Consulting Drucker

by William Cohen

  Some Successful Innovations Are Spelled “In-con-gru-i-ties”

  Incongruities are unexpected, too, but in a different way. One expects a certain result, but instead the exact opposite occurs. Frequently this has to do with economic results. In the 1950s, someone found that companies that dominated markets were more profitable. This led to portfolio management and the well-known BCG matrix, in which relative high market share was considered desirable and became either a “cash cow” or a “shooting star”. If you could acquire a large share of “the market”, success and high profits were yours. Many companies jumped on the bandwagon and, by simply expanding the definition of the market, dominated it with high sales. Some, however, got into industries about which they knew little or nothing, and as a result they had little to contribute in product or service. Yet small companies specializing in areas in which they could excel made money and high profits even if they sometimes actually reduced – rather than expanded – a market by focusing on where they could best serve a customer at whatever was the right price and thus be more profitable. That’s unexpected. In this way and through such an incongruity, small organizations can defeat larger and more powerful competitors for specific market segments.

  Famed coffeemaker Starbucks was a little company that became big by spotting incongruities in the marketplace where it could satisfy customers better than larger competitors. However, one time, as a giant company, it too fell into the trap of focusing on expansion instead of customers. In an interview with news reporter Katie Couric, CEO Howard Schultz explained, “We made expansion a strategy instead of an outcome of service.”2

  The expansion didn’t lead to great profits, but great losses. Fortunately for Schultz, he spotted the incongruity of what he was doing and turned things around before disaster struck.

  “Process Need” Innovation

  “Process need” has to do with the old proverb that “necessity is the mother of invention”. Someone needs something done and simply works on this something until he figures out how to do it. I have heard the same story of Thomas Edison uncovering the right light bulb filament to enable a successful light bulb many times. The problem was that the filament kept burning up. So he kept trying different filaments until he discovered one that worked without burning up. The first time I heard the story, it was 999 attempts before he discovered the right filament. Then I heard that it was 1,000. Then 2,000. Several weeks ago I heard the story and the number stated was now 10,000. I decided to investigate the story myself. Here’s what I found out.

  For one thing, Edison was hardly the first inventor to work on the problem and light was actually produced by electricity in 1802 by Humphrey Davy. But the light it produced lasted only a few seconds and was too bright for any practical use. Then in 1840, a British inventor by the name of Warren de la Rue got a bulb to work acceptably, but the filament was platinum and far too expensive for any commercial use. Another advance was made by an English physicist, John Wilson Swan, using carbonized paper filaments. He worked on this for almost 30 years, beginning in 1850, and he developed something that worked but was not commercialized. Finally, two Canadians, Henry Woodward and Mathew Evans, developed used carbon rods. They worked. However, their attempt to commercialize failed and they sold out to Edison, who eagerly grasped the baton from the two inventors and charged on.3

  Edison got into the act in the late 1870s. By January 1879, he and his associates had tested about 3,000 filaments, but still the filaments only lasted a few hours. Finally, by the end of 1880, he managed a 16-watt bulb that lasted 1,500 hours using a carbonized cotton thread. Edison himself said, “I tested no fewer than 6,000 vegetable growths, and ransacked the world for the most suitable filament material.” So it’s likely that the latest figure that I heard, 10,000, is not far from the truth.4 Whether 999 or 10,000 attempts, process need innovation works because the innovator simply works at something that is needed until he succeeds.

  Industry and Market-structure Innovation

  People tend to keep doing things the same way … forever, and this carries through to industries, markets, and frankly, everything. As a manager, consultant, professor, and military man, I can’t tell you the number of times I’ve been told by well meaning – and some not-so-well-meaning people – that “you can’t do it that way – it’s not the way it’s done”. I loved to hear those words as long as what was proposed was not unethical, immoral, or illegal. I discovered that many times folks were doing things the same way for years, even though the reasons they had started in this direction had long disappeared.

  This is precisely why Drucker maintained that most innovations came from “cross-fertilization”, where an individual from an entirely different industry or specialty moved out of his or her old environment and was given responsibilities in an entirely different environment. It is true that sometimes not having a certain product, industry, or market experience is a detriment and causes the executive to make errors due to this lack. But I have found that such errors are caused more by a lack of judgment than experience. The truth is many highly placed executives create major innovations because they don’t know that it can’t be done that way.

  As a pre-med student in the early 1980s, Michael Dell discovered that he could get a vendor’s licence to bid on contracts selling computer upgrade kits all over Texas straight out of his room in a residential building. With very low overhead, his prices were low and he won contract after contract. This led him to challenge the conventional method of selling computers through retail stores and go directly to the customer. This innovation revolutionized computer sales and allowed customers to essentially design their own computers at a competitive price. His net worth at the end of 2014 was $22.4 billion.5

  Billionaire Bill Bartmann was once listed by Forbes magazine as the 25th wealthiest man in the US, right ahead of Ross Perot. Bill was on my board of advisors at the California Institute of Advanced Management, until he unfortunately died due to an unexpected allergy during surgery. He was one amazing individual, having accomplished so many phenomenal things that it would fill a book, and in fact it has. I highly recommend his book, Bouncing Back (Brown Group Publishing Group, 2013).

  Bill made his biggest fortune in a highly innovative fashion by completely turning an industry on its head. This was in the money-collection industry, where the standard operating procedure was to threaten, hound, and otherwise coerce those owing money to pay up or else. In the immortal words of the Godfather “to make an offer which you can’t refuse”. Bill Bartmann bought these credit notes for 10 cents on the dollar. However, instead of hiring guys to threaten loss of reputation, home, or damage to bodily parts, Bartmann hired an assortment of head-hunters, personal coaches, and placement experts to assist those owing money in job finding, rebuilding careers, and restructuring loans so that most, while maintaining their self-respect, were able to pay off every penny. Now that’s innovation and market structure innovation! And of course, Bill made a fortune in the process while helping others. He will be sorely missed at CIAM, by employees of his own company and by the many that he helped.

  Demographic Change and the Potential for Innovation

  Demographics describe the characteristics of any given human population. These characteristics may pertain to education, religion, ethnic group, culture, income, number of children, and just about any other factor that can be measured. It is important to understand that these characteristics are not static; they change over time. People live longer and tend to be in better health at older ages than in generations past. They say that today’s age demographic of the ’80s were previously the ’60s of times past. Can you see sources for innovation in this? These changes have caused an explosion in the interest in and maintenance of health, which has led to health maintenance organizations, health newsletters, vitamins, spas for seniors, and more. I saw an article in the newspaper this morning reporting on how new technologies allow those in retirement to live better, live healthier, live even longer, and enjo
y themselves in the process.

  Sometimes demographics may change at warp speed. For example, the US population has doubled since 1950. Moreover, the composition of the US population is dramatically changing. According to an article in the New York Daily News: “The latest census data and polling from the Associated Press highlight the historic change in a nation in which non-Hispanic whites will lose their majority in the next generation, somewhere around the year 2043.”6 But at even greater velocity of change has been the rising costs of education. My younger son paid his own way through graduate school for an MBA. It cost him $40,000. Ten years later, the same school charged $120,000.

  Drucker and His Education Solution and Predictions

  About 20 years ago, Drucker predicted that the future of executive education was online. His prediction was based partially on technology and convenience, but also on the fact that computer literacy and computer ownership was growing even faster than the demand for executive education and that education could be provided at a much lower cost.

  Many traditional educators disparaged the idea of “distance learning.” They said it had to be done in the classroom face-to-face by lecture, just as it had been done in ancient Greece 2,000 years ago. They said that discussions had to take place and questions asked and answered in a classroom environment, or it just wasn’t effective. Students might be exposed to information and ideas online, but they just wouldn’t and couldn’t learn in this way.

  Well, Drucker was right again. Research found that learning online was even faster and more effective than classroom learning in many instances. Back in 2011, current Republican presidential candidate and former Florida Governor Jeb Bush, and James Baxter Hunt, Jr, twice the governor and the longest-serving governor of North Carolina, who happens to be a Democrat gave a joint speech on containing the rising costs of education, which was published afterward in Inside Higher Ed. They noted:

  “The 2010 US Department of Education’s ‘Review of Online Learning Studies’ found that students who took all or part of a course online perform better, on average, than those taking the same course through traditional face-to-face instruction. Similarly, a study conducted in the same year by the internationally known scholars Mickey Shachar and Yoram Neumann, which analysed 20 years of research on the topic, showed that in 70% of the cases, students who took distance-learning courses outperformed their counterparts who took courses in a traditional environment.”7

  Today, many old traditional universities such as Harvard, Stanford, and the University of Southern California all have online programmes. Others, such as Boston University, even offer doctorate degrees entirely online. The California Institute of Advanced Management started with a so-called “blended” or “hybrid” MBA programme with six lessons of every course face-to-face in the classroom and five online. After three years’ experience, we started an alternative 100% online programme with all the features of our blended programme. Using these and other Drucker-recommended concepts, we were able to offer much more to our students, including completion in 11 months and practical consulting experience in every course, either online or in the classroom. Moreover, we were able to do all this at a much lower price than most graduate schools.

  Innovation Opportunities Due to Changes in Perception

  How we look at things is critical. There is a very old example from psychology, which is still used in many textbooks. When I first encountered it, I was amazed. It was an ambiguous picture of either a young, attractive woman, or an older, ugly one – all in the same picture. It just depended on how you looked at the illustration. You could see either, depending on your perception at that moment and which you perceived first, the young girl or the old woman. Once you saw one, it was very difficult to see the other. In my own experience I had to look away, or close my eyes to see the different image, and at first I had some difficulty in perceiving both. Of course after repetition I could move back and forth in my perceptions. I thought of how I might better demonstrate this in the classroom.

  After some experiments, I found that I could control what picture viewers would see by simply showing them a few images in which a few lines were drawn first. In this first instance, the viewers would only see the young woman or the old one, but could not see both in the same drawing.

  I would alter each picture. In my doctored versions, in one picture viewers could only see the young, attractive woman. I put that in one set of envelopes, and the doctored picture in which viewers could see only the older, ugly woman in another set. In my class, with a devilish gleam in my eyes, I handed out envelopes with the young woman’s picture to half of my class on the left side of the room, and the envelopes with the older woman’s picture to the remaining half on the right side of the room. I then instructed everyone to open the envelope and look at the picture for 10 seconds and return the pictures to the envelopes. Finally, in the last step I project the ambiguous picture on a screen in which both images existed and either could be perceived.

  I then asked innocently: “How many see a picture of a young, attractive woman?” The hands on the left side of the room would go up. Students on the right side of the room would look puzzled, and I would appear puzzled, too. “How many see an older, unattractive woman?” I would ask. The hands on the right side of the room would be raised, and now those seated on the left side of the room would look puzzled. What fun!

  Perception is always relative and depends on how you look at things. Although many perceptions depend solely on optical illusions, others may depend on your mood, values, beliefs, or what you see or “know” from previous experience, as in my experiment in the classroom. Others are illustrated by the old Indian fable about blind men feeling different body parts of an elephant – feet, trunk, tail, ears, tusks – and the different perceptions of the animal each individual imagined based on extrapolating the single part each had felt.

  All this is confirmed by police line-ups. You’ve seen them on television and in the movies: the police put the arrested individual in a line with other people facing an eyewitness. The other people in the line are innocent of any wrongdoing. The eyewitness is asked to pick the one guilty individual from the line-up. Does this sound fool proof? Since DNA testing, a lot of folks judged guilty due to police line-ups have turned out to be innocent. As reported in Time: “According to the Innocence Project, eyewitness misidentification has been a factor in 72% of convictions that have been overturned by DNA testing. The National Registry of Exonerations, which works in conjunction with the University of Michigan, traces 507 of the 1,434 exonerations back to mistaken witness identification.”8

  How can we take advantage of perception as a source of innovation? Once a rip in clothing was cause for the quality inspector to reject the product and it was destroyed, or if the tear was minor, it might be sold at a significant discount. However the 1960s began the onset of the Hippie Generation. It became popular to wear torn or faded clothing. Almost overnight, stressed, faded, frayed, and yes, even ripped, jeans became status symbols that were desired by many young, prospective buyers. In response to this new perception of what was considered desirable, jeans manufacturers began to manufacture clothing intentionally produced to resemble clothing that was once considered damaged. However, it could be said that clothing that even the Salvation Army would no longer accept became articles of pride. Perception is everything, and innovations can take advantage of perceptions as they change.

  Perception is Everything

  A few years ago, a woman in Spain by the name of Susana Seuma lost the use of a leg in an automobile accident and it cost her career, which required two good legs. When a tragedy likes this strikes, there are many solutions that appear to limit or destroy a former career for the future. Ms Seuma’s solution was not only highly innovative, but unique. It was based on her secret desire to be a mermaid and her perception that relying on this means of locomotion – at least in the water – was the solution to her career challenge. She had always wanted to be a mermaid—you kno
w, a female creature with a tail like a fish but with the upper body of a woman. So Ms Seuma strapped on a fan-shaped monofin and donned glimmering spandex over her body. After mastering the art of swimming with this adornment, she founded the Sirenas Mediterranean Academy in 2013 and to date has taught the art of being a mermaid, or at least swimming like one, to 500 attendees at her school.9

  If Knowledge Is Power, then New Knowledge Is New Power

  You might assume that new knowledge would immediately become the source of innovation and competitive advantage, which would help spirit companies to advanced positions in their industries and at the same time satisfy needs and wants, some of which were not even recognized until the innovations were introduced. Sad to say, this simply is not true. It frequently takes years – sometimes decades or longer – before new knowledge is applied in worthwhile innovations.

  Alexander Fleming is generally credited with the discovery of penicillin in 1928. But the first documented cure didn’t occur until 1942, 14 years later. However, the first published paper on the use of fungi as a cure goes back to the 1870s, which would mean the time between knowledge and innovation was considerably longer. However, hold on. The blue mould of this antibiotic on bread was observed to help speed the cure of wounds of battle in the Middle Ages. So the time between knowledge and innovation would more accurately be described as several hundred years.