innovate. Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth. Innovation, indeed, creates a resource. There is no such thing as a “resource” until man finds a use for something in nature and thus endows it with economic value."
- Innovation and Entrepreneurship, page 30

Through Drucker’s definition of innovation it is clear that the one who “innovates” is merely taking something that has already existed previously and positioning it in a way that will create value and therefore, generate wealth. Systematic innovation is purposeful and is an organized search for change. Wherever an innovation is introduced it changes the economy from a supply driven to a demand driven economy.

In this section, Drucker explores the seven main sources in which innovative opportunity can be found. It is possible for the lines between these sources to become blurred as there is a degree of overlap between them. Drucker describes them as seven windows, each is a different side of the same building. The seven sources are:

  1. 1. The unexpected – the unexpected success, the unexpected failure, the unexpected outside event
  2. The incongruity – between reality as it actually is and reality as it is assumed to be or as it “ought to be”
  3. Innovation based on process need
  4. Changes in industry structure or market structure that catch everyone unaware
  5. Demographics
  6. Changes in perception, mood, or meaning
  7. New knowledge, both scientific and nonscientific

The first four of these sources lie within the enterprise, whether it be business, public-service institution or within an industry or service sector.  Which means they are usually only visible to the people within that industry. They can be thought of as the symptoms, and therefore reliable indicators of changes that either have happened or could be pursued.

The last three sources of innovative opportunity involve the changes that reside outside the enterprise or industry.

Drucker goes on to further explain that purposeful innovation—one which results from analysis, systems and hard work—is the practice of innovation. The foundational principles of the discipline are:

DOs

  1. Start with an analysis of all the opportunities: think through the sources of innovative activity.
  2. Innovation is conceptual and perceptual. Go out to look, to ask, to listen.
  3. To be effective, be simple and be focused.  
  4. Effective innovations start small.  Do one specific thing and then be able to adapt.
  5. Aim at leadership in an industry or market. If not, you will create an opportunity for the competition.

DON’Ts

  1. Don’t try to be clever: aim at ordinary human beings.
  2. Don’t diversify, don’t splinter, don’t do too many things at once.
  3. Don’t innovate for the future: innovate for the present!

Gem #2

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Treat Entrepreneurship as a Duty

"Entrepreneurial businesses treat entrepreneurship as a duty. They are disciplined about it they work at it, they practice it."
- Innovation and Entrepreneurship, page 150

Drucker makes it clear that entrepreneurship and innovation can be achieved by any business if it is a priority and consciously strived for. Both disciplines can be learned through effort and commitment.

When it comes to business operations of any size, there will always be conflicting priorities or a daily crisis that must be dealt with right away and cannot be postponed. This is why it is pertinent for the disciplines of innovation and entrepreneurship to be deeply rooted and baked into the organization and set as a priority.

The art of entrepreneurial management requires policies and practices in four major areas:

  1. The organization must be receptive to innovation and perceive change as an opportunity rather than a threat. Policies and practices are necessary to create an entrepreneurial climate in the business.
  2. The systematic measurement or appraisal of a company’s performance as an entrepreneur and innovator is mandatory, as well as built-in learning to improve performance.
  3. Entrepreneurial management requires specific practices pertaining to organizational structure, to staffing and managing and to compensation, incentives and rewards.
  4. There are some “DONT’s” in entrepreneurial management

The three core fundamental “DONT’s” that Drucker advises are:

  • Do not mix managerial units and entrepreneurial ones.
  • Innovative efforts that take the existing business out of its own field are rarely successful.
  • It is almost always futile to avoid making one’s own business entrepreneurial by “buying in,” that is by acquiring small entrepreneurial ventures.

Through the principles of innovation, the principles of entrepreneurship and entrepreneurial strategies Drucker has taken the notion of innovation and entrepreneurship and bottled it into a formula.

When it comes to the essentialism of innovation and entrepreneurship, Drucker states “In fact if today’s products or services do not generate a continuing and large revenue stream, the enterprise will not be able to make the substantial invest in tomorrow that innovation requires.”

It is essential for the future of the business to focus on the day-to-day business operations but also invest in their future through consistently innovating and creating a culture of entrepreneurial spirit.

In today’s corporate driven society we view entrepreneurs as risk takers. Drucker however sees it the opposite, that an entrepreneur is not a risk taker per se, but rather one who has managed the risk that they are going to be embarking on.  

Do you consider an entrepreneur to be a risk taker or one who has managed the risk they will be embarking on?

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Lutfiyya Dhalla

ABOUT Lutfiyya Dhalla

Lutfiyya is a social connector and loves meeting new people and hearing about their journey. She works on the Product team of an innovative education start-up in Sydney, Australia...
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