Finding Your Next Big Idea
by Patsi Krakoff
Published on this site: January 5th, 2006 - See
more articles from this month
The business enterprise has two, and only two, basic functions:
marketing and innovation. It is not necessary for a business
to grow bigger; but it is necessary that it constantly grow
better. - Peter F. Drucker
The organization that fails to continually innovate new products
and services will not survive long.
But not all innovations produce commercial success. A new
business idea must offer customers exceptional utility at
an attractive price, while delivering a tidy profit.
Most business opportunities emanate from methodical analysis
of seven areas of opportunity, according to Peter Drucker
(Harvard Business Review, 2002).
- Unexpected Occurrences and Failures
Unexpected occurrences can be illustrated by what happened
in the early years of computer technology. Univac, which
had the most sophisticated machine, spurned business applications.
IBM quickly realized their potential and redesigned a computer
for payroll applications, making them an industry leader
within five years.
Unexpected failures may also prompt innovation opportunities.
While Ford's Edsel was a colossal flop, company leaders
consequently realized the value of segmentation: categorizing
consumers by "lifestyles." This led Ford to create
the Mustang, which appealed to consumers' tastes and reestablished
the company as an industry leader.
- Incongruities
Incongruities become apparent during many stages of a product's
life cycle. They can then be used to create better services
or designs.
- Process Needs
Many innovations develop from process needs - notably, the
invention of Linotype in 1890, which allowed newspapers
to substantially boost their press runs.
- Industry and Market Changes
When an industry grows quickly - the critical figure seems
to be about 40 percent growth within 10 years - its structure
changes. Established companies, which defend approaches
that have consistently worked for them in the past, tend
to ignore challenges from newcomers. When market or industry structures change, traditional leaders may shortsightedly
neglect faster-growing market segments.
- Demographic Changes
Demographics are reliable, with predictable lead times.
For example, baby boomers will begin to reach retirement
age in a few years. Business leaders who pay attention to
such population changes can reap great rewards.
- Changes in Perception
Along with greatly improved health care in the last 20 years,
there has been a growing awareness of personal-care needs.
Exercise equipment, health clubs and natural foods are industry
sectors that have experienced immense growth in the last
two decades.
Consumers' perceptions are based on moods that can be studied,
analyzed and exploited for innovative opportunities.
- New Knowledge
When newfound knowledge is used to create sought-after products,
leaders generate "buzz," publicity and funding.
These innovations have the longest lead time, with a protracted
span between the acquisition of knowledge and its distillation
into usable technology. During a long period of incubation,
there is much talk and little action. Then, all of a sudden,
there is a flurry of activity that produces myriad new products,
followed by a shakeout and survival of only the most viable.
Knowledge-based innovation can be difficult, but competently
managed. Innovators must go out into the field, observe consumers'
behavior and listen to them.
When Innovation Leads to Complexity
The pursuit of innovation, however, can be taken too far.
As a company increases the pace of innovation, its profitability
often begins to stagnate or even erode. The reason can be summed up in one word: complexity.
The continual launch of new products and line extensions
adds complexity throughout a company's operations, and as
the costs of managing this complexity multiply, margins shrink.
To meet the complexity challenge, you must begin at the source:
the way your company views customers and their needs. In most
cases, managers overestimate the value buyers place on having
many choices. But some companies have begun to challenge this
belief. They have launched efforts to determine how many product or service choices customers really
want; then, they gear their operations to efficiently provide
that degree of complexity - and no more.
When organizations prune their offerings to better fit customers'
needs, they do more than cut costs. They often boost sales,
as well.
Patsi Krakoff, Psy. D. writes articles for business
and executive coaches and consultants. She provides articles
on leadership and executive development for sale, and formatted
into customized newsletters. Get Patsi's Secrets of Successful Ezines 7-Step Mini-Course to learn what you need
to know to publish a successful ezine. http://snipurl.com/Ezine_MiniCourse
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