Peter Drucker’s Top 3 Innovative Strategies in Business

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What are the top innovative strategies in business? Is it easy to find a market that has no competition?

In The Essential Drucker, Peter Drucker lays out three different approaches that managers can apply to entrepreneurial endeavors. These include innovations that establish preeminence in a market, those that improve upon competitors’ work, and those that identify a specialty niche with no competition.

Discover more about these innovative strategies so you can apply them to your business.

Three Innovation Strategies

According to Drucker, the first of these innovative strategies in business—establishing a commanding lead in the market—is the most popular in the literature on entrepreneurship, but it’s also by far the most risky approach. It requires extensive research, planning, and a willingness to commit all your resources to pushing forward one single gamble. If your innovation succeeds and your organization takes control of a market, your work will only get harder after that. You’ll constantly have to push for the next innovation, and the next, or else your competitors will pass you by and you’ll lose any advantage you may have had.

The second and somewhat less risky strategy is to identify someone else’s innovation that isn’t being used to its fullest extent. Drucker says this commonly happens in the tech industry, where innovators are so focused on the technology that they’re not paying attention to how customers actually use it. The primary catch to riding someone else’s coattails is that when you copycat someone else’s innovation, you have to give your version a distinctive twist that sets it apart from the original. Looking for these almost-successful innovations can let your business open up whole new markets.

Innovation Case Study: Apple Computers

In Walter Isaacson’s biography Steve Jobs, he shows how Apple Computers made use of both of Drucker’s first two innovation strategies, though neither method proved as successful or as long-lasting as Jobs may have hoped.

In the first instance, Jobs and his business partner, Steve Wozniak, pooled all their savings to create the Apple I, the first home computer with a keyboard that could be connected to a television screen. Their all-in innovation created a splash among computer hobbyists, but their dominance of the home computer market only lasted for a year. When the Apple II came out in 1977, their rival companies Tandy and Commodore released comparable home computers, with other copycats soon to follow.

The next innovation that set Apple apart came when Jobs was given a tour of the Xerox Palo Alto Research Center and saw their new Graphical User Interface (GUI). While Xerox meant to use this interface solely for expensive business computing systems, Jobs saw its potential in the home computer market and took the idea back to Apple’s designers. The result was Apple’s Macintosh computer with its point-and-click interface that was far simpler to learn than any competing system. 

Unfortunately for Jobs, the Mac’s other limitations—a slow processor and its incompatibility with other systems—opened the door for Bill Gates at Microsoft to copycat Jobs with the Windows operating system, riding Apple’s coattails (to use Drucker’s words) just as Apple had done to Xerox. The lesson is that none of Drucker’s innovation strategies should be seen as a guarantee of long-term market dominance.

Drucker’s final strategy is one that comes along rarely but can yield rich rewards. The trick is to identify a niche in a market that isn’t being served and where there’s no competition. Taking advantage of this kind of opportunity usually involves your organization having a specialized skill or body of knowledge that’s otherwise absent in the market you’re exploring. If you spot such a niche and can fill it, it offers a form of monopoly protection—others may be discouraged from competing because the cost to duplicate your business’s specialty may be high. However, if your company successfully establishes a niche monopoly, it’s vital not to abuse that monopoly. Dissatisfied customers create a demand for competitors to step into the game.

Uncontested Markets

Drucker describes the niche innovation strategy as something that’s incredibly rare and specialized, but in Blue Ocean Strategy, professors W. Chan Kim and Renée Mauborgne argue that uncontested markets may not be so uncommon. However, they require concerted work to locate. Kim and Mauborgne write that these kinds of innovative ideas can be sparked by viewing the market from the customers’ perspective and determining whether certain groups are underserved, what types of products or services are commonly bundled together, and what emotional value a business innovation might bring to a market.

In addition to the risk that Drucker proposes—creating competitors by abusing your market dominance—another downside of a niche monopoly is that you may run afoul of antitrust laws that prevent one business (or a conspiracy of businesses) from monopolizing a market and exerting undue influence on prices. Large monopolies that must exist for practical reasons—such as utility companies—are often regulated by government agencies. If a monopoly is deemed detrimental or in violation of antitrust statutes, the government may mandate its breakup into smaller, competing companies, as was done with the US telephone system.
Peter Drucker’s Top 3 Innovative Strategies in Business

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Katie Doll

Somehow, Katie was able to pull off her childhood dream of creating a career around books after graduating with a degree in English and a concentration in Creative Writing. Her preferred genre of books has changed drastically over the years, from fantasy/dystopian young-adult to moving novels and non-fiction books on the human experience. Katie especially enjoys reading and writing about all things television, good and bad.

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