Don't ignore the unexpected, it's the richest source of innovation

Peter Drucker

Wouldn’t it be incredible if a genie would arise from a magic lamp and reveal the richest source of innovation for profitability in whatever you do? With just one such innovation you could make a fortune for yourself or your employer.

Peter F. Drucker was not a genie, but he was a genius. So respected is Drucker, that even today more than seven years after his death, there are Drucker Societies all over the world which once a year meet at his old school in Claremont and they are still teaching and exploiting his business principles.

I had the good fortunate to be the first graduate of Drucker’s PhD program, and perhaps even more fortunate today in being president of a graduate school which teaches his principles as part of every MBA course. So I can pass on to you what Drucker said was the richest source of innovation just as if he were a genie and you had a magic lamp calling him forth.

The Richest Source of Innovation

Drucker wrote that the unexpected was the richest source of opportunity for successful innovation. Unfortunately, expected occurrences are not only many times neglected, but are frequently actively rejected so they are never exploited as innovations.

For example, Alfred Einhorn became distressed when dentists began using his anesthetic drug, Novocain. He intended it to be used only by medical doctors. He was so upset that he refused to sell it to dentists and traveled up and down Germany and spent a lot of money discouraging this "incorrect" use until a smarter entrepreneur took over and made millions in selling Novocain to dentists, its most common use today.


Do you recognize an innovation when something unexpected happens?

How R.H. Macy’s Tried to Kill Off Their Appliance Business

After World War II, appliance sales at R.H. Macy’s suddenly and mysteriously began to increase dramatically. Not only did sales increase. Profit margins were significantly higher with appliances than on fashion goods, Macy’s flagship product line, and unlike fashion goods there were almost no returns and no pilferage. Moreover, customers who came in the store to buy appliances frequently stayed to increase sales from fashion goods and other classes of Macy’s product line.

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We might expect Macy’s to celebrate and exploit this unexpected occurrence as an immediate and profitable innovation. Yet this experienced retailer, the biggest department store around, not only failed to take advantage of this potential innovation, it did everything possible to make these unexpected, but profitable results go away.

When fashion goods failed to increase as a percentage of total sales even after Macy’s tried everything to make this happen, Macy’s actually began a campaign to intentionally restrict appliance sales. "We teach those stubborn appliance people how to lose money" seemed to be their mantra. Competitor Bloomingdales saw the same thing happen in their store. However, Bloomingdales not only built on its appliance sales, it built a whole new market around a new Housewares Department. Bloomingdales had been a weak number four in the marketplace previously. Its successful innovation based on these unexpected results soon catapulted it to a very strong number two.

What caused Macy’s strange behavior? Everyone in the industry knew that in a well-run department store, fashion should produce 70% of total sales. But those errant appliance sales were providing three-fifths of total Macy’s revenue! This had to be stopped! The chairman of Macy’s came to the conclusion that if fashion sales couldn’t be increased, appliance sales would have to be reduced. And so he set out to do just that. Not so good thinking, Mr. Chairman!

Is the Classical Glass of Water Half Empty?

Is the glass of water half full, or half empty? It all depends on how you look at things. Moreover, your mood, values, beliefs, or what you see or "know" previously can all affect that perception.

How can we take advantage of perception as a source of innovation?

Once a rip in clothing was cause for the quality inspector to reject the product and throw it out, or if the tear was minor, it might be sold at a significant discount. However the late 1960’s began the onset of the Hippie Generation, with young people wearing clothing which was frequently intentionally ripped.

Almost overnight stressed, faded, frayed, and yes, even ripped, jeans became status symbols that were desired by many younger prospective buyers. In response to this new perception of what was considered desirable, jean manufacturers began to manufacture clothing which were intentionally produced to resemble clothing that was once considered damaged and were thrown away or donated to worthy organizations which could recycle them.

This is an unexpected observation and at the time it was adopted, so were the ripped jeans. There was undoubtedly risk in producing large quantities of ripped, frayed, and faded jeans and attempting to market them to an unsuspecting public. But as one wit commented on seeing the new medical thermometer which was intended to be placed in the patient’s ear: "I’m certain that the part of the human anatomy in which the first thermometers were placed was considered a lot stranger."

Sometimes the Market Talks to You

Drucker’s observation was that when something happened in a situation that was unexpected, the entrepreneur should immediately examine it closely. The market may be giving you the richest of all sources of innovation.

A well-known entrepreneur by the name of Joe Cossman thought up the sprinkler system based on simply making holes in a plastic hose. He found an unexpected increase in orders for poultry farms rather than households or gardeners. He inquired and found that these poultry farms were using the hose sprinklers as inexpensive air conditioners for their chicken pens. He did not refuse to sell to them. This opened up a new market which he quickly exploited.

The modern bikini was certainly an unexpected innovation. It was introduced by Louis Rêard, an automotive engineer who was managing his mother’s lingerie boutique near Paris and his partner in the venture, the fashion designer Jacques Heim in 1946. Heim noticed the increasingly revealing two-piece bath suits for women and more liberal laws and attitude toward skimpy clothing for women in France.

The assumption today is that the two named the swimsuit the "bikini" because they believed it would gain as much worldwide publicity as the atomic bomb which had recently been tested by the United States near the bikini atoll in the Pacific. They advertised it as "smaller than the smallest swimsuit". At first they were unable even to find a model to be photographed wearing it, even in France. They ended up hiring a nude dancer from a Paris casino who was not afraid to wear it. However, today it’s clear that their innovation paid off as it is an extremely profitable billion dollar business, and not just in France.

What You Should Do When Strange Things Happen or are Observed

Drucker recommended that managers looking for new innovations study every unexpected outcome or occurrence and ask four questions:

  1. What would it mean if I exploited it? That is, what are the short term costs and benefits of developing this unexpected result into an opportunity?
  2. Where could it lead us?
  3. What would we have to do to convert it to an opportunity? In other words, what would be the general way that the unexpected results could be converted into a profitable product or system for the company?
  4. How can we do it? What would be the plan for doing this? What resources would be needed? What would it cost? What would the timing look like? What would be the approximate quantified results of the investment?

Drucker not only told us that the unexpected was the richest source of innovation, but exactly what to do to take advantage of this innovation. Have you thrown away any potentially billion dollar innovations because of unexpected results?