Innovation – another one of those annoying buzz words that everyone throws around. However, innovation is critical for long-term growth, but unfortunately true innovation is not done enough, or not done correctly, or is focused on the wrong things. Innovation refers to something new or updated that provides value to individuals or groups. The father of modern management, Peter Drucker recognized the importance of innovation within many of writings.
Peter Drucker was a management consultant and educator, who wrote almost 40 books as well as hundreds of articles, and created the term “knowledge worker” to define modern white collar office workers. He predicted many of the key developments of the 20th Century, such as the rise of Japan, the impact of marketing, the decrease of blue collar workers, and the development of the information society. Drucker focused on the relationship of management and society, and the importance of keeping social issues in mind when making decisions regarding the corporation. He also wanted managers to focus on the future and avoid short-term perspectives.
Drucker was born in 1909 in Vienna Austria. He grew up in a liberal Protestant house speaking English and German. His mother had studied medicine and his father was a lawyer. He was surrounded by some of the leading intellectuals, politicians, and scientists who visited his parents. This environment was a key to developing his holistic outlook on life and the desire to focus on the future and improving the world around him.
Drucker was strongly influenced by Joseph Schumpeter, a friend of his father who coined the term “creative destruction”. Schumpeter was an Austrian economist who identified innovation and entrepreneurial activities as the critical dimension of economic change, rather than market forces and price competition. Creative destruction was noted as a cycle of new economic structures being developed as old structures were destroyed or abandoned. Schumpeter’s ideas planted the seed for Drucker who focused on the importance of innovation and entrepreneurship.
Drucker felt there is only one purpose of an organization; to create a customer. The way to achieve this, an organization has two key functions, marketing and innovation. Drucker disdained short-term focus on profits instead of customers. He felt, the main way to create a customer was a long-term prospective and continuous innovation. And for effective innovation, an organization needed an outside-in perspective.
The way to innovate is having an outside-in perspective. Outside-in is a mindset and corporate culture that is driven by customer value creation, customer orientation, and customer experiences as the key to success. It’s all about the customer. Too many organizations focus on solving problems rather than exploiting opportunities. Focusing on problems leads to ongoing firefighting and the status quo, rather than finding tomorrow’s successful products. Innovation is providing real value to customers with products and services that improve their lives.
In business, market leadership is short lived and not likely to last, therefore, organizations must continually innovate to stay ahead of competitors. Drucker stressed the importance of customer focus and future focus. The U.S. versus North Vietnamese War was a painful lesson for the U.S. The U.S. focused on the last war, WWII and Korea, not the current war. This focus on the past instead of the future was extremely inefficient and led to the U.S.’s defeat. Organizations need to let of the past and focus on the future.
An outside-in perspective must be driven by the chief executive officer (CEO). Examples of this are Jack Welch at General Electric (GE) instituting Six Sigma with a clear customer focus, and Lou Gerstner at IBM who stated that “our customers run out business”. IBM went from $15 billion in losses to $5 billion gains in five years with this new mindset. To succeed managers need to know their customers better than anyone. The way to accomplish this is to get as close to the customers as possible.
Management needs to spend time with customers and non-customers. Tesco and Panda Express require all levels of employees to work in the retail shops at least once per year. Employees achieve greater understanding of the customer and understand how their job fits into the larger picture as they interact with customers on the “front lines”. This customer focus is also noted with Tesco’s corporate value etched into the side of the headquarters: create value for customers to earn their lifetime loyalty.
Drucker provided four rules for organizations to ensure the customer is the area of focus.
- Go where the customers are (current, non)
- Invited customers and suppliers to meet with your people – no substitute for direct dialogue
- Use technology to enhance customer satisfaction
- Spend 2-4 hours per week focused on competitors (websites, stores, customers, etc.) – stay one step ahead or counter latest competitive threats
Understanding customers will allow you and your teams to develop innovative, market-leading solutions. You must focus on the customer to ensure long-term growth. To develop successful innovations, you must align offerings with customer needs. Managers’ market views are often distorted by the “thick walls” of the company. It is critical to get out of the office and interact with customers on their turf. In addition, innovation requires time to think and reflect. If you are only focused on what is in your inbox, you will not be able to develop new offerings to keep current customers and attract future customers.
An outside-in focus and looking at the future (not the past) all requires a change in mindset. It is extremely difficult to change others and especially long-held corporate culture and beliefs, it is much easier to change yourself. To truly succeed you need to understand your customers better than anyone and develop new, exciting offerings. Change your mindset, keep interacting with customers, and focus on a few things that need to be done for the organization. Concentrating on these key areas will allow you to have the time to think and create new ideas that can be developed into successful innovations.
Creative thinking and innovation require a disciplined and structured approach. Ensuring you provide yourself with time to think and create is crucial for long-term success. Change your actions and mindset. Stop focusing on non-value work. You will find new ways to provide innovation and value by interacting with customers and non-customers, having new experiences, and rethinking how you think. So get out of the office and come up with new ideas to develop the next great, market-winning innovation.