More than 20 years since its publication, Innovation and Entrepreneurship is still the landmark work on a subject that, before Drucker, had benefited from little real analysis.
Drucker is clear that his book is not about the psychology or character of entrepreneurs. It is not the mysterious ‘flash of genius’ so often ascribed to the wealth creator that interests him, but actions and behaviour – how innovation and entrepreneurship can be boiled down to a system that can be applied by anyone.
He was unusual among business gurus for working with people in all types of organisations from labour unions and girl scout bodies, to science labs, churches and relief agencies. His message was: Wherever you work, there is huge scope for changing how you do things in ways that can make a massive difference.
Drucker began teaching innovation and entrepreneurship in the mid-1950s, and Innovation and Entrepreneurship represents three decades of testing his ideas. Although some of it is now dated, overall this is a timeless work.

It’s management, stupid

At the beginning of the book Drucker brings up a mystery: Why, in the US economy from 1965 to 1985, despite inflation and oil shocks, recessions and major job losses in some industries and government, did huge growth occur in jobs? These 40 million jobs were not created by large corporations or government, but mostly by small and medium-sized businesses. Most people explained the growth in terms of one phrase: ‘high tech’.
In fact, only around five million of the new positions came from the technology field. The key ‘technology’ driving jobs growth, according to Drucker, was not widgets and gadgets, but entrepreneurial management. The force of the entrepreneur, he suggests, is always greater than the state of the economy.
Management, or how things can be done better, is as much a discipline as engineering or medicine. Drucker notes that the huge success of McDonald’s was in large part due to better management of a service that had previously been run by Mom and Pop owners. Everything – the product, the time it took to make it, the way it was made, the way it was sold and served – was refined and standardised beyond belief. This was not ‘high tech’, Drucker observes, it was doing things in a different, better way, and in the process creating new value.

What is an entrepreneur?

‘The entrepreneur,’ wrote French economist Jean-Baptiste Say in 1800, ‘shifts economic resources out of an area of lower and into an area of higher productivity and greater yield’. This was the original definition and the best, Drucker maintains. Entrepreneurship is not a personality trait, it is a feature to be observed in the actions of people or institutions. Entrepreneurs in health, education and business work in basically the same way. They don’t just do something better, they do it differently.
Classical economics says that economies tend towards equilibrium – they ‘optimise’, which results in incremental growth over time. But the nature of the entrepreneur is to ‘upset and disorganise’. He or she is a wildcard that generates wealth through the process that economist Joseph Schumpeter described as creative destruction. This involves dealing with uncertainty and with the unknown, and having the ability to exploit and respond intelligently to change.

The risk myth

Drucker asks: Why does entrepreneurship have the reputation of being very risky? In fact, it is less risky than just ‘doing the same thing better’. In following this course it is easy to miss out on new opportunities totally and run an enterprise into the shoals almost without noticing.
Embracing change and assiduously trying out different things are actually the best ways to invest resources. Drucker points to the successful record of continually innovating high-tech firms – Bell Lab, IBM, 3M (today we would add Apple). Entrepreneurship is only risky, he observes, when so-called entrepreneurs ‘violate elementary and well-known rules.’ It is not risky when it is systematic, managed, and purposeful.
He notes that entrepreneurial businesses treat entrepreneurship as a duty. They are disciplined about it. They work at it. They practice it. Entrepreneurship can exist in large organisations, and in fact Drucker says they must become entrepreneurial if they are to have a long-term future. General Electric in America and Marks & Spencer in the UK are both big companies that have strong records of creating new value.

How to be an innovator

According to Drucker, innovation is ‘whatever changes the wealth-producing potential of already existing resources.’ The best innovations can be alarmingly simple. For example, there was nothing technically remarkable about creating a metal container that could be easily offloaded from a truck onto a ship, but the advent of container shipping was an innovation that quadrupled world trade.
Many of the greatest innovations are some kind of social value creation, such as insurance, the modern hospital, buying by installment, or the textbook.
Drucker suggests that science and technology are actually the least promising of all the sources of innovation, generally taking the most time to realise any benefits and costing the most. In reality, anything that takes advantage of an unexpected change in society or a market is actually quicker, easier, or more likely to result in success.
The entrepreneur is on the lookout for:
  • ‘The unexpected’ – an unexpected success, failure, or event
  • Incongruities: between things as they ought or are said to be, and how they actually are
  • Problems with an existing process for which no one has provided a solution
  • Changes in how an industry or market operates that take everyone by surprise
  • Demographic (population) changes
  • Changes in ‘perception, mood or meaning’

The customer is everything

Drucker notes that on its own, innovation is not worth a great deal. It is only when it meets the market through the catalyst of entrepreneurial management that you start to create things of great value.
An innovation is much more than a technological advance; it is ‘an effect in economy and society’, something that changes the way people do things. Real innovation is always about the end customer. People do not buy products, but what the product does for them. The purpose of innovation is to provide satisfaction where before there was none.

Final comments

Drucker always seemed to be years, if not decades, ahead of anyone in his field, and Innovation and Entrepreneurship was the first book to treat the subject in a systematic, nonsensational way. It is an endlessly fascinating work that should bring new rigour to your thinking about ways to create new value. Get it for the many examples and elaboration of themes that it covers. One particularly useful chapter relates to the ‘dos and don’ts’ for starting any new venture.

Peter Drucker

Drucker was born in Vienna in 1909. After leaving school he went to study in Germany, obtaining a doctorate in public and international law at Frankfurt University.
He worked as a journalist in London before moving to the United States in 1937, becoming an American citizen in 1943.
From 1950 to 1971 Drucker was a business professor at New York University, and in 1971 he was appointed Clarke professor of social science and management at Claremont Graduate University in California, a position he kept until his death.
He wrote 39 books and was a columnist for the Wall Street Journal. In 2002, in his 90s, Drucker was awarded the Presidential Medal of Freedom by George W.Bush. He died in 2005.

In a similar vein

  • Richard Branson: Losing my Virginity
  • Conrad Hilton: Be my Guest
  • Guy Kawasaki: The Art of the Start《创业的艺术盖伊·川崎》