1.

Unexpect
edOccur
rences

Consider,f
ir
st,t
heeasi estandsimplestsourceofinnovationopportuni
ty:
theunexpect
ed.Inthe
earl
y1930s, I
BM dev el
opedt hefir
stmodernaccount i
ngmachi ne,whichwasdesignedfor
banks.Butbanksin1933di dnotbuynewequi pment .Whatsav edthecompany —accor
dingtoa
stor
ythatThomasWat son,Sr.
,thecompany ’
sfounderandl ong-t
erm CEO,oftent
old—wasits
expl
oitati
onofanunexpect edsuccess:TheNewYor kPublicLi
brarywantedtobuyamachi ne.
Unli
ket hebanks,l
i
br ar
iesinthoseearlyNewDeal day shadmoney ,
andWat sonsoldmorethan
ahundr edofhisotherwiseunsalablemachinestolibrar
ies.

Fif
teenyear
sl ater,whenev er
yonebeli
ev edthatcomput ersweredesignedforadvanced
sci
entif
icwork,busi nessunexpect
edlyshowedani nter
estinamachi nethatcoulddopayroll
.
Univac,whi
chhadt hemostadv ancedmachi ne,spurnedbusinessappl i
cat
ions.ButI
BM
i
mmedi atel
yrealizedi tf
acedapossibleunexpectedsuccess, redesi
gnedwhatwasbasi call
y
Univac’
smachi nef orsuchmundaneappl i
cati
onsaspay roll
,andwi t
hinfi
veyearsbecamea
l
eaderinthecomput eri
ndust
ry,aposit
ionithasmai ntai
nedt othisday.

Theunexpect edfail
uremaybeanequal lyimpor tantsourceofi nnov ati
onoppor tuniti
es.
Everyoneknowsaboutt heFor dEdsel ast hebi ggestnew- carfail
urei nautomot ivehistor
y.What
veryfewpeopl eseem t oknow, howev er,isthattheEdsel ’sfai
lurewast hef oundat i
onformuch
ofthecompany ’
slatersuccess.For dplannedt heEdsel ,
themostcar efull
ydesignedcart othat
pointinAmer i
canaut omot ivehist
ory,togi vethecompanyaf ullproductl i
newi thwhi chto
compet ewi thGener alMot ors.Whenitbombed, despitealltheplanni ng,mar ketresearch,and
designt hathadgonei ntoit,Fordreal
izedt hatsomet hingwashappeni ngi ntheaut omobile
mar ketthatrancount ertot hebasicassumpt ionsonwhi chGM andev eryoneelsehadbeen
designingandmar ketingcar s.Nolongerwast hemar ketsegment edpr imaril
ybyi ncome
groups; thenewpr incipl
eofsegment ationwaswhatwenowcal l“
lif
est yl
es.”Ford’sresponse
wast heMust ang,acart hatgav ethecompanyadi st
inctpersonalityandr eestablisheditasan
i
ndust ryleader.

Unexpect edsuccessesandf ailuresar esuchpr oductivesour cesofinnovationoppor tunit

ies
becausemostbusi nessesdi smi sst hem, di
sregardthem, andev enresentthem.TheGer man
sci
entistwhoar ound1905sy nthesi zednov ocai
ne,thef i
rstnonaddictiv
enar cotic,hadintended
i
ttobeusedi nmaj orsurgical procedur esli
keamput ati
on.Sur geons,howev er,prefer
redt ot
al
anesthesiaforsuchpr ocedur es; theyst il
ldo.Inst
ead, nov ocainefoundar eadyappeal among
denti
sts.Itsinventorspentther emai ningy earsofhisl i
fetraveli
ngfrom dent alschool t
odent al
school makingspeechest hatf or badedent istsf
rom “ misusing”hisnobleinv enti
oni n
appli
cationsf orwhichhehadnoti ntendedi t.
Thisisacar i
cature,tobesur e, butitil
lustrat
estheat t
it
udemanager softentaket othe
unexpect ed:“Itshouldnothav ehappened. ”Corporater eport
ingsystemsf urt
heri ngr
ainthis
reacti
on, fortheydr awattentionawayf r
om unant i
cipatedpossi bi
l
iti
es.Thet ypical monthlyor
quarterl
yr eporthasoni t
sfirstpageal istofproblems—t hatis,
theareaswher er esul
tsfallshor
t
ofexpect ati
ons.Suchi nf
ormat ioni sneeded, ofcour se,tohelppreventdeteri
or at i
onof
performance.Buti talsosuppr essest her ecognit
ionofnewoppor tuniti
es.Thef irst
acknowl edgmentofapossi bleoppor t
unityusuallyappliestoanar eainwhi chacompanydoes
betterthanbudget ed.Thusgenui nelyentrepreneuri
al businesseshav etwo“ f
irstpages” —a
problem pageandanoppor tunitypage—andmanager sspendequal ti
meonbot h.

2.I
ncongr
uit
ies

AlconLabor at
orieswasoneoft hesuccessst ori
esoft he1960sbecauseBi l
lConner ,
the
company ’
scof ounder, expl
oitedani ncongrui
tyinmedi calt
echnol
ogy.Thecat aractoperationi
s
theworld’
st hi
rdorf our t
hmostcommonsur gi
cal procedur
e.Duri
ngthepast300y ears,doctor
s
systematizedittothepoi ntthattheonl y“ol
d-f
ashi oned”st
eplef
twast hecuttingofal i
gament .
Eyesurgeonshadl earnedtocutt hel i
gamentwi thcompl et
esuccess,buti
twassodi fferenta
procedurefrom therestoft heoper ati
on,andsoi ncompat i
blewit
hit,
thattheyof t
endr eadedit
.
Itwasincongruous.

Doctorshadknownf or50yearsaboutanenzymethatcoulddi
ssolv
etheligamentwi t
hout
cutti
ng.All
Connerdidwastoaddapr eservat
ivet
othisenzymethatgaveitaf ewmont hs’
shel
f
l
ife.Eyesurgeonsi
mmedi at
elyaccept
edthenewcompound, andAlconfoundi tsel
fwitha
wor l
dwidemonopoly.Fi
ft
eeny ear
slat
er,Nest
léboughtthecompanyforaf ancyprice.

Suchani ncongruitywit
hinthelogicorrhythm ofapr ocessisonlyonepossibi
l
ityoutofwhi ch
i
nnov at
ionoppor tuni
ti
esmayar ise.Anothersour ceisincongr
uitybet
weeneconomi creali
ti
es.
Fori
nstance, wheneveranindust r
yhasast eadi
lygrowingmar ketbutfal
l
ingprofi
tmargins—as,
say,
inthest eeli
ndustri
esofdev elopedcount ri
esbet ween1950and1970—ani ncongr
uity
exi
sts.Theinnov ati
veresponse:mi ni
mill
s.

Anincongr
uitybetweenexpect at
ionsandresultscanal soopenuppossibili
ti
esfori
nnovat
ion.
For50yearsaftertheturnofthecentur
y ,
shipbuildersandshi ppi
ngcompani esworkedhar
d
bothtomakeshi psfasterandtolowertheirfuelconsumpt ion.Evenso,themoresuccessf
ul
theywerei
nboost i
ngspeedandt ri
mmi ngtheirfuel needs,t
hewor setheeconomicsofocean
frei
ght
ersbecame.By1950orso, t
heoceanf rei
ght erwasdy ing,
ifnotal
readydead.
Allt
hatwaswr ong, howev er,
wasani ncongr uitybetweent heindustr
y’sassumpt i
onsandi ts
real
it
ies.Ther ealcostsdidnotcomef rom doi ngwor k(thatis,bei
ngatsea)butf rom notdoing
work( t
hatis,sit
tingidleinport).Oncemanager sunderst oodwherecost str
ulylay,t
he
i
nnov ati
onswer eobv ious:theroll
-onandr oll-
offshipandt hecontainershi
p.Thesesol uti
ons,
whichinv ol
vedoldt echnology,simplyappliedt otheoceanf rei
ghterwhatrail
roadsandt ruckers
hadbeenusi ngf or30y ears.Ashi f
tinviewpoi nt,
notintechnol ogy,
total
lychangedthe
economi csofoceanshi ppingandt ur
nediti ntooneoft hemaj orgrowthindustr
iesoft helast20
to30y ears.

3.Pr
ocessNeeds

Any onewhohasev erdr

iveni
nJapanknowst hatthecountryhasnomoder nhighwaysyst
em.
It
sr oadsstill
foll
owthepathslai
ddownf or
—orby —oxcartsinthetenthcent ur
y .Whatmakes
thesy stem workforaut
omobilesandtrucksisanadapt ati
onofther ef
lectorusedonAmer ican
highway ssincetheearl
y1930s.Thereflect
orletseachcarseewhi chot hercarsare
appr oachi
ngf r
om anyoneofahal f
-dozendirect
ions.Thisminorinventi
on, whichenabl
estraff
ic
tomov esmoot hl
yandwi t
hami ni
mum ofacci dents,expl
oit
edapr ocessneed.

Whatwenowcal lthemedi ahadi

tsor i
gini
nt woinnovat
ionsdev el
opedar ound1890i n
responset oprocessneeds.OnewasOt tmarMer gent
haler’
sLinotype,whi
chmadei tpossi
blet
o
producenewspaper squi
cklyandinlargevolume.Theotherwasasoci ali
nnov ati
on,modern
adverti
sing,i
nventedbyt hefi
rstt
ruenewspaperpubl i
shers,AdolphOchsoft heNewYor kTi
mes,
JosephPul it
zeroft heNewYor kWorld,andWi l
l
iam RandolphHear st
.Advertisi
ngmadei t
possibl
ef orthem todist
ribut
enewspr acti
call
yfreeofcharge,withtheprofitcomingfr
om
mar ket
ing.

4.I
ndust
ryandMar
ketChanges

Managersmaybeli
evethati
ndust
ryst
ructuresareordai
nedbythegoodLor
d,butthese
str
uctur
escan—andoft
endo—changeov ernight
.Suchchangecreat
est
remendousopport
uni
ty
fori
nnovat
ion.

OneofAmer i
canbusiness’
sgreatsuccessstor
iesi
nr ecentdecadesisthebr okeragefi
rm of
Donaldson,Lufki
n&Jenr et
te,
recentl
yacquir
edbyt heEquitableLi
feAssuranceSoci et
y.DL&J
wasf oundedin1960byt hr
eey oungmen,allgr
aduatesoftheHar var
dBusi nessSchool,who
real
izedthatthestr
uctur
eofthef i
nanci
ali
ndustrywaschangi ngasinst
itut
ional i
nvest
ors
becamedomi nant
.Theseyoungmenhadpr act
ical
l
ynocapi t
alandnoconnect ions.St
il
l,wi
thi
n
af
ewyears,t
heirfi
rm hadbecomealeaderi
nt hemovetonegoti
atedcommissi
onsandoneof
Wal
lSt
reet
’sstel
larperf
ormers.I
twasthefi
rsttobei
ncorpor
atedandgopubli
c.

Inasi mil
arfashion,changesinindustrystr
ucturehav ecreat
edmassi v
einnovati
on
oppor t
uniti
esforAmer icanhealthcar
epr ovi
ders.Duringthepasttenor15y ear
s,independent
surgicalandpsychiatri
ccli
nics,emergencycenters,andHMOshav eopenedt hr
oughoutt he
count r
y.Compar abl
eoppor tuni
tiesi
ntelecommuni cationsfol
lowedindust
ryupheav al
s—in
transmission(withtheemer genceofMCIandSpr i
nti nlong-
dist
anceservi
ce)andi nequi
pment
(withtheemer genceofsuchcompani esasRol mint hemanuf act
uri
ngofprivat
ebr anch
exchanges) .

Whenani ndustrygrowsqui ckly

—t hecr i
ti
calfi
gureseemst obeintheneighbor hoodof40%
growthint enyearsorless—i t
sst ructur
echanges.Est abli
shedcompanies,concentrati
ngon
defendingwhatt heyalreadyhav e,tendnott ocounter
at t
ackwhenanewcomerchal l
engest hem.
I
ndeed, whenmar ketorindustryst r
uctureschange,tr
aditi
onali
ndust
ryleadersagai nandagai n
neglectthefastestgrowingmar ketsegment s.Newoppor tuni
ti
esrar
elyfitt
hewayt heindustry
hasalway sapproachedt hemar ket,defi
nedit,oror
ganizedtoservei
t.Innovatorstherefor
e
haveagoodchanceofbei ngl eftaloneforalongt i
me.

5.Demogr
aphi
cChanges

Oftheout sidesourcesofinnovat
ionopport
uniti
es,demogr aphicsarethemostreli
able.
Demogr aphiceventshav eknownleadti
mes; f
orinstance,everypersonwhowi ll
beint he
Americanl aborfor
cebyt heyear2000hasalreadybeenbor n.Yetbecausepolicymaker sof
ten
negl
ectdemogr aphics,
thosewhowat chthem andexploitthem canreapgreatrewards.

TheJapanesear eaheadinroboti
csbecauset heypaidattentiontodemogr aphics.Ev eryonein
thedevel
opedcount ri
esaround1970orsoknewt hattherewasbot hababybustandan
educati
onexplosiongoingon;abouthalformoreofthey oungpeopl ewerestayingi nschool
beyondhighschool.Consequentl
y,t
henumberofpeopl eav ail
ablefortr
adit
ional blue-col
lar
workinmanufacturingwasboundt odecreaseandbecomei nadequateby1990.Ev eryoneknew
thi
s,butonl
ytheJapaneseact edonit,andtheynowhav eat en-y
earleadinrobot ics.

Mucht hesameistrueofCl ubMedit

erranee’
ssuccessinthetr
avelandresortbusiness.By
1970,thought
ful
obser v
erscouldhaveseentheemer genceoflar
genumber sofaff l
uentand
educatedyoungadultsinEuropeandtheUnitedStat
es.Notcomf or
tabl
ewiththeki ndof
vacat
ionsthei
rworking-cl
assparent
shadenj oyed—t
hesummerweeksatBr ightonorAt l
ant
ic
City
—theseyoungpeopl
ewer
eideal
cust
omer
sforanewandexot
icv
ersi
onoft
he“
hangout
”of
thei
rteenyear
s.

Manager shaveknownf oral ongt i

met hatdemogr aphi
csmat ter
,buttheyhaveal
waysbeli
eved
thatpopulati
onstati
sticschangesl owly.Inthi
scentury
, however
,theydon’
t.I
ndeed,
the
i
nnov at
ionoppor t
unit
iesmadepossi bl
ebychangesi nthenumber sofpeopl
e—andinthei
rage
dist
ri
bution,educati
on, occupations,andgeogr aphi
clocation—ar
eamongt hemostrewardi
ng
andleastriskyofentrepreneurialpursui
t s.

6.Changesi
nPer
cept
ion

“Theglassi
shalfful
l
”and“Theglassishalfempty”ar
edescr
ipti
onsofthesamephenomenon
buthavevastl
ydif
fer
entmeanings.Changi
ngamanager ’
spercepti
onofaglassf
rom hal
fful
lto
halfemptyopensupbigi
nnovati
onoppor t
unit
ies.

Allf
actualevi
denceindicates,f
orinstance,thatint
helast20y ears,Amer i
cans’healthhas
i
mpr ovedwithunprecedentedspeed—whet hermeasuredbymor tal
it
yratesforthenewbor n,
survi
valrat
esfortheveryol d,
theincidenceofcancers(otherthanlungcancer ),cancercur
e
rat
es,orotherfact
ors.Evenso, coll
ecti
vehy pochondri
agripsthenat i
on.Nev erbeforehasther
e
beensomuchconcer nwi t
horf earaboutheal t
h.Suddenl
y,everythi
ngseemst ocausecanceror
degenerati
veheartdi
seaseorpr ematurelossofmemor y.Thegl assisclearl
yhal fempty.

Ratherthanr ejoi
cingi
ngr eati
mpr ovementsinhealth,Amer i
cansseem tobeemphasi zi
nghow
farawayt heyst i
l
larefrom immortalit
y.Thisvi
ewoft hingshascreatedmanyoppor t
unit
iesf
or
i
nnov at
ions: marketsfornewhealthcar emagazines,forexerci
seclassesandjoggi
ng
equipment ,andforall
ki ndsofhealthfoods.ThefastestgrowingnewU. S.busi
nessin1983was
acompanyt hatmakesindoorexer ci
seequipment.

Achangei nper cepti

ondoesnotalterfacts.Itchangestheirmeani ng,t
hough—andv eryquickly
.
Ittooklesst hant woyearsforthecomput ertochangef r
om bei ngperceivedasat hreatandas
somet hingonl ybigbusinesseswoulduset osomet hingonebuy sfordoingi ncomet ax.
Economi csdonotnecessar il
ydict
atesuchachange; infact,
t heymaybei rr
elevant.What
determineswhet herpeopleseeaglassashal ff
ullorhal
fempt yismoodr atherthanfact,anda
changei nmoodof t
endef i
esquanti
fi
cation.Butitisnotexotic.Iti
sconcr ete.Itcanbedef ined.
Itcanbet ested.Anditcanbeexploit
edf orinnovati
onoppor tunity
.
7.NewKnowl
edge

Amonghi stor
y -
makinginnovati
ons,t
hosethatarebasedonnewknowl edge—whet hersci
ent
if
ic,
techni
cal,
orsoci al
—rankhigh.Theyaret
hesuper-st
arsofentr
epreneurship;t
heygett he
publi
cit
yandt hemoney .Theyarewhatpeopleusuall
ymeanwhent heytalkofinnovati
on,
alt
houghnotal li
nnovati
onsbasedonknowl edgeareimport
ant.

Knowl edge-basedi nnovationsdifferfrom all

othersinthet imetheyt ake, i
ntheircasualtyrates,
andint heirpredi
ct abi
li
ty,aswel lasint hechall
engest heyposet oent repreneurs.Likemost
superstars,theycanbet emper ament al,capr
ici
ous,andhar dtodir
ect .Theyhav e,forinstance,
thelongestleadt imeofal li
nnovations.Thereisapr otractedspanbet weent heemer genceof
newknowl edgeandi t
sdi sti
ll
ati
oni nt
ousabl etechnology .Thentherei sanotherlongper iod
beforethisnewt echnologyappear sint hemar ket
placei nproducts,pr ocesses,orser vi
ces.
Overall,
theleadt imeinv olvedissomet hingl
ike50y ears,afigur
et hathasnotshor tened
appreciablythroughouthi story