Innovation and

Entrepreneurship
Practice and principles

Peter f. drucker(1985)

Contents

Preface
Introduction: The Entrepreneurial Economy
The Practice of Innovation
The Practice of Entrepreneurship
Entrepreneurial Strategies
Conclusion: The Entrepreneurial Sociality

The Practice of Innovation

Systematic Entrepreneurship
Purposeful Innovation and the Seven Sources for
Innovative Opportunity
Sources: The Unexpected
Sources: Incongruities
Sources Process Need
Sources: Industry and Market Structures
Sources: Demographics
Sources: Changes in Perception
Sources: New Knowledge
The Bright Idea
Principles of Innovation

1:Systematic Entrepreneurship
Concept about entrepreneur?
Entrepreneurship, and economic theory,
social theory?
Entrepreneurship ,risk ,and methodology

Concept about entrepreneur?

Says definition: shifts economic resources
out of an area of lower and into an area of
higher productivity and greater yield.
U.S. way: one who starts his own, new
and small business.
Druckers comments: entrepreneurship
does not need small , new and economic
affairs

Druckers Concept about

entrepreneur?
Entrepreneur create something new,
something different; they change and
transmute value.
Entrepreneur see change as the norm and
as healthy.
The entrepreneur always searches for
change, responds to it, and exploits it as
an opportunity

Entrepreneurship and economic

theory, social theory?
Entrepreneurship rests on a theory of economy
and society
Joseph Schumpeter: dynamic disequilibrium
brought on by the innovating entrepreneur
,rather than equilibrium and optimization, is the
norm of a healthy economy and the central
reality for economic theory and economic
practice.
Entrepreneurship pertains to all activities of
human beings, including business, economic
and social sphere

Entrepreneurship ,risk ,and

methodology
Entrepreneurship, it is commonly believed, is
enormously risky
Entrepreneurship is risky mainly because so few
of the so-called entrepreneur know what they
are doing. they lack methodology
Entrepreneurship does need, however, to be
systematic, to be managed. Above all ,it needs
to be based on purposeful innovation.

2:Proposeful Innovation and Seven

Sources for Innovation

About innovation?
The theory and practice of innovation?
Systematic innovation?
The seven sources of innovative
opportunity?

About innovation
Innovation is the specific instrument of
entrepreneurship. It is the act that endows resources
with a new capacity to create wealth
Whatever changes the wealth-producing potential of
already existing resources constitutes innovation
Innovation does not have to be technical, it is also an
economic or social term
Innovation can be defined as changing the yield of
resources, or defined in demand terms rather than in
supply terms, that is as changing the value and
satisfaction obtained from resources by the consumer

The theory and practice of

innovation?
Theory: we can not yet develop a theory
of innovation
Practice: we know enough to develop, but
still only in outline form

The theory and practice of

innovation
We already know enough: when, where,
and how one looks systematically for
innovation opportunities
And how one judges the chances for their
success or the risks of their future

From Invention,Research to
Innovation
Invention: one of the great achievements
of the nineteenth century was the
invention of invention.
Invention was mysteries ,resulted from
flash of genius

From Invention,Research to
Innovation
Research:by1914,the time WW1 broke
out, invention had become research
Research is a systematic, purposeful
activity, which is planned and organized
with high predictability both of the results
aimed at and likely to be achieved
Something similar now has to be done
with respect to INNOVATION ,i.e.
systematic innovation

Successful Entrepreneur and

Systematic innovation?
Successful Entrepreneur have to learn to
practice systematic innovation
Successful entrepreneur do not wait until the
Muse kiss them and gives them a bright idea;
they go to work, they try to create new and
different values and new and different
satisfactions, to convert a material into a
resources ,or to combine existing resources in
a new and more configuration
And it is CHANGE that always provides the
opportunity for the New and Different

Systematic innovation
The overwhelming majority of successful
innovation exploit change.
Systematic innovation consists in the
purposeful and organized search for
changes, and in the systematic analysis of
the opportunities such changes might offer
for economic or social innovation

Systematic innovation
The discipline of innovation (and it is the
knowledge base of entrepreneurship) is a
diagnostic discipline: a systematic
examination of areas of change that
typically offer entrepreneurial opportunities
Systematic innovation means monitoring
seven sources for innovative opportunities

The seven sources of innovative

opportunities
The unexpectedsuccess, failure, or event
The incongruity-reality as it actually is, assumed
to be, and ought to be
Innovation based on process need Changes in industry structure or market
structure that catch everyone unawares Demographics (population changes)
Changes in perception, mood, and meaning
New knowledge, both scientific or nonscientific

The seven sources of innovative

opportunities
The first four sources lie within the
enterprise, and are visible primarily to
people within.
They are highly reliable indicators of
changes that already happened or can be
made to happen with little effort

The seven sources of innovative

opportunities
The seconded three sources involves
changes outside the enterprise or industry
The seven sources require separate
analysis, for each has its own distinct
characteristic

3:Sources:The Unexpected
The unexpected success
The unexpected failure
The unexpected outside event

The unexpected success

Offered the most richest opportunities for
successful innovation ,with less risky and
less arduous
Yet the unexpected success is almost
totally neglected

The unexpected success

The first thing is to ensure that the
unexpected is being seen. It must be
properly featured in the information
management obtains and studies

The unexpected success

Management must look at every
unexpected success with the questions:
(1)What would it mean to us if we
exploited it?(2)Where could it lead us?
(3)What would we have to do to convert it
into an opportunity? And (4)How do we go
about it?

The unexpected success

The unexpected success is an opportunity;
it demands innovation .It forces us to ask,
What basic changes are now appropriate
for this organization in the way it defines its
business? Its technology? Its markets?
If these questions are faced up to ,then the
unexpected success is likely to open up
the most rewarding and least risky of all
innovative opportunities

The unexpected failure

If something fails despite being carefully
planed, designed and conscientiously
executed ,that failure often bespeaks
underlying change, and with it, opportunity
The assumptions on which a product or
service, its design or its marketing
strategy, were based may no longer fit
reality. Any change like this is an
opportunity for innovation

The unexpected failure

The unexpected failure demands that you
go out look around and listen.
It is equally important to watch out for
unexpected event in the suppliers
business, and among the customers
Failure should always be considered a
symptom of an innovative opportunity, and
taken seriously as such

The unexpected outside event

The unexpected outside event are often more
important
It is a condition of success in exploiting the
unexpected event that it must fit the knowledge
and expertise of ones own business
But exploiting the unexpected outside event
appears to be something that particularly fit the
existing enterprise ,and a fairly sizable one at
that

4:Sources:Incongruities
Incongruous economic realities
The incongruity between reality and the
assumptions about it
The incongruity between reality and the
assumptions about perceived and actual
customer values and expectations
Incongruity within the rhythm or logic of a
process

5:Sources:Process Need
Need is a major innovative opportunity
Process need exists within the process of a
business, an industry ,or a service
It perfects a process that already exists,
replaces a link that is weak, redesigns an
existing old process around newly available
knowledge.
Incongruities and demographics may be the
most common causes of a process need

Five Basic Innovation Criteria of

Process Need

A self-contained process
One week or missing link
A clear definition of objective
That the specification for the solution can
be defined clearly
Widespread realization that there ought
to be abetter way. that is, high receptivity

Three important caveats

The need must be understood
We may even understood a process and
still not have the knowledge to do the job
The solution must fit the way people do
the work and want to do it

6:Sources:Industry and Market

Structures
The automobile story
The opportunity
When industry structure changes

6:Sources:Industry and Market

Structures
Industry and market structure sometimes last for
many ,many years and seem completely stable
Actually ,market and industry structure are quite brittle.
One small scratch and they disintegrate, often fast
When this happens, every member of the industry has to
act
To continue to do business as before is almost a
guarantee of disaster
A CHANGE IN MARKET OR INDUSTRY STRUCTURE
IS ALSO A MAJOR OPPORTUNITY FOR INNOVATION

The opportunity
A change in industry structure offers
exceptional opportunities, highly visible
and quite predictable to outsiders
But the insiders perceive these same
changes primarily as threats
The outsiders can thus become a major
factor in an important industry or area
fast ,and at relatively low risk

When industry structure changes:4

indicators
The most reliable and the most easily
spotted of these indicator is rapid growth
of an industry
By the time an industry growing rapidly
have doubled in volume, the way it
perceives and services its market is likely
to have become inappropriate

When industry structure changes:4

indicators
Another development that will predictably
lead to sudden changes in industry
structure is the convergence of
technologies that hitherto were seen as
distinctly separate
An industry is ripe for basic structure
change if the way in which it does
business is changing rapidly

Industry and Market Structures

Innovations that exploit changes in industry structure are
particularly effective if the industry and its markets are
dominated by one very large manufacture or supplier or
by a few
Again and again, when market or industry structure
changes, the producers or suppliers who are todays
leaders will be found neglecting the fastest-growing
market segments
The new growth opportunities rarely fit the way the
industry has always approached the market, been
organized for it, and defines it
The innovator in this area therefore has a good chance
of being left alone