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December 19, 2008

The IDB Project | Chapter 15

The IDB Project is a series of posts sharing summaries, snippets, and takeaways from INSIDE DRUCKER’S BRAIN (Jeffrey Krames)


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CHAPTER FIFTEEN
A Short Course on Innovation

“Tomorrow always arrives. It is always different. And then even the mightiest company is in trouble if it has not worked on the future.”Peter Drucker

Peter Drucker infused all his teachings with thoughts of tomorrow and change. As we learned earlier, any decision gets old the second it gets made. And, as managers, we are “not to impose yesterday’s normal on a changed today; but to change the business, its behavior, its attitudes, its expectations—as well as its products, its markets, and its distributive channels—to fit the new realities.” (MANAGING FOR RESULTS, 1964)

If we are to believe Drucker, which we should, the purpose of a business is to create a customer. And since a customer is always changing their needs and wants, a business must always evolve to deliver upon the needs and wants of a customer. Making changes to better appeal to customer is INNOVATION.

Providing more desirable products, services, and customer experiences is vital to the continued existence of any business. And that is INNOVATION.

However, complacency of any degree will stifle the ability of a business to innovate. And, fostering an insular corporate culture that thinks and acts more for the company than for the customer, will also cripple innovation.

With the publication of THE PRACTICE OF MANAGEMENT in 1954, Peter Drucker outlined a recipe for business innovation that is still relevant and actionable. This recipe involves answering three questions, which “will provide the foundation upon which goals, objectives, and strategies can be formulated.

Question #1: “What is our business?"

Question #2: “What will our business be?”

Question #3: “What should our business be?"

Regularly asking and answering these three questions will spark important conversations about the purpose of your business. It will also keep your business laser-focused on the reason your business exists: to create a customer.

After all, if your business is not innovating to better appeal to customers tomorrow, then your business starts dying today.


This concludes The IDB Project. (Phew. Thanks for reading.)

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Comments

I think people have a hard time in this economy thinking about what their business should be. It gets mixed up with what do we want our business to be? What do we need it to be? What are people buying today?

Dr. Wright
The Wright Place TV Show
www.wrightplacetv.com
www.twitter.com/drwright1

Hi,
we are professionals of marketing and analytics and wrote this piece some time ago. It ties in well with the note above.

The core of a business:

1. All companies process information: Whether you are making bricks, operation systems for computers or tires. You are processing information in converting resources from one form to another.

2. Industries differ in the type of information they process.
a. Within industries, companies very in the efficiency with which they process information.
b. (In selecting core products/ service, keep in mind that market share and price premiums do not go hand in hand. There has been no known example of this.)

3. Finally, in a stable state (stalemate), all companies converge in terms of their offer. The returns to all companies converges to the minimum returns. Any higher or lower than this will destabilize the industry and cause the equilibrium to move back to the lowest value.

To avoid this, continuous differentiation is required. This depends on innovation.

Innovation secures above normal profits for companies.

Innovation is the application of the brain to deliver differentiation. It is always possible to innovate.

1. Innovation is possible across all frontiers:
Product/ Process/ Price/ Place (distribution) etc.

2. Innovation is necessary to avoid stalemates (Bruce Henderson) and consequent commoditization of industries.

3. The rate of successful innovations determines the vibrancy of an industry.

Innovation is either disruptive or evolutionary. But it is necessary.

Strategy then becomes a bet on which innovations to fund. This leads to the classical view of strategy that “Strategy is about how the future will unfold and taking in the resources today to handle this.”

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