Saturday, December 5, 2009

Personal MBA Update - Innovation and Entrepreneurship

Personal MBA Update - Innovation and Entrepreneurship by Peter Drucker: I want to meet Peter Drucker’s book researcher. And if he did the research himself then he is even more impressive than just possessing the ability to write an incredibly insightful and practical book on a topic that is ethereal to many. Innovation and Entrepreneurship by Peter Drucker is a must read for those interested in the subject topics. Drucker, known largely for his grandiose contributions to the study of management, has written a book that lays out a practical roadmap for those who wish to advance in the fields of innovation and entrepreneurship. The reason I commented on the book researcher is that the book reads in a manner that is based entirely upon example and story. You won’t find a “step one, step two, do this, do that” book from Drucker. Every principle and axiom is centered on an example from history. He cites examples on everything from the French revolution to the Toyota production revolution. By doing so he has produced not only an entertaining book, but a guide with real practical content that allows readers to improve their ability to innovate in their existing careers or in new ventures and markets. And that is the premise of this great book. That innovation and entrepreneurship can be learned and honed like any other skill. It is not a spark of genius that manifests itself in your head outside of your own personal control. You can prepare yourself for success in innovation and entrepreneurship. Here are my notes from this classic:

Introduction: The Entrepreneurial Economy:
- Talks about how a Kondratieff or stagnating deindustrialization of the American economy is seemingly at odds with an entrepreneurial high tech America
- Says America is the only true entrepreneurial economy
- Sights that many of these entrepreneurial companies are in fact manufacturing
- The “new technology” is entrepreneurial management

The Practice of Innovation:
- Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for different business/service
- It is capable of being presented as a discipline, of being learned, or practiced

Systematic Entrepreneurship:
- Opening another restaurant is not entrepreneurship. McDonalds was entrepreneurship not in its end products but in its management concepts and techniques. They created a new market and a new customer
- Entrepreneurs create something new, something different; they change or transmute values
- Do something different rather than do better what is already being done
- The entrepreneur upsets or disorganizes or as Schumpeter would say “his task is creative destruction.”
- The entrepreneur always searches for change, responds to it, and exploits it as an opportunity
- Entrepreneurship is viewed as risky. But why? They shift resources from areas of low productivity and yield into areas of higher productivity and yield. There is the risk that they may not succeed but if moderately successful the returns should be more than adequate to offset the risk
- Its risky because so few so called entrepreneurs know what they are doing. Purposeful innovation is a systematic methodology

Purposeful Innovation and the Seven Sources for Innovative Opportunity:
- Some of the best innovation is not technical but social in nature
- Innovation used to be a flash of genius but eventually became research, a systematic purposeful activity
- Entrepreneurs have to learn to practice systematic innovation
- The entrepreneurs who start out with the big idea that they’ll make it big in a hurry can guarantee failure
- Italic section page 35
- The overwhelming majority of successful innovations “exploit change”
- 7 Sources of innovative opportunity:
Within the enterprise:
1. The unexpected – unexpected success, failure, or outside event
2. The incongruity – between reality as it is and the way it ought to be
3. Innovation based on process need
4. Changes in the industry structure or market structure that catch everyone unaware
Outside the enterprise:
5. Demographics (population changes)
6. Changes in perception, mood, and meaning
7. New knowledge both scientific and non scientific
- The lines between can be blurred and overlap, none more important or productive than the other

Source: The Unexpected:
- No area offers richer opportunities with less arduous and risky work. Yet it is often neglected or worse rejected
- Macy’s story pg 37
- It is not enough to depend on accidents, the search must be organized
- It must be seen
1. What would it mean to us if we exploited it? 2. Where could it lead us? 3. What would we have to do to convert it into an opportunity? 4. How do we go about it?
- Rarely seen as symptoms of opportunity
- You don’t necessarily know why change is occurring just exploit it like the Ford Thunderbird
- All you need to know is something happened and that is enough to convert the unexpected success or failure into an opportunity for effective purposeful innovation
Outside Event:
- The unexpected outside event may thus be above all opportunity to apply already existing expertise to a new application, but to an application that does not change the nature of the business we are in.
- It may be an extension rather than a diversification
- The opportunity is there. It requires more than mere luck or intuition. Opportunities demand that the enterprise search for innovation, be organized for it, and be managed as to exploit it

Source: Incongruities:
- An incongruity is a discrepancy, a dissonance between what is and what ought to be, or between what is and what everyone assumes it to be
- Several kinds: 1. Incongruity between economic realities 2. Incongruity between the reality of an industry and the assumptions about it 3. Incongruity between the efforts of an industry and the values and expectations of its customers 4. Within the rhythm and logic of a process
Economic realities:
- Of all incongruities that between perceived and actual reality may be the most common

Source: Process Need:
- Opportunity is the source of innovation but necessity is the mother of invention
- With process needs everyone knows the need exists but no one does anything about it
- Innovations based on process needs require 5 basic criteria:
1. A self contained process
2. One weak or missing link
3. A clear definition of the objective
4. Specifications for the solution are clearly defined
5. Widespread realization that “there ought to be a better way” that is highly receptive

Source: Industry and Market Structures:
- Market and industry structures are quite brittle
- A change in industry structure offers exceptional highly visible and quite predictable to outsiders. Insiders perceive these same changes as threats. The outsider who can innovate can become a major factor fast with relatively low risk
- 4 nearly certain indicators of impending change in industry structure:
1. Rapid growth is the most reliable and easily spotted
2. After growth the way one perceives and services the market is likely dated
3. A convergence of technologies previously seen as separate
4. The way in which they do business is changing

Source: Demographics:
- External
- Changes in population, size, age, composition, employment, education, income
- What makes demographics such a rewarding opportunities for entrepreneurs is the neglect of others: the assumption demographics do not change

Source: Changes in Perception:
- When a change in perception takes place the facts do not change, their meaning does
- A critical problem in perception based innovation is timing

Source: New Knowledge:
- Knowledge based innovation is the superstar of entrepreneurship
- It has the longest lead time of all innovation
- They are almost never based on one factor but the convergence of many
- Requirements:
1. Careful analysis of all necessary factors
2. Clear focus and strategic position
3. Occupy a strategic position and practice entrepreneurial management
- Even with meticulous analysis clear focus and management knowledge based innovation suffers from unique risks and innate unpredictability
1. For science and tech based innovators time is working against you 2. Because the “window” is much more crowded any one knowledge based innovator has far less chance of survival
- The “shakeout” sets in as soon as the window closes and the majority of ventures do not survive
- The innovation is not enough, must focus on receptivity to it

The Bright Idea:
- Bright ideas probably out number all other categories put together yet they are the riskiest and least successful
- Bright ideas are vague and elusive

Principles of Innovation”
- Miracle cures exist but that doesn’t mean we put that in textbooks to be taught to Drs. Similarly there are innovations that don’t come from sources in previous chapters but such innovations cannot be replicated
- The do’s:
1. Purposeful systematic innovation begins with the analysis of opportunities
2. Innovation is both conceptual and perceptual; ask look and listen
3. An innovator to be effective has to be simple and focused. The greatest praise an innovator can receive is “This is obvious. Why didn’t I think of that?”
4. Effective innovations start small they try to do one specific thing
5. Successful innovation aims at leadership within a given environment
- The don’ts:
1. Try not to be clever. Innovations must be handled by ordinary humans and there are a lot of morons out there
2. Don’t diversify, splinter, or do too many things at once
3. Don’t try to innovate for the future. Innovate for the present
- The three conditions:
1. Innovation is work
2. To succeed innovators must build on their strengths
3. Innovation is an effect in economy and society
- Successful innovators are conservative. They have to be. They are not risk focused they are opportunity focused

The Practice of Entrepreneurship:
- The entrepreneurial requires different management but it still requires systematic organized purposeful management. Entrepreneurs must face up to their own rules and commitments

Entrepreneurial Management:
- Established business, public service, and startups

The Entrepreneurial Business:
- The belief that large businesses don’t innovate is a misunderstanding
- It is not size that is the impediment but the existing operation itself
- It takes special effort for the existing business to become entrepreneurial. The temptation is to always feed yesterday and starve tomorrow
- Entrepreneurship is not natural and not creative; it is work!
- How can we make the organization receptive to innovation, want innovation, reach for it, work for it?
- Innovation must be part and parcel of the ordinary, the norm, if not routine
- Innovation must be foundation of individual managers success and job security and the need for innovation must be defined and spelled out, and an innovation plan with specific objectives laid out
- Entrepreneurial Practices:
1. Focus managerial vision on opportunity
2. Generate an entrepreneurial spirit throughout the entire management group
3. Have a formal session with junior people and LISTEN for opportunities
- Measuring innovative performance is the only way entrepreneurship will become action
1. Feedback from results to expectations
2. Develop a systematic review of innovative efforts
3. Judging innovative performance against innovative objectives against performance and standing in the market and performance as a business all together
- Structures:
1. The entrepreneurial and new must be organized separately from the old and existing
2. The new must receive special focus within the organization
3. Keep the venture from burdens of normal products like ROI requirements etc.
4. Returns on innovation will be different
5. A person or component group should be held clearly accountable
- The don’ts:
1. Don’t mix managerial units and entrepreneurial ones
2. Do not innovate outside your existing field
3. Acquiring outside entrepreneurial ventures rarely works

Entrepreneurship in the Service Industry:
- Public service institutions need to be entrepreneurial and innovative as much as any business maybe more
- But it is more difficult because in the absence of profit there’s only growth in and of itself
- Most innovations are imposed by outsiders or a catastrophe
- The forces that impede entrepreneurship and innovation in a public service institution are inherent in it, integral to it, inseparable from it
- 3 reasons it is more difficult in public service:
1. Based on budget not results 2. Dependant on a multitude of constituents 3. Most important is that they “do good” and see the mission as a moral absolute vs. an economic cost/benefit analysis
- Needed policies:
1. Needs a clear definition of its mission 2. Realistic statement of goals 3. Failure to achieve means objective is wrong or defined wrongly. It then should be economic vs. moral 4. Build into policy and procedure a constant search for innovation
- Innovation for public service has become so important because public service institutions have become too big and important in developed countries

The New Venture:
- Entrepreneurial management in the new venture have 4 components:
1. Focus on the market
2. Financial foresight for cash flow and capital needs ahead
3. Top management team long before it needs one
4. A decision by the founding entrepreneur on their role
- Often focus on profits but it should be cash flow capital and controls
- A new venture outgrows its capital base with every 40-50% increase in sales

Entrepreneurial Strategies:
- Also requires practices and policies outside in marketplace

Fustest with the Mostest:
- 4 Entrepreneurial strategies:
1. Being fustest with the moistest
2. Hitting them where they aint
3. Finding and occupying a specialized ecological niche
4. Changing the economic characteristics of the product, market, industry
- Fustest requires ambition and seeks to create new industry or market. If it doesn’t work right away it is a total failure
- Hit em is creative imitation that understands the innovation better than those who created it. It is market focused and driven aimed at market dominance
- 5 reasons entrepreneurial judo works: 1. Not invented here mentality 2. Cream of market by getting the high profit part 3. Recognizing what the customer deems quality not the producer 4. Premium price is an invitation 5. Maximize instead of optimize. Try to satisfy every user through the same product or service, so there are a ton of features that satisfy no one
- Entrepreneurial judo is successful when: established leaders refuse to act on the unexpected, a new technology emerges and grows fast, or when a market or industry changes fast

Ecological Niches:
- The ecological niche aims at control, at obtaining a practical monopoly in a small area
- 3 niche strategies:
1. Toll gate strategy – makes people need your product at any price
2. Specialty skill strategy – self explanatory built around a product
3. Specialty market strategy – built around specialized knowledge of a market

Changing Values and Characteristics:
- All strategies in this chapter create a customer that is the ultimate goal or purpose of a business and economic activity
- 4 ways:
1. Creating utility 2. By pricing 3. By adaptation to the customers social and economic reality 4. By delivering what represents true value to the customer
- Great examples
- Anyone who asks “what does the customer really buy” will win the race
- Customers do not buy a product, they buy what it does for them

Conclusion: The Entrepreneurial Society:
- “Every generation needs a revolution.” – Thomas Jefferson
- Alexis de Tocqueville “Revolutions do not demolish the prisons of the old regime they enlarge them.”
- Innovation and entrepreneurship are needed in society as much as business . They achieve what Jefferson hoped to achieve without bloodshed, civil war, or concentration camps, without economic catastrophe, but with a purpose, with direction, and under control.
- We need a society in which innovation and entrepreneurship are normal steady and continuous
- 2 areas in which an entrepreneurial society requires substantial innovation:
1. Take care of redundant workers like auto industry. New businesses create new jobs.
2. The other is more radical and difficult: to organize the systematic abandonment of outworn social policies and obsolete public service institutions. Policy is human not divine and will therefore become obsolete fast, but government policy is view as being forever
- A challenge as an individual in an entrepreneurial society is the need for continuous learning and relearning.

1 comment:

Jason said...

Great notes Matt! Thanks for the highlights!

You may have already read it (it seems like you read a book a day!), but I think you would enjoy the book "The Four Steps to Epiphany" by Steven Blank. It's been a good read so far, and seems like it would be right up your alley!