Where the Best Innovations Come From

Bright ideas are the riskiest and least successful sources of innovation, said management theorist Peter Drucker. Here's where you should look for inspiration instead.

Investigating the best sources of innovations, Drucker found that there was considerable danger from what he called "the bright idea." This was his term for an innovation that was vague and elusive and accepted for development without much real analysis. He did not disagree, that one could "hit a home run" with a bright idea and he was willing to recite examples of bright ideas which had gone on to make millions of dollars for their originators including the zipper, the ballpoint pen, the aerosol spray can and more. But he said that these were exceptions and should be ignored regarding how the task of innovation in an organization should be approached.

"The problem is," Drucker said, "that bright ideas are the riskiest and least successful source of innovative opportunities." He estimated that probably only one in 500 made any money above their investment costs and suggested that relying on the bright idea for innovation was akin to gambling at Las Vegas and was almost certain to lead to similar undesirable results for the manager of innovation. The solution, he maintained was systematic analysis of seven best sources of innovative ideas. This, he declared was purposeful innovation, the kind that all of us must pursue regardless of our specialty, discipline, or functional area.

The First Source The Unexpected

During World War II, rubber was in high demand. The Japanese controlled the primary sources of rubber and the U.S. was desperate. Synthetic rubber existed, but was expensive. General Electric went to work on the problem of inventing a synthetic rubber that would be cheaper. As a part of this effort, an engineer combined boric acid and silicone oil. Unfortunately, the material couldn’t be hardened and as a synthetic rubber substitute it failed. However the material had strange properties. It would bounce when dropped, it could stretch to a rather amazing size without tearing and when pressed against printed images on a newspaper, it would transfer that image. The engineer showed his managers. They told him to throw out his results and get back to inventing a cheaper synthetic rubber. Word of mouth carried the strange invention along as a party toy. Then one day an advertising consultant by the name of Peter Hodgson came upon the unexpected innovation. He invested $147 and rolled up the "liquid solid" into one ounce balls. He gave the product a new name. "Silly Putty" became one of the most successful toys in history and achieved worldwide fame. It made millions and millions of dollars for Hodgson and his backers, but not for GE or its inventor.

The Second Source The Incongruities

One expects a certain result, but instead an incongruent result occurs. One expects that companies that dominated markets were more profitable. This expectation led to portfolio management and the well-known BCG 4-cell matrix in which high share of a market was always considered desirable. These were termed either "cash cows" or "shooting stars" as opposed to "dogs" or "problem children." If you could acquire a dominant share of "the market" however you defined this market, success and high profits were yours. The only problem was it wasn’t working.

Many firms that didn’t dominate big markets were highly successful. A little firm with 96 employees called ACS, Inc. looked at this incongruity and uncovered the secret. It depended on how you defined the market and focus on your customer. If a larger company selected too broad a market definition, a smaller company could be more successful than a larger one in the market place. At a time when mighty IBM dominated large computers, ACS, Inc. concentrated on computers for the educational market and dominated this niche and actually forced IBM to withdraw from it..

The Third Source Process Need

They say that "necessity is the mother of invention." You need something done and you simply work on this something until you figure out how to do it. Elias Howe, the inventor of the sewing machine knew that there was a mechanical way to sew which would speed up the laborious process of manual sewing by hand, but he just couldn’t get find a way to make this work. The needle used with manual sewing had the hole for the thread in the rear of the needle. It had for thousands of years and still does today. But when Howe tried to use the tried and true needle configuration mechanically, it wouldn’t work. He kept trying. That is, he processed the need until he came up with the solution. He eventually moved the hole in the needle through which the thread passed from the back end to up front where the point of the needle pierced the cloth. Presto, an innovation which carried on right through mechanical sewing to the invention of electrical sewing machines.

The Fourth Source Industry and Market Structures

Contrary to popular belief, Henry Ford did not invent the assembly line. Moreover, as we will see, the assembly line wasn’t even needed for success and high profits. What Ford did was to observe that the market structure had changed such that the "horseless carriage" was no longer just a rich man’s toy. So he designed a car that could be mass-produced at a relatively low cost and driven and maintained by the owner himself. This was not the approach taken with the carriage pulled by horses. But the automobile industry was set up as if this were the case. In developing his cars, using the assembly line and cutting costs to the point that a customer could have any color car he wanted so long as it was black, Ford changed both the way the industry and the market worked.

However, as Drucker pointed out, innovation could work equally well going another way, but still using existing industry and market structure in the same business as a source. Rolls-Royce introduced its own innovations. It more than quadrupled its already high price, ignored the assembly line and returned to manufacturing methods and materials that hadn’t been used since the Middle Ages but guaranteed that its product would last forever. It made a vehicle that was not designed for the owner to drive or maintain. Rather than envision "everyman" as its customer, it sought to restrict sales to royalty, or those that had the financial resources that equated with royalty. Rolls Royce, too achieved high success and profits.

The Fifth Source Demographics

Demographics have to do with the characteristics of a human population. These may be characteristics of education, culture, income, and more. These characteristics are not static. They change over time. For example, people live longer and tend to be in greater health at older ages than in generations past. They say that today’s age demographic of the "80’s" were previously the "60’s" of times past. Can you see sources for innovation in this? These changes have caused an explosion in the interest in and maintenance of health among seniors which have led to health newsletters, vitamins, spas for seniors and more.

About 15 years ago Drucker predicted that the future of executive education was online. His prediction was based partially on technology and convenience, but also on the fact that computer literacy and computer ownership was growing even faster than the demand for executive education. Many traditional educators disparaged the idea of so-called distance learning. They said it had to be done in the classroom face-to-face by lecture as it had been done in ancient Greece. They said that discussions had to take place and questions asked and answered in this environment or it wasn’t effective. Students might be exposed to information and ideas online, but they just wouldn’t and couldn’t learn. Well, Drucker was right again. Research found that learning online was even better and more effective than classroom learning in many instances, and today leading universities including Harvard, Stanford, and the like all have online programs, and others such as Boston University offer doctorate degrees entirely online.

The Sixth Source Changes in Perception

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.

Once a rip in clothing was cause for the quality inspector to reject the product and it was destroyed and not put on the market. However the 1960’s began the onset of the Hippie Generation, and the young people wore clothing which was sometimes ripped, intentionally or otherwise. Almost overnight stressed, faded, frayed, and yes, even ripped, jeans became status symbols that were desired by many young people. 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.

The Seventh Source New Knowledge

One might assume that new knowledge would immediately become the source of innovations and competitive advantages which would help to spirit companies to advance positions in their industries at the same satisfying needs and wants, some of which were not even recognized until the innovations were introduced. Sad to say, this simply is not true. It takes years, sometimes decades before new knowledge is applied.

The knowledge needed to develop the Internet became available in the early 1960’s. The knowledge for the Internet’s close relation, the personal computer, has been around since 1962. Even ideas not requiring high technology take an amazing amount of time. Consider the marketing plan. Search in vain for examples prior to World War II, and you will come up empty. Post war articles in the Journal of Marketing began to tout the idea of a marketing plan similar to plans of strategy which became more familiar during the war. But it took more twenty years before most organizations began to innovate and adopt the process and the marketing plans resulting from it.

What this says is that there is "gold in them thar hills." That is, there knowledge uncovered and available today which is the source of innovations, yet unexploited for the future.

Drucker told us that we must innovate. However, he did not leave it there. He told us how we such approach innovation to build and maintain the success of our organizations with the best sources of new ideas.