Peter Drucker's Seven Sources of Innovation

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Continuous Innovation and Its Role in the Competitive Market

Today, the world is undergoing drastic transformation and the market climate is changing with ever dynamic market demand from the consumers. The long-term success and survival in the current competitive market are determined by the company's ability to inject new and improved experience and products to the market. However, this can only be possible through continuous innovation. According to Drucker (1985), innovation plays a significant role in maintaining the needed competitive edge in the ever dynamic market and technologies. There is more to innovation than providing ideas that lead to discoveries and achievements. In a bid of responding to the changes that take in the ever competitive market and providing the solution to new technologies and how to improve the existing solutions, Peter Drucker highlighted seven innovation opportunities that the management of various organizations should adopt. The seven sources of innovation can be vital for the progress and the survival of any organization in the ever-changing market environment when systematically mined by an entrepreneurial-minded individual or manager. The sources of innovation which form the foundation for the survival of firms in the ever-changing market environment addressed by Drucker include incongruities, changes in public perception, process needs, new technology and scientific findings, industry market and structures, the unexpected and demographic changes. Through the articulation of these sources, Drucker was able to emphasize on the need to acquire and develop a multifaceted nature of innovation and the significance of "incubating" and "idealizing" new and improved methods of doing things.

Learning from Unexpected Success and Failure

Through unexpected failure, success or any outside events, organizations are presented with an opportunity to learn, pivot and try again in a better and improved way. For instance, Drucker describes how IBM developed the first accounting modern machine that was specifically designed for banks. However, the banks at that time did not want to buy new machines; fortunately, the New York Public Library was in need of machines for its operations. The IBM CEO sold the machines that were designed for banks to the library (Drucker, 1985). However, IBM Company took advantage of the possible unexpected success when years later business organizations showed interest in purchasing machines that could do payroll. In a bid of meeting this possible demand, the organization redesigned the basic Univac's machine to perform tasks such as payroll and within some few years, the firm had established its position in the computer industry and registered enormous success.

When a competitor is experiencing an unexpected success in a particular market segment, the management team should try and establish the reason behind the success and ask what it would imply if they exploit it. Also, when firms go through unexpected failure, they are presented with an opportunity to redefine and retrace what could have been done differently and how to avoid such failures in future. In this regard, the management of such organizations become more innovative, which in return help them compete with other firms providing similar services. For instance, the unexpected failure of Ford's new-car production enabled them to develop Mustag, a car that put the company on the global stage and redeemed their broken reputation. In this regard, not only did Ford managed to compete on a higher platform when compared companies such as General Motors, but it also ensured they were kept up to date by introducing new and improved vehicles to the market (Drucker, 1985). Through the observation of unexpected success and failures, today's managers should focus their resources in trying to find out why particular companies have either failed or succeeded and capitalize on the same by enhancing the products or by introducing the services that the consumers "prefer".

Finding Innovation Opportunities through Incongruity

In a bid of addressing how a firm can successfully be able to innovate and keep its existence in the market, Drucker explains that the management team should possess incongruity. According to Drucker (1985), incongruity is a dissonance between what "is" and what "ought" to be. In other words, Drucker describes congruity as a dissonance between what is and what the public assumes it is. It can further be described as a symptom of change that has already taken place, or a change that can be made to occur. The incongruity between economic realities that takes place within a particular sector presents an opportunity for innovation to occur in a highly focused enterprise or new service (Drucker, 1985). Through successful exploitation of incongruity, managers are able to successfully establish their organization on a global stage. For instance, today, micro-breweries have registered enormous success as managers exploit the existing congruities within large breweries.

Identifying Innovation Opportunities in Process Needs

In a bid of catching up with the fast-moving technology, changing market, and intense competition, Drucker suggested that managers should look for a "missing" link in the existing process. In this regard, more opportunities and chances of being innovative are presented as the need to complete the existing process intensifies. Through the development of a mentality of doing a particular process in "better way", the users will be presented with new and improved products or services. For instance, Drucker provides an example of a change in process needs that took place around 1890 in what today is referred to as media when Ottmar Mergenthaler introduced a linotype that made it possible to produce newspapers in large number within a very short time (Drucker, 1985). The current market demand managers to keenly examine their current products and services and always focus on improving and making them better.

Adapting to Changes in Market and Industry Structures

The preferences of the customers changes with time with the public demanding for new tastes and values from the producers. Thus, market and industry structures are often forced to adapt to the changes and produce or provide services which will be enthusiastically received by the consumers. In his book, Drucker provided an example of how the changes in industry structure in the U.S resulted in the creation of massive innovation opportunities for the healthcare providers across the entire country with numerous emergency centers, independent surgical clinics and psychiatric centers (Drucker, 1985). Hence, in a bid of asserting control in the current competitive market environment, managers should focus on changing the market structure, which in return will assure them of retaining the existing the market and further expand their target market.

Using Demographic Changes as a Source of Innovation

According to Drucker (1985), demographics and population such as geographic shift, education, and disposable income go through drastic changes. According to his argument, the changes in population are one of the most reliable predictors of the future market, and thus, provide managers with an opportunity to be innovative. For instance, Drucker provided an example of how taking note on the demographics acted as a source of innovation for the Japanese. Drucker explains that around 1970 everyone in the developed world had an idea about the baby bust and the explosion in the education sector that indicated that only about half of the population of the young individuals was going beyond high school in their studies. However, most of the countries except Japan chose to ignore that fact, which eventually led to the shortage of personnel available for blue-collar jobs in various manufacturing industries by 1990 (Drucker, 1985). For this reason, today, Japanese are ten years ahead of the entire world in robotics technologies and they dominate the entire market.

Changing Perceptions and Leveraging Scientific Findings for Innovation

The unexpected failures and success explained by Drucker is a clear indication of the changes in perception and meaning of a particular service or product. When the public changes their perception of how they view particular products or services, the managers are forced to identify opportunities for innovation with timing and judgment in the mind. For instance, Drucker explains that innovative opportunities are presented when a manager's perception of a glass being half full is changed to half empty. Thus, when managers today take a "glass is half-empty" view, many opportunities for innovation are created, which in return maintains an organization's competitive edge as customer's preference is regularly met.

Merging Existing and New Knowledge for Innovation

Although it takes years before new knowledge is discovered, once introduced, it can be converged with several different kinds of knowledge to produce new and improved products or services to the public. According to Drucker (1985), these types of innovations (both scientific and non-scientific) can easily become applicable to the existing technology, which provides the consumer with a new and improved experience. For instance, Drucker provides an explanation on how modern commercial banking came into existence after Georg Siemens and Morgan put together their ideas of French theory of entrepreneurial banking and English theory of commercial banking respectively. The result of the convergence led to the establishment of J.P Morgan and Company in New York and the Deutsche Bank in Berlin. In this regard, the survival of different firms across the world today can be guaranteed when managers focus on developing new knowledge using the existing knowledge and lay the foundation for vigorous innovations.

Conclusion: The Importance of Innovation for Organizational Success

In a concluding remark, through his description of the seven sources of innovation, Drucker was able to demonstrate that he was way ahead of everyone else by treating the subject of innovation and its significance in a non-sensational and systematic way. Today, most managers agree with his notion that innovation plays the central role in determining the existence of any firm. When managers put the subjects discussed by Drucker into one perspective, there is no possible reason to fail to register positive results. The customers do not necessarily buy products or services, but they are concerned with what the products do to them and the best way that managers can ensure they maintain them and increase the chances of survival is by being innovative.


Drucker, P. F. (1985): The Discipline of Innovation, in Harvard Business Review, Vol. 80             (2002), No. August, Issues 8, pp. 95-103.

January 19, 2024


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