If the budget that you’re managing blows out one month and you’ve spent 200% of your allocated funds, what happens?

In most organisations, a negative surprise like this leads to painful forensic investigations. To improve efficiency, it is important to stamp out negative surprises like this.

Conversely, what happens if one of your revenue areas brings in 200% of what’s expected. In most organisations, this would be greeted happily, but these positive surprises are not usually investigated as closely as negative ones.

This is a mistake.

Peter Drucker discusses these positive surprises as unexpected occurrences, one of the seven triggers of innovation opportunities. He has several interesting examples of positive surprises and the opportunities that they present in his book Innovation and Entrepreneurship.

In the first example, Macy’s actually tries to stamp out the positive surprise. Here is the story:

More than thirty years ago, I was told by the chairman of New York’s largest department store, R.H. Macy, “We don’t know how to stop the growth of appliance sales.”

“Why do you want to stop them?” I asked, quite mystified. “Are you losing money on them?”

“On the contrary,” the chairman said, “profit margins are better than on fashion goods; there are no returns, and practically no pilferage.”

“Do the appliance customers keep away the fashion customers?” I asked.

“Oh, no,” was the answer. “Where we used to sell appliances primarily to people who came in to buy fashions, we now sell fashions very often to people who come in to buy appliances. But,” the chairman continued, “in this kind of store, it is normal and healthy for fashion to produce seventy percent of sales. Appliance sales have grown so fast that they now account fo three-fifths. And that’s abnormal. We’ve tried everything we know to make fashion grow to restore the normal ratio, but nothing works. The only thing left now is to push appliance sales down to where they should be.”

“The only thing left now is to push appliance sales down to where they should be.”

Eliminating negative deviance is usually good, but eliminating positive deviance is not so good.

The outcome was that Macy’s languished. In contrast, Bloomingdale’s noticed the same trend, and put extra effort into promoting appliances. Consequently, they jumped from fifth in sales among NYC department stores to a strong second.

Drucker has two more interesting examples:

A German chemist developed Novocain as the first local anesthetic in 1905. But he could not get the doctors to use it; they preferred total anesthesia (they only accepted Novocain during World War I). But totally unexpectedly, dentists began to use the stuff. Whereupon – or so the story goes – the chemist began to travel up and down Germany making speeches against Novocain’s use in dentistry. He had not designed it for that purpose!

…entrepreneurs know that their innovation is meant to do. And if some other use for it appears, they tend to resent it. They may not actually refuse to serve customers they have not “planned” for, but they are likely to make it clear that these customers are not welcome.

This is what happened with the computer. The company that had the first computer, Univac, knew that its magnificent machine was designed for scientific work. And so it not even send a salesman out when a business showed interest in it; surely, it argued, these people could not possibly know what a computer was all about. IBM was equally convinced that the computer was an instrument for scientific work: their own computer had been designed specifically for astronomical calculations. But IBM was willing to take orders from businesses and to serve them. Ten years later, around 1960, Univac still had by far the most advanced and best machine. IBM had the computer market.

Positive surprises create opportunity. Here are some dos and don’ts for dealing with these surprises:

• DON’T just analyse negative deviance, DO analyse positive deviance as well. Drucker suggests that for every regular meeting you have to address problems, you should also have one focussed on opportunities. Particularly those provided by these positive surprises.
• DON’T try to fit these anomalies into business as usual. Macy’s and Bloomingdale’s both analysed the unexpected change in appliance sales. But their responses were quite different. Macy’s treated positive deviance just like negative – and they tried to stamp it out. Bloomingdale’s changed the way they did business.
• DO get market feedback as soon as you can, and DO pay attention to it! You may think you know how to deal with the opportunity, but data changes everything. The Novocain and computer examples both show the value of data. Dentists buying Novocain and businesses buying computers were both unexpected – they were surprises. IBM was ready to respond to the data that showed that businesses were interested in computers, even though they didn’t understand this demand. Univac was not.

There is often an automatic negative reaction to any surprise, positive or negative. It’s important to understand that both types of surprise provide innovation opportunities.

To take advantage of these opportunities, you must be prepared to analyse the surprise, gather data to test the opportunity, listen and respond.

That’s how to take advantage of surprises.