Drucker explains innovation as the specific function of entrepreneurship. It means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth. There is much confusion about the proper definition of entrepreneurship. It does not refer 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. Most innovations especially the successful ones result from. Conscious, purposeful search for innovation opportunities, which are found only in a few situations.
He elaborates on four areas of opportunity exist within a company or industry:
- Unexpected occurrences- unexpected demand, maker change or even a failure leads to unexpected success. Consider COVID 19 situation for example that has led online businesses like Amazon boom with the change in the purchasing habits of people across the globe.
- Incongruities- an incongruity between expectations and results can also open up possibilities for innovation. Pfizer discover of blue pill is probably fit into this category as the side effect of drug during research led to address erectile dysfunction.
- Process needs- the need to develop something that is missing or needs improved. Advertising by newspaper made it possible to distribute news practically free of charge, with the profit coming from marketing.
- Industry and market changes- internet and social media created a new era for businesses to operate, grow and compete. Companies transformed from brick-and-mortar structure to B2B framework.
There are additional sources of opportunity exist outside a company in its social and intellectual environment:
- Demographic changes- demographic changes lead to new demands and opportunities. It is happening all the time and most of policy makers ignore it. Around 1970, everyone knew that there was both a baby bust and education explosion, such that the number of blue-collar manufacturing workers would decline. Only Japanese paid much attention to this paradigm shift in demographics and invested in robotics as became the leader in the industry.
- Changes in perception- such changes do not alter the facts, however, can dramatically change their meaning. Americans’ health has never been better-yet people are obsessed with preventing disease and staying fit. Innovators who understand people’s perception of health have launched magazines, introduced health foods, and started exercise.
- New knowledge- knowledge-based innovations require long lead times and the convergence of different kinds of knowledge. The computer required knowledge that was available by 1918, but the first operational digital computer did not appear until 1946.
Purposeful, systematic innovation begins with the analysis of the sources of new opportunities. Depending on the context, sources will have different importance at different times. Thus, innovation is work rather than genius. It requires knowledge. It often requires ingenuity. And it requires focus.