Innovation and Entrepreneurship –Ducker
Thursday – Session 1 (10 & 11)
How do you define entrepreneurship?
Write answers on the board
How does it differ from traditional business?
Write answer on the Board
How do you define Innovation?
Write on board
Where does innovation come from? Sources?
Write on the board.
What are some examples of innovation? Why are they innovations? Take 5 min to think and write it down.
What is the difference between and innovation and an improvement? Can they both be the same?
Write on board
How does innovation and entrepreneurship relate to each other?
Entrepreneurship is the means to recognize and detect an opportunity.
Then how to apply good management practices to take advantage of the opportunity thru application of innovation.
Innovation is the source that allows the entrepreneur to take advantage of the opportunity.
Not all innovation relates to something no one has ever done before. It could be applying an existing approach(s) better than anyone else or applying a non-traditional way of doing something.
-selling online
- a different application or use
- a different market
The practice of Innovation
Entrepreneurs need to:
Search purposefully for the sources of innovation
The changes and their symptoms to indicate an opportunity
How to apply the principles of successful innovation
Systematic entrepreneurship
French economist J.B.Say 1800 about
Entrepreneurs shifts economic resources out of an area of lower and into an area
of higher productivity and greater yield
Drucker notes that the US and Germany have succeeded to recover quicker from past economic downturns is thru the application of management principles.
Example: McDonalds
Management is the identification and application of resources in the creation of a good or service.
Innovation as applied to Management is the understanding of the process, both structural and operational. Then redesigning the process to meet the needs of the end item or service.
This includes the redesign or invention of the tools to support the process to provide repeatability and consistent quality.
Define value as understood by the customer
Define quality
Set standards
Define training
Set compensation
Example:
Foundry's use of NC machines to convert a batch process into a flow process.
The technology is not new, the process concepts are not new, the application is
new.
Is entrepreneurship and innovation restricted to small startup businesses?
Drucker notes that entrepreneurship is the willingness to make a decision. Therefore, since decisions typically involve risk an entrepreneur must be willing to take a risk.
Drucker identifies this as a behavior and therefore can be learned.
It's foundation is on theory and concept not intuition.
Behaviors are based on experience and expectations.
Schumpeter identifies entrepreneurs as "creative detractors”
-what does this term mean
Entrepreneurs believe that change is good,
They search for change, respond to it, and exploits it as an opportunity
Though this differs from traditional economic thought
What is good today will be the cause of failure on the future.
IPhone, Microsoft, PC
Failure in entrepreneurship is due to not applying the right methodology and well known practices. Ducker
Purposeful Innovation and the Seven Sources for Innovation Opportunities
Innovation
Specific instrument of entrepreneurship
Act that endows resources with a new capacity to create wealth.
Creates a resource
Resources can only be meaningful when they can provide value added to the consumer
Mold, oil
Examples
Ambulances
Helicopter
Mash. Mobile army surgical hospital
Q3: what are some examples of French innovation. (Take 10 min in a group go 3)
Explain why it is an innovation
Hot air balloon
- Though the Chinese (220AD), Peruvians(450ad) and Portuguese(1709) all experimented with hot air ballons, it was the Montgoflier brothers who had the first manned flight (untethered) in 1783.
- The first military use was in 1794 by the French during the battle of Fleurus.
- Gambetta used to rally help from the countryside during 1870 Franco-Prussian war.
France vs GB, Germany, Netherlands and Dutch
Innovation does not have to be a physical machine or technology. It could be a policy or philosophy that enhances the process.
Insurance
Installment plan
Keiretsu in japan, need to check on current validity
Innovation can be more than a new product.
Innovation can be products, process, marketing and organization
Product innovation: A good or service that is new or significantly improved
(technical, materials, software, user friendliness
- blue led vs red led
-
Process innovation: New or significantly improved production or delivery method
Tech, equip, software
§ BOF
§ Continuous Casting
Marketing innovation: Product design, packaging, placement, promotion or pricing
o Easy to use bottles
o Sizes to fit needs
o Data gathering for individual marketing
Organizational innovation: Business org or practice, external relations
o No offices, no defined hierarchical structure, floating teams. Chief technical officer. Others?
Can there be social innovation?
Q4: is the French form of health care an innovation? Why or why not?
Churches could not keep up with wounded from WW 1.
Innovation is an economic or social rather than a technical term.
Change success has always been about individual acceptance rather than the specific change.
Entrepreneurs should not stumble across innovation. True entrepreneurs use a systematic method for finding opportunities and the corresponding innovations.
Systematic innovation therefore consists in the purposeful and organized search foe changes and in the systematic analysis of the opportunities such changes might offer for economic or social innovation.
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Thursday - Session 2 (10 & 11)
Assignment
Work in groups of 3
Define three innovations
- State type of innovation: Product, Process, Marketing, Organizational
- State why you think it is an innovation and not just an improvement.
- One of the innovations must French – relate.
- You have 20min
- Be prepared to present to the class
- You can use any source.
- If you Google it then all will be the same, I will ask why you chose these innovations.
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Friday – Session 3 (10 & 11)
Innovation exploits change
Systematic innovation means monitoring seven sources for innovative opportunities.
The first 4 sources lie within the enterprise
1. The unexpected: the unexpected success, failure, the unexpected outside event
2. The incongruity- difference between actual reality and reality as it ought to be.
3. Innovation based on the process need
4. Changes in industry structure or market structure that catch everyone unaware.
The next 3 sources involves changes outside of the enterprise
5. Demographic changes
6. Changes in perception, mood and meaning
7. New knowledge, both scientific and non-scientific
Note: There can be overlap
Source 1: the unexpected success
A perceived failure initially but resulted in a success typically by discovering an alternate use.
Story:
In the 1950's, Decker spoke with RH Macy, CEO of Macy's department store in New York. Macy complained that appliance sales were eclipsing that of the fashion sales.
Traditionally, fashion was 70% of store sales but with the introduction of appliances accounted for 60% and fashion only 40%.
Decker wondered why Macy was concerned as overall store sales increased significantly.
Q: why do you think Macy was concerned?
· Was Macy measuring success using an outdated metric?
· The question we must pose is how should we measure the success.
o The degree of success is only relevant based on the metric.
o What if we are looking at the wrong metric?
o This begs another question what is the right metric?
· If we are constantly changing the metric then how can we establish comparisons? Trends.
· But if the environment is rapidly changing then should we be using past data to predict the future?
· Does the metric help use determine when the source of the unexpected success is a trend or a fad?
· JB Say noted that entrepreneurs shift resources from low to high productivity areas.
o If so the, Macy should move more store assets to appliances?
o More store space, more advertising, more sales people.
o Does this mean he should give up the fashion focus?
o What about Louis Vuitton or YSL moving to watches?
· If we use net revenue as our metric can we naively lose our focus and be chasing a fad or do we blindly follow the traditional path?
· We will focus more on this when we get to Financial Measurements.
o Long terms vs short term
o Local vs global metrics
· Using current metrics will seek to optimize by focusing resources on the current products.
· The result is that we may miss opportunities by not placing the correct emphasis which will allow us to be successful in the future.
o Remember the concept of life cycle.
o What is the right mix of resources?
o That is the tough question.
· The answer will drive which method of innovation we will utilize.
· This analysis of metric success sources relates also to traditional and non-traditionalcustomers and uses.
· This also applies not only to the product but to byproducts and waste.
Go to examples on slide
THE UNEXPECTED FAILURE
Let’s say that we do make a mistake.
The mistake could be in the product development, timing of release, wrong structure, misunderstanding of customer needs.
Q: Does a failure provide an opportunity?
There is a philosophy in US entrepreneurship.
“Fail Fast, Fail Cheap”
Q: What does this mean?
Q: what does a failure provide us?
· We learn either how to do something or how not to do something from every event.
A failure is simply telling us how not to do something.
· The trick is to find out what is not being done well.
· It can be the product/service, the marketing, the pricing, new competition or a change in customer demand.
Example: Edison statement on making the light bulb.
Q: Why do we sometimes not recognize we are moving down the wrong path?
I taught a class on Decision Making under Uncertainty. In the class I ask students if they are bias? Most indicate No.
But a bias is based upon beliefs as the result of experience or information gathered from someone we respect.
This bias causes us to minimize the impact of results that do not match what we had expected, a failure.
o Like picking a stock and staying with it even though the metrics say otherwise
o Remaining in a relationship even though both it is going nowhere
o Sunk cost
There are two types of bias associated with this believe.
1. We do not wish to say that we are wrong. (ego)
2. We only gather and accept data that supports what we believe. (data bias)
To avoid these biases, we need to establish a clear metric on how to establish success.
o Stick to it
Innovation metrics could be defined as our systematic review of this failure relative to our bias to see if this result changes our belief.
Innovation is more than just research; it is an onsite investigation of the causes of the failure, according to Drucker.
THE UNEXPECTED OUTSIDE EVENT
Another cause of a failure is a change in the competition or environment.
· This outside event could be caused by a competitor, new invention that indirectly competes, change in customer perception, global/national/local event.
Examples:
o Computers
Tablets and books
Russian products, due to Ukrainian issue
o Oil embargo in the 70s, smaller cars
o Hijacking an airline; resulted in innovation in bullet proof doors
o New coke, 1985.
· Can the event impact small businesses?
o New stadium
o New trail
o Cross state bicycle ride – RAGBRAI
o New law on smoking
In US, heaters and shelters for patios
· Each disruption can be an opportunity
o Flooding
o Conversation of one product or service to meet a unique need.
o Develop examples of need and how could you meet those needs using an existing product or service. (class exercise)
§ Who is impacted?
§ What do they need?
§ What are the traditional sources?
§ What alternate sources could be developed?
Source 2: Incongruities
Definition: the difference between what is and what "ought to be"
What is and what everyone assumes it to be.
The recognition of an incongruity is the potential for an opportunity.
These differences are typically qualitative not quantitative
Q: what is meant by this statement?
Qualitative reviews are based on metrics that are measuring the customer views our current products, processes and trends.
If the market changes then these qualitative metrics may not show it.
To see this change requires surveys, talking with customers.
Quantitative can also lead to wrong conclusions if the constraints and variables of the equation
There are several kinds of incongruity
1. Between the economic realities of an industry
2. Between the reality of an industry and the assumption about it
3. Between the efforts of an industry and the values and expectations of its customers
4. Internal within the rhythm or the logic of a process
Incongruous Economic Realities
Issue is what is perceived as a positive change in the economy may not result into a positive outcome for our company, if the traditional thinking and actions are used.
Bigger is more capable of handling increased industry demand
- Steel mills and mini mills
- Paper mills
Why would a rising demand not result into higher profitability.
Could be because an external macro force such as the economy is the barrier
- By increasing labor it moves you to a different status regarding labor laws
- Demand is international and tariffs and gov’t trade regulations
- Need to find a non-traditional solution such as a merger, partnership, new interpretation of the laws
Another could be because the industry is at a max level and any new demand requires added capacity which is a costly step function.
I.e. Marginal Cost is not linear to the increased demand
Example: if you have a bakery which can produce 300 loaves of bread a day. If you have an increase in demand you will need to buy another oven, added shelves maybe another store. All adds costs which reduces your profitability.
But if you can find a way to reduce the baking time or eliminate a step then you can use the same equipment but gain added yield.
Incongruity between Reality of an industry and the assumptions about it.
This incongruity relates to placing effort in the wrong place when faced with an issue.