Drucker Said Innovate or Else

Yes, Drucker claimed that any business (and I would add any non-profit too) had only two primary functions: marketing and innovation. Let’s be honest: Many—perhaps all—of our innovations come from flashes of sudden inspiration. I seem to get an enormous number of such flashes when I wake up, which tells me my mind has been hard at work all night while I slept.

Entrepreneur Joe Cossman was an unbelievably productive innovator who thought of so many new product innovations, it was a miracle that he found the time and resources to pursue even a small percentage. But somehow he exploited enough to become extremely wealthy, mainly like Drucker, working basically alone as a “one-man band.”

Most of these innovations were successful, most notably The Cossman Ant Farm, a toy you (or a friend) probably had growing up. A few failed, but there was no question that his batting average and his productivity were excellent.

The Most Successful Toy Innovation of the 20th Century?

Well, maybe I’m exaggerating a little. But Cossman’s famous “ant farm” was one huge success. The idea of constructing a toy any colony using a wooden framework surrounded by clear panes of glass was not new.

This educational toy had been around for 80 years or more when Cossman introduced his version with the basic title “ant farm” coming from his brother-in-law Milton Levine.

And that’s where his innovation started. The old version never even attempted to market the toy to children because the clear panes of glass were hazardous. The original ant colony concept worked when used under the supervision of a teacher in the classroom, but it could not be promoted as an individual child’s toy.

Plus, ants frequently escaped, much to the dismay of both teachers and their students. Parents would have been even less amused to have ants running around the house.  

Cossman’s version of the “ant farm” was intended for use as a “learning toy” for individual children at home. Thus it was designed for personal ownership, and not as a class project. He replaced the wooden frame and glass with clear plastic. That made it lighter, cheaper to manufacture, harder to break, and less prone to have holes for ants to escape.

But how could he distribute the farm with the ants to retail stores around the country? Simple: another innovation. A farm had livestock, and each ant farm came with a “stock certificate,” which could be mailed to an address to receive delivery of the “livestock” necessary to populate the farm. 

Viva La Difference! Michael Dell and Bill Bartmann

So the basic idea of an “ant farm” wasn’t different, it was the innovation that made the product.

Consider Michael Dell and his computers. While a pre-med student, Michael Dell discovered that he could get a vendor’s license to bid on contracts selling computer upgrade kits he assembled at home. With very little overhead, his prices were low and he won contract after contract.

This led him to challenge the conventional method of selling computers through retail stores and to go directly to the customer. His innovation revolutionized computer sales and allowed customers to design their own computers based on what they wanted at a competitive price. What an idea! What an innovation. His net worth at the end of 2015 was $19.7 billion.

Another innovator is billionaire Bill Bartmann, who was once listed by Forbes as the 25th wealthiest man in the U.S., right ahead of Ross Perot. Bill is on my Board of Advisors at the California Institute of Advanced Management, and he is one amazing individual having done so many amazing things that it would fill a book, in fact it has. I recommend his book, Bouncing Back (Brown Group Publishing Group, 2013).

Bill made his biggest fortune in a highly innovative fashion by completely turning the financial collection industry on its head. The standard operating procedures had been to threaten, hound, and otherwise coerce people who owed money to pay up or else.

In the immortal words of The Godfather: “To make an offer which the one owing money can’t refuse.” 

Bill Bartmann bought credit notes for 10 cents on the dollar. However, instead of hiring guys to threaten loss of reputation, home, or damage to bodily parts, Bartmann hired an assortment of headhunters, personal coaches, and placement experts to assist people who owed money to find jobs, rebuild their careers, and restructure any loans.

While maintaining their self-respect, Bartmann got these people to pay off every penny. Now that’s innovation and market structure innovation! And of course, Bill made a fortune in the process while helping others.

Drucker Predicts the Future

About 20 years ago Drucker predicted that the future of executive education was online. His prediction was based partially on technology and convenience, but also on the fact that computer literacy and computer ownership was growing even faster than the demand for executive education.

Plus, without the overhead of the brick and mortar classroom, executive education courses could be offered at a much lower cost. 

Many traditional educators disparaged the idea of “distance learning.” They said it had to be done in the classroom with face-to-face lectures just as it had been done in ancient Greece 2,000 years ago.

They said that discussions had to take place and questions asked and answered in this environment, or it just wasn’t effective. Students might be exposed to information and ideas online, but they just wouldn’t and couldn’t learn this way.

Well, Drucker was right again. Research found that learning online was even faster and more effective than classroom learning in many instances. Back in 2011, former Florida Governor Jeb Bush, and former North Carolina Governor James Baxter Hunt, Jr., gave a joint speech on containing the rising costs of education. (Bush is a Republican and Hunt is a Democrat.) In the speech, which was published in Inside Higher Ed, they noted:

The 2010 U.S. Department of Education’s ‘Review of Online Learning Studies’ found that students who took all or part of a course online perform better, on average, than those taking the same course through traditional face-to-face instruction.

Similarly, a study conducted in the same year by scholars Drs. Mickey Shachar and Yoram Neumann analyzed 20 years of research on the topic and showed that in 70 percent of the cases, students who took distance-learning courses outperformed their counterparts who took courses in a traditional environment.

Today, many old traditional universities such as Harvard, Stanford, University of Southern California, etc. all have online programs. Others such as Boston University even offer doctorate degrees entirely online.

The California Institute of Advanced Management (CIAM), started out with a so-called “blended” or “hybrid” MBA program with six lessons of every course face-to-face in the classroom and five online. This enabled committed students to complete a rigorous and unabridged MBA program in only 11 months.

After three years’ experience, CIAM started an alternative online program with all the features of the blended program except that it is 100% online. Using these and other Drucker-recommended concepts, CIAM was able to offer much more to students, including completion in 11 months and consulting experience in every course, whether online or in the classroom. Moreover, CIAM was able to do all this at a much lower price than most graduate schools.

Drucker Tells Us What to Do

Drucker told us that we must innovate with two big insights: It’s not the size of the change, but the amount of advantage caused by the change. However, he did not leave it there.

He told us what we should avoid and how we should approach innovation to build and maintain the success of our organizations with the best sources of new ideas.

Drucker found specific ways to approach innovation, and others proved by their success that he was, as usual, right on target.

This column has been adapted from Peter Drucker's Consulting Principles: And How to Apply Them for Business Success LID (June 2016).