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Innovate Like It's 1985 [Research Technology Management](Research Technology Management Via Acquire Media NewsEdge) Innovation has become a cornerstone of all growing businesses. We innovate on product, packaging, delivery, ser- vice, color, scent, "mouth feel," and ev- ery other feature a potential customer can experience. We innovate just as vigorously on the methods of innova- tion. The principles that might have launched a great company or product 10 years ago are often seen as outdated today. But do the principles of innova- tion really change that fast? Or can we continue to apply methods that worked for our fathers' generation? Nearly 30 years ago, Peter Drucker, now known as "the dean of manage- ment philosophers," provided five con- crete principles to guide innovation in his landmark book I nnovation and En- trepreneurship: Practice and Principles.1 It was one of the first attempts to clearly describe the value of innovation and to establish clear principles for practicing it. Drucker penned his principles at a time when Apple was inventing the Macintosh computer and Microsoft was just about to release the first ver- sion of the Windows operating system. Given that everything else we thought we knew about technology and inno- vation has changed, surely these "old" principles don't apply in today's com- petitive markets for cellphones, tablets, and web services? Or do they? In fact, business, technology, and society may seem radically changed, but much of Drucker's catalog of effective practices remains vitally relevant to today's innovators. 1. Innovation is systematic and begins with an analysis of the opportunities that exist. Drucker argued that, to have a viable market, an innovation must be matched against at least one of seven sources of op- portunity. Drucker's opportunity sources include: 1. Unexpected and poorly understood changes in the business environment 2. Incongruities within a market aris- ing from a mismatch between the efforts of established businesses and the needs of customers 3. Unmet process needs in which the means of production, delivery, or service are not optimized 4. Industry and market structural changes, most commonly created through rapid market growth or changes in government regulation 5. Demographic changes that create new markets 6. Social changes in perception about products and practices 7. The emergence of new knowledge that enables new products or services One of the biggest business, market, and government regulation shifts in recent time has been the introduction of the Af- fordable Care Act in the United States. This has certainly been a major shift in government regulation, but the changes in the health insurance market it has en- gendered arise from more than one of Drucker's opportunity areas. The ACA is an attempt to address demographic changes, as a major portion of the popu- lation moves into their retirement years. It expresses a change in social opinion, as more people believe that health care should be accessible to all citizens regard- less of financial resources. It addresses the inefficiency of a healthcare system that has not been optimized to deliver af- fordable care to large numbers of people. And finally, it exposes and addresses the incongruities between market need and service providers. This controversial government man- date is an expression of larger social and economic forces that have been at work for decades and are now trigger- ing major changes. Those forces will not abate-they will only increase. All of this presents significant opportunity for innovation in products and services that are effective in this new environ- ment. The changes to the health insur- ance business catalyzed both by the ACA and by the incongruities between business offerings and customer needs will lead to many new offerings based on ACA regulations and aligned with the business structures of healthcare providers. But these all risk failure if they do not match the specific needs of the cus- tomers who are expected to use them. The new regulations increased the population of potential customers for health insurance, but they did not in- crease the capacity of the healthcare system. And what's needed is not nec- essarily just a scaling up of the current full-service healthcare system. New customers are more likely to create a demand for entry-level services and a continuing relationship with a pro- vider who maintains personal history records. This suggests a need for walk- in care centers and primary care physi- cians as opposed to specialists. The challenge for innovators will lie in get- ting new services right to match de- mand without wasting money offering services that will not be used. 2. Innovation is both conceptual and perceptual. New products can begin with an intel- lectual concept and be carried through design and prototyping based on a good idea. But they must be tested perceptu- ally, through interaction with the user market. Without a perceptual under- standing of the market, and of custom- ers' needs and desires, there is a huge risk that a brilliant concept will fail to find a sufficiently large customer base. The Apple iPad represents an astute alignment of technical concept and market perception. The iPad is an en- tirely new offering based on Apple's perception of a market for consumer entertainment and social services, as opposed to the traditional computer market focused on creating office docu- ments and software. The iPad is ideal for streaming videos from YouTube, Net- flix, or Amazon Instant Video. It is a convenient platform for reading digital books from Amazon, Barnes & Noble, or independent publishers. It is an effec- tive music box, supporting iTunes, iHeartRadio, Rhapsody, Pandora, and Spotify. It is an efficient portal into so- cial services like Facebook, Instagram, Twitter, and Pinterest. But it is a poor device for editing documents, building business presentations, or constructing spreadsheets. Apple understood the strengths and limitations of the new product, but perceived that the market for an entertainment computer was sig- nificant enough that the iPad could be a hit even without initial adoption by the business community. The company's technical concept and their market per- ception were aligned to identify and sat- isfy the needs of entertainment-oriented customers. 3. An effective innovation must be small and focused. Customers and markets can absorb only a limited amount of change in their practices. Therefore, an effective inno- vation should be focused, easy to adopt into existing practices and small enough to be affordable. It should be focused on satisfying one need, not overturning the way customers perform many activities or replacing multiple devices all at the same time. As first blush, it would appear that the modern smart phone violates this premise. But the smart phone is not a single, sweeping innovation-it is, rather, a collection of small, focused ones. The smart phone's predecessor, the cell phone, was a simple product that performed a single function-mobile phone calls. Over time, these phones evolved a few additional programs, like text messaging and address books. With each iteration, the product grew in capa- bility and complexity. Today's smart phones offer complete mobile comput- ing platforms that serve as the founda- tion for hundreds of simple and focused innovations, in the form of apps. 4. Effective innovations start small. Each new idea needs to be small enough that it can adapt to the changes it creates. Most innovations are "almost right," not quite finished. They must navigate mul- tiple changes in design, functionality, and market positioning before they reach their technical and market "sweet spot." Like a ship at sea, the larger the innovation is, the more energy and time it takes to change course. Adjusting the "almost right" product will require re- sources and time, all of which can be minimized if the size of the innovation itself is small. If the innovation is too large, then the changes required will be correspondingly large and could chal- lenge the resources available to make the change and add significantly to the time required to fix a problem. Google has embraced the idea of the small, "almost right" innovation from its beginnings. The company now gen- erates a vast array of new products and services on a regular basis, most of them released in beta. This does not dissuade millions of users from snapping them up; in fact, these users expect Google's new products to be limited in capabili- ties and subject to constant updates. The company's now-ubiquitous mail ser- vice, Gmail, was released in beta form in 2004. Potential users had to be rec- ommended by another Google user even to get an account on the service, creating an aura of exclusivity that ac- celerated demand. Gmail remained a beta product until 2010-for six years, customers were expected to accept shifts in appearance and functionality, with features added and removed as a normal part of the beta development process. Google, on the other hand, was not obliged to retain earlier features or to make the service backwardly com- patible with older versions, as most commercial software vendors are ex- pected to do when they upgrade their core products. Starting small allowed the company the freedom to experi- ment without the constraints that come with a "finished" software product. 5. A successful innovation aims at leadership. Being small is not the same as being mediocre. A successful innovation should aim at putting itself, and the company that produces it, in a leader- ship position that is distinctive enough to attract customers while creating bar- riers to competitors. A great idea that is poorly implemented will just show competitors where the market is and at- tract customers who will adopt a really excellent implementation offered by a following competitor. The FitBit Force activity tracker, one of this Christmas's smash successes, is a clear example of the importance of leadership. The FitBit Force was com- pletely sold out in all physical and on- line retailers by the end of the year, largely because it offered the right combination of sensors, feedback, and app support to beat out competing products from established companies like Nike, Polar, and Jawbone. The de- sign and functionality of the Force made it a clear leader in customer demand. However, the company has since be- come aware of issues with the materials used in the product's wristband, forcing a recall of all of the devices. FitBit Inc. is now experiencing the downside of be- ing "almost right" with a product pre- sented as final, and finding out whether they have the resources to survive the shift to the next generation of their product line. Clearly, Drucker's ideas remain rele- vant to 21st-century innovators, even 30 years after their first appearance. A management professor, consultant, or executive could construct an entire practice around these ideas and still make a valuable contribution to their students and clients. Perhaps the ideas in those old books aren't as faded as the yellowing paper makes them appear. 1 Peter Drucker, I nnovation and Entrepreneurship: Practice and Principles (New York: Harper & Row, 1985). Roger Smith is the chief technology officer for Florida Hospital's Nicholson Center for Surgical Advancement. He has also served as the CTO for U.S. Army Simulation and for Titan Corp. and as a vice president of technology for BTG Inc. A mem- ber of RTM's Board of Editors, Smith has led tech- nology innovation for medical, defense, software, and computer systems. He holds a PhD in com- puter science and a Doctorate in business admin- istration. [email protected] DOI: 10.5437/08956308X5704007 (c) 2014 Industrial Research Institute, Inc |