Peter Drucker's Seven Sources of Innovation

This post will focus on the “Seven Sources of Innovation” derived from Peter Drucker’s Innovation and Entrepreneurship (1987). Drucker classified seven specific opportunities which came to be known as the “Seven Sources of Innovation”.  Drucker theorized that systematic innovation was achieved through monitoring the seven sources to identify opportunities for innovation. The sources are organized in order of importance: the first four describe sources WITHIN the organization whereas the final three represent external changes OUTSIDE the organization.

1. The Unexpected: This describes unexpected successes, failures, or external events that shift business. Competitive advantage is obtained through analysis of why competitors achieve unexpected success in a certain market sector.
   
   $  Example: Marriott Restaurant Chain
   Originally, Marriott operated as a restaurant chain owning such companies as Big Boy Burgers and A&W Root Beer before finding success as a hotel chain. Management observed an unexpected success in terms of total monthly revenue observed from a Washington, D.C. franchise. Upon further investigation, Marriott equated the National Airport across the street from the franchise as the root cause of high profit margins. The company approached Eastern Airlines leading to collaboration for the first airline catering business in 1937 (Swaim, 2011). With cuts in hospitality budgets, many airlines removed catering as a standard passenger service. It is because of these budget cuts that the New York Times reports Marriott was forced to sell this catering business in 1989. At this time, Marriott refocused its strategy on hotel business and acquired franchise opportunities.
   http://www.nytimes.com/1989/07/12/business/company-news-marriott-to-sell-air-catering-unit.html
   
   
2. The Incongruity: Is the variance between actual reality and perceived/assumed reality. Competitive advantage can be developed by identifying gaps of missing information in how a customer should use a product.

    $  Example: Scotts Snap Spreader

   
   
   The Scotts Company was able to capitalize upon the incongruity that consumers did not know the right techniques for a perfectly even fertilizer application. As a result, Scotts began to manufacture Spreader systems which easily and mechanically released a specified amount of fertilizer in the exact preferred location of the consumer. Recent innovations of the system have led to the Scotts Snap Spreader which is equipped with Edge Guard technology for a more direct spreading stream and a Snap in place mating relationship with a new fertilizer line. Not only did Scotts create the Spreader equipment, the new fertilizer line specially manufactured for the equipment offers unique SKUs. The exclusivity of the mating brand allows for steeper profit margins with selling price markups.
   http://www.scotts.com/smg/templates/index.jsp?pageUrl=snap1pg
   
   
3.  Innovation based on Process Need: Based on specific tasks within a business rather than overall operating strategy. This identifies the missing link in an existing process. In lean manufacturing this is usually described as a Kaizen Event, Japanese for “for good”.
   $  Example: Groupon
   Groupon showed innovation in the process of getting consumers competitive deals and coupons. With the easy and friendly user-interface of the website, Groupon has revolutionized the way businesses think about advertising and the way customers retrieve deals. I personally partake in far more coupons and deals, which amounts to spending more money at local businesses, since joining the Groupon community.
   http://blog.thansys.com/2011/06/14/innovation-process-vs-product/
   
   
4. Changes in Industry Structure or Market Structure: These changes are supposed to catch the market and industry unaware in order to inflict a large impact. This can describe a shift in marketing towards a specific subgroup of your consumer base as well.
   $  Example: McDonalds
   Recently, McDonalds has announced a market shift away from the fat-laden image of the past to more health-aware campaign to raise market advantage and stock value. The new campaign “Favorites under 400 calories” highlights the more health-conscious choices of the Value Menu and from the general menu at large that fall at or below 400 total calories. McDonalds hopes this marketing campaign will help to expand it customer base. Previously, McDonalds used this strategy to focus advertising on inner-city consumers with the launch of their Dollar Menu years ago. Convenient, fast, and cheap offerings began to outnumber the meal options at all fast food chains, specifically McDonalds. Shifting to lower price points allowed McDonalds to become the leader in fast food revenue as well as the probable cause of the rise in American obesity rates in inner-city communities nation-wide.
   http://www.foodservice.csnews.com/top-story-mcdonald_s_to_shift_focus_to_value_menu-1265.html
   http://magazine.foxnews.com/sites/magazine.foxnews.com/files/styles/1600_image/public/menu_raw.jpg
   
   
5. Demographics: This pertains to changes in the population’s size, age, employment, education, location, income, occupation, etc.
   $  Example: Proctor & Gamble
   Proctor & Gamble is using demographic innovations are a core mantra for their marketing and product development strategies. Specifically the company focuses on three main consumer groups for innovative R&D: (1) aging consumers; (2) wellness-focused population; (3) direct consumers managing personal health. P&G states that these three demographic super-groups are prevalent to both developed and developing markets offering a breadth of potential consumers. The company will monopolize marketing efforts towards these groups in hopes to optimize market shares and position versus competitors.
   http://www.pg.com/en_US/downloads/company/purpose_people/touching_lives_improving_life.pdf
   
   
6. Changes in Perception, Mood and Meaning: In lean manufacturing, this is described as the paradigm-shifting culture change that occurs when trying to obtain organizational buy-in.
   $  Example: Wegman’s Stores
   Wegman’s Supermarkets offer a new type of experience for the regular grocery shopper. These stores are equipped with an in-house hot food service area, full wine and beer emporium, organic and natural foods along with all your normal grocery needs. The exclusivity of few locations along with excellent service level and added customer amenities allow the company to charge a certain surcharge on products. The extra value for consumers translates into higher revenue in terms of hot take-out food sales for example. For classmates around WPI, there is a new Wegman’s location in Northboro, MA, that was featured on the Phantom Gourmet for its take-out food just to paint the picture of exclusive consumer charms. I’d recommend taking a shopping trip in Northboro if you haven’t checked it out yet! In addition, Wegman’s was ranked at #4 on the 100 Best Companies to Work at in 2012 by CNN (see link below) adding to the new view of grocery shopping.
   http://www.wegmans.com/webapp/wcs/stores/servlet/StoreDetailView?langId=-1&storeId=10052&catalogId=10002&productId=718491
   http://money.cnn.com/magazines/fortune/best-companies/2012/snapshots/4.html
7. New Knowledge: Technology and Scientific Findings are included in this category. Recent innovations in the nanotechnology and biotechnology fields are mostly due to innovations in new knowledge.
   $  Example: Google
   With the innovation of the new search algorithm (PageRank) which ranked results based on citation theory, Google offered an innovative approach for consumer input search. Simplicity and user-friendly design quickly propelled Google and its new technology to the top of the list of all search engines. This consumer base growth allowed Google to expand into a wide variety web services provider today with such application as Music, Photos, News, Magazines, Mobile Phone Firmware, Calendars, Forums, Web Site Design, Social Networking and much more.
   http://innovationsimple.com/web-marketing/search-engine-marketing/google-pagerank/

The examples offered are my deductions from recent research. I am curious to learn what my fellow classmates provide as evidence from current culture. A lot can – and should – be learned from past business. Best practices as well as examples of failure can help to offer a set of operating parameter to avoid or strive for when starting a new business. One thing has been highlighted as an important theme so far in our readings: it is vitally important to follow through and complete due diligence in research before embarking on a new entrepreneurial journey. Learning how to monitor and optimize Drucker’s “Seven Sources of Innovation” would help to set a new venture up for successful systematic improvement for long term business sustainmen

If anyone is looking for more research, I found the follow sources useful in preparing this post:

Peter Drucker's Seven Sources of Innovation. (2006, April 30). Retrieved September 09, 2012, from Snake Coffee Blog: http://snakecoffee.wordpress.com/2006/04/30/peter-druckers-seven-sources-of-innovation/

7 Sources of Innovation (Peter Drucker). (2007, July 31). Retrieved September 09, 2012, from Innovation Management:http://www.innovationmanagement.org/Wiki/index.php?title=7_Sources_of_Innovation_(Peter_Drucker)

Seven Sources of Innovation. (2010, October 11). Retrieved September 09, 2012, from Startupwithme.com: http://startupwithme.wordpress.com/2010/10/11/seven-sources-of-innovation/

Drucker's Seven Sources for Innovative Opportunities. (2012). Retrieved September 09, 2012, from Frances Hesselbein Leadership Institute: 

http://www.hesselbeininstitute.org/knowledgecenter/seven_sources.html

Daniel Lock Consulting. (2010, March 02). 7 Sources of Innovation. Retrieved September 09, 2012, from Strategic Innovation Newsletter: http://daniellock.com/newsletters/strategic-innovation-newsletter-march-2010-7-sources-of-innovation/

Swaim, R. W. (2011, February 01). Failure and the Seven Sources of Innovation. Retrieved September 09, 2012, from The Drucker Perspective from Process Excellence Network.: http://www.processexcellencenetwork.com/organizational-strategies-for-innovation-continuou/columns/failure-and-the-seven-sources-of-innovation/

Tetem, D. (2012). Peter Drucker on the Seven Sources of Systematic Innovation. Retrieved September 09, 2012, from Tetem.com Blog: http://www.teten.com/blog/2010/01/13/peter-drucker-on-the-seven-sources-of-systematic-innovation-2/