TL;DR
In this 1985 paper Drucker argues that innovation isn't ab...
Peter F. Drucker was an Austrian-born management consultant, educat...
Drucker's key point here is that innovation isn't exclusive to tech...
The author challenges the myth of the "entrepreneurial personality"...
Ford investigated why their carefully researched product failed. Th...
IBM survived the Great Depression by paying attention to who actual...
Alcon Laboratories became hugely successful by noticing a mismatch ...
Rapid growth doesn't just mean more of the same - it completely res...
This is a great example of the difference between information and i...
Drucker noticed that by every objective measure, people were health...
> ***'The glass is half full' and 'The glass is half empty' are des...
Drucker warns that the most celebrated type of innovation - breakth...
Drucker ends with his most important point: it's a job, not magic. ...
Copyright © 2002 by Harvard Business School Publishing Corporation. All rights reserved.
5
How much of innovation is inspiration, and how much is hard work? If it’s mainly
the former, then management’s role is limited: Hire the right people, and get out
of their way. If it’s largely the latter, management must play a more vigorous role:
Establish the right roles and processes, set clear goals and relevant measures, and
review progress at every step. Peter Drucker, with the masterly subtlety that is
his trademark, comes down somewhere in the middle. Yes, he writes in this arti-
cle, innovation is real work, and it can and should be managed like any other
corporate function. But that doesn’t mean it’s the same as other business activi-
ties. Indeed, innovation is the work of knowing rather than doing.
Drucker argues that most innovative business ideas come from methodically
analyzing seven areas of opportunity, some of which lie within particular com-
panies or industries and some of which lie in broader social or demographic
trends. Astute managers will ensure that their organizations maintain a clear
focus on all seven. But analysis will take you only so far. Once you’ve identified
an attractive opportunity, you still need a leap of imagination to arrive at the
right response – call it “functional inspiration.”
by Peter F. Drucker
Despite much discussion these days
of the “entrepreneurial personality,”
few of the entrepreneurs with whom
I have worked during the past 30 years
had such personalities. But I have
known many people – salespeople, sur-
geons, journalists, scholars, even musi-
cians – who did have them without
being the least bit entrepreneurial.
What all the successful entrepreneurs
I have met have in common is not a
certain kind of personality but a com-
mitment to the systematic practice of
innovation.
Innovation is the specific function of
entrepreneurship, whether in an exist-
ing business, a public service institution,
or a new venture started by a lone indi-
vidual in the family kitchen. It is the
means by which the entrepreneur either
creates new wealth-producing resources
or endows existing resources with en-
hanced potential for creating wealth.
Today, much confusion exists about
the proper definition of entrepreneur-
ship. Some observers use the term to
refer to all small businesses; others, to all
new businesses. In practice, however, a
In business, innovation
rarely springs from a
flash of inspiration. It
arises from a cold-eyed
analysis of seven kinds
of opportunities.
The Discipline
of Innovation
1985
BEST OF HBR
great many well-established businesses
engage in highly successful entrepre-
neurship. The term, then, refers not to
an enterprise’s size or age but to a cer-
tain kind of activity. At the heart of that
activity is innovation: the effort to cre-
ate purposeful, focused change in an en-
terprise’s economic or social potential.
Sources of Innovation
There are, of course, innovations that
spring from a flash of genius. Most in-
novations, however, especially the suc-
cessful ones, result from a conscious,
purposeful search for innovation op-
portunities, which are found only in a
few situations. Four such areas of op-
portunity exist within a company or in-
dustry: unexpected occurrences, incon-
gruities, process needs, and industry and
market changes.
Three additional sources of opportu-
nity exist outside a company in its social
and intellectual environment: demo-
graphic changes, changes in perception,
and new knowledge.
True, 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 to-
gether, they account for the great ma-
jority of all innovation opportunities.
Unexpected Occurrences
Consider, first, the easiest and simplest
source of innovation opportunity: the
unexpected. In the early 1930s, IBM de-
veloped the first modern accounting
machine, which was designed for banks.
But banks in 1933 did not buy new
equipment. What saved the company –
according to a story that Thomas Wat-
son, Sr., the company’s founder and
long-term CEO, often told – was its ex-
ploitation of an unexpected success: The
New York Public Library wanted to buy
a machine. Unlike the banks, libraries in
those early New Deal days had money,
and Watson sold more than a hundred
of his otherwise unsalable machines to
libraries.
Fifteen years later, when everyone be-
lieved that computers were designed for
advanced scientific work, business un-
expectedly showed an interest in a ma-
chine that could do payroll. Univac,
which had the most advanced machine,
spurned business applications. But IBM
immediately realized it faced a possible
unexpected success, redesigned what
was basically Univac’s machine for such
mundane applications as payroll, and
within five years became a leader in the
computer industry, a position it has
maintained to this day.
The unexpected failure may be an
equally important source of innovation
opportunities. Everyone knows about
the Ford Edsel as the biggest new-car
failure in automotive history. What very
few people seem to know, however, is
that the Edsel’s failure was the founda-
tion for much of the company’s later
success. Ford planned the Edsel, the
most carefully designed car to that point
in American automotive history, to give
the company a full product line with
which to compete with General Motors.
When it bombed, despite all the plan-
ning, market research, and design that
had gone into it, Ford realized that some-
thing was happening in the automobile
market that ran counter to the basic as-
sumptions on which GM and everyone
else had been designing and market-
ing cars. No longer was the market seg-
mented primarily by income groups;
the new principle of segmentation was
what we now call “lifestyles.” Ford’s re-
sponse was the Mustang, a car that gave
the company a distinct personality and
reestablished it as an industry leader.
Unexpected successes and failures are
such productive sources of innovation
opportunities because most businesses
dismiss them, disregard them, and even
resent them. The German scientist who
around 1905 synthesized novocaine,
the first nonaddictive narcotic, had in-
tended 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 remain-
ing years of his life traveling from den-
tal school to dental school making
speeches that forbade dentists from
“misusing”his noble invention in appli-
cations for which he had not intended it.
This is a caricature, to be sure, but it
illustrates the attitude managers often
take to the unexpected: “It should not
have happened.” Corporate reporting
systems further ingrain this reaction,
for they draw attention away from un-
anticipated possibilities. The typical
monthly or quarterly report has on its
first page a list of problems–that is, the
areas where results fall short of expec-
tations. Such information is needed, of
course, to help prevent deterioration
of performance. But it also suppresses
the recognition of new opportunities.
The first acknowledgment of a possible
opportunity usually applies to an area
in which a company does better than
budgeted. Thus genuinely entrepreneur-
ial businesses have two “first pages” –
a problem page and an opportunity
page – and managers spend equal time
on both.
Incongruities
Alcon Laboratories was one of the suc-
cess stories of the 1960s because Bill
Conner, the company’s cofounder, ex-
ploited an incongruity in medical tech-
nology. The cataract operation is the
world’s third or fourth most common
surgical procedure. During the past 300
years, doctors systematized it to the
point that the only “old-fashioned”step
left was the cutting of a ligament. Eye
surgeons had learned to cut the liga-
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2
Peter F. Drucker is the Marie Rankin Clarke
Professor of Social Science and Manage-
ment at Claremont Graduate University’s
Peter F. Drucker Graduate School of Man-
agement in Claremont, California. He has
written more than two dozen articles for
HBR. This article was originally adapted
from his book Innovation and Entre-
preneurship: Practice and Principles
(Harper & Row, 1985).
ment with complete success, but it was
so different a procedure from the rest
of the operation, and so incompatible
with it, that they often dreaded it. It was
incongruous.
Doctors had known for 50 years
about an enzyme that could dissolve the
ligament without cutting. All Conner
did was to add a preservative to this en-
zyme that gave it a few months’ shelf
life. Eye surgeons immediately accepted
the new compound, and Alcon found
itself with a worldwide monopoly. Fif-
teen years later, Nestlé bought the com-
pany for a fancy price.
Such an incongruity within the logic
or rhythm of a process is only one pos-
sibility out of which innovation oppor-
tunities may arise. Another source is
incongruity between economic realities.
For instance, whenever an industry has
a steadily growing market but falling
profit margins – as, say, in the steel in-
dustries of developed countries between
1950 and 1970 – an incongruity exists.
The innovative response: minimills.
An incongruity between expectations
and results can also open up possibili-
ties for innovation. For 50 years after
the turn of the century, shipbuilders
and shipping companies worked hard
both to make ships faster and to lower
their fuel consumption. Even so, the
more successful they were in boosting
speed and trimming their fuel needs,
the worse the economics of ocean
freighters became. By 1950 or so, the
ocean freighter was dying, if not al-
ready dead.
All that was wrong, however, was an
incongruity between the industry’s as-
sumptions and its realities. The real
costs did not come from doing work
(that is, being at sea) but from not doing
work (that is, sitting idle in port). Once
managers understood where costs truly
lay, the innovations were obvious: the
roll-on and roll-off ship and the con-
tainer ship. These solutions, which in-
volved old technology, simply applied
to the ocean freighter what railroads
and truckers had been using for 30
years. A shift in viewpoint, not in tech-
nology, totally changed the economics
of ocean shipping and turned it into
one of the major growth industries of
the last 20 to 30 years.
Process Needs
Anyone who has ever driven in Japan
knows that the country has no modern
highway system. Its roads still follow the
paths laid down for – or by – oxcarts in
the tenth century. What makes the sys-
tem work for automobiles and trucks
is an adaptation of the reflector used
on American highways since the early
1930s. The reflector lets each car see
which other cars are approaching from
any one of a half-dozen directions. This
minor invention, which enables traffic
to move smoothly and with a minimum
of accidents, exploited a process need.
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 pro-
duce newspapers quickly and in large
volume. The other was a social innova-
tion, 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. Adver-
tising made it possible for them to dis-
tribute news practically free of charge,
with the profit coming from marketing.
Industry and
Market Changes
Managers may believe that industry
structures are ordained by the good
Lord, but these structures can–and often
do – change overnight. Such change
creates tremendous opportunity for
innovation.
One of American business’s great
success stories in recent decades is the
brokerage firm of Donaldson, Lufkin &
Jenrette, recently acquired by the Equi-
table Life Assurance Society. DL&J was
founded in 1960 by three young men,
all graduates of the Harvard Business
School, who realized that the structure
of the financial industry was changing
as institutional investors became domi-
nant. These young men had practically
no capital and no connections. Still,
within a few years, their firm had be-
come a leader in the move to negotiated
commissions and one of Wall Street’s
stellar performers. It was the first to be
incorporated and go public.
In a similar fashion, changes in in-
dustry structure have created massive
innovation opportunities for American
health care providers. During the past
ten or 15 years, independent surgical
and psychiatric clinics, emergency cen-
ters, and HMOs have opened through-
out the country. Comparable opportu-
nities in telecommunications followed
industry upheavals – in transmission
(with the emergence of MCI and Sprint
in long-distance service) and in equip-
ment (with the emergence of such com-
panies as Rolm in the manufacturing of
private branch exchanges).
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. Es-
tablished 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 mar-
ket, defined it, or organized to serve it.
Innovators therefore have a good chance
of being left alone for a long time.
Demographic Changes
Of the outside sources of innovation op-
portunities, demographics are the most
reliable. 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 b ecause policy makers often neglect
demographics, those who watch them
and exploit them can reap great rewards.
The Discipline of Innovation
THE INNOVATIVE ENTERPRISE august 2002
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4
5
The Japanese are ahead in robotics
because they paid attention to demo-
graphics. Everyone in the developed
countries around 1970 or so knew that
there was both a baby bust and an edu-
cation explosion going on; about half or
more of the young people were staying
in school beyond high school. Conse-
quently, the number of people available
for traditional blue-collar work in man-
ufacturing was bound to decrease and
become inadequate by 1990. Everyone
knew this, but only the Japanese acted
on it, and they now have a ten-year lead
in robotics.
Much the same is true of Club Med-
iterranee’s success in the travel and re-
sort business. By 1970, thoughtful ob-
servers could have seen the emergence
of large numbers of affluent and edu-
cated young adults in Europe and the
United States. Not comfortable with
the kind of vacations their working-
class parents had enjoyed – the sum-
mer weeks at Brighton or Atlantic City–
these young people were ideal custom-
ers for a new and exotic version of the
“hangout” of their teen years.
Managers have known for a long time
that demographics matter, but they
have always believed that population
statistics change slowly. In this century,
however, they don’t. Indeed, the inno-
vation opportunities made possible by
changes in the numbers of people –
and in their age distribution, education,
occupations, and geographic location –
are among the most rewarding and least
risky of entrepreneurial pursuits.
Changes in Perception
“The glass is half full” and “The glass
is half empty” are descriptions of the
same phenomenon but have vastly dif-
ferent meanings. Changing a manager’s
perception of a glass from half full to
half empty opens up big innovation
opportunities.
All factual evidence indicates, for in-
stance, that in the last 20 years, Ameri-
cans’ health has improved with unprec-
edented speed – whether measured by
mortality rates for the newborn, survival
rates for the very old, the incidence of
cancers (other than lung cancer), can-
cer 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.
Rather than rejoicing
in great improvements in
health, Americans seem to
be emphasizing how far away they still
are from immortality. This view of
things has created many opportunities
for innovations: markets for new health
care magazines, for exercise classes and
jogging equipment, and for all kinds of
health foods. The fastest growing new
U.S. business in 1983 was a company
that makes indoor exercise equipment.
A change in perception does not alter
facts. It changes their meaning, though–
and very quickly. It took less than two
years for the computer to change from
being perceived as a threat and as some-
thing only big businesses would use to
something one buys for doing income
tax. Economics do not necessarily dic-
tate such a change; in fact, they may be
irrelevant. What determines whether
people see a glass as half full or half
empty is mood rather than fact, and a
change in mood often defies quantifica-
tion. But it is not exotic. It is concrete. It
can be defined. It can be tested. And it can
be exploited for innovation opportunity.
New Knowledge
Among history-making innovations,
those that are based on new knowl-
edge – 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.
Knowledge-based innovations differ
from all others in the time they take, in
their casualty rates, and in their pre-
dictability, 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 us-
able 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 appre-
ciably throughout history.
To become effective, innovation of
this sort usually demands not one kind
of knowledge but many. Consider one of
the most potent knowledge-based in-
novations: modern banking. The theory
of the entrepreneurial bank – that is, of
the purposeful use of capital to generate
economic development – was formu-
lated by the Comte de Saint-Simon dur-
ing the era of Napoleon. Despite Saint-
Simon’s extraordinary prominence, it
was not until 30 years after his death in
1825 that two of his disciples, the broth-
ers Jacob and Isaac Pereire, established
the first entrepreneurial bank,the Credit
Mobilier, and ushered in what we now
call finance capitalism.
The Pereires, however, did not know
modern commercial banking, which de-
veloped at about the same time across
the channel in England. The Credit Mo-
bilier failed ignominiously. A few years
later, two young men – one an Ameri-
can, J.P. Morgan, and one a German,
Georg Siemens–put together the French
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Knowledge-based innovations
can be temperamental,
capricious, and hard to direct.
theory of entrepreneurial banking and
the English theory of commercial bank-
ing to create the first successful modern
banks: J.P. Morgan & Company in New
York, and the Deutsche Bank in Berlin.
Ten years later, a young Japanese, Shibu-
sawa Eiichi, adapted Siemens’s concept
to his country and thereby laid the foun-
dation of Japan’s modern economy. This
is how knowledge-based innovation al-
ways works.
The computer, to cite another exam-
ple, required no fewer than six separate
strands of knowledge:
• binary arithmetic;
• Charles Babbage’s conception of a cal-
culating 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 de-
velop effective antiaircraft guns.
Although all the necessary knowl-
edge was available by 1918, the first op-
erational digital computer did not ap-
pear until 1946.
Long lead times and the need for con-
vergence among different kinds of
knowledge explain the peculiar rhythm
of knowledge-based innovation, its at-
tractions, 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 enor-
mous amount of speculation. Between
1880 and 1890, for example, almost
1,000 electric-apparatus companies were
founded in developed countries. Then,
as always, there was a crash and a shake-
out. By 1914, only 25 were still alive. In
the early 1920s, 300 to 500 automobile
companies existed in the United States;
by 1960, only four of them remained.
It may be difficult, but knowledge-
based innovation can be managed. Suc-
cess requires careful analysis of the
various kinds of knowledge needed to
make an innovation possible. Both J.P.
Morgan and Georg Siemens did this
when they established their banking
ventures. The Wright brothers did this
when they developed the first opera-
tional airplane.
Careful analysis of the needs – and,
above all, the capabilities – of the in-
tended user is also essential. It may
seem paradoxical, but knowledge-based
innovation is more market dependent
than any other kind of innovation. De
Havilland, a British company, designed
and built the first passenger jet, but it
did not analyze what the market needed
and therefore did not identify two key
factors. One was configuration –
that is, the right size with the right
payload for the routes on which a
jet would give an airline the great-
est advantage. The other was equally
mundane: How could the airlines
finance the purchase of such an ex-
pensive plane? Because de Havil-
land failed to do an adequate user
analysis, two American companies, Boe-
ing and Douglas, took over the com-
mercial jet-aircraft industry.
Principles of Innovation
Purposeful, systematic innovation be-
gins with the analysis of the sources of
new opportunities. Depending on the
context, sources will have different im-
portance at different times.Demograph-
ics, for instance, may be of little concern
to innovators of fundamental industrial
processes like steelmaking, although the
Linotype machine became successful pri-
marily because there were not enough
skilled typesetters available to satisfy a
mass market. By the same token, new
knowledge may be of little relevance to
someone innovating a social instrument
to satisfy a need that changing demo-
graphics or tax laws have created. But
whatever the situation, innovators must
analyze all opportunity sources.
Because innovation is both concep-
tual and perceptual, would-be innova-
tors must also go out and look, ask, and
listen. Successful innovators use both
the right and left sides of their brains.
They work out analytically what the in-
novation has to be to satisfy an oppor-
tunity. Then they go out and look at po-
tential users to study their expectations,
their values, and their needs.
To be effective, an innovation has to
be simple, and it has to be focused. It
should do only one thing; otherwise it
confuses people. Indeed, the greatest
praise an innovation can receive is for
people to say, “This is obvious! Why
didn’t I think of it? It’s so simple!” Even
the innovation that creates new users
and new markets should be directed
toward a specific, clear, and carefully
designed application.
Effective innovations start small.They
are not grandiose. It may be to enable
a moving vehicle to draw electric power
while it runs along rails, the innovation
that made possible the electric streetcar.
Or it may be the elementary idea of
putting the same number of matches
into a matchbox (it used to be 50). This
simple notion made possible the auto-
matic filling of matchboxes and gave the
Swedes a world monopoly on matches
for half a century. By contrast, grandiose
ideas for things that will “revolutionize
an industry” are unlikely to work.
In fact, no one can foretell whether a
given innovation will end up a big busi-
ness or a modest achievement. But even
if the results are modest, the successful
innovation aims from the beginning to
become the standard setter, to deter-
mine the direction of a new technology
or a new industry, to create the business
that is–and remains–ahead of the pack.
If an innovation does not aim at leader-
ship from the beginning, it is unlikely to
be innovative enough.
Innovation requires
knowledge, ingenuity,
and, above all else, focus.
THE INNOVATIVE ENTERPRISE
august 2002
9
The Discipline of Innovation
Above all, innovation is work rather
than genius. It requires knowledge. It
often requires ingenuity. And it requires
focus. There are clearly people who are
more talented innovators than others,
but their talents lie in well-defined areas.
Indeed, innovators rarely work in more
than one area. For all his systematic in-
novative accomplishments, Thomas Edi-
son worked only in the electrical field.
An innovator in financial areas, Citibank
for example, is not likely to embark on
innovations in health care.
In innovation, as in any other en-
deavor, 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 dili-
gence, persistence, and commitment are
lacking, talent, ingenuity, and knowl-
edge are of no avail.
There is, of course, far more to entre-
preneurship than systematic innova-
tion–distinct entrepreneurial strategies,
for example, and the principles of entre-
preneurial management, which are
needed equally in the established en-
terprise, the public service organization,
and the new venture.But the very foun-
dation of entrepreneurship is the prac-
tice of systematic innovation.
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TL;DR
In this 1985 paper Drucker argues that innovation isn't about waiting for genius to strike. It's a discipline that can be learned and practiced systematically. He dismantles the myth of the "entrepreneurial personality" and shows that innovation comes from analyzing seven specific sources of opportunity:
- four inside your organization (unexpected successes/failures, incongruities, process needs, and industry structure changes)
- and three in the broader environment (demographics, perception shifts, and new knowledge).
Every company wants to be "innovative," but few have processes for finding and exploiting these opportunities. Most people ignore them because they're too busy fighting fires or waiting for inspiration. Yet everyone has access to these same sources.
Drucker shows that innovation is a job that can be done anywhere. A hospital administrator, government agency, or manufacturing company can use the exact same framework as a Silicon Valley startup.
The author challenges the myth of the "entrepreneurial personality": the charismatic, risk-taking genius. Drucker observed entrepreneurs for 30 years and found personality mattered far less than having a systematic approach. Successful entrepreneurs ranged from quiet analysts to outgoing salespeople. What united them was treating innovation as a discipline.
Peter F. Drucker was an Austrian-born management consultant, educator, and author widely considered ***"the founder of modern management."*** After fleeing Nazi Germany in 1933, he settled in the United States, where he spent decades studying how organizations function and how they can be made more effective. He taught at Claremont Graduate University for over 30 years and advised major corporations and nonprofit organizations worldwide. Drucker wrote 39 books and countless articles, continuing his prolific output until his death at age 95.
Learn more here: [About Peter Drucker](https://drucker.institute/about-peter-drucker/)
Alcon Laboratories became hugely successful by noticing a mismatch within the cataract surgery process. Everything was modernized but one step remained risky and old-fashioned and this inconsistency created anxiety for surgeons. An enzyme that could dissolve the ligament had existed for 50 years, but nobody had made it commercially viable. Alcon added a preservative, and suddenly every eye surgeon wanted it.
Drucker's insight shows that **these incongruities are systematic opportunities, not lucky discoveries.**
IBM survived the Great Depression by paying attention to who actually wanted their product. They designed accounting machines for banks but when banks stopped buying, libraries surprisingly stepped up. Most companies would have dismissed this as irrelevant, but IBM served these customers and discovered an entirely new market segment.
Modern startups often pivot reactively when their original idea fails but the author describes something more proactive: systematically monitoring for unexpected successes and being ready to exploit them.
Rapid growth doesn't just mean more of the same - it completely reshapes how an industry works.
This happens because the new segments don't fit the existing business model, sales channels, or organizational structure. That gap creates a playground for innovators who build their companies around the new segments from day one.
Today the tech industry is experiencing explosive growth in AI capabilities, and we're seeing exactly what Drucker predicted: established tech giants are focused on integrating AI into their existing products, while startups are building entirely new business models around AI-native approaches.
> ***'The glass is half full' and 'The glass is half empty' are descriptions of the same phenomenon but have vastly different meanings.***
Drucker noticed that by every objective measure, people were healthier than ever, yet health anxiety had never been higher. This perceptual shift from focusing on improvements to remaining problems created massive new markets: health clubs, magazines, exercise equipment, and health foods. **The facts didn't change; the interpretation did.**
Drucker warns that the most celebrated type of innovation - breakthrough scientific discovery - is actually the hardest and riskiest. Most organizations would be better off focusing on the other six sources of innovation: unexpected events, incongruities, process needs, industry changes, demographics, and perception shifts. These are more reliable and faster.
Drucker ends with his most important point: it's a job, not magic. Some people are more talented at it, but like accounting, engineering, or surgery, innovation can be learned and improved through deliberate effort. The difference between success and failure isn't usually talent but whether you do the systematic work of analyzing opportunities, understanding user needs, and maintaining focus.
The practical implication: organizations should develop innovation capability through dedicated attention to specific areas - not by hiring "innovation experts" claiming universal solutions.
Ford investigated why their carefully researched product failed. They discovered consumers no longer bought cars based on income but they were expressing identity and aspirations. This insight led directly to the Mustang which became one of the most successful cars in American history.
**The bigger lesson: failures that reveal changing assumptions are goldmines, but only if you systematically analyze them rather than just moving on to the next project.**
This is a great example of the difference between information and insight. Every developed country had access to the same demographic data showing fewer young people entering manufacturing work. But only Japanese companies systematically connected this demographic trend to their business strategy and invested heavily in robotics.
Drucker's key point here is that innovation isn't exclusive to tech startups. It happens in hospitals, government agencies, and businesses of all sizes. This democratizes innovation, making it accessible to everyone, not just a special class of "geniuses."
For example during the COVID-19 pandemic restaurants pivoted to delivery, schools went virtual, and healthcare created drive-through testing. None were startups, but all innovated out of necessity. This supports Drucker's point: **innovation is a learnable skill that can be practiced anywhere, not a mysterious gift reserved for certain people or organizations.**