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But this is by no means common. A Swiss pharmaceutical company today has world leadership in veterinary medicines, yet it has not itself developed a single veteri- nary drug. But the companies that developed these medicines refused to serve the veterinary market. The medicines, mostly antibiotics, were of course developed for treating human diseases. When the veterinarians discovered that they were just as effective for animals and began to send in their orders, the original manufac- turers were far from pleased.
In some cases they refused to supply the veterinarians; in many others, they disliked having to reformu- late the drugs for animal use, to repackage them, and so on. Some of the manufacturers were only too happy to get rid of the embarrassing success. Human medications have since come under price pressure and are carefully scrutinized by regulatory authorities. This has made veteri- nary medications the most profitable segment of the pharmaceutical industry.
But the companies that developed the compounds in the first place are not the ones who get these profits. Nobody pays any attention to it. Hence, nobody exploits it, with the inevitable result that the competitor runs with it and reaps the rewards. A leading hospital supplier introduced a new line of instruments for biological and clinical tests. The new products were doing quite well. Then, suddenly, orders came in from industrial and university laboratories. Nobody was told about them, nobody noticed them; nobody realized that, by pure accident, the company had developed products with more and better customers outside the market for which those products had been developed.
No salesman was being sent out to call on these new customers, no service force was being set up. Five or eight years later, another company had taken over these new markets. And because of the volume of business these markets produced, the newcomer could soon invade the hospital market offer- ing lower prices and better services than the original market leader. Practically every company—but every public-service institution as well—has a monthly or quarterly report. The first sheet lists the areas in which performance is below expectations: it lists the prob- lems and the shortfalls. At the monthly meetings of the management group and the board of directors, everybody therefore focuses on the problem areas.
No one even looks at the areas where the company has done better than expected. To exploit the opportunity for innovation offered by unex- pected success requires analysis. Unexpected success is a symp- tom. But a symptom of what? The underlying phenomenon may be nothing more than a limitation on our own vision, knowledge, and understanding. The unexpected success of appliances at R. Up until World War II, department store consumers in the United States bought primarily by socioeconomic status, that is, by income group.
The unexpected success of laboratory instruments designed for the hospital in industrial and university laboratories was a symptom of the disappearance of distinctions between the various users of scientific instruments, which for almost a century had created sharply different markets, with different end uses, specifications, and expectations. What it symptomized—and the company never realized this—was not just that a product line had uses that were not originally envisaged. It sig- naled the end of the specific market niche the company had enjoyed in the hospital market. So the company that for thirty or forty years had successfully defined itself as a designer, maker, and marketer of hospi- tal laboratory equipment was forced eventually to redefine itself as a maker of laboratory instruments, and to develop capabilities to design, manufacture, distribute, and service way beyond its original field.
By then, however, it had lost a large part of the market for good. Thus the unexpected success is not just an opportunity for inno- valion; it demands innovation. It forces us to ask, What basic changes are now appropriate for this organization in the way it defines its busi- ness? Its technology? Its markets? If these questions are faced up to, then the unexpected success is likely to open up the most rewarding and least risky of all innovative opportunities. DuPont, for years, had confined itself to making munitions and explosives. In the mids it then organized its first research efforts in other areas, one of them the brand-new field of polymer chemistry, which the Germans had pioneered during World War I.
Then, in , an assistant left a burner on over the weekend. On Monday morning, Wallace H. Carothers, the chemist in charge, found that the stuff in the kettle had congealed into fibers. It took another ten years before DuPont found out how to make Nylon intentionally. The point of the story is, how- ever, that the same accident had occurred several times in the labora- tories of the big German chemical companies with the same results, and much earlier. The Germans were, of course, looking for a poly- merized fiber—and they could have had it, along with world leader- ship in the chemical industry, ten years before DuPont had Nylon.
But because they had not planned the experiment, they dismissed its results, poured out the accidentally produced fibers, and started all over again. The history of IBM equally shows what paying attention to the unexpected success can do. For IBM is largely the result of the will- ingness to exploit the unexpected success not once, but twice. In the early s, IBM almost went under. It had spent its available money on designing the first electro-mechanical bookkeeping machine, meant for banks.
But American banks did not buy new equipment in the Depression days of the early thirties. IBM even then had a policy of not laying off people, so it continued to manufacture the machines, which it had to put in storage. Watson of IBM? Why does your sales manager refuse to demonstrate your machine to me? But next morning, he appeared there as soon as its doors opened. In those days, libraries had fair amounts of government money.
Like the other early American computers, the IBM computer was designed for scientific purposes only. But IBM, though equally surprised by the business demand for computers, responded immediately. Indeed, it was willing to sac- rifice its own computer design, which was not particularly suitable for accounting, and instead use what its rival and competitor Univac had developed.
Within four years IBM had attained leadership in the computer market, even though for another decade its own computers were technically inferior to those produced by Univac. Matsushita was a fairly small and undistinguished company in the early s, outranked on every count by such older and deeply entrenched giants as Toshiba or Hitachi. Matsushita, however, was intelligent enough to accept that the Japanese farmers apparently did not know that they were too poor for television. What they knew was that television offered them, for the first time, access to a big world. They could not afford televi- sion sets, but they were prepared to buy them anyhow and pay for them. Toshiba and Hitachi made better sets at the time, only they showed them on the Ginza in Tokyo and in the big-city department stores, making it pretty clear that farmers were not particularly wel- come in such elegant surroundings.
Matsushita went to the farmers and sold its televisions door-to-door, something no one in Japan had ever done before for anything more expensive than cotton pants or aprons. The search has to be organized. It must be properly featured in the information management obtains and studies. How to do this is described in some detail in Chapter Managements must look at every unexpected success with the questions: 1 What would it mean to us if we exploited it?
And 4 How do we go about it? This means, first, that managements need to set aside specific time in which to discuss unexpected successes; and second, that someone should always be designated to analyze an unexpected success and to think through how it could be exploited. But management also needs to learn what the unexpected success demands of them. Again, this might best be explained by an example. Nobody on the faculty really believed in the program.
The only reason it was offered at all was that a small number of returning World War II veterans had been forced to go to work before obtain- ing their undergraduate degrees and were clamoring for an oppor- tunity to get the credits they still lacked. And the students in the pro- gram actually outperformed the regular undergraduates. This, in turn, created a dilemma. To exploit the unexpected success, the university would have had to build a fairly big first-rate faculty.
But this would have weakened its main program; at the least, it would have diverted the university from what it saw as its main mission, the training of undergraduates. The alternative was to close down the new program. Either decision would have been a responsible one. Instead, the university decided to staff the pro- gram with cheap, temporary faculty, mostly teaching assistants working on their own advanced degrees.
As a result, it destroyed the program within a few years; but worse, it also seriously dam- aged its own reputation. The unexpected success is an opportunity, but it makes demands. It demands to be staffed with the ablest people available, rather than with whoever we can spare. It demands seriousness and support on the part of management equal to the size of the opportunity.
And the opportunity is considerable. But they are seldom seen as symptoms of opportunity. A good many failures are, of course, nothing but mistakes, the results of greed, stupidity, thoughtless bandwagon-climbing, or incompetence whether in design or execution. Yet if something fails despite being carefully planned, carefully designed, and conscientiously executed, that failure often bespeaks underlying change and, with it, opportunity.
The assumptions on which a product or service, its design or its marketing strategy, were based may no longer fit reality. Any change like this is an opportunity for innovation. I had my first experience with an unexpected failure at the very begin- ning of my working life, almost sixty years ago, just out of high school. My first job was as a trainee in an old export firm, which for more than a century had been selling hardware to British India. Its best seller for years had been a cheap padlock, of which it exported whole shiploads every month. The padlock was flimsy; a pin easily opened the lock. As incomes in India went up during the s, padlock sales, instead of going up, began to decline quite sharply.
But the improved padlock turned out to be unsalable. Four years later, the firm went into liquidation, the decline of its Indian padlock business a major factor in its demise. For the bulk of Indians, the peasants in the villages, the padlock was and for all I know, still is a magical symbol; no thief would have dared open a padlock. The key was never used, and usual- ly disappeared. To get a padlock that could not easily be opened with- out a key—the improved padlock my employer had worked so hard to perfect without additional cost—was thus not a boon but a disaster.
A small but rapidly growing middle-class minority in the cities, however, needed a real lock. That it was not sturdy enough for their needs was the main reason why the old lock had begun to lose sales and market. But for them the redesigned product was still inadequate. Both lines immediately began to sell. Within two years, the competitor had become the largest European hardware exporter to India. A quaint tale from horse and buggy days, some might say.
Surely we have become more sophisticated in this age of computers, of mar- ket research, and of business school MBAs. Yet it teaches exactly the same lesson. Inflation was becoming rampant, particularly in housing prices, which rose much faster than anything else. At the same time, interest rates on home mortgages were skyrocketing. The builders tried to salvage it by offering low-interest financing and long repayment terms, and by slashing prices. He found that there had been a change in what the young American couple wants in its first house. To make the down payment on this far more expensive permanent home, they would, however, need the equity they had built up in the first house. Seniority, for working-class people with Japan being the major exception , means greater job security rather than larger incomes.
Once this was understood—and all it took was to listen to prospective homebuyers for a few weekends—successful innovation came about eas- ily. Almost no change was made in the physical plant itself; only the kitchen was redesigned and made somewhat roomier. Five years later, the firm was operating in seven metropolitan areas and was either number one or a strong number two in each of them. Even during the building recession of —82—a recession so severe that some of the largest American builders did not sell one sin- gle new house during an entire season—this innovative homebuilder continued to grow.
It gave us a steady supply of well-built and still fairly new houses that needed only a little fixing up and could then be resold at a very decent profit to the next crop of first-home buyers. The unexpected failure demands that you go out, look around, and listen. Failure should always be considered a symp- tom of an innovative opportunity, and taken seriously as such. At that time Kroc was selling milkshake machines to hamburger joints. He investigated and found an old man who had, in effect, reinvented the fast-food business by system- atizing it. In either case, one takes the event seriously as a possible symptom of innovative opportunity.
Innovation—and this is a main thesis of this book—is organized, systematic, rational work. But it is perceptual fully as much as con- ceptual. To be sure, what the innovator sees and learns has to be sub- jected to rigorous logical analysis. It is not in fact even necessary for the entrepreneur to understand why reality has changed. In the two cases above, it was easy to find out what had happened and why. More often, we find out what is hap- pening without much clue as to why. And yet we can still innovate successfully. Even people who were not yet born when the Edsel failed have heard about it, at least in the United States. But the general belief that the Edsel was a slapdash gamble is totally mis- taken. Very few products were ever more carefully designed, more care- fully introduced, more skillfully marketed.
Ford went to extreme lengths to plan and design the Edsel, embodying in its design the best information from market research, the best information about customer preferences in appearance and styling, and the highest standards of quality control. Yet the Edsel became a total failure right away. The reaction of the Ford Motor Company was very revealing. All we know is that something happened. But that is enough to convert the unexpected, whether success or failure, into an opportunity for effective and purposeful innovation.
But outside events, that is, events that are not recorded in the information and the figures by which a management steers its institution, are just as important. Indeed, they often are more important. Here are some examples showing typical unexpected outside events and their exploitation as major opportunities for successful innovation. One example concerns IBM and the personal computer. Everything else, every IBM engineer could prove convincingly, would be far too expensive, far too confusing, and far too limited in its performance capacity. And so IBM concentrated its efforts and resources on main- taining its leadership in the main-frame market. Right away their fathers wanted their own office computer or personal computer, that is, a separate, small, freestanding machine with far less capacity than even the smallest main-frame has.
All the dire things the IBM people had predicted actually did happen. But this does not seem to bother the customers. On the contrary, in the U. IBM could have been expected to dismiss this development. As a result, IBM produced its own personal computer in , just when the market was exploding. But is it no less instruc- tive despite its lack of glamour. The United States has never been a book-buying country, in part because of the ubiquitous free public library. But instead of collapsing, book sales in the United States have soared since TV first came in. No one knows why this happened. Indeed, no one quite knows what really happened. Books are still as rare in the typical American home as before.
That we have no answer to this question does not alter the fact that books are being bought and paid for in increasing numbers. Both the publishers and the existing bookstores knew, of course, all along that book sales were soaring. Neither, however, did anything about it. The unexpected event was exploited, instead, by a few mass retailers such as department stores in Minneapolis and Los Angeles. None of these people had ever had anything to do with books, but they knew the retail business. They started bookstore chains that are quite different from any earlier bookstore in America. Basically, these are supermarkets. They are located in shopping centers with high rents but also with high traffic, whereas everybody in the book business had known all along that a bookstore has to be in a low-rent location, preferably near a universi- ty.
The standing joke among them is that any salesperson who wants to read anything besides the price tag on the book is hopelessly overqualified. For ten years now, these new bookstore chains have been among the most successful and fastest-growing segments in American retail- ing and among the fastest-growing new businesses in this country altogether. Each of these cases represents genuine innovation. But not one of them represents diversification. IBM stayed in the computer business. Companies, even large companies, that went into the new book market This is also true of Japan, the country, that per capita, buys more books than any other and twice as many as the United States. Yet as the above examples show, it also demands innovation in product and often in service and distribution channels.
The second point about these cases is that they all are big-com- pany cases. Of course, a good many of the cases in this book, as in any management book, have to be big-company cases. They are the only available ones, as a rule, the only ones that can be found in the published records, the only ones discussed on the business page of newspapers or in magazines. Small-company cases are much harder to come by and often cannot be discussed without violating confidences.
But exploiting the unexpected outside event appears to be some- thing that particularly fits the existing enterprise, and a fairly sizable one at that. I know of few small companies that have successfully exploited the unexpected outside event; nor does any other student of entrepreneurship and innovation whom I could consult. This may be coincidence. The large retailer also knows about shopping-center locations and how to get the good ones.
And could a small company have done what IBM did and detach four task forces of first-rate designers and engineers to work on new product lines? Smaller high-tech compa- nies in a rapidly growing industry usually do not have enough of such people even for their existing work. It may well be that the unexpected outside event is the innovative area that offers the large enterprise the greatest opportunity along with the lowest risk. It may be the area that is particularly suited for innovation by the large and established enterprise. It may be the area in which expertise matters the most, and in which the ability to mobi- lize substantial resources fast makes the greatest difference.
But as these cases also show, being big and established does not guarantee that an enterprise will perceive the unexpected event and successfully organize itself to exploit it. Not one of them exploited the personal computer—they were all too busy fighting IBM. The opportunity is there, in other words. It is a major opportunity, occurring frequently. And when it occurs, it holds out great promise, particularly for existing and sizable enterprises. But such opportuni- ties require more than mere luck or intuition. They demand that the enterprise search for innovation, be organized for it, and be managed so as to exploit it. We may not understand the reason for it; indeed, we often cannot figure it out.
Still, an incongruity is a symptom of an opportu- nity to innovate. Such a fault is an invitation to innovate. It creates an insta- bility in which quite minor efforts can move large masses and bring about a restructuring of the economic or social configuration. Incongruities do not, however, usually manifest themselves in the fig- ures or reports executives receive and pay attention to. They are qual- itative rather than quantitative. Like the unexpected event, whether success or failure, incongruity is a symptom of change, either change that has already occurred or change that can be made to happen.
Like the changes that underlie the unexpected event, the changes that underlie incongruity are changes within an industry, a market, a process. The incongruity is thus clear- ly visible to the people within or close to the industry, market, or process; it is directly in front of their eyes. It should be easy to be profitable in an industry with steadily rising demand. The tide carries it. A lack of profitability and results in such an industry bespeaks an incongruity between economic realities. Typically, these incongruities are macro-phenomena, which occur within a whole industry or a whole service sector.
The major oppor- tunities for innovation exist, however, normally for the small and highly focused new enterprise, new process, or new service. And usu- ally the innovator who exploits this incongruity can count on being left alone for a long time before the existing businesses or suppliers wake up to the fact that they have new and dangerous competition. For they are so busy trying to bridge the gap between rising demand and lagging results that they barely even notice somebody is doing something different—something that produces results, that exploits the rising demand.
Sometimes we understand what is going on. But sometimes it is impossible to figure out why rising demand does not result in better performance. The innovator, therefore, need not always try to under- stand why things do not work as they should. What would convert it into an opportunity? What can be done? Sometimes the action to be taken is rather obvious, even though the problem itself is quite obscure. And some- times we understand the problem thoroughly and yet cannot figure out what to do about it. For more than fifty years, since the end of World War I, the large, integrated steel mill in developed countries did well only in wartime.
The explanation of this incongruity has long been known. The minimum incremental unit needed to satisfy additional demand in an integrated steel mill is a very big investment and adds substantially to capacity. Any expansion to an existing steel mill is thus likely to oper- ate for a good many years at a low utilization rate, until demand— which always goes up in small, incremental steps except in wartime—reaches the new capacity level. But not to expand when demand creeps up means losing market share, and permanently.
No company can afford to take that risk. The industry can therefore only be profitable for a few short years: between the time when everybody begins to build new capacity and the time when all this new capacity comes on stream. Further, the steelmaking process invented in the s is funda- mentally uneconomical, as also has been known for many years. It tries to defy the laws of physics—and that means violating the laws of economics. Nothing in physics requires as much work as the cre- ation of temperatures, whether hot or cold, unless it is working against the laws of gravity and of inertia. The integrated steel process creates very high temperatures four times, only to quench them again. And it lifts heavy masses of hot materials and then moves them over considerable distances.
It had been clear for many years that the first innovation in process that would assuage these inherent weaknesses would sub- stantially lower costs. But that is still about one-sixth to one-tenth the minimum economic size of an integrated steel mill. A mini-mill can thus be built to provide, economically, a fairly small additional increment of steel production for which the market already exists. The mini-mill creates heat only once, and does not quench it, but uses it for the rest of the process. It starts with steel scrap instead of iron ore, and then concentrates on one end product: sheet, for instance, or beams, or rods.
And while the integrated steel mill is highly labor-intensive, the mini-mill can be automated. Its costs thus come to less than half those of the traditional steel process. Governments, labor unions, and the integrated steel companies have been fighting the mini-mill every step of the way. By the year , fifty percent or more of the steel used in the United States is likely to come out of mini-mills, while the large, integrated steel mills will be in irreversible decline. There is a catch, however, and it is an important one. A similar incongruity between the economic reality of demand and the econom- ic reality of the process exists in the paper industry.
Only in this case, we do not know how to convert it into innovation and opportunity. Despite the constant efforts of the governments of all developed and most developing countries to increase the demand for paper— perhaps the only objective on which the governments of all countries agree—the paper industry has not been doing well. For eighty or ninety years, it has been known that wood fiber is a monomer; and it should not be too diffi- cult, one would say, to find a plasticizer that converts it into a poly- mer. This would convert paper-making from an inherently inefficient and wasteful mechanical process into an inherently efficient chemical process.
Indeed, almost a hundred years ago this was achieved as far as making textile fibers out of wood pulp is concerned—in the rayon process, which dates back to the s. But despite millions spent in research, nobody has so far found a technique to produce paper that way. In an incongruity, as these cases exemplify, the innovative solution has to be clearly definable. It has to be feasible with the existing, known technology, and with easily available resources.
It requires hard developmental work, of course. In public-service areas, too, major incongruities between econom- ic realities can be found. Health care in developed countries offers one example. As recently as , health care represented an insignificant portion of national expenditure in all developed countries, taking up a good deal less than 1 percent of gross national product or of consumer expenditures.
Now, half a century later, health care, and expecially the hospital, accounts in all developed countries for 7 to 11 percent of a much larger gross national product. Costs have risen much faster than services—perhaps three or four times as fast. The demand will continue to rise with the steady growth in the number of older people in all developed countries over the next thirty years. And so will the costs, which are closely tied to the age of the population. We do not understand the phenomenon. These innovations are quite different simply because the two countries have such radically different systems.
Health insurance policyholders, however, are operated on right away. In contrast to Great Britain, the United States has so far tried to sat- isfy all demands of health care regardless of cost. As a result, hospital costs in America have exploded. It is given in The Economist of April 29, These new facilities do not substitute for the hospital. What they do in effect is to push the American hospital toward the same role the British have assigned to their hospitals: as a place for emergencies, for life-threatening diseases, and for intensive and acute sickness care.
It is this fact, however, that makes them accessible, visible, and understandable. Above all, these examples show why the incon- gruity between economic realities offers such great innovative oppor- tunities. The people who work within these industries or public serv- ices know that there are basic flaws. But they are almost forced to ignore them and to concentrate instead on patching here, improving there, fighting this fire or caulking that crack. They are thus unable to take the innovation seriously, let alone to try to compete with it. They do not, as a rule, even notice it until it has grown so big as to encroach on their industry or service, by which time it has become irreversible.
In the meantime, the innovators have the field to themselves. They will concentrate on the area where results do not exist. Then there is an incongruity between real- ity and behavior, an incongruity that once again offers opportunity for successful innovation to whoever can perceive and exploit it. A simple example is that old workhorse of world trade, the ocean- going general cargo vessel. Thirty-five years ago, in the early s, the ocean-going freighter was believed to be dying. Costs of ocean freight were rising at a fast clip, and it took longer and longer to get merchandise delivered by freighter as one port after another became badly congested. This, in turn, increased pilferage at the docks as more and more merchandise piled up waiting to be loaded while ves- sels could not make it to the pier.
The basic reason was that the shipping industry had misdirected its efforts toward nonresults for many years. It had tried to design and build faster ships, and ships that required less fuel and a smaller crew. It concentrated on the economics of the ship while at sea and in tran- sit from one port to another. But a ship is capital equipment; and for all capital equipment the biggest cost is the cost of not working, during which interest has to be paid while the equipment does not earn. Everybody in the indus- try knew, of course, that the main expense of a ship is interest on the investment. Yet the industry kept on concentrating its efforts on costs that were already quite low—the costs of the ship while at sea and doing work.
The solution was simple: Uncouple loading from stowing. Do the loading on land, where there is ample space and where it can be per- formed before the ship is in port, so that all that has to be done is to put on and take off pre-loaded freight. Concentrate, in other words, on the costs of not working rather than on those of working. The answer was the roll-on, roll-off ship and the container ship. The results of these simple innovations have been startling. Freighter traffic in the last thirty years has increased up to five- fold. Costs, overall, are down by 60 percent. Port time has been cut by three-quarters in many cases, and with it congestion and pilferage.
Incongruity between perceived reality and actual reality often declares itself. But whenever serious, concentrated efforts do not make things better but, on the contrary, make things worse—where faster ships only mean more port congestion and longer delivery times—it is highly probable that efforts are being misdirected. In all likelihood, refocusing on where the results are will yield substantial returns easily and fast. The incongruity between perceived and actual reality typically char- acterizes a whole industry or a whole service area. The solution, how- ever, should again be small and simple, focused and highly specific.
It is also a good example of the incongruity between actual and perceived customer values and cus- tomer expectations. Long before the Japanese industrialist told his American audience that the poor in his country would not buy a TV set because they could not afford it, the poor in the United States and in Europe had already shown that TV satisfies expectations which have little to do with traditional economics. But they are examples of a common phenomenon. One of the fastest-growing American financial institutions for the last several years has been a securities firm located not in New York but in a suburb of a Midwestern city.
And it owes its success and growth to having exploited an incongruity. Huttons, assume that their customers have the same values they have. To them it is obvious, if not axiomatic, that people invest in order to get rich. The local professional men, the local small businessmen, the local substantial farmers, however, have neither such time nor such knowledge; they are much too busy earning their money to have time to manage it. This is the incongruity which the Midwestern securities firm exploits. Outwardly, it looks just like any other securities firm.
It is a member of the New York Stock Exchange. But only a very small portion of its business, around one-eighth, is Stock Exchange busi- ness. It does not even want customers who trade. It wants customers who earn more money than they spend, which is typical for the success- ful professional, the substantial farmer, or the small-town business- man, less because their incomes are high than because their spend- ing habits are modest. And then it appeals to their psychological need to protect their money.
This successful firm has now been widely publicized. It is on every list of large and growing Stock Exchange firms. Behind the incongruity between actual and perceived reality, there always lies an element of intellectual arrogance, of intellectual rigor and dogmatism. This explains why the incongruity is so easily exploited by innovators: they are left alone and undisturbed. Of all incongruities, that between perceived and actual reality may be the most common. Producers and suppliers almost always mis- conceive what it is the customer actually buys.
To succeed in doing a job, any job, one has to believe in it and take it seriously. People who make cosmetics must believe in them; otherwise, they turn out shoddy products and soon lose their customers. People who run a hospital must believe in health care as an absolute good, or the quality of medical and patient care will deteriorate fast. And yet, no customer ever perceives himself as buying what the producer or supplier delivers. Their expectations and values are always different. Then there is reason to look for an opportunity for inno- vation that is highly specific, and carries a good chance of success. He therefore looked for an incongruity within a process in medical practice.
He found one almost immediately. One of the most common surgical operations is the operation for senile cataract in the eye. But there was one point in this operation that was out of character and out of rhythm: at one phase the eye surgeon had to cut a ligament, to tie blood vessels and so risk bleed- ing, which then endangered the eye. This procedure was done success- fully in more than 99 percent of all operations; indeed, it was not very difficult.
But it greatly bothered the surgeons. It forced them to change their rhythm and induced anxiety in them. Eye surgeons, no matter how often they had done the operation, dreaded this one, quick procedure. The pharmaceutical company salesman—his name is William Connor—found out without much research that an enzyme had been isolated in the s which almost instantaneously dissolves this particular ligament. Only nobody then, sixty years earlier, had been able to store this enzyme even under refrigeration for more than a few short hours. Preservation techniques have, however, made quite a bit of progress since And so Connor, within a few months, was able by trial and error to find a preservative that gives the enzyme substantial shelf life without destroying its potency.
Twenty years later he sold his company, Alcon Laboratories, to one of the multinationals for a very large amount. And another telling example: O. Though it is now a subsidiary of a large corporation ITT , it attained leadership while a small independent company in fierce competition with firms many times its size, ranging from Sears, Roebuck to Dow Chemicals. Its products are good but so are those of the competition. All prescribe in meticulous detail how much of the stuff should be applied, given soil conditions and temperatures. Or can it be organized and systematized? William Connor is said to have started out by asking surgeons where they felt uncomfortable about their work. Scott grew from a tiny local seed retailer into a fair-sized national company because it asked dealers and customers what they missed in available products.
Then it designed its product line around the Spreader. The incongruity within a process, its rhythm or its logic, is not a very subtle matter. Users are always aware of it. Every eye surgeon knew about the discomfort he felt when he had to cut eye muscle— and talked about it. Every hardware-store clerk knew about the frus- tration of his lawn customers—and talked about it. What was lacking, however, was someone willing to listen, somebody who took serious- ly what everybody proclaims: That the purpose of a product or a serv- ice is to satisfy the customer. If this axiom is accepted and acted upon, using incongruity as an opportunity for innovation becomes fairly easy—and highly effective. There is, however, one serious limitation.
The incongruity is usu- ally available only to people within a given industry or service. It is not something that somebody from the outside is likely to spot, to understand, and hence is able to exploit. Like the unexpected, or the incongruities, it exists within the process of a business, an industry, or a service. Some innovations based on process need exploit incongruities, others demographics. Indeed, process need, unlike the other sources of innovation, does not start out with an event in the environment, whether internal or external. It starts out with the job to be done. It is task-focused rather than situation-focused. It perfects a process that already exists, replaces a link that is weak, redesigns an existing old process around newly available knowledge.
Yet usually no one does anything about it. The process of cataract surgery itself was a very old one. The enzyme to perfect the process had been known for decades. The innovation was the preservative to keep the enzyme fresh under refrigeration. But in their essentials, most, if not all, innovations based on process need have the same elements. Here is another example of a similar process-need innovation. Ottmar Mergenthaler designed the linotype for typesetting in During the preceding decades, printed materials of all kinds—magazines, newspapers, books—had all been growing at an exponential rate with the spread of literacy and the development of transportation and communication.
All the other elements of the printing process had already changed. There were high-speed print- ing presses, for instance, and paper was being made on high-speed paper machines. Only typesetting had gone unchanged from the days of Gutenberg four hundred years earlier. It remained slow and expensive manual work, requiring high skill and long years of apprenticeship. Mergenthaler, like Connor, defined what was need- ed: a keyboard that would make possible the mechanical selection of the right letter from the typefont; a mechanism to assemble the letters and to adjust them in a line; and—the most difficult, by the way—a mechanism to return each letter to its proper receptacle for future use.
Each of these required several years of hard work and considerable ingenuity. But none required new knowledge, let alone new science. Demographics, however, are very often an equally powerful source of process need and an opportunity for process innovation. In or thereabouts a statistician at the Bell Telephone System projected two curves fifteen years ahead: the curve for American pop- ulation growth and the curve for the number of people required as central-station operators to handle the growing volume of telephone calls. These projections showed that every American woman between age seventeen and sixty would have to work as a switchboard opera- tor by the year or if the manual system of handling calls were to be continued. Two years later, Bell engineers had designed and put into service the first automatic switchboard.
Similarly, the present rush into robotics is largely the result of a process need caused by demographics. Most of the knowledge has been around for years. The Japanese are not ahead in robotics because of technical superiority; their designs have mostly come from the United States. It took the Japanese just as long as it did the Americans or the Germans—ten years—to realize that they were facing a labor shortage. But these ten years started in Japan a good deal sooner than in the United States, and in West Germany the ten years are still not quite over as these lines are being written. With the demand for printed materials exploding, the supply of typesetters requiring an apprenticeship of six to eight years was fast becoming inadequate, and wages for typeset- ters were skyrocketing.
Incongruities and demographics may be the most common caus- es of a process need. But to satisfy the process need, considerable new knowledge has to be produced. Very few inventions have succeeded faster than photography. Within twenty years after its invention, it had become popular world- wide. By , every bride had to have her pho- tograph taken. Photography was the first Western technology to invade Japan, well before the Meiji Restoration and at a time when Japan oth- erwise was still firmly closed to foreigners and foreign ideas.
Amateur photographers were fully established by But the available technology made things difficult for them. Photography required heavy and fragile glass plates, which had to be lugged around and treated with extreme care. It required an equally heavy camera, long preparations before a picture could be taken, elaborate settings, and so on. Everybody knew this. But the problems could not be solved with the science and technology avail- able in By the mids, however, new knowledge had become available which then enabled George Eastman, the founder of Kodak, to replace the heavy glass plates with a cellulose film weighing practi- cally nothing and impervious even to very rough handling, and to design a lightweight camera around his film.
Within ten years, Eastman Kodak had taken world leadership in photography, which it still retains. Again, the need must be felt, and it must be pos- sible to identify what is needed. Then the new knowledge has to be produced. The prototype innovator for this kind of process-need inno- vation was Edison see also Chapter 9. Without it, there could be no electric power industry. Edison defined the new knowledge needed to convert this potential electric power industry into an actual one, went to work, and had a light bulb within two years. Program research to convert a potential into reality has become the central methodology of the first-rate industrial research laborato- ry and, of course, of research for defense, for agriculture, for medi- cine, and for environmental protection.
Program research sounds big. But its most successful applications are in small and clearly defined projects-the smaller and the more sharply focused the better. Indeed, the best example—and perhaps the best single example of successful process need—based innovation—is a very small one, the highway reflector that cut the Japanese automobile accident rate by almost two-thirds. As late as , Japan had almost no paved roads outside of the big cities. But the country was rapidly shifting to the automobile, so the government frantically paved the roads. Now automobiles could—and did—travel at high speed. Accidents began to mount at an alarming rate, especially at night. A young Japanese, Tamon Iwasa, seized on this crisis as an inno- vative opportunity.
He redesigned the traditional highway reflector so that the little glass beads that serve as its mirrors could be adjusted to reflect the headlights of oncoming cars from any direction onto any direction. The government rushed to install Iwasa reflectors by the hundreds of thousands. And the accident rate plummeted. To take another example. World War I had created a public in the United States for national and international news. Everybody was aware of this. Indeed, the news- papers and magazines of those early post—World War I years are full of discussions as to how this need could be satisfied. But the local news- paper could not do the job. Several leading publishers tried, among them The New York Times; none of them succeeded.
Then Henry Luce iden- tified the process need and defined what was required to satisfy it. It could not be a local publication, it had to be a national one, otherwise, there would be neither enough readers nor enough advertisers. And it could not be a daily—there was not enough news of interest to a large public. The development of the editorial format was then practically dic- tated by these specifications. When Time magazine came out as the first news magazine in the world, it was an immediate success. There are, however, some important caveats.
The need must be understood. We have known, for instance, for several hundred years that math- ematics is a problem subject in school. A small minority of students, certainly no more than one-fifth, seem to have no difficulty with mathematics and learn it easily. The rest never really learn it. It is pos- sible, of course, to drill a very much larger percentage to pass math- ematics tests. The Japanese do this through heavy emphasis on the subject. But that does not mean that Japanese children learn mathe- matics. They learn to pass the tests and then immediately forget mathematics. Ten years later, by the time they are in their late twen- ties, Japanese do just as poorly on mathematics tests as do western- ers.
In every generation there is a mathematics teacher of genius who somehow can make even the untalented learn, or at least learn a good deal better. But nobody has ever been able, then, to replicate what this one person does. The need is acutely felt, but we do not understand the problem. Is it a lack of native ability? Is it that we are using the wrong methods? Are there psychological and emotional problems? No one knows the answer. And without understanding the problem, we have not been able to find any solution. We may even understand a process and still not have the knowledge to do the job. The preceding chapter told of the clear and understood incongruity in paper making: to find a process that is less wasteful and less uneconomical than the existing one.
For a century, able people have worked on the problem. We know exact- ly what is needed: polymerization of the lignin molecule. It should be easy—we have polymerized many molecules that are similar. But we lack the knowledge to do it, despite a hundred years of assiduous work by well-trained people. The solution must fit the way people do the work and want to do it. Amateur photographers had no psychological investment in the complicated technology of the early photographic process. All they wanted was to get a decent photograph, as easily as possible. They were receptive, therefore, to a process that took the labor and skill out of taking pictures. Similarly, eye surgeons were interested only in an elegant, logical, bloodless process.
An enzyme that gave this to them therefore satisfied their expectations and values. But here is an example of an innovation based on a clear and sub- stantial process need that apparently does not quite fit, and therefore has not been readily accepted. Professionals have been complaining that they have to spend more and more time hunting for information in the law library, in handbooks and textbooks, in looseleaf services, and so on. It gives the professionals immediate information through a computer program and a display terminal: court decisions for the lawyers, tax rulings for the accountants, information on drugs and poisons for the physicians. Yet these services have found it very hard to gather enough subscribers to break even.
In some cases, such as Lexis, a service for lawyers, it has taken more than ten years and huge sums of money to get subscribers. The reason is probably that the databanks make it too easy. So the databank, however helpful in the work and however much time and money it saves, goes against the very values of the professional. Opportunities for innovation based on process need can be found systematically. This is what Edison did for electricity and electronics. This is what Henry Luce did while still an undergraduate at Yale.
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