The Seven Wins of Innovation

by Rob White

In an article published in the Harvard Business Review in August 2002, author Peter F. Drucker talks about the “seven areas of opportunity” in creating innovation ecosystems in companies. The article, aptly named “The Discipline of Innovation,” discusses how “despite much discussion these days of the ‘entrepreneurial personality,’” few entrepreneurs seem to have such personalities. https://hbr.org/2002/08/the-discipline-of-innovation/ar/1

He goes on to write that he has “known many people—salespeople, surgeons, journalists, scholars, even musicians—who did have them without being the least bit entrepreneurial. What all the successful entrepreneurs” seem to “have in common is not a certain kind of personality but a commitment to the systematic practice of innovation.”

Drucker explains that “Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.”

He then draws a distinction about entrepreneurs by stating that “today, much confusion exists about the proper definition of entrepreneurship.” He notes that “a great many well-established businesses engage in highly successful entrepreneurship. The term, then, refers not to an enterprise’s size or age but to a certain kind of activity. At the heart of that activity is innovation: the effort to create purposeful, focused change in an enterprise’s economic or social potential.”

Drucker goes on to explain that some innovations “spring from a flash of genius” but “most innovations, however, especially the successful ones, result from a conscious, purposeful search for innovation opportunities, which are found only in a few situations.”

Drucker notes that four areas of opportunity exist within a company or industry:

  1. Unexpected occurrences
  2. Incongruities
  3. Process needs, and
  4. Industry and market changes.

He also notes that three “additional sources of opportunity exist outside a company in its social and intellectual environment”:

  1. Demographic changes,
  2. Changes in perception, and
  3. New knowledge.

He also recognizes that “these sources overlap, different as they may be in the nature of their risk, difficulty, and complexity, and the potential for innovation may well lie in more than one area at a time. But together, they account for the great majority of all innovation opportunities.”

Under the first opportunity (internal), Unexpected Occurrences, Drucker notes that “unexpected successes and failures are such productive sources of innovation opportunities because most businesses dismiss them, disregard them, and even resent them.” To illustrate his point, he relates that story of a “German scientist who around 1905 synthesized novocaine, the first nonaddictive narcotic, had intended it to be used in major surgical procedures like amputation. Surgeons, however, preferred total anesthesia for such procedures; they still do. Instead, novocaine found a ready appeal among dentists. Its inventor spent the remaining years of his life traveling from dental school to dental school making speeches that forbade dentists from “misusing” his noble invention in applications for which he had not intended it.”

For the second opportunity (internal), Incongruities, Drucker explains that “incongruity within the logic or rhythm of a process is only one possibility out of which innovation opportunities may arise.” He goes on to illustrate that “incongruity between economic realities” may also result in opportunity. He illustrates his point with the example by stating that “whenever an industry has a steadily growing market but falling profit margins—as, say, in the steel industries of developed countries between 1950 and 1970—an incongruity exists. The innovative response: minimills.”

The third opportunity (internal), Process Needs, is illustrated by Drucker as he relates that “what we now call the media had its origin in two innovations developed around 1890 in response to process needs. One was Ottmar Mergenthaler’s Linotype, which made it possible to produce newspapers quickly and in large volume. The other was a social innovation, modern advertising, invented by the first true newspaper publishers, Adolph Ochs of the New York Times, Joseph Pulitzer of the New York World, and William Randolph Hearst. Advertising made it possible for them to distribute news practically free of charge, with the profit coming from marketing.”

To define the fourth opportunity (internal), Industry and Market Changes, Drucker states that “when an industry grows quickly—the critical figure seems to be in the neighborhood of 40% growth in ten years or less—its structure changes. Established companies, concentrating on defending what they already have, tend not to counterattack when a newcomer challenges them. Indeed, when market or industry structures change, traditional industry leaders again and again neglect the fastest growing market segments. New opportunities rarely fit the way the industry has always approached the market, defined it, or organized to serve it. Innovators therefore have a good chance of being left alone for a long time.”

For the external sources of opportunity, the fifth of Drucker’s seven areas is Demographic Changes. He notes that demographic innovation opportunities are the “most reliable,” explaining that “demographic events have known lead times; for instance, every person who will be in the American labor force by the year 2000 has already been born. Yet because policy makers often neglect demographics, those who watch them and exploit them can reap great rewards.”

The sixth opportunity (external) is Changes in Perception. Using the traditional glass half empty/glass half full analogy, Drucker points out that “all factual evidence indicates, for instance, that in the last 20 years, Americans’ health has improved with unprecedented speed—whether measured by mortality rates for the newborn, survival rates for the very old, the incidence of cancers (other than lung cancer), cancer cure rates, or other factors. Even so, collective hypochondria grips the nation. Never before has there been so much concern with or fear about health. Suddenly, everything seems to cause cancer or degenerative heart disease or premature loss of memory. The glass is clearly half empty.”

His seventh (and last) opportunity for innovation (external) is New Knowledge. He points out that “among history-making innovations, those that are based on new knowledge—whether scientific, technical, or social—rank high. They are the super-stars of entrepreneurship; they get the publicity and the money. They are what people usually mean when they talk of innovation, although not all innovations based on knowledge are important.”

But it is with this seventh opportunity area for innovation that Drucker notes that “knowledge-based innovations differ from all others in the time they take, in their casualty rates, and in their predictability, as well as in the challenges they pose to entrepreneurs. Like most superstars, they can be temperamental, capricious, and hard to direct. They have, for instance, the longest lead time of all innovations. There is a protracted span between the emergence of new knowledge and its distillation into usable technology. Then there is another long period before this new technology appears in the marketplace in products, processes, or services. Overall, the lead time involved is something like 50 years, a figure that has not shortened appreciably throughout history.”

He goes on to point out that “to become effective, innovation of this sort usually demands not one kind of knowledge but many.”

He cites the example of the computer, noting that its success “required no fewer than six separate strands of knowledge:

  • Binary arithmetic;
  • Charles Babbage’s conception of a calculating machine, in the first half of the nineteenth century;
  • The punch card, invented by Herman Hollerith for the U.S. census of 1890;
  • The audion tube, an electronic switch invented in 1906;
  • Symbolic logic, which was developed between 1910 and 1913 by Bertrand Russell and Alfred North Whitehead; and
  • Concepts of programming and feedback that came out of abortive attempts during World War I to develop effective antiaircraft guns.

Drucker notes that “although all the necessary knowledge was available by 1918, the first operational digital computer did not appear until 1946. Long lead times and the need for convergence among different kinds of knowledge explain the peculiar rhythm of knowledge-based innovation, its attractions, and its dangers. During a long gestation period, there is a lot of talk and little action. Then, when all the elements suddenly converge, there is tremendous excitement and activity and an enormous amount of speculation.”

Drucker concludes his article by noting that “in innovation, as in any other endeavor, there is talent, there is ingenuity, and there is knowledge. But when all is said and done, what innovation requires is hard, focused, purposeful work. If diligence, persistence, and commitment are lacking, talent, ingenuity, and knowledge are of no avail. There is, of course, far more to entrepreneurship than systematic innovation—distinct entrepreneurial strategies, for example, and the principles of entrepreneurial management, which are needed equally in the established enterprise, the public service organization, and the new venture. But the very foundation of entrepreneurship is the practice of systematic innovation.”

I think there are many parallels with Davis – the city, the community and the university – and we need to look no further than our own efforts at being purposeful innovators to successfully realize the opportunities.

Thank you for considering these ideas and I look forward to your thoughts and input. My email is rwhite@cityofdavis.org if you choose to email me directly or you can follow me on Twitter @mrobertwhite.

Author’s Note: Due to shifting needs and workload at City Hall, I will not be able to continue to contribute regular weekly articles to the Davis Vanguard after the holidays. I will be spending much of my foreseeable writing time working with the City Manager and staff on a strategy for the Council’s Goals and Objectives for 2014-2016. Though I have enjoyed engaging this online community, there are limited staff resources and my priority right now must shift. As my second to last regular article, I am hoping to provide some inspirational insight and suggested actions so that if you choose, you may carry on the conversation regarding innovation in Davis. Thank you for your support in my writing over the last 18 months and I hope to still occasionally provide articles as time allows.

About The Author

Rob White is the Chief Innovation Officer for the City of Davis and was selected as a 2012 White House Champion of Change for Local Innovation. He serves as an ex-officio Board Member for techDAVIS (a local tech entrepreneur industry group), as an executive Board Member for the Innovate North State iHub, and as a Board Member for Hacker Lab and the California Network for Manufacturing Innovation. He is a candidate for the Doctorate in Policy, Planning and Development from the University of Southern California and has a Masters from USC in Planning and Development and a Bachelors of Science in Geology from Chico State.

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9 Comments

  1. Frankly

    Great article Rob!

    I read a great book years ago that hit on some of this from a larger perspective.  It is “The Future and It’s Enemies” by Virginia Postrel.  In the book Postrel makes a case for a binary filtering of people having a worldview prone to either stasis or dynamism.

    I think she is right.  I think as we grow older we assess greater value to things staying the same.  I also think some people are just more wired that way.

    My struggle is believing that those wired for a more stasis worldview can be educated to value a more dynamic world.  Is the term “enemies” correct?  It seems too strong and immediately decisive, but can we really educate people to be more accepting of change?

    I want to be hopeful, but frankly (because I am) with all the debate on the VG about the need for economic development where those against it continue to be against it… I’m thinking we might just need to accept the need for a war of change versus no-change.  I think the dynamists will need to drag the those kicking and screaming stasis types to a better future.

    And even if I am wrong and those averse to change can be educated and have their minds changed… I think that effort will be monumental and the energy it takes will detract from the work to combat the other “enemy”… the people pursuing self-interests at the expense of the greater good.

    1. Alan Miller

      “have their minds changed” — good luck with that.

      “the people pursuing self-interests at the expense of the greater good” — developers of course never do this (see Cannery bicycle Covell hump route favored by Cannery developers – clearly for the greater good).

      1. Frankly

        Developers and those with money interest in the development generally pursue money interests.  The really cool thing about that is it is easy to understand and should be very transparent.   It is the next layer of people that we should be concerned with.  Those with money and or power interests lacking transparency.

        For the former we are missing the opportunity to get more of what we want.  We need more sophisticated development agreements with project features and scope commitments that have monetary penalties made legal by recording them as impact mitigation in-lieu of fees.  Put all those fees in escrow as a condition of project approval.  If the developer delivers on his commitments he gets the money back.  Otherwise the city gets it to use specifically for offsetting mitigation.  The key is to make the fee large enough as an incentive for the developer to meet his commitments.

        But what do we do when a politicians, for example, has a relationship with a developer or a developer project and picks winners and losers to benefit the developer at the expense of other developers and potentially at the expense of the greater good for the community?

        1. Alan Miller

          I agree with the concept of such agreements.  Agreements rarely work out that way, as you point out in the last paragraph.  Would be so much simpler, were it that simple.  The powers that be at times seem to get influenced or spooked that the developer will pull out.  I agree that with risks developers should make a handsome profit.  They also “should” respect the wishes of the community and not make an obscene profit at the expense of the community.  Were we draw that line . . . #sigh#.  I have no respect for those that want to drag it into their end zone and keep it there, on either side; other than that, the balance IS local politics.

          Don’t disagree with your assertion about those with interests, just wanted to goad you about self-interest going on all around, and you delivered well.

    2. Miwok

      The first half of my life I always saw things with a different set of eyes.

      Things I proposed in those days in some places were implemented years later, in some cases are still changing, forced in some cases. Now I think sometimes I am the one resistant to change. I agree with the 50 year cycle of change for new innovation. I have lived one cycle, I don’t really know if I can do another..

      Thank you for the article, this is very informative especially about the way you and others think at the City level. Don’t study it to death!

  2. Anon

    Innovation takes perseverance more than anything.  Doesn’t matter whether an inventor has a great idea, if s/he does not have the perseverance to see the idea through to the bitter end to overcome all obstacles (and there will be many).  And I also believe marketing is one of the more difficult aspects of bringing an innovative idea to market.

    That said, some of the most unexpected ideas result in innovation.  Look at sticky notes.  3M was trying to develop a special kind of glue, goofed, and the resultant “mistake” was developed as the non-stick glue for the sticky note!  Sometimes inventors have to see alternate possibilities for their “mistakes”!

    Entrepreneurs also must have an open mind, be flexible enough to figure out alternative ways to bring their products to market.  If one city gives them trouble on providing support, find another city that will support their efforts.  Where there is a will, there is a way.

    When I think of how far the computer has come, it is nothing short of amazing.  I am old enough to remember when computers took up an entire room, and programs were submitted in boxes with each line of code punched into an IBM card.  Programs were submitted overnight, and if some big business was not in the queue, a student might get the results of their program run the next day.  The laptop we enjoy today is far more powerful than that old computer that took up an entire room!

    I have high hopes for innovation parks in Davis, provided they are planned in such a way as to generate sufficient tax revenue for the city to make them worthwhile.  My hope is they will bring a whole new feel to the city, of optimism, fresh ideas, hope for a better future, and be an integral part of our town that will offer new amenities that blend seamlessly with what is already here.  I am ever the optimist!

  3. Davis Progressive

    Due to shifting needs and workload at City Hall, I will not be able to continue to contribute regular weekly articles to the Davis Vanguard after the holidays. I will be spending much of my foreseeable writing time working with the City Manager and staff on a strategy for the Council’s Goals and Objectives for 2014-2016.”

    This is bad.  I think Rob White represents a critical link to the public and I think the Vanguard’s heavy commenting provides the city with critical feedback.  I don’t think the innovation parks would be as far advanced without the work of rob white and the accessibility he has through the vanguard.

    1. Frankly

      DP.  I agree.  I wonder what is up to justify this type of change.  It would seem that RW writing VG and Enterprise articles is part of his role.   New Dan and Lucas-aligned CM.  Recent city hall innuendo that the budget is back in black.   Do I smell a dead fish… or just a new temporarily stagnating pond?

  4. Anon

    Robb White: “Thank you for your support in my writing over the last 18 months and I hope to still occasionally provide articles as time allows.”

    I am sure Robb White will be back should the innovation parks start running into roadblocks!  LOL

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