The Seven Sources of Opportunity for Businesses per Drucker
What are the seven sources of opportunity as defined by Peter Drucker? What are the sources of opportunity for your business? What events and issues create opportunities for businesses to grow, expand and profit?
1. The Unexpected
When disaster strikes, those who can meet the needs of the masses first have a massive opportunity. Those whose products and services already fit the new niche have a massive advantage, such as the powdered toothpastes and powdered beauty products that were allowed in carry-on baggage after restrictions on the amount of liquid that could be brought onto airplanes in an attempt to thwart would be terrorist bombings made the standard tube of shampoo, toothpaste and shaving cream impossible to take on your flight.
The unexpected doesn’t have to be the completely unexpected. There is an old joke that the ideal store to open up after a hurricane sells only ice, gas and chainsaws, though beer, Pop Tarts, flashlights and glow sticks sell well before the storm on the expectation of being needed. If you’re the first one there with what the public needs or the only provider standing, you’ll reap a hefty profit. When a plane goes down, rival airlines can capitalize on it by marketing their impeccable safety record.
New innovations that disrupt an industry are a another form of the unexpected everyone else needs to adapt to.
2. Industry and Market Disparities
These disparities can take the form of regulations, deregulation, changes in supply chains, obsolescence over time and structural problems after an industry boom. The first generation of hover boards catching fire after their initial use was unexpected; the second generation that met UL standards on battery performance are a case of products taking advantage of market disparities. Another version is Japan shifting to nearly 100% recycling of rare earth electronics after China took control of most of the supply of these materials and jacked up prices.
Keep an eye out for the convergence of technologies that disrupt the market. The now classic joke that the largest online retailers have no inventory, the biggest car companies have no cars and the biggest hotels have no real estate because they link suppliers with customer directly are the strongest modern example of this concept.
3. Process Vulnerabilities / Process Needs
Process vulnerabilities may be internal or external. The risk that your manufacturing plant shuts down because the Asian region where 90% of that electronic component is produced is hit by a typhoon was a major problem several years ago; whether you solve it by stocking up on that component or cultivating new suppliers is a decision each organization has to make.
Internal bottlenecks like the risk that the only specialized machine for an operation goes down, the servers with your product data are inaccessible due to a hack attack or strikes that shut down a manufacturing facility for days are process vulnerabilities risk management can and should try to address. Process needs involve finding the weak spots in your process and solving them, such as a job shop having fast average turn around but failing to deliver the most complex jobs in a timely manner.
Other issues like limited throughput, high production costs or poor quality can be handled via a series of continuous improvement initiatives. Whether Six Sigma, lean or Lean Six Sigma depends on the vulnerability and the end goal.
An incongruity is when there is a gap between what is and what should be in terms of performance. You aren’t living up to customer standards or you want to meet a higher standard. Or you need to manage their expectations, something that is hard to do unless you literally invent the niche. One way this has been solved is by setting a standard for a new product version. Starbucks having its custom cup size names so that they never had a “small” coffee for that price is one example of this concept. Gaming companies setting up much slower free or more limited versions of their games to make the paid-for versions look better are another.
Or your customers have unmet needs, and you can profit by filling them. The discovery that customers of Apple wanted car chargers for their iPods falls into this category. This is a classic case of process improvements or product redesigns offering a major opportunity to the company.
Gold mining in video games is falling by the wayside as gaming companies realize that gamers don’t want to spend hours earning weapons and gold; instead of people illicitly earning and then selling gold and gear, the gaming companies increasingly sell these items directly to gamers. They’ve had to shift their business model to meet the needs of the customer base.
5. Demographic Shifts
Demographic shifts can be a source of opportunity as well as a source of incongruities. Japan’s aging population caused a milestone several years ago when they saw more sales of adult diapers than baby diapers – the diaper manufacturers that retooled to make adult sized diapers that fit customer preferences prospered.
There are other types of demographic shifts that companies can exploit. When an area sees rising average incomes, companies that see this and start to sell there can do well.
Shifts in family structures have caused many changes. One of the most notable was the rise and fall of the department stores, first fueled by rising incomes spent by stay at home mothers and then fallen because more women entered the workforce and no longer had the time to go to the department store to shop as a break from their routines. The rise of daycare centers accompanied this change as more women with children worked outside the home.
6. Changes in Perception
What suddenly becomes the hot new thing takes off in the market. When products are associated with scandal or considered out of date, changes in perception can kill sales.
Another example of this concept is when you create demand for your product in an under-served niche, showing how your product delivers on their needs or desires. Or look at the changes in what is perceived as a luxury product or “only for the poor/cheap”.
Target has tried to capitalize on being more upscale than Walmart. Organic labeling commands a premium, regardless of the science, so you see a proliferation of organic anything and everything. Then manufacturers try to capture more of the market by offering store brand “organic” products that are cheaper than the premium markets, relying entirely on the perception of organic as worth more to drive sales and profit margins.
Changing in perception can be associated with demographic shifts. For example, as healthcare has improved, the saying “60 is the new 40” has led to more stylish clothes, makeup and other products originally targeted to 20-40 year olds coming out with version for 40 and older customers or simply marketed to them, as well.
7. New Knowledge
The classic example of this is new discoveries. New materials, new manufacturing methods, new methods of doing business, new technologies are all forms of “new knowledge”. What you discover for yourself is always new knowledge, while the first to commercialize what was previously theoretical are also considered to have seized the opportunity of new knowledge. Those who take this route tend to be the first on the market and are likely to dominate it because they are the first.
Learning about novel uses of your product and then capitalizing on them can be seen as another form of this.