Of all the management writers I’ve read, Peter Drucker probably generates more interesting quotes per page than anyone. Tom Peters and Joseph Schumpeter come close too. Here are six thoughts triggered by reading his book Management Challenges for the 21st Century:
"And yet very few institutions know anything about the noncustomers—very few of them even know that they exist, let alone know who they are. And even fewer know why they are not customers. Yet it is with the noncustomers that changes always start."
Drucker is making a slightly different point here – that we need to look outside of our normal networks to innovate. True. But also, your customer isn’t “everyone.” Even Coke has more noncustomers than customers in the world. A big part of strategy is making the choice of who your customer will be. This choice is based on value, however:
"The starting point has to be what customers consider value. The starting point has to be the assumption—an assumption amply proven by all our experience—that the customer never buys what the supplier sells. What is value to the customer is always something quite different from what is value or quality to the supplier. This applies as much to a business as to a university or to a hospital."
Innovators often don’t know what their idea is for. This is a strong argument for two things: empathy and experiments.
"Everything improved or new needs therefore first to be tested on a small scale, that is, it needs to be PILOTED. The way to do this is to find somebody within the enterprise who really wants the new. As said before, everything new gets into trouble. And then it needs a champion. It needs somebody who says: “I am going to make this succeed,” and who then goes to work on it. And this person needs to be somebody whom the organization respects. This need not even be somebody within the organization. A good way to pilot a new product or new service is often to find a customer who really wants the new, and who is willing to work with the producer on making truly successful the new product or the new service."
New ideas need champions. This is a critical part of piloting or prototyping, which in turn drives experimentation. This is one of the best ways to find out what customers actually value – testing.
"Every organization operates on a Theory of the Business, that is, a set of assumptions as to what its business is, what its objectives are, how it defines results, who its customers are, what the customers value and pay for. Strategy converts this Theory of the Business into performance."
Theories of Business need to be tested – this is how to design the experiments. Start with the assumptions in your business model, then test them to see if they are true.
"An entrepreneur who does not learn how to manage will not last long. A management that does not learn to innovate will not last long. In fact, … business—and every other organization today—has to be designed for change as the norm and to create change rather than react to it.
The main reason is that a policy of systematic innovation produces the mindset for an organization to be a change leader. It makes the entire organization see change as an opportunity."
The consequence of this is that innovation is a process, which can be managed.
"The first change policy, therefore, throughout the entire institution, has to be Organized Abandonment. The change leader puts every product, every service, every process, every market, every distribution channel, every customer and end-use, on trial for its life. And it does so on a regular schedule. The question has to be asked—and asked seriously—“If we did not do this already, would we, knowing what we now know, go into it?” If the answer is “no,” the reaction must not be “Let’s make another study.” The reaction must be “What do we do now?” The enterprise is committed to change. It is committed to action."
If we were starting today, would we do this? This is the blank slate approach described by Jeffrey Phillips, and it is an important tool for evaluating your business model.
"To try to make the future is highly risky. It is less risky, however, than not to try to make it. A goodly proportion of those attempting to do what this chapter discusses will surely not succeed. But, predictably, no one else will."
Or, as Wayne Gretzky said, “You miss 100% of the shots you don’t take.” You improve your chances of succeeding by systematically looking at the drivers of innovation opportunities.
Here it is in a nutshell: Innovation drives change, and change drives growth. We can’t know in advance what will work, so we need to use experiments to discover what customers value. It’s risky, but less risky than doing nothing.
How to comment on this? With just another quote!
8. “People who don't take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.” - Peter F. Drucker)
Tim is a lecturer at The University of Queensland Business School. He researches, writes, teaches and consults on topics relating to effective innovation management, with an emphasis on studying innovation networks. He blogs at The Innovation Leadership Network. Twitter: @timkastelle