Drucker: Innovation and entrepreneurship -- advice for the "purposeful entrepreneur"

BOOK REVIEW: Peter F. Drucker (1985) Innovation and entrepreneurship; practice and principles, William Heinmann, London

Peter F. Drucker

Peter Drucker was born in Vienna in 1909 and educated in Austria and England. He was a renowned business management advisor and a prolific writer. In 2009, four years after his death and 100 years since his birth, Drucker was celebrated as “the father of modern management” and “the world’s greatest management thinker”. The Economist magazine, on 19 November 2009, “Remembering Drucker”, described him as “a genuine intellectual who, during his early years, rubbed shoulders with the likes of Ludwig Wittgenstein, John Maynard Keynes and Joseph Schumpeter” and who “illustrated his arguments with examples from medieval history or 18th-century English literature”.

“He treated companies as human organisations rather than just as sources for economic data. But he also insisted that all human organisations, whether in business or the voluntary sector, need clear objectives and hard measurements to keep them efficient. Drucker liked to say that people used the word guru because the word charlatan was so hard to spell. A century after his birth Drucker remains one of the few management thinkers to whom the word “guru” can be applied without a hint of embarrassment.”

Innovation and entrepreneurship presents innovation and entrepreneurship as a practice and a discipline and is primarily focused on the actions and behaviours of entrepreneurs. It creates a framework for innovation that can be used to analyse current practices and shed light on their origins.

The book is divided into three main sections: The Practice of Innovation, The Practice of Entrepreneurship, and Entrepreneurial Strategies.

The introduction describes innovation and entrepreneurs in relation to the economy and the broader society. It recognises Joseph Schumpeter as the only modern economist who concerned himself with the entrepreneur and the impact of entrepreneurship on the economy.

In Part 1, Drucker defines innovation as a “specific tool of entrepreneurs” through which they “exploit change as an opportunity for a different business or a different service” (p. 17). Entrepreneurial enterprises by their nature create a market niche and fill a consumer need. These enterprises include small businesses, large enterprises, and non-business service institutions.

Seven sources of innovation are discussed: (1) the unexpected; (2) incongruities; (3) process need; (4) industry and market structures; (5) demographics; (6) changes in perception; and (7) new knowledge. The first four of these are generally found within the organisation, while the remaining three are found outside of it. Beyond these sources, Drucker also highlights the role of the “bright idea”. While the potential impact of the bright idea cannot be dismissed, the casualties in this field are high. Thus, Drucker advises the “purposeful entrepreneur” to “forgo innovations based on bright ideas, however enticing the success stories”. There is enough opportunity for innovation to be found in any one of the seven sources he identifies “to keep busy any one individual entrepreneur and any one entrepreneurial business or public-service institution” (p. 120).

Part 1 concludes with a list of Dos and Don’ts. He also describes three conditions for innovation.

First, innovation is work. It requires knowledge and great ingenuity. Innovation is “hard, purposeful work making very great demands on diligence, on persistence, and on commitment” (p. 127).

Second, to succeed, innovators must build on their own strengths, putting to work what the entrepreneur is good at and has a capacity to perform in.

Third, innovation is an effect in the economy and society. It is change in the behaviour of customers, teachers, farmers, doctors, etc., or a change in a process. Thus, innovation “always has to be close to the market, focused on the market, indeed market-driven” (p. 127).

Part 2 focuses on managerial strategies for the new venture, the existing business and the public service institution. All organizations must acquire entrepreneurial competence to keep pace with changes in economy and society. Leaders in the three types of organizations must become skilled in entrepreneurial management.

Drucker’s central theme persists throughout this part of the book. Entrepreneurship “is not ‘natural’”, he writes, “it is not ‘creative’. It is work” (p. 138).

Entrepreneurial management requires policies and practices in four major areas:

  1. The organisation must be receptive to innovation and willing to perceive change as an opportunity rather than a threat.
  2. Systematic measurement or at least appraisal of an organisation’s performance in terms of entrepreneurship and innovation is essential.
  3. Appropriate staffing structures, incentives and rewards should be established.
  4. Avoid the major Don’ts: don’t mix entrepreneurial functions with management functions; don’t allow innovations to take the business out of its field; and don’t base your entrepreneurial strategy on buying-in or acquiring other entrepreneurial ventures.

Most of Drucker’s book is focused on the existing enterprise. However, Part 2 concludes with some brief advice for the new venture.

Part 3 examines practices and policies that entrepreneurs should follow in the marketplace. Drucker’s strategies involve aiming for leadership or dominance of a new market or existing market, finding and occupying a specialized niche, and changing the economic characteristics of a product, market, or industry.

Drucker again highlights the importance of market-driven innovation. Citing David Riccardo, “Profits are not made by differential cleverness, but by differential stupidity”, he argues that most innovations work because most suppliers do not think. These innovations are obvious. They provide customers with what they actually want. Anyone “who is willing to use marketing as the basis for strategy is likely to acquire leadership in an industry or a market fast and almost without risk” (pp. 232-233).

Drucker concludes by stressing the need for innovation and entrepreneurship in society. To obtain this, executives in all kind of institutions must “make innovation and entrepreneurship a normal, ongoing, everyday activity, a practice in their own work and in that of their organization” (p. 237).

Although written almost twenty years ago, this book remains relevant and insightful. It connects innovation and entrepreneurship through a management framework of principles, practices and disciples that can be applied to private businesses large and small, as well as to community-based enterprises, social enterprises and civil society organisations.