d Br oO yB8 2 Bao sqcZza> pero aN mS aes eed 25% ieee "2 wand 4 Malad RAI DEEP XEROX CENTER HINO FAI EGE R K.MLC COLLEGE MOBILE: 8130462424,9711492324cee int s¥ematc wrk teat na Preneurship in fc, par ofthe executive's jo is a practical book, but its nota “how th the what, when, and why. ns; opportunities sid risks; stefing, compensation, and rewards, ag Innovatiotrand entrepr heading’: The Pract ” book, Inste Such tangibles as polices eneurship are discussed under three main eof | Innovat and Entrepreneurial Strategies, Each of these ig an and entrepreneurship rather than a stage, of Lnnovation presents innovation alike a ine It shows fist where and how the entre- vii Structures and strategies, Ep XEROX! ssTATIONARY SHOP. ee ing Available | 5 Alissedee tea PRADE! Ecological Niches ‘Changing Values and Characteristics Conclusion: The Entrepreneurial Sociery Suggested Readings Index About the Author Boos by Peter F. Drucker Credits Copyright About the Publisher 209 cep XERON! RAD! any sHOP STAN Hindu Coleg, jzable 324 712490 0462424 a+ ancopiLe: 8254i : PREPAC hen they have been tested, vali: than twenty years of my own con: ns has been involved fined, and revised in more t tech” -ones suc insurance companies; “world-class” banks, both Ameioey ad European; one-man startup ventures; regional wholesalers of buildin products; and Japanese multinationals. But a host of "non also were included: several major labor unions; major comm jons such as the Girl Scouts of the U.S.A. or CARE. t international relief and development cooperat 2 few | iversities and research labs; and rel 2 diversity of denominations Becauge this book tice, 1 was able to use act both of the right and the wrong pc name of an i Is years of observation, study, and prac- sases,” examples and illustrations n itself has disclosed the story. Otherwise organizat whom I have worked remain anonymous, as has been my prac- in all my management books. But the cases themselves report actual events and deal with actual enterprises. Only in the last few years have writers on management begun to {tention to innovation and entrepreneurship. I have. been my management books for decades. pay much entirety and in systematic forty, This is surely'a fi be accepted as a topic rather than the last word—but I do hope it wi seminal work. 1 Claremont, California Christmas 1984 EEbOL ‘vErZOvOELE zsL ~ corimon : in the marketplace. SUCRE he aa flanked by an Introduct "> elates them to society. 0 a viable busi- ive idea int po’s and Dont’s of developing an innovative idea 4 o's and Dons : ' the institu- fessor service. ship, focuses 0” Entrepreneus reneurial Par The Pate ot Ergon. dea vce ae are iting BUSIRES: CO ee service, t0 be @ 3 sa esp entepreneur? HOW nice and staff for entre” successful entrepreneur? What are the ih a discussion of in : ns. = k be | takes? The section con: their roles and vidual entrepreneurs, | Part Ill, Entrepreneurial Strategics» '2 innovation successfully to market. The test of an innovelcr» not its novelty, its scientific content, or its cleverness. ‘by a Conclusion that ‘These three parts are fl vation and entrepreneurship to the economy, and Entrepreneurship is neither a science nor an art. [tis a practice. It has a knowledge base, of course, which this book attempts to present in organized fashion. But asin all practices, medicine, for instance, oF engineering, knowledge in entrepreneurship is 2 means to an end. Indeed, what constitutes knowledge in a practice is largely defined by the ‘ends, that ice. Hence a book like this should be backed by long years of practice. ‘My work on innovation and entrepreneurship began thirty years ago; in tye mid-fifties. For two years, then, a small group met under my leadership at the Graduate Business School of New York every week for a long evening's seminar on Innovation The group included people who were just ir own new ventures, most of them successfully. It book publishers; pharmaceuticals; a worldwide charitable or; c y rganiza- ton, the Catal, Aehaoees ‘of New York and the Presbyterian ‘The conceptssand ideas developed in this seminar wer : Te test its members week by week during those two years in their cana Moasisil S Ie$e é tc ESE ELE b Introduction: The Entrepreneurial Economy 1 4 Since the mid-seventies, such slogans as the “deindustrialization of America,” and a longrtenn “Kondeeret ‘S{2enation of the economy" have become popular and are invoked se iCaxioms. Yet the facts and figures belie every one of these slogave ‘What is happening in the United States is something quite differeat « Profound shift from a “managerial” to an “entrepreneurial” economy, In the two decades 1965 to 1985, the number of Americans over sixteen (thereby counted as being in the work force under the eon: ventions of American statistics) grew by two-fifths, from 129 to 180 million, But the number of Americans in paid jobs grew in the same period by one-half, from 71 to 106 million, The labor force growth ‘Was fastest in the second decade of that period, the decade from 1974 to 1984, when total jobs in the American economy grew by a full 24 million, : ‘ In no other peacetime period has the United States. created ais many new jobs, whether measured in percentages or in absolute num. bers. And yet the ten years that began with the “oil shock” in the late fall of 1973 were years of extreme turbulence, of “energy crises,” of the near-collapse of the “smokestack” industries, and of two siz Zable. ns, reste American development is unique. Nothing like it has happened yet in any other country. Westem Europe during the period 1970 to 1984 actually lost jobs, 3 to 4 million of them. In 1970, westem Europe still had 20 million more jobs than the United Statas; in 1984, it-had almost 10 million less, Even Japan did far less well in job creation than the United States. During the twelve years from 1970 through 1982, + “the no-growth economy.”‘bev29bOETS ‘ABO 3931109 I'W'YR-2937109 NONIH YILN3D XOUIX dIIGVud veerevrtce' spRpNRURIAL ECONOMY fe ENTREE | 3 67 grace umber of schoolteachers has umes mere 10 percent, that is, at less tha topped in the as sch : wake of thi ool enrol bs in Japan grew by @ Univers eae of the ear ste eve declining. Ana in since then, employment thats! 1s performance in ereating jobs during the seved early eighties, even hoy ‘ pan oane rice eso ran counter to what every expert Ie Seen Tmillion new jobs; we have created 40 million or mare fet a permanent job shrinkage of nal employing ins these ne bai ae by small and medium-sized inst reel acts peat uy on ee ea tere ed in the United States every year now—abor aaa t labor force a go, The Jrowth, fo be unable to provide jobs soa ‘o were going to reach work- jes—the first large cohorts of 1949 and 1950. Actually, hat number. For—some- 3 mid-eighties, every other married woman wi seve as were started in each ofthe boom years ofthe fifies and sation : “folds a paid job, whereas only one out of every five did so in 1970. : ‘And the American economy found jobs for these, many cases u ' far better jobs than women had ever held befo ‘And yet “everyone knows” th ‘were periods of “no growth,” of stagnat y, “high tech” But things ae not thsi Amerie because everyone me bs created since 1965 i the growth areas in the twenty-five years after World War Faan ry, gh technology did not contibute more ts that came to an end around 1970. High tech thus contributed no more than “smokestac In those earlier years, America’s economic dynamics centered in additional jobs in the economy were generated elsewhere, And only one institutions that were already big and were geting bigger: the Forune | or two out of every hundred new businesses—a total of ten thousand a county's largest businesses: governments, whether year—are remotely “high-tech,” even in the loosest sense of the term. the large i i a everybody the years 4) We are indeed in the early stages of a major technélogical a transformation, one that is far more sweeping than the most ecstat- . 5 ” yet realize, greater even than Megatrends Al the np jobs provide in the American economy in the quarter ire Shock. Three hundred years of technology came to an . century dfter World War Il. And in every recession during this period, end after World War I Dyring those thee entries ‘the model for jo loss nd unemployment geared predominantly i small c one: the event ions and, of course, mainly in small businesses. Senn es Thue period bagen when But since the late 1960s, job creation and job grawth in the star such as the sun. This.period began * envisaged United States have shifted to a new sector. The old job creators unknown French physicist, Denis Papit al Sites ave chia a a a 'd 1680. They ended when we rej ave, actually last jobs in these last twenty years. Permanent =< engine aroun : ide a star. For these jobs (not counting recession unemployment) in the Fortune $00 ¥ nuclear explosion the events inside a SF ft" - hhave been shrinking steadily year by'year since around 1970, at advance in technology meant as it dees in irs, Since the first slowly, but since 1977 or 1978 at a pretty fast clip. 1 es--more speed, higher temperatures, higher pressures. Hines Tied" the pore 300 bad lost perme . a end of World War Il, however, ‘the model of in jobs, And governments in Ame! yw employ fewer > tioned in the test will be found inthe index than they did ten or fifteen years ago, if only-because the «The dates ofall persons mentioned in i £x daIGvEd ‘vevesvOELs ‘AGOW 3931109 IW" 3937109 NANIH YILNaS XOUR wzeteprtce SSE St : 7 T do not mean to imply that there are no economi no economic: gers. Quite the contrary. A major shift in the techn roblems or dan- in century surely presents tremendous problems cere , and political. We are also in the throes of a majer political great twentieth-century ith the attendant danger of an uncontrl or Mexico, su: i sono takcot and disastrous rth oaks pote ee global depression of 1930 proportions, And then there isthe Righter ing specter of the runaway armaments race. But at least one of the fears abroad these days, that of a Kondratieff stagnation, can be ae sidered more a figment of the imagination than reality for the United States. There we have a new, an entrepreneurial economy. Itis still to early to say whether the entrepreneurial economy will remain primarily an American phenomenon or whe westem Europe, Europe lags some ten to fifteen years behind America: boom” and the “baby bust” came later in Europe than States. Equal westem Europe some ten years later than in the Japan; and in Great Britain it has barely started y hhics has been a factor in the emergence of the.entrepre- ll Where did all the new jobs come from? ‘The answer is from anywhere source. ‘and nowhere; in other words, from no one single s ; “The magazine Inc., published in Boston, has printed each yest SE 1982 list of the one hundred fastest-growing, publicly owned Amefican companies more than five years and less than fifteen years 1° + has already happened that is ineomp: syniRtAL ECONOMY 6 inTRODUICTION: THE ENTREPRM i jobs to the Am ice) are not expected to add as many j ate 1980s and early 1990s as the id auton’ almast certain to lose. ‘But the Kondratieff theory fails tot jobs which the American econo! ie 45 be sure has so far been following the Kondratiefl Sor Bae United States, and perhaps not Japan either, SomnToe ndratieff “long wave of ey peed tat i sible with the theory of long-term to account for the 40 y did create. Western stagnation. , Nor does it appear at al the Kondratieff eycle, For ale new jobs in the U.S. economy has been in the last twenty years, depend far less on job creation. The nur ‘American work force will be up to one-third smaller,for the the century—and indeed through the year 2010—than it was in the yeats when the children of the “baby boom” reached adulthood, that js, 1965 until 1980 or so, Since the “baby bust” of 1960-61, the an they were during the ‘baby boom” years. And with ipation of ‘women under fifty already equal to that of men, additions to the ‘number of women available for paid jobs will from now on be lim- ited to natural growth, which means that they will also be down by |, about 30 percent. : For the future of the traditional “smokestack”" industries, the Kondratieff theory must be accepted as a serious hypothesis, if not indeed ag the most plausible of the available explanations. And as far ~ asthe indbility of new high-tech industries to offset the stagnation of yesterday's growth industries is concerned, Kondratieff agai deserves to be taken seriously. For all their tremendous qualitative rtance as vision makers and pacesetters, quantitatively the high- justries represent tomorrow rather than today, especially as creators of jobs. They are the makers of the future rather than the sly that we have simply postponed the next twenty years the need to crc jower than 1 eff can be considered di proven: EA discret . The 40 millon new jobs created in the U.S. economy during a “Kondratieff long-term stagnation” be explained in Kondratieff's terms. Pee tamnat be ray ny= eg |= and by a finan Ad eY 2 finance company that leases mai x Wee . the most eee eeusinesses 1 know personally, the one that has crested during the fi 4 and has also grove the two thousand new oor mente Shimslone has cre ind new jobs, most of them Exchange, only about one-eighth ofla ere Nee oes ks, The res professional, suburbs, who places « and thus looks for ic enough not to mation about the growth sectors hundred fastest-growing "mid-size" companies that commas with revenues of ion and $1 billion. This study was- conducted during 1981-83 for the American Business Conference by two senior partners of McKinsey & Company, the consulting firm:* These mid-sized growth companies grew at three times the rate of the Fortune 500 ing jobs steadily since 1970. But added jobs between 1970 and 1983 in the enti jobs in U.S, industry d es the rate of job growth mid-sized growth companies increased their employment by one full ercentage point. The companies span the economic spectrum. There are igh-tech ones among them, to be sure. But there are also financial serv- Donaldson, Lufkin & Jenrette, for instance. One of the best performers is a company making and selling living-room furi a third, high-quality the grouy household paints; @ i another one is making and marketing doughnut chinaware; a fourth, writing instruments; a fifth, was published under the ee eal Companies," by Richard E. Cavenaug! 1983 issue of the MeKinsey Quarterly. jh and Donald K. Clifford, sales and in profits. The Fortune 500 have been los- CH ET U.S. economy. Even in the depression years 1981-82 | ices companies—the New York investment and brokerage firm of cessons from America's Mid-sized Growth | TIONARY SHOP 1@, Delhi 7042223162 ling Available AllReaaing 3 10462424, PRADEEP XEROXisTa Hindu Cot) 813% ANGE 4 URN INARY SHOP 98, (MM) 813046340, Ex ‘OX/STATION NOE - PRADEE® Hindu ER 8 IVTRODUCTION: THE ENTREPRENEURIAL ECONOMY Being confined to publicly owned companies, the list is heavily biased toward high tech, which has easy access to underwriters, to stock market money, and to being traded on one of the stock exchanges of over the counter. High tech is fashionable. Other new ventures, as a rule, can go public only after long years of seasoning, and of showing profits for a good deal more than five years. Yet only ‘one-quarter of the “Inc. 100” are high-tech; three-quarters remain most decidedly “low-tech,” year after year. In 1982, for instance, there were five restaurant chains, wo and twenty health-care providers on the list, but only twenty to thirty high-tech companies. And whilst ‘America's newspapers.in 1982 ran one article after the other bemoan- ing the “deindustrialization of America,” a full half of the Inc. firms were manufacturing companies; only one-third were in services, Although word had it in 1982 that the Frost Belt was dying, Sun Belt the only possible growth area, only one-third of the 100" that year were in the Sun Belt. New York had as many of these fast-growing, young, publicly owned companies as California or ‘Texas. And Pennsylvania, New Jetsey, and Massachusetts—while supposedly dying, if not already dead—also had as many 2s and as many as New York. Snowy, Minnesota, ists for 1983 and 1984 showed a very similar dis- oth to industry and to geography. ‘women’s wear manufacturers, aye a Califomia manufacturer of physical exercise equipment for the home, ts yields the same pattern. «nent. The portfolio of one of the most successful venture cay investors does include several high-tech companies: a ew com- cchnology, and s portfolio, the new revenues and |-83, is that most mundane barbershops. And , both in sales growth and profitability, comes a chain of try offices, followed by a manufacturer of handtools next to denti PRADEEP XEROX/STATI IONARY Sup 'D 98, Hindu Cotto NEC COLLEGE MOBILE: 8130462424,9711491324 fel all saa All Res NEERIAUNEY, PRADEEP XEROX CEI‘DebZSPOETR # WH 8 O€T8 :3TIGOW 3937109 9'W'H B 3937109 NaNIH Y3INID XOUBY azzQVvala vzetevttce' EE ly lover costs, The he He Ba ine 224 Wiliam lenny Dyas eat ership of public services. Pioneering. wok in =xas—in San Antonio and in Houston, in Minneapls the Huber Huey psa ny of Mine, Cone ats Carey eas in Minneapolis bulang pub ips in education and even in the management re. |s there anything ‘other than grow ‘Since Joseph Schumpeter first pointed that what aetually happened inthe United States and in Germany inthe fifty years between 1873 and Bee The frst Kondratieff cy! ith the crash ofthe Vienna an end wit depres : trial stagnal indus allen) 0 weno THE ENTREPRENEURIAL FOND! snd publishing local newspapers re eventh produces yam forthe textile knows" that growth in the eer ethan al of hese sixth ha expanded from pi censumer marketing Services; ny, ‘amecian ‘economy is ‘exclusively ee “a a the growth sector ‘of the U.S. fusing sti Tomake things move ry vo fiezn years, while erly tone 1g number of enter- ough quite afew je in deep trouble these days. But there chains, both “profit” and faster growing are the 25 for the terminally il, ratories, freestanding surgery centers, ic “walk-in” clnies, or c2- ters for geriatric diagnosis and treatment. “The public schools are shrinking in almost every American com. decline in the total number of children of f the 1960s, a whole new In the small y afew mothers for their own children, 1 school with two hundred students going tristan” school founded a few taking over from the city of fifteen years ago and left 3¢ last five years. Continuing he form of executive manage career managers or refresher courses for I therapists, is booming; ring the severe 1982-83 recession, such programs suffered onlya short setback. ‘One additonal area of entrepreneurship, and a very important one, ig the emerging “Fourth Sector” of pub fe partnerships in which sof muna, deters perform e ‘money. But then they contract out 2 sence proton, gibagecllection, orbs taspertation 0 «private business on the bass of competitive bids, thus ensuring both rs ago by the local Ba high school bythe stagnation in the old industrigs, such as railway construction, coal mining, or textiles But this did not happen in the United States or in Germany, of indeed in Austria despite the traumatic impact of the Viennese stock market crash ftom which Austrian never quite recovered. ‘These countries were severely jolted at fist. Five years later they had polled out of the slump and were growing again, fast. In terms of “echnology”” these countries were no different from stagnating Britain or France. What explains their different economic behavior ‘was one factor, and one factor only: the entrepreneur. In Germany, for instance, the single most important ecanomic event in the years between 1870 and 1914 was surely the creation ofthe Universal Bank. Deutsche Bank, wis founded by Georg Siemens specific mission of finding entrepre and forcing upon them organized, dis EXCHANGE RETURN 0462424 STATIONARY SHOP (M) 8131 v seems to be happening in the 5 and pethaps also to some extent igh tech isthe one sector that isnot p PRADEEP XEROX/S' Hindu College, NO Xe major modem economists only Joseph Sch . yp Seed himself with the entepreneurandisipea Every economist knows that important and his impact. But, for economists, ent ip isa“meta-economic” © & oy \ event, something that profoundly influences and indeed shapes the a°.o p the world will beat a path to your door” It does not yet Br cconomy without itself being part oft. And so too, for economists, is“. - 3 = Bf oecurto them to ask what makes a mouseuap “beter” ot for who? technology. Economists do not, in other words, have any explanation Span ‘There-are, of course, plenty of exceptions, high-tech companies as to why entrepreneurship emerged as it did in the late nineteenth’ soR Q that know well how to manage entrepreneurship and inno century and as it seems to be doing again today, nor wh Bee 8 en there were exceptions during the nineteenth century, B _toone country or to one culture. Indee : 8 Siemens, who founded and entrepreneurship becomes effective are probably The causes are likely to name. There was George Westinghot inventor but em 0422 PRADEEP x snr AIL iaoadp. 7 ig, surely, ly age numbers of in the last twent f nyone looking atthe young Amaia ft ie 96 Mee iced: How do we enplai, fr instance, a 16S =< therevare such large numbers of Ped PRADEEP XEROX CENTER HINDU COLLEGE &K.M.C COLLEGE MOBILE: 8130462424,9711491324‘vebz9vOETS TGOW.393T109 JW" B. 3937109 NANIH WILNID XOURX JIIGVUE beerevttce' es 1s 1930s, there were a few major enterprises ly businesses—that pr DuPont Company an hat time most- United St agement boom+The social technology we call management was first pre sented tothe general publi including managers themselves, some forty, ago. It then rapidly became a discipline rather than the hitor-miss prachee of a few isolated true believers. And in these forty years management has had as "much impact as ay ofthe “scientfe brealchroughs" ofthe petiod-—pertaps 1 good deal more. It may not be solely or even primarily responsible for the fact that society in every single developed country has become since World le for the fat that in every developed society today the ior ity of people—and the overwhelming mao ofeduatel fet ‘employees in organizations, including of course the bosses themselves, who increasingly tend to be “professional managers,” that is, hired hands, rather than owners, But surely if management had not emerged as a systematic dis- cipline, we could not have organized what is now a socal reality in developed country: of organizations and the “employee We still have quite a bit to learn about management, admittedly, and above all about the management of the knowledge worker. But the fundamentals are reasonably well known by now. Indeed, what ‘was an esot in large companies did not in fact realize that they practiced manage- ment, now has become commonplac . 5 But by and large management until recently was seen! as being Chinese government after the Enterprise Ntanagement Agen import a Graduate Business School from the United Stats. ' * mons for long years and to ch * todevelop as a FroNoMY 4 INTRODUCTION: THE ENTREPRENEURIAL EOF fave risks rather than big oe Eis the status seekers, the “me-too- n security? Where are the hedonists, the conformists? Conversely, where are ‘we were told fifteen years ago, were turning uues,on money, goods, and worldly succes: America a “laid-back” if not pastor 3 fit in with what f explanation, it dobs no th wa thirty years—David Riesman in y in Pr epichan ‘Man, Charles Reich in The Greening of America, cr Herbert Marcuse—predieted about the younger generation. Surely the emergence ofthe entrepreneurial economy is as much a cultural an psychological as itis an economic or technological event. Yet whatever ‘are above all economic ones. attitudes, values, and above all in behavi called management. ‘What has made possible the emergence of the entrepreneurial econo- my in America i8 new applications of management: to new enterprises, whether businesses or not, whereas most * people until now have considered management applicable to existing enterprises only; to small enterprises, whereas most people were absolutely sure ly a few years ago that management was for the “big boys” jealth care, education, and so on), whereas “business” when they encounter the :: to the search for and for satisfying human Asa“usefil knowledge; the other major areas of kno techné management is the same age as cdge that underlie today’s high-tech te physics, ger or time around World War I. atuse- had « before it could become a discipline. By the late the DAR Plea hint Na a it \ mn i >of the succes: years—management was being apy hit-and- }, Mom-and-; as qu: ibsolute cleanliness f these, trai s, and friendliness, ined for them, and geared comp: rensation to ther Management is the new technology (rather than any specific new seience’or invention) that is makin, entrepreneurial economy. It is also about to make America into an entrepreneurial society. Indeed, there may be greater scope in the United States—and in developed societies generally— innovation in education, health care, government, and pol ss and the economy. And again, entrepr ty—and it is badly needed—requires above all application of the basic concepts, the basic fechné, of management to new problems and new opportunities. i i in general novation what we first did for management i years ago: to develop the principles, the practice, and the dis management, and fairly advanced management-at” ig the American economy into an * ‘This meansithat the time has now come to do for entrepreneurship 16 INTRODUCTION: THE ENTREPRENEURIAL ECONOMY confined to business, and within business, to “big busi carly seventies, when the American Management Assoc the heads of small business residents’ Course” in Manager it was told again and again: “Management? That's not for only for big companies” Up to 1970 of 1975, admi me—t , American hospital ejected anything that was labee are still saying the same thing even simultaneously complain how “badly managed” their id indeed for a long time, from the end of World War If unt rogress” meant building bigger institutions. ‘This twenty-five-year trend toward building bigger organizations in every social sphere—business, labor union, hospital, school, uni- ity, and so on—had many causes. But the belief that we knew how to manage bigness and did nof-really know how to mariage small enterprises was gurely a major factor. tt had, for instance, a great deal todo withthe lsh tovard ihe very large cowsfined Amesean hgh school was argued, “requires professional administra ‘tion, and this in tum works only in large rather than small enterprises.” During the last ten or fifteen years we have reversed this trend. In for anyone seriously sick. “The hospital, the better care we can take of ge in ‘acquired the competence and the confidence t0 stat masinesse," that, healcate tena 2 eeveeere nacinit es 8190862424,9711493324veetebTtLe'bzpzap0ETs -TEOW. 3937109 9'W'W/8. 3937109 NGNIH Y3LN39 XOURK dIzVud THE PRACTICE OF INNOVATION | Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a ferent service. It is capable of being presented as a discipline, cap ble of being learned, capable of being practiced. Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicate opportunities for successful innovation. And they need to know and to apply the principles of successful vation, ‘Bee Es L 1 Systematic Entrepreneurship 1 | “The id the French economist J. ‘shifts economic resources o1 higher product “The entrepreneur,” sai nd “entrepreneurs S, for instance, the entrepreneur is often defined as one who starts his own, new and small business. Indeed, the cout: cs in “Entrepreneurship” that have become popular ‘of late in American business schools are the linear descendants of the coutse in starting one’s own small business that was offered thirty years ego, But not every new small business is entrepreneurial or represents entrepreneurship, The husband and wife who open another delicatessen stofe-o another Mexican restaurant in the American suburb surely take a risk. But are they entrepreneurs? All they do is what has been done rhany times before, They gamble on the increasing popularity of eating out in their area, but create neither a new satisfaction nor new consumer. demand. Seen unde irs is a new venture. however, was entrepreneurshi concepts and managem customer?), standardizing t and by basing training on the analysis is 8 ie q : is perspective they are surely not entrepreneurs * did not invent‘bevCSpOELE ‘3TIGOW. 3937109 9'W'H® 2937109 naNIH UBLNED XOWRX d330viid beetevrrce' mneing arm, Upheaval is now spreadin ll. G.E. Credi in 'd Marks and Spencer have many things i large and established businesses that are to What makes them “entrepreneurial” are sp than size or growth, rie eentfepreneurship is by no means confined soleiy to eco- Ne Calter text for a History of Entrepreneurship could'be found ment of the modern univers ‘an university. The modem invention of a German diplomat and civil ser . Wilhelm von Humboldt, who in 1809 conceived and founded the University of Berlin with two clear object tak fic leadership away from the French and the energies released by the French Re ly Napoleon. Sixty years ity itself had peaked, treat ferrous 2 thi ted a new market and a new cus- isthe growing foundry started by a hus- 2 ago in America's Midwest, fo ly entrepreneuri band and wife team a few years ago land and itches for a natural gas pipeline across Alaska. The science needed is well known; indeed, the company does little that has not been done before. But in the first place the founders systematized mn: ‘they can now punch the performance ir computer and get an immediate printout of rent required. Secondly, the founders systematized the dozen pieces o: ings are being ‘effect, a flow process rather than in batches, computer-controlled machines and ovens adjusting them: selves, ‘castings of this kind used to have a rejection rate of 30 to 40 percent; iew foundry, 90 percent or more are flawless when line. And the costs are less than two-thirds of those of cheapest competitor (a Korean shipyard), even though the /estem foundry pays full American union Wi ‘What is “entrepreneurial” in this business is not that small (though growing rapi ind are distinct and separa to create “market niche” to have special char- indeed, entrepreneurs ite something new, Indeed, entrepreneurshi 8 Tong Mstory of starting new entrepreneurial businesses frase eosqo. pee EE EH EEE soon leadership in scholarship and had gamed worldwide lead- iin te of Technology ih the New in Boston Sanja Clara and Golden Gate $0 on, They have constituted a major in American higher education in the last 9 these new schools seem to differ ions in their curriculum. But they were esigned for a new and different “market"—for people ther than for youngsters fresh out of high school, for tudents commuting tothe university at ail hours er than for students living on campus and time, five days a week from nine to five; ikl Widely diversified, indeed, heterogenous back founds rather than for the 5,” and to a major shift They represent entrepreneurship, One could equally write a casebook én ent Cn the history ofthe hospital, from the fi though of course they need ra hospital in the late eighteenth eentu noneconomic) creation ofthe various forms of take risks, of course, but so” * of economic a is the com ip based ist appearance of the mod- yin Edinburgh and the “community hos They are not investors, either T does anyone engaged’ in essence of economic act Fesources to future expectations, and that means to ri Menninger 5 health-care cen iny and entrepreneur is also not an employer, but ean be and an employce—or someone who works alone and entirely by himself or herself, tory surgi ri enters where on caring for ion is eneprene the characteristics, ig marks ofthe service institution * What ' co Oy spon rates, but ao Chapter 14 ofthis Book Monagersent Tasks, Responsibilities, Prates, ap "Ont seth ston Peomance inthe Seni lt Eirepreneurship inthe Service Institution. 0 (Chspers Rucaitahles 5= ‘vebe9POET8 :311G0W. 3937109 'W'¥9 3931709 NONIH ULNID XOUIX dIa0vid beetevites' Systematic & 27 ion of technology—he was Of technology—he entrepreneurship into either hi nomic change in Marx beyond that is, the establishm rut Property and power relationships, and he! i outside the economic system itself. say Seph Schumpeter was the first major econom fay. In his classic Die Theorie der Wirtschafilichen bu Dynar ne of the best his- 1 entrepreneur and is economics. All eco n of present resources, e f ck to go back to icklung (The Schumpeter than John tet. He postulated that , normally considered “eco- inly economic criteria are hardly appropriate to deter- f education (though no one knows what other criteria, sumption and resources, whet cc between entrepreneurship whatever the sphere. ‘The entrepreneur in education and the entrepreneur in health care—both have been fertile fields—do very much the same things, use very much ‘and encounter very much the same problems as the entrepreneur in a business or a labor union, Entrepreneurs see change as the norm and as he do not bring about the change themselves. But—and 26 “rin PRACTICE OF INNOVATION , people who need certain- wellin eneprenerial challenges. Tobe sur, people who need ty, unlikely to make good entrepren. But such people are ut 1y't0 do. well in 2 host of other acti Hance orn command postions ina ofan ocean ern al uch pursuits decisions have ence of any decision is uncerainy: ee Srcnane who can face up to decision making can learn to be an eneeproveur and to behave entrepreneurially, Entepreneurshi, them is behavior rather than pers is foundation les “imeOncept and theory rather than 1 Every practice rests on theory, even if the practitioners themselves are unaware of it. Entrepreneurship rests on a theory of economy and ety. The theory sees change as normal and indeed as healthy ees the major task in society—and esp: ‘my—as doing something different rather than already being done. This is basically what Say, two hundred years ago, meant when he coined the term entrepreneur. It was intended as ‘a manifesto and ‘as a declaration of dissent: the entrepreneur upsets and disorganizes. As Joseph Schumpeter formulated it, his task is “creative destruclion.” Say was an admirer of Adam Smith. He translated Smith's Wealth ution 0 e60- f the entrepreneur and of entreprene ical ics and indeed incompatible iready exists, as does uding the Key io and weather, gov- pestilence and war, but also technology. The tra- ditional economist, regardless of school or ddesnot deny, of course, that these extemal forces exist or that they matter. But they | aTe not part of his world, not accounted for in his model, his equa- tions, or his predictions. And while Karl Marx had the keenest appre~29 one hundred new businesses on ® PRACTICE OF INNOVATION ful our out of rae Tei of ple ofthe entreprene yo ies sk Surely there are ny or WhO some Chana ad entepreneurship—the enrepreneur always searches for 00 many of , change, responds to it, and expo neursip tbe a fuke a 9 dispensation ef low-risk entrepre: mere chanee. ‘Bods, an accident, oy ‘There are also enough individual ent acu om ting average in stating new Ventures isso hiens a0UNd Whos bat : 7 of the high tisk of entre oa Entrepreneurs ‘commonly believed, is enormously risky. And, Entrepreneurship i mais oe deed, n such highly vise areas of inmovation as igh ok enn manatees Gara, ly because so few of the ts fr instance, or bogenetcs—tbe casualty rate i high sed ives ig. The ‘he chances of successor even of survival seem i 6 ‘They violate elementary and well-known ra s, Th Hn : But why should this be so? Entepreneurs, by deinen, shift Chane stteh entrepreneurs, To be sure of low produetivty and yield to areas of higher Chapter 9), tech entrepreneurship and innovation ate i iy and yield. OF course there is a risk they may - 'y more difficult and more risky than innovate based on econo! : if they are even moderately successful, the retusas shold and market structure, on OF even on somethin adequ tever risk there might be. One seemingly nebulous and intangible as Weltanschawungperceptions epreneurshi to be considerably less risky then and moods. But even highstech entrepreneurship need nate opt Indeed, nothing could be as risky as optimizing Bell Lab and IBM prove Itdocs nord bee {floes in areas where the proper and profitable course & imonee needs to be managed. Above al fee citotan besyici? uh Non, that is, where the opportunities for innovation already exist. pinposefl nmosang 0 be based on Pret atreprenersip should eth least risky rather than “i fac, there are a ‘ ion States, for instance, there i Beli Lab the innovative am of te Bell Telephone System. For more than seventy yo : from the design ofthe first automatic switchboard argued i the dengn ofthe optical fiber cable around 1980, luting Sy conductor, but also basic theoretical and So Lab produced one Boh BES ean Bees : 2824,971 91324, PRADEEP XEROX CENTER HINDU COLLEGE & K.M.C COLLEGE MOBILE: 8130462424, ° EROK! PRA oe Cote Ail Roe! 6130462424,Seven Sources un Equal ever ch tever changes already existing resources constitutes innovation jere was not much new technology involved in t 3K body off is wheels and onto a eatgo vessel he cor id not grow out of ted atl th et, did not grow out of technology at rather than which meant that whi a ‘ch meant that what re. make the time in por as shor as posible, But this wumdsum ime, tion roughly quadrupled the productivity of the ocean-going and probably saved shipping. Without it, the tremendous expat World trade in the last forty years—the fastest growth in any major conomic activity ever recorded—could not possibly have taken ing a ig device place. ‘ What really made universal schooling possible—more so than the P tment to the value of education, the systemat ing of teachers in schools of education, or pedagogic theory—was that lowly innovation, the textbook. (The textbook was probably the invention of the great Czech educational reformer Johann Amos Comenius, who designed.aud used the first Latin primers popular com 'y poor teacher can get a ity-five studel Innovation, as these example: cal, does not indeed have to be innovations can compete in terms of vations as the newspaper or insurance. Installment puying transforms economies. Whereyer introduced, it changes the econo- ven, regardless almost of the my from supply-driven to demaiid: fe level of the ecpnomy (wliich explains why installment the rrxist government com the Communists di 1959). The hospi shtenment of ci Nances in medicine. Management, that is, the “useful knowlege aevaiables man for the first time to render produetive people of Is and knowledge working together in an “organiza ‘as converted modern soci f this century. It hi something, by the way, for tion,” is an innovation of ety into something brand new, not a resource. Bacteriologists went cia aa a il 2 =— 1 Sources Purposeful Innovation and the Seven for Innovative Opportunity ‘ i fic instrument of " Entéeprenes Innovation is the speci of Barner ns, METS pga esures WS ACL Sepasiy to rele ee, creates & THROU: lc anh 8 ee ae, Un Se thing in nature and thus endows it them, st another rock. N fuer f the ground every plant is a weed and every ag ther mineral il seeping out Of he ror more than a century ago, neithe nor bauxite, the ore of aluminum, = ances; both render the soil infertile. cultures against contaminat bacteri i London doctor, Alexander Flemin “exactly the bacterial killer bacteriol the penicillin mold became a valuable resource. ‘Fhe gume hotds just as true in the social and economic spheres ‘an economy than “purchasing . power” But purchasing power is the creation of the innovating entrepreneur. : "The Americans farmer had virtually no purchasing power in the early nineteenth century; he therefore could not buy farm machinery. There were dozens of harvesting machines on the market, but how- ever miuch he might have wanted them, the farmer could not pay for them. Then one of the many harve e inventors, Cyrus McCormick, ent buying. This enabled the farmer to pay for a harve out of his future earnings rather than out of past savings—and suddenly the farmer had “purchasing power” to buy farm equipment. : 30FS ago to concentra fined entrepreneurshi 8 a modem economist woul ind terms rather than and satisfaction obtaine shift from the integrated steel mi with steel scra -mi ip rather than iron ore and ends » beams and rods, rather than raw steel best described and analyzed in sup- ind the customers are: lower, And the same then has to be fal ply terms. The end product more so, are better described or analyzed in terms of consumer 32 ‘Tit PRACTICE OF INNOVATION which we have neither political nor Social theory: a society of rBjooks on economic history mention August Borsig as the first * ‘man to build steam locomotives in Germany. But surely far more Important was his innovation—sgainst stenuous opposition from ‘raft guilds, teachers, and government bureaucrats—of what to day is the German system of factory organization and the foundation of Germany’s industrial strength. It was Borsig who devised the idea of the Meister (Master), the highly skilleg and highly respected sen- ior worker who runs the shop with considerable autonomy: and the Lehrling System (apprenticeship system), which combines pra 1g (Lehre) on the job with schooling (Ausbildung) in the room. And the twi entions of modern government by in The Prince (1513) and ofthe modern lower, Jean Bodin, sixty years later, ha impacts than most technologies. One ofthe most interesting examples of soc importance ean be seen in modem Japan, From the time she opened her doors to the modem world in 1867, Japan has been consistently underrated by we despite her successful defeats of China and ti en Rus in 1894 and 1905, respectively; despite Pearl Harbor; and despite her sud. den emergence as an econot superpower and the toughest com- petitor in the world market of the 1970s and 1980s. A major rea. Son, Perhaps the major one, is the prevailing belief that innovation has to do igs and is based on science or technology. And the Japatiese, so the common belief has held in the Wes surely had more lasting ‘Was to avoid the fates afi century China, both of which were conquered: ternized” by the West The basic ai to use the weapons of the ‘West to hold the innovation was far more crit ‘aph. And social innova ons as schools and ph 0h ope, Hai All Reading Av ica aera‘’eb29b0E18 :31IGOW. 3937109 'W'¥:R 3937109 NONIH WIINID xOUaX d33qvud beetevrice' re JF INNOVATION ' and different, Syst Poseful and org analysis of the ope or social innovai therefore consists in the pur- nges, and in the systematic 'eS such changes might offer for economic. Sure, there are innovations that in themselves consi jor fone ofthe major tecnica imvaton, such asthe Wigh ene oe plane, are examples. But these are exceptions, and fairly uncommon oxee aa innovations are far more prosaic; they exploit change, And us the discipline of innovation (and itis the know! repre neurship) is a diagnostic : mica change that typically offer entrepreneurial opportunities, ¢ Specifically, systematic innovation means monitoring seven sources fot innovative opportunity, four sources lie ‘They are therefore service sector. Th able indicators to happen with hanges that have already happened or can be made le effort: These four source areas are: : + The unexpected—the unexpected success, the unexpected fail is assumed to be or as it “ought to be’ jovation based on process need; ianges in industry structure or market structure that catch everyone unawares. z 1 i The second set of sources for innovative. opportu three, involves changes ouiside the enterprise or indust + Demographics (popul + Changes + New knowledge, bot The lines between these seven source areas of innovative opportuni ties are blurred, and there is considerable overlap between them. They can be likened to seven windows, each on a different side of;the same . ocial innov: values and consume! sp enactice OF hs atisfactions, a8 aTe SUCK 97 developed by Henry 1 's, or the money-™mar! ¢ of Ti fund of the late az “inven- rary waste “iver Se eeu atl tention was myeeius hi the time World War I broke oseful me “research,” a systematic, purposeful ers fanned and organized w figs predict bo : at and likely to be achieves : Eneepencur will have to leam to practice sstematc innovation. Secesfleaepreneus donot wait unt “the Muse kisses them” wolutionize the ake one rich dt create a overnight” Those entreprencurs who start out with the idea that ake it big—and in a hurry—can be guaranteed failure. They imost bound to do the wrong things. An innovation that looks ‘cal virtuosity; and inno- a McDonald's, for vations instance, may turn into same’ applies to nonbusiness, public-service inno ‘Successful entrepreneurs, whatever the | motivation— be it money, power, curiosity, or the desire for fame and recogni- n—try to create value and to make a contribution. Still, successful iply to improve on ‘or to modify it. They try to create new and dif- and new and different satisfactions, to convert a “mate. Tesources in a new and S. ive configuration, change that always provides the opportunity for the new11 — = Principles of Innovation 4 1 | cians have seen “mis ina inesses recover suddenly “soi neously, sometimes by going to faith healers, by ¢ absurd by sleeping during the 1 y g to some day and being up and about all extremely rare; I cases do die, after all innovations that are not stematic inanner. There are ee 4 ‘and whose innovations are . ier than of hard, orgar 1, pur- poseful work. But such innovations cannot be replated They exroot be taught and they cannot be learned, There is no known way to teach someone how to be a genius. But also, contrary to popular bel z the romance of invention and innovation, “flashes of ge a i —. “flash of geni uncommonly rare. What is worse, I know of not one such genius” that turned into an innovation. They all remained bi ideas. recorded history was surély idea—submarine or helicop- ter or automatic forge—on every single page of his notebooks. But n one of these could have been converted into an innovation with the tech- nology and the materials of 1500. Indeed, for none of them would there 133 2 “IME PRACTICE OF INNGVATION exploit, And in these areas we know how to look, what to look fos, do. All one can do for jovators who go in for bright ideas isto tell them what fo do should theit-innavation, against all odds, be suc- Tul ‘Then the rules for a new venture apply (see Chapter 15). And 1 reason why so much of the literature on entre- Starting and running the new venture rather than with innovation itself. ‘And yet an entrepreneurial economy epnnot dismiss cavalierly innovation based on a bright idea. The individual innovation kind is not predictable, cannot be organized, cannot be systematized, and fai 1c overwhelming majority of cases. Also many, many, are tri cations for new can openers, for new wi an for anything else. And in any list of new patents there farmer than can: double as a dish towel. Yet the voluime of such bright-idea innovation is 50 centage of successes represents 2 substantial source of new es, new jobs, and new performancé capacity for the economy. In the theory and practice of innovation and entrepreneurs bright-idea innovation belongs in the appendix. Bu ty can do, per- ‘hat one does, iscourage, penali discoura vidual who tries to come up with a brig innovation (by raising patent fees, for instance) and generally courage patents as " short-sighted and deleterious. nannies O8amAcdana 711401774XOWIX d3zqvud ‘3IgOW. apy ; 37109 9'W8. 3937109 nant Ua: B] URTGVITLE' bebzapoete SSPE ae CE EEC Prncoes of tmovation Bs a ies, Denogis, fr gz ro. I ices mama srem nite | : Where 8 Pose Sonam ena ne eB car enguty 0 exanee 10 someone innovating anew socel ane, : cre i ‘1 a Sources of innova eat Changing demogrpis Bat i 8 Systmatenly gues aren shld ese edind 8 Sto be organized, and i 8 ® 8 the customers, their needs are, Receptivity can be this or that approach will net frig ae of the people who have to use people who have to use it a int their opporténity?” Otherwise one ing the right innovation in the wrong f happened tote leading producer of computer programs fer learing a se excellent and effective not used by teachers scared stiff of the computer, who pereived the machine as something that, far from being helpful, threatened them. 3. An innovation, to be effective, has to be simple and it has to be shor focuse’ takingly simpl is for people to s. Even the innovation that creates new uses and new markets should be c, clear, designed application. Itshould be focused sfies, on a specific end result that it produces." taht small. They are not grandiose: They try be to enable 2 moving vehicle to draw the innovation that made possi- to do one specific electric power while it runs along rals—t INLSIMOWAX daROVEd dOHS At se PRACTICE, OF INNOVATION f the time. Every ve society and economy 0 in the so inventor” of the steam engine, know that Thomas performed 134 ceptivity have ben any ee the 1. Historians of technology he frst steam engine which actual imped set of an English coal mine. Both men Watt's steam engi innovators. wation in which newly available ‘and the design of 2“ ized, systemat isthe very model of 28 es rn i ae ire nich had been created by ‘Newcomen’s engine the true “inventor” of the com- ‘modem technology, was nei~ it Anglo-Irish chemist Robert Only Boyle’s engine did not jon of gun~ particular is knowledge ther 3Watt nor Newcomen. It was the who did so in a “flash of genius. Boyle, werk and could not have worked. For Boyle used the expl and this so fouled the cylinder that it had to be jea enabled first Denis power to drive the piston, after each stroke. Boyle’s id the gunpowder engine), taken apart and cleaned i Papin (Who had been Boyle's assistant in building hen Newcomen, and finally Watt, to develop a working combustion jus, had was ab in the his- ion. f° fal innovation resulting from analysis, system, and 3 discussed and presented as the practice of innovation, But ths is all that need be presented since it surely cov- crs at least 90 percent of all effective innovations. And the extra nary performer in innovation, as in every other area, will be effective only if grounded in the discipline and master of it ‘Whatthen, ae the principles of innovation, representing the hard core‘of the discipline? There are a number of “do’s”—things that have.to be done. There are also a few “dont + ternot be done, And then there are what I would cal “The purpose hard work isa that can b . THE DO'S