The business enterprise has two, and only two, basic functions: marketing and innovation. It is not necessary for a business to grow bigger; but it is necessary that it constantly grow better.

- Peter F. Drucker

The organization that fails to continually innovate new products and services will not survive long.

But not all innovations produce commercial success. A new business idea must offer customers exceptional utility at an attractive price, while delivering a tidy profit.

Most business opportunities emanate from methodical analysis of seven areas of opportunity, according to Peter Drucker (Harvard Business Review, 2002).

1. Unexpected Occurrences and Failures

Unexpected occurrences can be illustrated by what happened in the early years of computer technology. Univac, which had the most sophisticated machine, spurned business applications. IBM quickly realized their potential and redesigned a computer for payroll applications, making them an industry leader within five years.

Unexpected failures may also prompt innovation opportunities. While Ford's Edsel was a colossal flop, company leaders consequently realized the value of segmentation: categorizing consumers by "lifestyles." This led Ford to create the Mustang, which appealed to consumers' tastes and reestablished the company as an industry leader.

2. Incongruities

Incongruities become apparent during many stages of a product's life cycle. They can then be used to create better services or designs.

3. Process Needs

Many innovations develop from process needs - notably, the invention of Linotype in 1890, which allowed newspapers to substantially boost their press runs.

4. Industry and Market Changes

When an industry grows quickly - the critical figure seems to be about 40 percent growth within 10 years - its structure changes. Established companies, which defend approaches that have consistently worked for them in the past, tend to ignore challenges from newcomers. When market or industry structures change, traditional leaders may shortsightedly neglect faster-growing market segments.

5. Demographic Changes

Demographics are reliable, with predictable lead times. For example, baby boomers will begin to reach retirement age in a few years. Business leaders who pay attention to such population changes can reap great rewards.

6. Changes in Perception

Along with greatly improved health care in the last 20 years, there has been a growing awareness of personal-care needs. Exercise equipment, health clubs and natural foods are industry sectors that have experienced immense growth in the last two decades.

Consumers' perceptions are based on moods that can be studied, analyzed and exploited for innovative opportunities.

7. New Knowledge

When newfound knowledge is used to create sought-after products, leaders generate