Innovation: Drucker's 7 Sources of Innovative Opportunity

Sources Within the Business or Industry

1. Unexpected Successes or Failures

            Whether the unforeseen, unanticipated success or failure of a product or service happens within your own firm or that of your competitor, analysis of the situation provides an opportunity for learning.  Understand why was it successful, so you can build upon it or improve your own product offerings to be more competitive in the market.  If there was failure, why was it not accepted?  What was the consumer expecting or demanding that they did not receive?  What variation of this product would be desirable or what other market segment should be targeted instead?

2. Incongruities between reality as it actually is and reality as it is assumed

            We are talking about discrepancies between what is and what we think it ought to be.  This can be differences in perception between what the customer's expectations and value for the product is versus what the manufacturer of the product believes the customer's expectations are.  If suppliers in the marketplace fail to discern this difference, then the opportunity arises for a new entrant to the market to provide an alternative that narrows this disparity and becomes more attractive to the consumer.

            Example:  When our firm opened in 2003, management thought our customers would value delivery of products by our uniformed drivers.  We purchased a fleet of trucks, put logos on them and set up daily routes to service our 500 customers.  After operating 5 years in this manner, a significant downturn in sales forced us to re-evaluate our delivery service.  We started utilizing FEDEX and LTL carriers, then eliminating drivers and trucks in specific territories.  Not only did we find that our customers did not care at all who delivered their merchandise (zero value), but actually preferred receiving shipments via FEDEX, because it was almost always guaranteed to arrive before noon.  Many of our customers were always at the tail end of the delivery route, getting their product at 3 or 4pm.  The innovation in this case was a dramatic change in delivery method, which in the end saved the company money and provided our customers with better service.

3. Process Needs

            When looking at the process of how things are done, opportunities lie where there are ways of doing it better and the customer sees value.  This may include improvements to existing products or services, that make it easier for the consumer to use.  The streamlining of a process a consumer must go through to purchase your product, resulting in a more cost efficient procedure for the company and a happier customer, would be another example.

4. Changes in Industry and Market Structure that catches everyone unaware

            Changes in customer taste or preferences usually will prompt changes in the industry.  Whether or not these changes are long term or just a fad may not be known in the beginning.  Perceiving and understanding where customer demand is moving away from the norm and why will provide the opportunity to capitalize by introducing new products or services that meet this new or varied need, not yet discovered by the industry as a whole.

Sources Outside the Business or Industry

5. Changes in Demographics

            Evaluating existing demographics or shifts in the statistical data of a given population, whether based on age, sex, race, disposable income or education, can provide opportunities for innovation.  Over the years as more women have received higher education and entered the workforce, they now have more disposable income and more independence than in the past.  This increases the purchasing potential of this market, allowing for more products that are tailored specifically towards women and their preferences.

6. Changes in Perception, Mood or Meaning

            This refers to changes in how customers perceive a product or service.  This can be influenced by a combination of economics, a change in values, etc. 

            Example:  Before gas prices escalated to $4+/gallon in 2008, consumer demand for large SUVs was extremely high.  They valued such automobiles for their capacity to carry a family in luxury and safety.  They were spacious and powerful, capable of hauling boats and trailers.  Once gas prices rose above a certain level, consumers perception of this product changed drastically.  They were considered gas hogs and bad for the environment (not a concern before).  Certainly there were those on the cusp who could barely afford these vehicles and the significant increase in the cost of fuel made it financially impossible or impractical.  However, people who used to drive Hummers typically had more than enough disposable income to afford the increase.  Their image as a Hummer owner was tarnished by the change in perception of society as a whole, making it now less undesirable.  It no longer gave them stature, but rather shed a negative light on them.

7. New Knowledge, Scientific and Unscientific

            New discoveries in technology or the sciences can provide opportunities for innovation.  The question is how long it will take to develop this knowledge into a viable, marketable product.  What are the costs involved and do you have the capital or infrastructure to take advantage of the opportunity?