Sunday, February 7, 2010

More Than Five and My Head Will Explode (In Praise of Peter Drucker)

Someday soon I’m planning to write a book called More Than Five and My Head Will Explode.  The hypothesis, loosely rendered, is that we are so inundated with choices that we can’t possibly keep more than five things straight in our heads for any reasonable period of time.  Give me six breakfast cereal choices in the supermarket aisle and you've wasted shelf space.  Tell me ten rules of time management and I'll likely remember half.  Show me the 15 rules of good salesmanship, or the 39 rules for CEOs to prosper, or 50 ways to find my piece of cheese, or 1,000 streams I should fly-fish before I die and my head wants to explode.

Thank goodness I don’t have six children.  (Wait--maybe I do have six children.)

My Men’s Health magazine landed this week and, besides the monster biceps it promises me, this issue offers “1,742 Ways to Get Better—At Everything.”  Honest to goodness.  For purposes of sanity, I would accept one way to get better at two things (maybe my biceps) and be happy.

My More Than Five idea originated as I was pulling articles about “innovation” off my Google reader the other day.  I subscribe to one site in particular that peppers me with posts about how to innovate products and services.  Each article has merit, but the cumulative effect over weeks and months is that I am so confused by all the advice that, as I said, my head threatens to explode.

All I really need is a simple, consistent, logical thought process for innovating my way out of a paper bag, so to speak.  And keep it to five points or less.

In times like that it’s good to have touchstones, and the one I keep returning to is Peter Drucker’s Innovation and Entrepreneurship.  Published in 1985, it has all the disadvantages of holding the somewhat dusty schema of a prickly egomaniac.  But, it has all the advantages of being thoughtful, straightforward, long on real history but easy-to-shuttle into the future tense, and—in my own limited world—capable of gelling into five logical themes.

(I wrote about the book first here in 2008, suggesting it be read and savored every couple of years, and again here when I was discussing my beloved Kindle.)

Before describing the themes, Drucker says, just make sure you know what innovation is and does.  Its proof “lies not in its novelty, its scientific content, or its cleverness.  It lies in its success in the marketplace.” 

If you’ve never read Drucker, that means creating customers.  Paying customers.  Giving away things for free is not innovation, something we all (once upon a time) used to know.

This simple truth—that innovation creates paying customers--will, I promise you, eliminate an awful lot of reading about what passes today as innovation.

Then, Drucker says, innovation is “organized, systematic, rational work.”  You know all the innovators you read about, the fabulously rich ones now drinking champagne on yachts?  It’s good to remember that most really, truly fine innovators go to work everyday with a lunchbox, worry about their mortgages and think about a Friday night beer.

Finally as warm-up, Drucker tells us, “Innovation is a specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.”

That, to me, is a really critical point.  Innovation is more like Finance and Marketing and Operations, more like Investment Management, than it is like being struck by lightening and drinking champagne on a yacht.

Suppose, for example, I gave you $1,000,000 and said, “Go make some money on the stock market.”  You could certainly use the cash as seed money, write a business plan, raise more capital, launch a product, cross the chasm, raise more capital, build out global distribution, almost go broke, cross the next chasm, raise more capital, eventually go public and then cash in your stock.  That would be a high-risk strategy that could, in the best case, make you a billionaire.  It could land you on a yacht.  It could make you famous.  It’s one way to make some money “on the stock market.”

Conversely, you might study the financial markets, learn how to read the trends, look for inconsistencies and anomalies and inefficiencies, place some bets here and there with your million, make a little money now and then, make a lot of money once in a while, build your portfolio, and eventually—as requested—you will have made some money “on the stock market.”  

This is the essential difference, I think, in how Drucker thinks about innovation.  We often consider innovation to be like the first example: the individual entrepreneur with a brilliant idea as hero.  Drucker accepts that this might happen, but considers systematic innovation more powerful and more like example two: Put processes in place to watch the market closely, and take advantage of inefficiencies.

He highlights the modern university and hospital, GE’s use of commercial paper, the shipping container, insurance, the textbook and McDonald’s creation of a new market as forms of workmanlike innovation that took advantage of inefficiencies in the market.   Drucker goes on to say that so few high-tech entrepreneurs know what they are doing, and lack any methodology, that they violate elementary and well-known rules of innovation.  So, they set their Google reader on several innovation blogs and proceed to lose their minds. 

Ready, then, for Drucker's seven logical themes of innovation?  (Ready for me to turn them into five so that I can remember them and put them to work?)  They are based on the fact that most successful innovation doesn’t create change, it spots and exploits change in an organized, purposeful way.  It’s more like studying the market and placing bets on inefficiencies than building the company that goes public.

Herewith, Drucker's sources of innovative opportunity—in order of reliability and predictability:

a)      The unexpected success, failure and outside event (i.e.—when TV appeared book-buying unexpectedly soared, leading to new, powerful bookstore chains)
b)      The incongruity between what is and what ought to be (i.e.--a securities firm decided to offer “peace of mind” and not promises of fortunes)
c)      Process need (i.e.—Bell Telephone’s switchboard, linotype)
d)      Changes in industry or market structure (i.e.—FEDEX)
e)      Demographics (i.e.—FDR’s experts in 1938 missed the Baby Boom)
f)        Changes in perception, mood and meaning (i.e.—health magazines, exercise equipment, organic food)
g)      New knowledge, both scientific and non-scientific (i.e.—the “superstar” of innovation—but the longest lead times: chemotherapy, computer, automation, radio, penicillin, etc.)
Notice what Drucker did not list: The Bright Idea.  It is, he says, the riskiest and least successful innovation type of all, cannot be counted on, and “belongs in the appendix” of theory and practice of innovation.
Yet, sometimes that’s all we seem to focus on, all that seems to come off my Google reader.
Anyway, those are Drucker’s seven themes, and my re-jiggered five are: The Unexpected, Process Need, Industry or Market Structure, Demographics, and New Knowledge.  That’s all.  If a bright idea falls in my lap, I count it like my sixth child.  (Note to self: email wife about number of children in family.)

Here's a mindmap that might help (and I'm happy to send along an image or the Mindjet MM8 file--just write me at ericbschultz@gmail.com):



Scanning the market constantly for these kinds of fascinating inefficiencies is actually fun.  Here are some I’ve picked up in just the last week or so, while I was pondering this post:
·        The New Yorker reported that Gen X is not participating in classical music, the first generation not to “spike up” as it moves into middle age.  The first.  Weird.
·        A recent study found something called “normal weight obesity,” when thin people face health risks from fat.  As many as 30 million Americans may “suddenly” fall into this category.
·        Birth weights fell from 1990 to 2005.  Researchers cannot explain the two-ounce decline in the U.S. and worry the trend could lead to an increase in health problems.
·        Teens now think that Twitter is uncool.  They’ve also stopped reading blogs.  (If you are walking by a high school and someone mentions that you’re a blogger, you’ve been dissed.)
·        Strategic plans are losing favor in business.  (Again, you say?)
·        College-educated women are more likely to be married at age 40 than women without college, and more likely to say they are happy in their marriages.
·        The passing of every day adds 5 hours to the average American lifespan.   Some expect people to be living to 150-200 years old by the end of this century.
So, here’s the challenge: start a company to invent a new iPhone app, or a new social networking site, or a breakthrough in battery life, or a new drug.  Or, sit with me for a day and develop new products and services around the market “inefficiencies” above.  Fun.  Maybe even lucrative.
I promise you, we could fill a whiteboard with ideas, too.  That’s why I’m sticking with Drucker’s seven (and my five) ways to innovate. 
By the way, you’d best soon buy my book, More Than Five and My Head Will Explode, cause when I turn 60 I’m bringing out the new and updated More Than Three and My Head Will Explode.  At eighty years old (assuming I get there), I’ll be writing More Than One…

But first, I’ve gotta go check with my wife about that sixth child.  Or at least count the chairs around the dining room table and pretend I know what’s going on.