What to do About Unexpected Results

Drucker defined innovation as "the design and development of something new, as yet unknown and not in existence, which will establish a new economic configuration of the old, know existing elements," writes columnist William Cohen. But sometimes businesses simply overlook innovations that are right under their noses.

Peter Drucker wrote that any business organization had just two basic functions: innovation and marketing. Last month's column talked about the secret of demand side innovation where the innovator has a definite objective or problem he is trying to solve. This month we’ll look at supply side innovation, where he stumbles on something unexpectedly. It’s what he does that makes the difference. If you apply the principles of supply side innovation it can lead to your promotion, an increase in compensation, and be of great benefit to your organization.

During World War II most rubber came from rubber trees grown in the Southwest Pacific and were under Japanese control. In response, the U.S. looked at developing synthetic rubber. A General Electric engineer was attempting to create a synthetic rubber by mixing boric acid and silicone oil and came up with something which had some very unusual properties. When dropped from someone’s hand, the material bounced to a higher height than when it was released. It was impervious to rot. It was also soft and malleable. It could even be stretched many times its length without breaking. Finally, it could copy the image of any printed material with which it came in contact and to which pressure was applied.The only trouble was, with all of these properties, one thing it was not. It was not a good substitute for rubber. General Electric had a product, but without a practical use. Fortunately, no one threw it away it.

A few years later, a man named Peter Hodgson went to a party at which this material was the entertainment of the evening. He witnessed adults playing with and enjoying the product for its properties. Hodgson discovered where the product originated and who owned the rights. General Electric sold Hodgson the rights. Hodgson named it Silly Putty ® and it became world-famous and made Hodgson a fortune.

Supply side innovation is innovation based primarily on your capability and usually unexpected results. It’s what you do with those unexpected results that makes the difference and gets you the promotion, fame and fortune. Because of the focused demands of the war and after the war due to lack of rigorous logical analysis, no successful innovation resulted from this product at GE. I don’t mean the GE should have gone into the toy business. Only that something else in GE’s line could have resulted from it. Peter Hodgson was simply at a party. What Hodgson did was to grasp the potential and create the concept of Silly Putty®. He didn’t go to the party to witness a demonstration of the product’s capabilities, or even knew that the product existed. He did not decide instantly that he would create what would become a profitable and internationally famous toy. But over time he did apply analysis and investigation which resulted in the successful innovation and accomplished exactly that. Some potential innovations are outright rejected by those with the capability of exploiting them.

R. H. Macy’s War on Appliance Sales

After World War II, appliance sales at R.H. Macy’s unexpectedly began to increase. Not only did sales increase. Profit margins were higher with appliances than on fashion goods, and unlike fashion goods there were almost no returns and no pilferage. Customers who came in the store to buy appliances frequently stayed and also bought fashion goods. We might expect Macy’s to celebrate and exploit this unexpected windfall. Yet the biggest department store around not only failed to do this, it did everything possible to make these unexpected results go away.

When fashion goods failed to increase as a percentage of total sales despite considerable effort, Macy’s actually began a campaign to intentionally restrict appliance sales. Bloomingdales noted the same phenomenon. However, it not only built on its appliance sales, it built a whole new market around a new Housewares Department. It didn’t stop there. Next Bloomingdales examined the customer that represented the symptom behind the increasing demand for appliances, and sought other product lines to satisfy this new customer and his demand. Bloomingdales had been a weak number four in the marketplace previously. Its successful innovation based on these unexpected results soon enabled it to become a very strong number two.

Things didn’t improve at Macy’s until new management twenty years later. But what caused Macy’s to reject the clear signals for innovation in the first place? Simple. Everyone in the industry "knew" that in a well-run store, fashion should produce 70% of total sales. But those errant appliance sales were providing three-fifths of total Macy’s revenue. This had to be stopped! The chairman of Macy’s came to the conclusion that if fashion sales couldn’t be increased, appliance sales would have to be limited. And so he set out to do just that. Whether your organization is responsible for sales, human resources, finance, or something else has it made this kind of error? It is far from uncommon.

What to Do about Unexpected Results