The Secret of Demand Side Innovation

Would you like to come up with innovations that mark you as an extraordinary performer? In this month's column, Dr. William Cohen, explains how.

Frederick Smith thought up the idea behind FedEx while still in college and Albert Einstein developed the Theory of Relativity not while laboring before a computer or over complicated formulae on a blackboard, but while lying comfortably with his eyes closed on a couch. Is there anything you can learn from them about innovation? Peter F. Drucker thought so and explained exactly how to do it.

The Practice of Innovation

According to Drucker, being an effective innovator required a systematic routine. Drucker called this routine the practice of innovation, and he said that it involved analysis, system, and hard work. Yet this simple formula is more important than talent, ingenuity, and knowledge. Drucker claimed it was not his knowledge about a particular industry, but rather his ignorance which led to success. To prove his point, he told his students a story.

The Amazing Liberty Ships

After World War II broke out in 1939, the British were losing thousands of tons of shipping to German submarines. They needed the supplies and munitions these ships brought to feed their population and to continue to fight the war. One response to their losses was the design of a relatively inexpensive cargo ship. These ships were so basic that they were barely expected to last to the war’s end. Moreover they were slow, bulky, and inefficient. However they could be constructed much faster than any other cargo ship. It only took about eight months for each ship to be built from start to finish, a significant improvement over the time it took to build a cargo ship previously.

It still took skilled workers to build a ship, even one of vastly simplified design like this one. Britain was fully engaged in all aspects of fighting the Germans. The manpower, shipyards, and production facilities to build the fleets of new cargo ships needed simply didn’t exist.

So, the British looked to the United States, which was not yet in the war for building their new cargo ships. However, the United States did not have a terrific record in shipbuilding. In the previous decade only two ocean-going cargo ships had been built in the United States. However England was so desperate that it was willing to turn to the U.S. despite its lack of a track record. The hope was that with British help, it might take about a year to build each ship in the U.S. There was no alternative.

One of the individuals that they contacted was industrialist Henry Kaiser. Kaiser knew very little about shipbuilding and was completely ignorant about cargo ships. However, he looked at the British design and moved forward less with British help and expertise, than his own ignorance.

Kaiser re-designed the assembly process based on using pre-fabricated parts so that no worker had to know more than a small part of the job. Moreover, he introduced American assembly-line techniques. The British knew that for close tolerances in ship building, special machinery was necessary to cut the metal accurately. Kaiser didn’t know this, and anyway Kaiser didn’t have the machinery. Again he came up with an innovation. He told his workers to cut the metal using oxyacetylene torches. In his ignorance, Kaiser replaced riveting with welding. He called his ships "Liberty Ships." He started building them and it didn’t take him a year for each ship. It didn’t even take him eight months. In his ignorance he started building the British design from start to finish in about a month. Eventually he got production time down to a couple weeks and for publicity purposes, he even constructed one Liberty Ship in just four and a half days.

Approaching his problem out of his ignorance, Kaiser built almost 1500 ships at much less time and a quarter of the cost of other shipyards previously. What an innovation!

Drucker recognized that there wasn’t one single strategy leading to successful innovations. Though systematic methods are mandatory, Drucker knew that every situation that was faced by the innovator had to be thought through anew. Let’s look at one of the systematic methods of the kind that Drucker knew were necessary.

The Left Brain Solution

An effective left-brain methodology has been used for years. It is used in many professions including the military, law, and medicine in analyzing and reaching logical conclusions when confronted with difficult and complex situations. It involves certain fixed steps.

Problem Definition

You can’t get "there" until you know where "there" is. That’s not one of Peter Drucker’s injunctions; it’s one of mine. It’s my way of emphasizing that in order to solve any problem and come up with a left brain innovation to solve it, you’ve got first to understand exactly what the problem is. That’s the "there" in a problem situation requiring an innovation. Kaiser’s challenge was how to build the British-designed ships given the constraints that he faced.

Relevant Factors

Kaiser’s problem had a number of situational factors that were directly relevant to his problem. Therefore, he needed to gather additional data. Kaiser knew what he didn’t have. He needed to know what resources he did have available. Kaiser looked into this, did his analysis and decided to apply Henry Ford’s assembly methods to ship building.

Alternative Courses of Action

In this part of the left-brain innovation process, Kaiser had to decide on alternatives to solve the problem. Maybe he could have started a worldwide search for expert shipbuilders in neutral countries and offered them high wages. Maybe he could have designed new metal cutting machinery and produced it quickly using his methods. About the same time, experts in Asia who had other problems adopted a much different solution to build the 717 mile Burma Road running around mountain peaks: 200,000 Chinese laborers. Different advantages and disadvantages lead to different alternatives.

All alternatives have both advantages and disadvantages. Kaiser took an enormous risk with his solution. He had millions of dollars invested in it before he built his first ship. Many of the methods he used had never been employed previously and many were themselves extremely innovative to say the least. It was reported that because it took years and extensive training to enable novice fitters to tightrope across the high structures of the ship as it was being completed that Kaiser hired ballet dancers for this task.

Analysis, Conclusions, and Decision

During the analysis, the innovator essentially compares the relative importance of each alternative’s advantages and disadvantages. Some alternatives have few disadvantages, but no great advantage either. In any case, the innovator needs to think it through and document his thinking. This helps this left-brain method to be really effective in explaining the decision to others after the decision is taken.

I’m sure Henry Kaiser went through this process in detail in explaining what he wanted to do to his managers, workers, and his board of directors. He would have left nothing out, concluding that despite the risks, the best way to achieve the desired results was to implement the building of the British design in the way he outlined it.

If you want to be a Frederick Smith, a Henry Kaiser, or even an Albert Einstein in your field, just follow Drucker’s advice: analysis, system, and hard work.