Manage-Wise

Innovation and abandonment

Nobody was better at defining and helping companies capture opportunities than Peter Drucker. When I think back on our conversations, one phrase that sticks in my head because Peter said it so often is, “Tomorrow is an opportunity.” Peter’s first view of the United States was in 1937, and he was forever influenced by a country striving to create tomorrow. Drucker believed that the most important measure of a company is its ability to anticipate and invest in tomorrow’s opportunities. This view is why innovation was so central to Peter’s thinking. It was fundamental to everything he wrote. To Peter, the conventional view of innovation, focused solely on product development or brand extension, missed the point. To truly innovate, Peter believed you had to radically change customers’ expectations.

For Peter it was simple: If you don’t understand innovation, you don’t understand business. Starbucks exemplifies what Peter considered to be true innovation. Beginning with a single store in 1971, Starbucks grew to over 12,000 locations in 37 countries in 2006. While visiting Starbucks, I spoke to Dorothy Kim, a Starbucks executive vice president, who told me that Starbucks didn’t set out merely to make a better cup of coffee. That was the old way of looking at the coffee retail business. Instead, the executives had a much bigger idea: to make Starbucks a destination between your home and office—a place where people can find a respite.

Shared experience

Starbucks didn’t just offer a better cup of coffee than the average restaurant; it delivered an instant community—a shared experience. The company made it easy to relax with a comfortable, “stay as long as you like” setting that now includes wireless Internet access. Starbucks became the extended living room, the familiar meeting place in a strange city, the funky (but not too funky) way station to escape from the corporate cubicle, the place to stop between classes to surf the Net. It did much more than simply crush, boil, and filter a sack of coffee beans; it changed our expectations.

Much of Starbuck’s innovation has to do with marketing, not product. This isn’t just about coffee served one cup at a time. Starbucks came up with an insider mystique by inventing a new language for size—tall, grande, and venti, instead of small, medium, and large—along with endless variations on what’s essentially the humdrum old theme of coffee and milk. Think about it: tall, grande, and venti have become part of your vocabulary, especially if you earn more than $50,000 and you are under age 60. Starbucks makes you feel like a savvier consumer by telling you the flavor difference between Ethiopian and Guatemalan coffees. And the third time you visit the shop, the barista generally knows your preference.

Apple is another company with a high innovation IQ that changed our expectations with the introduction of the iPod. Before the iPod, people didn’t sit around thinking, “I wish I had a little jukebox with 1,500 songs that I selected, and I could carry it in my pocket.” Apple introduced the iPod in 2001, and within four years more than half the people in the United States owned or used iPods. Apple changed people’s expectations and their definition of value. It was no longer fine to have a Sony Walkman with 20 songs on a CD. Anything less than an iPod was unacceptable. Today, Apple appears to be taking this to video with ambitions of linking everyone wirelessly.

Peter Drucker liked to talk about what was and what was not an innovation. On one of my business trips, I overheard two airline travelers debate the merits of the new Apple PowerBook with an Intel chip. They decided it was not an innovation. Customers are sure that every new model will have more computing power and capabilities; simply meeting their expectations is not true innovation. When I replayed the conversation and posed the question to Peter, he seemed to agree with the travelers, but added there may still be an innovation lurking that does change our expectation, but it is not there yet. Peter believed that innovation is about shaking loose from yesterday’s world so that we gain the freedom to create tomorrow.

Creating your tomorrow

Peter wrote about innovation for decades—long before anyone heard of iPods and Starbucks, or even the Internet; it fascinated him. By the Vietnam War years he was predicting that technology would change everything about the way we do business. He liked to discuss the delicate balance between innovation and change on the one hand, and preservation of the status quo on the other. He first described this basic tension between the new and the old 70 years ago, shortly before World War II. During one of our last conversations in 2005, he told me that finding this balance was still critical to business survival. “You can’t throw everything out, or you will have anarchy,” he said. “You can’t hold onto everything, or you will die.”

Peter understood the difficulty of innovating for the future while hanging on to the past from personal experience. In 1935, he left London to make his first trip to the United States. He had decided then and there to leave Europe. “America,” he wrote, “was starkly different from Europe. In America, people were looking for a tomorrow. In Europe they were trying to re-create yesterday. That is why we moved to America.”

Half a century later he wrote one of his best books till date, Innovation and Entrepreneurship. In it Peter focused on innovation as a discipline rather than a serendipitous flash of brilliance. The book, written in 1985, is remarkably practical. It is based on the executive courses on innovation he taught at New York University, where he had one of the best business laboratories around—evening students working at all sorts of jobs in New York.

Excerpt from ‘The Definitive Drucker’ by Elizabeth Haas Edersheim. Reproduced with permission © 2007, Tata McGraw Hill Publishing Company Limited Vishwanath_Ghanekar@mcgraw-hill.com