Innovation and Entrepreneurship by Peter F. Drucker

Innovation and Entrepreneurship Reviews

• 
  Herve

  Far from my previous post about Perkins, Peter Drucker’s book Innovation and Entrepreneurship was a paradoxical reading. The first chapters were painful even if brilliant. I understood there that innovation is a process which will be successful if carefully planned and managed. Fortunately, chapter 9 completely changed my perception when the author dealt with knowledge-based innovation, which includes innovations based on science and technology. So let me summarize the main points of this chapter:
  
  1- the characteristics of knowledge-based innovation:
  
  a. the time span between the emergence of the technology and its application is long, 20 to 30 years,
  
  b. it is a convergence of several knowledge and until all the needed ones are available, this innovation can not succeed,
  
  2- the requirements:
  
  a. a careful analysis of the required factors, i.e. the available knowledge and the missing ones,
  
  b. a clear focus on the strategic position, i.e. you have to be right the first time or others will take your place,
  
  c. learn and practice entrepreneurial management, because most tech. innovators lack management skills ,
  
  3- the risks:
  
  a. first, even after a careful analysis, knowledge-based innovation remain unpredictable and turbulent (see also Moore’s books about the chasm and the tornado), and this is linked to its characteristics above; this has two important implication:
  
  i. time plays against innovators,
  
  ii. survival rate is low,
  
  b. there is a limited window where new ventures start, and when it closes, there is a general shakeout, where few survive; who survives is also unpredictable. The only chance of surviving is to have a strong management and resources,… and luck;
  
  c. there is also a receptivity gamble. Even market research does not work with these innovations and the reason why an innovation is accepted or not is also unpredictable.
  
  I have to admit this confirms an intuition I had since my VC years: you have to make a bet and then work hard. But there is no way, you can really plan the success of knowledge-based innovations.
  
  The end of the book is quite good, in particular its conclusion: “The first priority in talking about public policies is to define what will not work: Planning is actually incompatible with an entrepreneurial society and economy. Innovation has to be decentralized, ad hoc, autonomous, specific. It had better start small, tentative, flexible. […] It is popular today [1983!], especially in Europe, to believe that a country can have “high-tech entrepreneurship” by itself. But it is a delusion. In fact a policy which promotes high-tech and high-tech alone will not even produce high tech. All it can come with is another expensive flop, another Concorde. […] The French are right, economic and political strength requires high tech but there must be an economy full of innovators with vision and entrepreneurial values, with access to venture capital, and full of economic vigour.”
• 
  Jurgen Appelo

  Amazing read for entrepreneurs with countless examples of innovative ideas and strategies.
• 
  Goktug Yilmaz

  3 Keys:
  
  - The test of an innovation, lies not on its novelty, its scientific content, or its cleverness. It lies in its success in the marketplace.
  - Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for. A product is not “quality” because it is hard to make and costs a lot of money. That is incompetence. Customers pay only for what is of use to them and gives them value. Nothing else constitutes quality.
  - All economic activity is by definition “high-risk.” Defending yesterday is far more risky than making tomorrow.
  
  Notes:
  
  - A “premium” price is always an invitation to the competitor.
  - Innovation, creates a resource. Until men founds how to use them, every plant is a weed and every mineral just another rock.
  - There is no greater resource in an economy than purchasing power.
  - High tech does not generate enough jobs to make the whole economy grow. But the “low tech” of systematic, purposeful, managed entrepreneurship does.
  - Because of high amount of inventors rather than entrepreneurs, high-tech industries follow the traditional pattern of great excitement, rapid expansion, and then sudden shakeout and collapse, the pattern of “from rags to riches and back to rags again” in five years.
  - People who need certainty are unlikely to make good entrepreneurs, politicians, military commanders. Decisions have to be made, and the essence of any decision is uncertainty.
  - Everyone who can face up to decision making can learn to be an entrepreneur and to behave entrepreneurially. Entrepreneurship, is behavior rather than personality trait.
  - Entrepreneurship rests on a theory of economy and society that sees change as normal and healthy. The major task in society and economy is doing something different rather than doing better what is already being done.
  - Technology can be imported at low cost and with a minimum of cultural risk. Institutions, by contrast, need cultural roots to grow and to prosper.
  - Clever innovative strategy always fails, particularly if it is aimed at exploiting an opportunity created by a change in industry structure. Only the very simple, specific strategy has a chance of succeeding.
  - Innovations that exploit changes in industry structure are particularly effective if the industry and its markets are dominated by one or few large manufacturer or supplier. Large, dominant producers and suppliers, having been successful and unchallenged for many years, tend to be arrogant. At first they dismiss the newcomer as insignificant and amateurish. But even when the newcomer takes a larger share of their business, they find it hard to mobilize themselves for counteraction.
  - Serious limitation: Incongruity is usually available only to people within a given industry or service. It is not something that somebody from the outside is likely to spot, to understand, and hence is able to exploit.
  - Users are always away of incongruity (Things don't match to expectations). What is lacking, however, is someone willing to listen, somebody who took seriously what everybody proclaims: That the purpose of a product or a service is to satisfy the customer. If this axiom is accepted and acted upon, using incongruity as an opportunity for innovation becomes fairly easy and highly effective.
  - Innovation requires major effort. It requires hard work on the part of performing, capable people the scarcest resource in any organization.
  - Innovation is organized, systematic, rational work.
  - Innovation, is an economic or social rather than a technical term.
  - Innovation, by definition, has to be decentralized, ad hoc, autonomous, specific, and micro-economic. It had better start small, tentative, flexible.
  - If the leader uses his leadership position to raise prices or to raise profit margins except by lowering his cost, he sets himself up to be knocked down by anyone who uses entrepreneurial judo against him.
  - The leader in a rapidly growing new market or new technology who tries to maximize rather than to optimize will soon make himself vulnerable to entrepreneurial judo.
  - In an entrepreneurial society individuals face a tremendous challenge, a challenge they need to exploit as an opportunity: the need for continuous learning and relearning.
  - In traditional society it is assumed that learning came to an end with adulthood. What one had not learned by age 21, one would never learn. But also what one had learned by age 21 would apply, unchanged, the rest of one’s life. On these assumptions traditional apprenticeship was based, traditional crafts, traditional professions, but also the traditional systems of education and the schools. Crafts, professions, systems of education, and schools are still based on these assumptions.
  
  Sources For Opportunities:
  
  1. The Unexpected: Accidentally finding an opportunity. Least risky.
  2. Incongruities: Difference between reality and how it should be. Someone is faulty.
  3. Process Need: Task focused, perfects a process that exists
  4. Industry and Market Structures: Industries change overtime as products get cheaper to build (Mass market)
  5. Demographics: Population changes and their demands
  6. Changes in Perception: People choosing other products (Veganism)
  7. New Knowledge: New science or tech or method becomes available (Microchips)
  
  New Knowledge:
  
  New tech becomes available. Has short time span, high casualty rate, low predictability.
  
  - Wright Brothers’ airplane had 2 knowledge roots. 1. Gasoline engine, designed to power the first automobiles built. 2. Mathematical: aerodynamics, developed primarily in experiments with gliders. Each was developed quite independently. It was only when the two came together that the airplane became possible.
  - Computer required the convergence of 5+ different knowledges: a scientific invention, the audion tube; a major mathematical discovery, the binary theorem; a new logic; the design concept of the punchcard; and the concepts of program and feedback. Until all these were available, no computer could have been built.
  - Swan developed his light bulb at exactly the same time as Edison. Technically, Swan’s bulb was superior, to the point where Edison bought up the Swan patents and used them in his own light bulb factories. But Edison not only thought through the technical requirements. Before he even began the technical work on the glass envelope, the vacuum, the closure, and the glowing fiber, he had already decided on a “system”: his light bulb was designed to fit an electric power company for which he had lined up the financing, the rights to string wires to get the power to his light bulb customers, and the distribution system. Swan, the scientist, invented a product; Edison produced an industry.
  
  - Even when based on meticulous analysis, endowed with clear focus, and conscientiously managed, knowledge-based innovation still suffers from unique risks and, worse, an innate unpredictability.
  - For a long time, there is awareness of an innovation about to happen but it does not happen. Then suddenly there is a near-explosion, followed by a few short years of tremendous excitement, startup activity and publicity. Five years later comes a “shakeout,” which few survive.
  
  - In 1856, Werner Siemens in Germany applied the electrical theories Michael Faraday had developed around 1830 to the design of the 1st dynamo. It caused a worldwide sensation. From then on, it became certain that there would be an “electrical industry” and that it would be a major one. Dozens of scientists and inventors went to work. But nothing happened for 22 years. The knowledge was missing: Maxwell’s development of Faraday’s theories.
  - Edison invented the light bulb in 1878 and the race was on. Within the next five years all the major electrical apparatus companies in Europe and America were founded. But only few survived out of a hundred companies in 20 countries. All eagerly financed by the investors of their time and all expecting to be unicorns. This upsurge of the electrical industry gave rise to the 1st great science-fiction boom. But by 1900, most of these companies had already disappeared, whether out of business, bankrupt, or absorbed by the few survivors.
  - In 1910: 200 automobile companies in the USA. 1930s: 20 left. 1960: 4 left.
  
  - This pattern happened in every industry.
  - Each time the survivor has been a company that was started during the early explosive period. After that period is over, entry into the industry is foreclosed for all practical purposes. There is a “window” of a few years during which a new venture must establish itself in any new knowledge-based industry.
  - But today the “window” time length is the same, but because of globalization it is becoming more and much more crowded. These companies have less chance of survival.
  - The number of knowledge-based innovators that will survive when an industry matures and stabilizes is no larger than it has traditionally been. When the shakeout comes, the casualty rate is therefore much higher than it used to be. And the shakeout always comes; it is inevitable.
  
  - Time is working against science and tech based innovators. In all innovation based on any other source—the unexpected, incongruities, process need, changes in industry structure, demographics, or changes in perception—time is on the side of the innovator. In any other kind of innovation innovators can reasonably expect to be left alone. If they make a mistake, they are likely to have time to correct it. And there are several moments in time in which they can launch their new venture. Not in scientific and tech knowledge based innovation. Here there is only a short time the “window” during which entry is possible at all. Here innovators do not get a 2nd chance. The environment is harsh and unforgiving. Once the “window” closes, the opportunity is gone forever.
  - In some knowledge-based industries a 2nd “window” does in fact open 20-30 years or so after the 1st one has shut down. Computers are an example. (1955 & 1978)
  - The 1st “window” in computers was between 1949-1955. During this period, every single electrical apparatus company in the world went into computers. By 1970, every single one of the “biggies” was out of computers. The field was occupied by companies that didn't exist at all or had been small. Late 70s, a 2nd “window” opened with the invention of micro-chips. But the companies that had failed in the 1st round did not come back in the 2nd one. Even those that survived the 1st round stayed out of the 2nd, or came in late and reluctantly. The one exception was IBM, the undisputed champion of the 1st round. And this has been the pattern too in earlier knowledge-based innovations.
  
  The Shakeout:
  
  - The “shakeout” sets in as soon as the “window” closes. And the majority of ventures started during the “window” period do not survive the shakeout.
  - Which will survive, die, become crippled is unpredictable. It is futile to speculate. Sheer size may ensure survival. But it does not guarantee success in the shakeout.
  - At 1st such industries are in the limelight and attract far more entrants and far more capital than more mundane areas. Also the expectations are much greater. More people become rich building businesses like shoe-polish or a watchmaking company than have become rich through high-tech businesses. No one expects shoe-polish makers to build a unicorn or considers them a failure if all they build is a sound but modest family company. High tech is a risky high-low game.
  - High tech is not profitable for a very long time.
  - To be successful, a knowledge-based innovation needs receptivity to it. The innovation brings about the change. It aims at creating a want and no one can tell in advance whether the user is going to be receptive, indifferent, or actively resistant.
  - There are exceptions. Whoever produces a cure for cancer need not worry about “receptivity.” But such exceptions are few. Inmost knowledge-based innovations, receptivity is a gamble. There may be great receptivity, yet no one realizes it. And there may be no receptivity or even heavy resistance when everyone is quite sure that society is actually eagerly waiting for the innovation.
  - If we want knowledge-based innovation, we must gamble on receptivity to it.
  - Areas that are not in the public eye have far lower risks, if only because there is more time. But high risk is inherent in knowledge-based innovation. It is the price we have to pay for its impact.
  
  The Bright Idea:
  
  - Innovations based on a bright idea probably outnumber all other categories taken together. 7-8 of 10 patents belong here.
  - Bright ideas are the riskiest and least successful source of innovative opportunities. 1 out of 100 patents breakeven. 1 out of 500 makes money.
  - No one knows which ideas for an innovation based on a bright idea have a chance to succeed and which ones are likely to fail.
  - Belief that you’ll win if only you keep on trying out bright ideas is no more rational than to win the jackpot at Las Vegas one only has to keep on pulling the lever. The machine is rigged to have the house win 70% of the time. The more often you pull, the more often you lose.
  - The greatest inventive genius was Leonardo da Vinci. There is a breathtaking idea—submarine or helicopter or automatic forge—on every page of his notebooks. But not one of these could have been converted into an innovation with the technology and the materials of 1500. None of them would have any receptivity in the society and economy of the time.
  
  Do's:
  
  1. Analysis of the opportunities.
  2. Go out, look, ask, listen.
  3. Should do one thing. Has to be simple and focused.
  4. Start small try to do one specific thing.
  5. Aim at leadership.
  
  Don'ts:
  
  1. Don't try to be clever.
  2. Don’t diversify, don’t split, don’t try to do too many things at once.
  3. Don't try to innovate for the future.
  
  3 Conditions:
  
  1. Innovation is work. It requires knowledge. It often requires great ingenuity. Also, innovators rarely work in more than one area.
  2. Innovators must build on their strengths. Ask, “Which of these opportunities fits me, fits this company, puts to work what we are good at and have shown capacity for in performance?"
  3. Innovation is an effect in economy and society, a change in the behavior of customers. Innovation always has to be close to the market, focused on the market, market-driven.
  
  4 entrepreneurial strategies:
   
  1. Being “Fustest with the Mostest”: Aim at quick leadership
  2. Hitting Them Where They Ain’t: Creative imitation
  3. Ecological Niche: Obtain a practical monopoly in a small area
  4. Changing the economic characteristics of a product, a market, or an industry.
  
  Fustest with the Mostest:
  
  - The strategy of being “Fustest with the Mostest” is very much like a moon shot. Once launched, the “Fustest with the Mostest” strategy is difficult to adjust or to correct.
  - To use this strategy, in other words, requires thought and careful analysis. In fact, for this strategy to succeed at all, the innovation must be based on a careful and deliberate attempt to exploit one of the major opportunities for innovation.
  - After the innovation has become a successful business, the work really begins. Then the strategy demands substantial and continuing efforts to retain a leadership position; otherwise, all one has done is create a market for a competitor. The entrepreneur who has succeeded in being “Fustest with the Mostest” has to make his product or his process obsolete before a competitor can do it.
  
  Creative Imitation:
  
  - Starts out with markets rather than with products, and with customers rather than with producers. It is both market-focused and market-driven.
  - Requires a rapidly growing market. Creative imitation satisfies a demand that already exists rather than creating one.
  - Creative imitation is likely to work most effectively in high-tech areas for one simple reason: high-tech innovators are least likely to be market-focused, and most likely to be technology-and product-focused. They therefore tend to misunderstand their own success and to fail to exploit and supply the demand they have created.
  - Because creative imitation aims at market dominance, it is best suited to a major product, process, or service. It carries less risk. By the time creative imitators go to work, the market has already been identified and the demand has already been created.
  
  
  Lessons from History:
  
  - Japanese manufacturers: “television would not grow fast in Japan.” “Japan is much too poor to afford such a luxury” But the Japanese farmers apparently did not know that they were too poor for television. What they knew was that television offered them access to a big world. They could not afford television sets, but they were prepared to buy and pay.
  - Japanese made a deliberate decision 100 years ago to concentrate their resources on social innovations, and to imitate, import, and adapt technical innovations with startling success.
  - What made universal schooling possible was a lowly innovation, the textbook. Without the textbook, even a very good teacher cannot teach more than one or two children at a time; with it, even a pretty poor teacher can get a little learning into the heads of 35 students.
  - Publishers and the existing bookstores knew, that book sales were soaring. Neither, did anything about it. The unexpected event was exploited, by a few mass retailers such as department stores. None of them knew about books, but they knew the retail business. They started bookstore chains that are different more like supermarkets. They didn't treat books as literature but as “mass merchandise” and they concentrate on the fast-moving items that generate the largest dollar sales per unit of shelf space. They are located in shopping centers with high rents but also with high traffic, whereas everybody in the book business had known all along that a bookstore has to be in a low-rent location. Traditionally, booksellers were themselves “literary types” and tried to hire people who “love books.” Managers of the new bookstores are former cosmetics salespeople. The joke among them is that any salesperson who wants to read anything besides the price tag on the book is hopelessly overqualified. These new bookstore chains have been among the most successful and fastest-growing segments in the country.
  - Math: Max 20% of students, learn math easily. The rest never really learn it. It is possible to make a very much larger percentage to pass math tests. Japanese do this through heavy emphasis on the subject. But that does not mean that Japanese children learn math. They learn to pass the tests and then immediately forget math. 10 years later Japanese do just as poorly on math tests as do westerners. In every generation there is a math teacher of genius who somehow can make even the untalented learn. But nobody has ever been able to replicate what this one person does. The need is acutely felt, but we do not understand the problem. Is it a lack of native ability? Is it that we are using the wrong methods? Are there psychological and emotional problems? No one knows the answer. And without understanding the problem we have not been able to find any solution.
• 
  Jacob

  I picked this up with the intent to read it and have it under my belt so I could say I've read it just because it is a "classic". I expected a lot of out of date references and antiquated principles of innovation.
  
  I did find A LOT of out of date references to companies that are no longer the innovation powerhouses that they once were (which just highlights the transient nature of being an innovation factory), but the principles and practices seem as true as ever and I don't think it is too bold to say they are the roots of almost everything that has been written on innovation since. Below are some highlights:
  
  7 Sources for Innovative Opportunity:
  1. The unexpected - the unexpected success, the unexpected failure, the unexpected outside event;
  2. The incongruity - between reality as it actually is and reality as is assumed to be or as it "ought to be";
  3. Innovation based on process need;
  4. Changes in industry structure or market structure that catch everyone unawares;
  5. Demographics (population changes);
  6. Changes in perception, mood, and meaning;
  7. New knowledge, both scientific and nonscientific.
  (pg. 35)
  
  "Innovation- and this is a main thesis of this book- is organized, systematic, rational work... Intuition is not good enough... [it] requires a willingness to say: "I dont know enough to analyze, but I shall find out. I'll go out, look around, ask questions and listen."
  (pg. 50)
  
  "The incongruity within a process, its rhythm or its logic, is not a very subtle matter. Users are always aware of it. Every eye surgeon knew about the discomfort he felt when he had to cut eye muscle- and talked about it. What was lacking, however, was someone willing to listen, somebody who took seriously what everybody proclaims: That the purpose of a product or a service is to satisfy the customer. If this axiom is accepted and acted upon, using incongruity as an opportunity for innovation becomes fairly easy- and highly effective. There is, however, one serious limitation. The incongruity is usually available only to people within a given industry or service. It is not something that somebody from the outside is likely to spot, to understand, and hence is able to exploit."
  (pg. 68)
  
  The section starting on pg. 85 that begins with "Innovations that exploit changes in industry structure are particularly effective if the industry and its markets are dominated by one very large manufacturer or supplier, or by a very few..." is essentially the gist of Clayton Christensen's book The Innovator's Dilemma (written 12 years later).
  
  
  For a good list of DO's on innovation start on pg. 134...
  
  "Innovation is both conceptual and perceptual... the imperative of innovation is therefore to go out and look, to ask, to listen. This cannot be stressed too often."
  (pg. 135)
  
  "An innovation, to be effective, has to be simple and it has to be focused. It should do only one thing, otherwise, it confuses... the greatest praise an innovation can receive is for people to say: "That is obvious. Why didn't I think of it?"
  (pg. 135)
  
  "A successful innovation aims at leadership," not necessarily at becoming a big business, but "if an innovation does not aim at leadership from the beginning, it is unlikely to be innovative enough, and therefore unlikely to be capable of establishing itself."
  (pg. 136)
  
  Don'ts are simple:
  1. Don't try to be clever
  2. Don't diversify, don't splinter, don't try to do too many things at once
  3. Don't try to innovate for the future. Innovate for the present!
  (pg. 136)
  
  When it comes to why big companies usually suck at innovation the crux is this:
  "It is not size that is an impediment to entrepreneurship and innovation; it is the existing operation itself... The one thing that can be guaranteed in any kind of operation is the daily crisis. The daily crisis cannot be postponed, it has to be dealt with right away. An the existing operation demands high priority and deserves it. The new always looks so small, so puny, so unpromising next to the size and performance of maturity... It thus takes special effort for the existing business to become entrepreneurial and innovative."
  (pg. 148-149)
  
  "Entrepreneurial businesses treat entrepreneurship as a duty."
  (pg. 150)
  
  In order to make an existing business "greedy for new things" we need to "face up to the fact that all existing products, services, markets, distributive channels, processes, technologies, have limited- and usually short- health and life expectancies."
  (pg. 152)
  
  "The entrepreneurial, the new, has to be organized separately from the old and existing."
  (pg. 161)
  
  It is the duty of the founder or founders to build a management team as their new venture grows. He takes this really seriously.
  
  "In an entrepreneurial society individuals face a tremendous challenge, a challenge they need to exploit as an opportunity: the need for continuous learning and relearning... The correct assumption in an entrepreneurial society is that individuals will have to learn new things well after they have become adults- and maybe more than once. The correct assumption is that what individuals have learned by age twenty-one will begin to become obsolete five to ten years later and will have to be replaced- or at least refurbished- by new learning, new skills, new knowledge... The assumption from now on has to be that individuals on their own will have to find, determine, and develop a number of 'careers' during their working lives."
  (pg. 264)
  
  
  
  
  
• 
  Richard Thompson

  This is my first time reading Drucker. I can see why many people think that he is so good. His writing is very analytical and seems smart. The most interesting high level point that he makes is that one of the least important bases for innovation is the bright world changing idea. More often innovation comes from noticing and taking advantage of an unexpected change in the market or discovering a previously unoccupied niche or some other minor or seemingly mundane thing that can have important implications when put into effect. It certainly gives hope for those of us who are not wellsprings of bright world changing ideas, but the catch is that noticing the unexpected thing and having the right skills to take advantage of it may be even harder.
  
  But somehow this book didn't speak to me. I'm not sure why. I didn't jump up from the couch after finishing the book to start incorporating my new business. I'm sure that part of this was my own state of mind and my preoccupation with other things, but at least part of it has to be laid at the door of Drucker's less than inspirational writing style.
• 
  Mohammad Shaker

  As always, Peter Drucker is one of my favourites on the subject. A book from the 80s that still a great read today, on a very changing and challenging subject such as entrepreneurship, is a sole indicator of how great the book is.
• 
  Frank Calberg

  Notes taken while reading the book:
  
  What are examples of innovation in education?
  - Page 30: It was the textbook that made universal education possible. After the textbook was developed many more people had the possibility to learn.
  - Page 177: The Prussian diplomat Wilhelm von Humboldt founded the University of Berlin in 1809. He was an outsider.
  
  What are examples of innovation in healthcare:
  - Page 15: From 1930 to 1980, it was widely believed in the USA and Western Europe that the hospital was the best place for anyone, who was not quite well. We now increasingly believe that the longer we can keep patients away from the hospital, and the sooner we can get them out, the better. It is a reaction against centralization.
  - Page 31: The hospital - in it modern form a social innovation of the enlightenment of the 18th century - has had greater impact on healthcare than many advances in medicine.
  
  What do entrepreneurs do?
  - Page 22: Create something new or something different. Thereby they help change values people have.
  - Pages 21, 26 and 27: When the term entrepreneur was coined about the year 1800 by the French economist J. B. Say, it was a declaration of dissent. The entrepreneur upsets and disorganizes. Change is seen as normal and healthy. The entrepreneur searches for change, responds to it and exploits it as an opportunity.
  - Page 27: Shift resources from low productivity and yield to areas of higher productivity and yield.
  - Page 30: Find a use for something. Thereby that something becomes a resource.
  - Page 33: Try to create value and make a contribution.
  - Page 152: Recognize that all existing products, services, distribution channels, processes and technologies have limited - usually short - health and life expectancies.
  - Page 154: Focus as much on opportunities as on problems. When communicating / brainstorming about opportunities, question everything and develop ideas.
  - Pages 188 to 193: Focus on the market. What you think users need may differ from what users actually need. Find out the real needs of users, for example by trying out things / testing, observing and asking questions. A product or service is defined by the customer - not by the producer. The customer knows what a great customer experience is.
  - Page 193: Planning for cash flow.
  - Page 196: Start building a team before you need it.
  - Page 199: Find out what you are doing well.
  - Page 200: The entrepreneur decides on her / his own role, area of work and relationships.
  - Page 201: What do you really want to do and believe in doing?
  - Page 202: Polaroid founder Edwin Land invited others to manage Polaroid. Edwin Land created a lab where he could work on creating scientific innovations.
  - Page 202: McDonald's founder Ray Croc invited others to manage McDonald's. Ray Croc focused on visiting stores every week to check quality - including cleanliness and friendliness.
  - Page 204: Get objective coaching / advice from outside - a person with whom you can discuss decisions and to whom you will listen.
  
  What can you do to innovate?
  - Page 87: A simple strategy has a better chance of succeeding than a complicated one.
  - Page 135: To innovate, look at figures.
  - Page 135: To innovate, observe, ask and listen to people. Find out what they need and what their values are.
  - Page 135: Effective innovations are simple and obvious.
  - Page 135: Effective innovations start small.
  - Page 136: Do not try to be clever. Innovations have to be handled by ordinary human beings.
  - Page 136: Focus.
  - Page 136: Innovate for the present - not for the future. Example: From the first day the computer was useful, for example for calculating numbers through Microsoft Excel.
  
  How can the unexpected inspire innovation?
  - Page 35: The unexpected success has relatively low risk and uncertainty. The innovations arising from this typically have the shortest time between start and results.
  - Page 45: If an unexpected problem / mistake happens, try to dig into it to find out reasons and needs.
  
  How can differences between a) reality and b) what people think ought to be inspire innovation?
  - Page 57: Differences between what users need / value and what an industry or company is doing.
  - Page 67: Before the "Scott spreader" was developed, no supplier of lawn care products gave the customer a tool to control the process.
  
  How can needs in a process inspire innovation?
  - Page 69: Replace a task / service in the process that does not create the required output.
  - Page 69: Redesign an old process to make it satisfy needs better. Example: Perhaps some services can be done at the same time. Or a service need to be done before or after another service.
  - Page 69: Create a link that is missing in the process.
  - Page 72: Create a prototype, so people can see what is needed. Example: Edison who created lightbulbs.
  - Page 73: Innovations based on process need to be tested against five criteria: 1. Is there a process? 2. Is there a weak or missing link? 3. Is there a clear goal? 4. Are there clear specifications for the solution? 5. Is there a widespread realization that there ought to be a better way?
  
  How can changes in population inspire innovation
  - Page 88: Examples: Changes in size of population, age of people, education, employment and income.
  - Page 88: What products / services will be bought by whom in which quantities?
  - Page 94: Increase in the number of elderly people.
  - Page 96: How do which people want to learn / re-educate themselves?
  
  How can changes in perception inspire innovation?
  - Page 101: How will the changing roles of women / men open up for innovation?
  - Page 101: How will the increasing importance of diversity open up for innovation?
  
  How can new knowledge inspire innovation?
  - Pages 107 and 112: Much knowledge came together to make the computer possible. In fact, the computer required that 5 different types of knowledge came together: 1. The audio tube, a scientific innovation. 2. The binary theorem, a mathematical discovery. 3. A new logic. 4. The design concept of the punchcard. 5. The concepts of program and feedback.
  - Page 110: There is a potential to help people learn in better ways.
  - Page 115: In Japan, Shibusawa Eichii started a bank by carefully analyzing the knowledge available and the knowledge needed. In contrast to J.P. Morgan and Georg Siemens, Shibusawa published his papers.
  - Page 118: Joseph Swan's lightbulb was better than Edison's. However, Edison worked on more than just developing the product. For example, Edison he worked on developing the distribution system, so he could sell and install electric power.
  - Page 126: A cure for cancer will be received very well by people, who have cancer. With most knowledge-based innovation, however, we cannot know who it will be received. Example: When the computer came, many experts did not think that businesses wanted it.
  - Page 128: Market research does not work. One cannot do research on something that does not exist.
  
  How can a bright idea inspire innovation?
  - Page 130: 7 or 8 out of 10 patents were created based on a bright idea. A large proportion of new businesses are built around bright ideas.
  - Page 131: Innovators improve if they base their work on a systematic analysis of the sources of innovative opportunity.
• 
  Adam McNamara

  Innovation and Entrepreneurship is about how to find opportunities to innovate, how to manage entrepreneurship within an organization, and how to manage entrepreneurial strategy in the market.
  
  In each of these three major sections, Drucker presents frameworks that help organize your thoughts. For example, he proposes seven sources of innovation opportunities, like The Unexpected, Process Needs, and New Knowledge. He's quick to provide relevant case studies for each, helping to make the classifications memorable. His ideas are important, and they've withstood the test of time. Drucker seems to be an authoritative source upon which later thinkers have built their ideas (and careers).
  
  That said, the book itself was not an enjoyable read. Drucker relies heavily on lists - three points for this, and five for that - that run on across paragraphs and pages. The reader often has to hunt among examples and anecdotes to piece together the actual bullets of the list.
  
  Similarly, Drucker often chooses folksy names for ideas, like "Fustest with the Mostest", where a more straightforward title like "First to Dominate" would serve everyone better.
  
  What this comes down to, I think, is interesting thinking paired with poor editing. If you want to understand innovation, read this book as many newer books build on top of its ideas. However, as with all business books, beware of academics prescribing ultimate theories.
• 
  Robert

  Most people probably think that innovation and entrepreneurship is something that happens by chance or by magic. Reading this book by Peter Drucker should dispel this notion totally. Not only is innovation and entrepreneurship something that can be measured but it is something that can be learned.
  
  The book initially provides definitions of what innovation and entrepreneurship is, what the different types and aspects of each are and where they are most likely to occur. Drucker then continues on with an analysis of how these factors can be fostered within any business.
  
  This is great book if you are looking to improve you business as it provides concrete analysis and steps you can take to encourage and promote innovation and entrepreneurship in your business.
• 
  Ehsan Choudhry

  Peter Drucker was way ahead of his time. Published 35 years ago in 1985, the book is still so relevant today. Innovation does not come about by random fluke, or a random work of genius, as most people wrongly tend to believe. It is a systematic science, like all sciences, backed by compensation plans, structure, and strategies etc. A company needs to build in its DNA a system which promotes innovation and entrepreneurship. Furthermore, a society which aims at promoting entrepreneurship culture, has to restructure and reorganise its policies to actively promote it, without which it will die out.
• 
  Ali

  Glad that this book was an easy to read but i believe the book can be less than half of the volume to explain everything
• 
  Pablo Ortiz monasterio ruffo

  One of the best books I’ve ever read on the subject.
• 
  Timothy Chklovski

  This is the first book by Drucker that I've read, but definitely not the last.
  Drucker is erudite; he reaches back hundreds of years and across continents to identify first introduction of one thing or another. Although Drucker's seminal contributions have shaped how large corporations in the US and Japan are managed, this work looks at a full spectrum of companies from large to small, and describes the kinds of innovation that succeed.
  Drucker delights at debunking conventional wisdom or frequent mistakes -- for example, pointing out that technology driven innovation has the least chance of success for its initiator. Better to identify an inconsistency in a process, or a demographic trend that will help an innovator succeed while the incumbents will likely ignore it due to their setup and incentives.
  At some point, I had to give up highlighting areas that may be useful for an investor trying to understand which businesses succeed -- because I would wind up highlighting most of the text. Easier to mark just the less relevant passages.
  While driven by author's generalizations and examples rather than hard data, there are many mental models -- relating eg to demographics and the kinds of offering that can succeed with a swelling middle class who have more of discretional income than their parents did -- that one will delight in discovering in this book.
  Interestingly, some of the predictions made at the time of writing -- eg around demise or radical change of American schools -- did not come pass, it serves as an additional reminder to "keep it simple" in both innovation and analysis. I look forward to learning more from Drucker's other works as well as eventually re-reading this book as I apply its observations to a new set of companies I'm trying to understand.
  Highly recommended as both enjoyable and useful reading.
• 
  Brian Nwokedi

  Introduction
  The book on Innovation and Entrepreneurship by Peter F. Drucker was written in 1985 and is still very relevant in 2023. At the heart of his argument lies two very simple beliefs:
  
  1. Management is the new technology (rather than any specific new science or invention) that is making the American economy into an entrepreneurial economy.
  2. Innovation and Entrepreneurship are capable of being presented as a discipline, capable of being learned, and capable of being practiced.
  
  Drucker posits that innovation and entrepreneurship are “risky” mainly because so few of the so-called entrepreneurs know what they are doing. In order to reduce the risk of innovation and entrepreneurship and increase your likelihood of success, you need to establish purposeful innovation across the following 7 sources of innovative opportunity:
  
  1. The unexpected – the unexpected success, the unexpected failure, the unexpected outside event
  2. The incongruity – between reality as it actually is and reality as it is assumed to be or as it “ought to be”
  3. Innovation based on process need
  4. Changes in industry structure or market structure – that catch everyone unawares
  5. Demographics (population changes)
  6. Changes in perception, mood, and meaning
  7. New knowledge, both scientific and nonscientific
  
  Therefore, innovation should be systematic and consist of a purposeful and organized search for changes. It should also consist of a systematic analysis of the opportunities such changes might offer for economic or social innovation.
  
  Why You Should Read This Book?
  If you are like me, you probably have succumbed to the idea that innovation is all about finding that one “bright idea.” Our current media focuses on these enticing stories of instant success and sparks of genius. For Drucker, innovation based on “bright ideas” is like trying to win the jackpot at Las Vegas by continuing to “pull the lever.” It is true that some innovations do come from inspirational sparks, but long-term innovative success in Drucker’s mind comes from strong entrepreneurial management. For Drucker, there is only one prescription for survival over the long run: entrepreneurial management.
  
  You should read this book to help you reframe your understanding of true innovation and entrepreneurship. Flashes of genius are extremely rare and often not replicable. What is more, these brilliant ideas usually belong in the history of ideas and not in the history of technology or of innovation because they rarely lead to anything transformative.
  
  Real innovation and entrepreneurship are purposeful and systematic. It analyses opportunities. It studies opportunities. It is focused and usually starts small. But most importantly, it aims from the outset at market leadership.
  
  Main Takeaway Here… Establish Entrepreneurial Management to Minimize Risk
  Entrepreneurial management of most new ventures has 4 main requirements:
  1. It requires, first, a focus on the market
  2. It requires, second, financial foresight, and especially planning for cash flow and capital needs ahead
  3. It requires, third, building a top management team long before the new venture actually needs one and long before it can actually afford one
  4. Finally, it requires the founding entrepreneur a decision with respect to his or her own role, area of work, and relationships
  
  If you can establish this framework in your organization or new venture, you will get purposeful innovation at low risk. Drucker makes sure to state unequivocally that innovation and entrepreneurship should not take unnecessary risks. Successful innovators and entrepreneurs are not “risk-takers.” They try to define the risks they have to take and minimize them as much as possible, and entrepreneurial management helps them do that.
  
  Final Thoughts
  While there are some innovations that do not proceed from the sources described in this book (i.e., innovations that are not developed in any organized, purposeful, systematic manner) these “flashes of genius” are uncommonly rare and cannot be replicated. Instead, we should focus our attention as systemic, purposeful entrepreneurs on the analysis of the seven sources of innovation discussed in this book.
  
  Entrepreneurs shift resources from areas of low productivity and yield to areas of higher productivity and yield. They are opportunity-focused and try to mitigate risk where they can. In the current landscape of entrepreneurship, it is “risky” mainly because so few of the so-called entrepreneurs know what they are doing. Put more simply, so few entrepreneurs invest their time and effort in establishing a management system for their entrepreneurial ventures.
  
  Peter F. Drucker is the father of modern business management and in this book, he puts forth a pathway for entrepreneurs to follow. Successful entrepreneurship and innovation are based on luck or genius. It’s based on the systematic and purposeful search for opportunities within the seven sources discussed in this book.
  
  The moral of the story is that a “clever” innovative strategy always fails, particularly if it is aimed at exploiting an opportunity created by a change in industry structure. Then only the very simple, specific strategy has a chance of succeeding. Unless you have built the policies and practices of entrepreneurial management into your organization or venture, you can be guaranteed to fail.
  
  A business that wants to be able to innovate, wants to have a chance to succeed and prosper in a time of rapid change, must build entrepreneurial management into its own system!
  
  Favorite Quotes
  “The idea that bright young people straight from business school and equipped only with sharp analytical tools could crunch out of their computer life-and-death decisions about businesses, products, and markets is pure quackery, to be blunt.”
  
  “There is always the management of people and there is always the management of money.”
  
  Easy to Read: (5/5) 100%
  Deep Content: (5/5) 100%
  Overall Rating: (5/5) 100%
  
  
  Link to My Raw Notes
• 
  Quinton (Ron)

  I found it dated. Lean Startup is a more modern view of the topic.
• 
  Babak

  This is a very authoritative introduction to the subject of innovation. It is very well-written, although a bit heavy at points. Drucker has made an important contribution, as usual. The part on sources of innovation is very good and also exists as an HBR article.
• 
  Ramy Khodeir

  The necessary link between to essential disciplines required for the 21st century business enterprise
• 
  Naisenya Kimani

  I will continue coming back to this book through out my life. Excellent read.
• 
  Dmitri Pavlov

  Honestly a bit boring, but nevertheless it is smart, some stories and examples are really make you interested. The material just need to be presented better.
• 
  Danijela Jerković

  Innovation & Entrepreneurship...
  
  People who don't take risks generally make about two big mistakes a year.
  People who do take risks generally make about two big mistakes a year.
  ~Peter Drucker
  
  
  Book Frame and Scopes:
  
  Introduction: Entrepreneurial Economics
  1: Innovation Practice
  2: Entrepreneurial Practice
  3: Entrepreneurial Strategies
  Conclusion: Entrepreneurial society
  
  
  *Entrepreneurial economics is the study of the entrepreneur and entrepreneurship within the economy. The accumulation of factors of production per se does not explain economic development. They are necessary factors of production, but they are not sufficient for economic growth.
  
  Principles, practice, and discipline make management new technology that American (and any other county) economy transforms into entrepreneurial.
  
  
  *Innovation is an organized, systematic, rational business.
  It is as perceptual as it is conceptual in nature.
  
  Unexpected things throw us out of our prejudices, untested assumptions, our firm beliefs and that is why they are such a rich source of innovation.
  
  * Innovation is the practical implementation of ideas that result in the introduction of new goods or services or improvement in offering goods or services.
  Innovation often takes place through the development of more-effective products, processes, services, technologies, artworks, or business models that innovators make available to markets, governments, and society.
  Innovation is related to, but not the same as, invention: innovation is more apt to involve the practical implementation of an invention (i.e. new/improved ability) to make a meaningful impact in a market or society, and not all innovations require a new invention
  
  Innovation Practice is quite a timeline of innovation (inventions) throughout decades.
  
  Defending yesterday (that is, not innovating) is much riskier than building tomorrow.
  
  
  *Entrepreneurship is the creation or extraction of value.
  With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values than simply economic ones.
  An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying most of the rewards. The process of setting up a business is known as entrepreneurship.
  
  The entrepreneur is commonly seen as an innovator, a source of new ideas, goods, services, and business/or procedures.
  
  Entrepreneurial Practice framed the process of designing, launching, and running a new business has been in some stage of developmental level and capacity and willingness to develop, organize and manage a business venture along with any of its risks to make a profit.
  
  *Entrepreneurial Strategies are necessities and required processes and guidelines out of the organization, on the market.
  
  Entrepreneurial Strategies:
  - ˝Who will go faster, who will go more¨
  - ˝Hit where there are none˝
  - Finding and occupying a specialized "ecological niche"
  - Changing the economic characteristics of a product, market, or industry
  
  *Entrepreneurial society
  Entrepreneurship has emerged as an engine of economic growth, employment creation, and competitiveness in global markets.
  A generation ago, public policy looked to the great corporations as the engine of economic growth.
  
  The entrepreneurial society reflects the emergence of entrepreneurship as an important source of economic growth.
  
  
  https://www.linkedin.com/posts/danije...
  
  
  
  We now accept the fact that learning is a lifelong process of keeping abreast of change.
  And the most pressing task is to teach people how to learn.
  ~Peter Drucker
• 
  Beale Stainton

  Drucker concludes Innovation and Entrepreneurship with the words “will the successor be the entrepreneurial society?” - in regards to the decline of the welfare state in the latter 1970s. Published in 1984, (retrospectively the year I was born), his finishing words do foretell a hint of truth, if I am to speak for my home country New Zealand at least. State subsidies to primary agricultural industries declined, and capital investment into innovative ventures increased. My own father would profit from the live export of rock lobster to thriving Asian urban markets as a result of shifting international trade policies.
  
  But moving along, to our own times, what would Drucker have to say about the current landscape of what was once popularly known as e-commerce. Facebook, YouTube, eBay, Amazon to a degree. At the introduction stage of these businesses it seemed they would be great blessings, rather than curses upon the creative and entrepreneurial spirit of human enterprise, but we now know that has been anything but the case. Value to customer? As Drucker preaches in each of his four entrepreneurial strategies. Yes. I agree that internet companies provide value to the customer, if you’re a paying advertiser, or a paying exploiter of data, they provide you with all the value in the world, but for the everyday user of the service, theres’ has been a substantial net loss. They do not reap the value of the service. They are the value. Their consistent consumption of these online services provides the bedrock resource for those who do reap great profit from it.
  
  So did the entrepreneurial society arise? I won’t be the one to conclude? Perhaps it did. The nineties business environment gave rise to great entrepreneurs like Jeff Bezos for example. Or perhaps the entrepreneurial society happened elsewhere. Just look at post-1984 China. Can you even imagine the sheer strength of entrepreneurial spirit that lifted the hundreds of millions of that country out of poverty, the parents and grandparents of today’s youth who know nothing other than wealth.
• 
  Khalid Hajeri

  Classic history lessons on innovation and entrepreneurship!
  
  The late Peter F. Drucker's "Innovation and Entrepreneurship" is a rare masterpiece in business literature. This book is packed with interesting examples of people and organizations in modern history that managed to create some of the world's most iconic businesses, and also the ways in which they discovered how to do so by applying unconventional, but greatly useful, methods.
  
  The author takes readers on a tour within various timelines in a language that resonates with all adult readers. Being a business student is not a requirement at all; the stories and techniques are described in a manner that is simultaneously easy to grasp yet interesting enough to keep readers interested in the subject matter. As I read each chapter, I felt inspired by the lessons learned and appreciated Mr. Drucker's encouragement to think like an entrepreneur when doing business. It is always better to think outside the box and apply improvements whenever possible.
  
  Most importantly, however, are the sections dealing with how to serve customers. There are great examples of the evolution of industries (such as the automobile and healthcare ones, and even McDonalds restaurant) from being product-centric to customer focused. The author predicted that organizations of all types would need to shift their priorities to serving the customers according to their needs if they wanted to survive in the long run. He suggests continuous company innovation as the best solution and provides the ways companies have applied this mantra to improve themselves.
  
  I highly recommend this book to readers who want to know classic examples in successful entrepreneurship. It will help them get interested in how innovation works and succeeds, as well as ways to avoid the pitfalls that can come with it. A surprisingly inspirational business book to read!
• 
  Grace Cao

  Great insights. Not a five start because it was hard to stay awake reading through the repetitions.
  
  The main idea of the book is that innovation is organized, systematic, rational work. It is not a bright idea that pops up in one's head suddenly and naturally. It is small-steps, tedious, work, effort. Especially the high-confidence short-lead-time ones.
  
  "The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield".
  
  How does he do that? By making observations. "The entrepreneur always searches for change, responds to it, and exploits it as an opportunity." As a rule, these are changes that have already occurred or are under way. The discipline of innovation is a *diagnostic* discipline: a systematic examination of the areas of change that typically offer entrepreneurial opportunities.
  
  7 places to monitor for changes and opportunities:
  From within the enterprise:
  * the unexpected success or failure, your own or your competitor's. unexpected outside event
  * the mismatch between people's perception and reality
  * a process need
  * a change in industry or market structure
  From outside the enterprise:
  * demographics
  * changes in perception, mood and meaning
  * new knowledge, e.g. scientific and tech breakthrough. this is the riskiest with longest lead-time, because it induces change not exploits it. It also runs against time
  
  
• 
  Melsene G

  This is one of those seminal landmark business books that need to be read and digested. Although the book is somewhat outdated in its examples, the principles are still relevant to today's entrepreneurs and innovators. Many of the companies cited in this 1986 book are either no longer with us and newer companies like Apple are barely mentioned. But, that said, Drucker spells out the principles of innovation and entrepreneurship and how to go about practicing it. Take notes.
  
  He also recommends other books to read-but note that we're still in the early 1980s before the advent of the smart phone in every household. I did like his analyses on an outdated tax code, obsolete laws and government agencies, his call for effective sunset laws, and the problem with an outmoded welfare state. His wisdom here should be heeded. It would certainly help our system if politicians and bureaucrats alike were to read his books. My guess is that we'd see marked improvements in the economy.
• 
  Bruna •♡•

  You might feel that a book on "innovation" that was written on the 80s would have to be outdated by now but this one by Peter Drucker happens to be timeless.
  
  In an effort to structure knowledge around entrepreneurial strategies and the practice of innovation, the book is based on a premisse that entrepreneurship is the systematic effort of innovation.
  
  A good and dense read. It took me a few months to finish, but that's because that is one book that is worth taking notes while reading. And I'll definetely get back to it a few years from now.
  
  The first few chapters on the 7 sources of innovation are a great way to keep an eye open for opportunities that might surround you. The finishing chapters on the 4 entrepreneurial strategies will help you make strategic choices once you find the opportunity for you.
  
  Dense, complex but great read.