Peter Drucker on Innovation

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

There were good reasons in the past for the administrative function to the neglect of innovation. When management first became a concern in the early 20th century, the greater need was learning how to organize and direct large scale work, recently new at the time. Innovation was seen as something separate done by inventors. That view changed in the coming decades.

Innovation now needs to be built into organizations. First, they have much more access to manpower and capital. The ratio between invention and research and the efforts needed to convert the results of invention and research into new businesses or products has changed significantly. As a rule of thumb, every $1 spent on generating an idea, $10 have to be spent on “research” to convert it to a new discovery or invention. For every $10 spent on “research”, at least $100 need to be spent on development, and a $1,000-$10,000 are needed to introduce and establish a new product or business on the market. Only then is there “innovation.”

Innovation is not a technical term, but an economic and social one. Its criterion is not science or technology, but a change in the economic or social environment, a change in the behavior of people as consumers or producers, and so on.

Innovation strategy requires different measurements and a different use of budgets from those of an ongoing business. Nothing is inimical to successful innovation as a demand to produce the sort of steady and often growing profits of a more mature business. Innovations may take years to produce a profit, but if and when they do, profit growth will be higher than from a mature business. On the other hand, it is important to decide when to abandon an innovative effort (MTRP 783-96).