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Finding Your Next Big Idea

By Dr. Maynard Brusman, Principal, Working Resources

The business enterprise has two, and only two, basic functions: marketing and innovation. It is not necessary for a business to grow bigger; but it is necessary that it constantly grows better Peter F Drucker

The organization that fails to continually innovate new products and services will not survive long. As competition becomes tougher and market challenges increase, innovation is an imperative for business leaders and managers around the world.

A recent survey by Booz Allen Hamilton Inc. found that 90 percent of executives considered innovation to be crucial to growth and planned to improve innovation performance by an average of 30 percent. At the same time, not all innovations produce commercial success. A new business idea must offer customers exceptional utility at an attractive price, while delivering a tidy profit. The uncertainties inherent to innovation are so great that even the most insightful managers have a hard time evaluating commercial readiness and potential.

Innovation and commercially successful new business ideas emerge partly from inspiration, but mostly from hard work. Managers must establish the right roles and processes, set clear goals, require relevant measures, and review progress at every step of the way. Identifying business ideas that have real commercial potential is difficult. Even the most admired companies have stumbled at times.

In 1998, Motorola invested heavily in the Iridium mobile phone system, which was supposed to redefine global wireless communications. In its rush to embrace the new technology, Motorola overlooked its drawbacks. Managers were so excited about the bells and whistles of their new product that they forgot to examine the customer’s experience. The product was a colossal flop.

Most business opportunities emanate from methodical analysis of seven areas of opportunity, according to Peter Drucker (Harvard Business Review, 2002). Some exist within the companies or industries themselves:
  1. Unexpected Occurrences
  2. Incongruities
  3. Process Needs
  4. Industry and Market Changes
Others are based on broader social or demographic trends:
  1. Demographic Changes
  2. Changes in Perception
  3. New Knowledge
Astute managers focus clearly on all seven areas – but even the most seasoned executive may not recognize a good opportunity when it presents itself. What, then, can we learn about sources of innovation from both inside and outside the organization? How do you decide which bright idea to back and identify innovations that will yield commercial success?

Finding Ideas
An innovation’s potential may meet several of Drucker’s seven criteria:

Unexpected occurrences can be illustrated by what happened in the early years of computer technology. Univac, which had the most sophisticated machine, spurned business applications. IBM quickly realized their potential and redesigned a computer for payroll applications, making them an industry leader within five years.

Unexpected failures may also prompt innovation opportunities. While Ford’s Edsel was a colossal flop, company leaders consequently realized the value of segmentation: categorizing consumers by ‘lifestyles’. This led Ford to create the Mustang, which appealed to consumers’ tastes and re-established the company as an industry leader.

While unexpected successes and failures are useful sources for innovation opportunities, most businesses disregard them. Instead of viewing a misstep as a learning opportunity for future innovations, many executives prefer to forget and ‘shelve’ mistakes.

Incongruities become apparent during many stages of a product’s life cycle. They can then be used to create better services or designs. In the steel industry, for example, the market grew steadily, but profit margins were falling. The innovative response to this incongruity was the creation of mini-mills.

Many innovations develop from process needs - like the invention of Linotype in 1890, which allowed newspapers to substantially boost their press runs. The convergence of production enhancements and inclusion of paid advertisements made the newspaper business a lucrative industry.

When an industry grows quickly - the critical figure seems to be in the neighborhood of 40 percent growth within 10 years – its structure changes. Established companies, which defend approaches that have consistently worked for them in the past, tend to ignore challenges from newcomers. When market or industry structures change, traditional leaders may shortsightedly neglect faster-growing market segments i.e., the financial services industries, HMOs, telecommunications, and the Internet.

Outside Sources of Innovation
Of the three outside sources of innovation opportunities, demographics are the most reliable. Demographic events have predictable lead times. For example, baby boomers will begin to reach retirement age in a few years. Business leaders who pay attention to such population changes can reap great rewards.

A key example is Japanese leaders’ prescient use and development of robotics in the 1990s. Everyone knew around 1970 that there was a baby burst in developed countries. People were also pursuing educational goals beyond high school. Consequently, there was a drop in the number of blue-collar workers in manufacturing sectors. While virtually all industry watchers were aware of this, only the Japanese acted on it by developing robots in their factories, giving them a 10-year lead in robotics.

Demographic changes — population, age distribution, education, occupations, and geographic location — create rewarding innovation opportunities that are often the least risky entrepreneurial pursuits.


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