Recently named the worlds leading thinker by the Financial Times; unequivocally known as the ‘father of modern management’ and ‘the man who invented corporate America,’ labeled by Forbes magazine as one of the youngest-thinking and clearest-thinking people in America, and described by The Economist as the only ‘great’ thinker produced by management theory. Peter Drucker is the world’s most widely read and influential thinker on business and management. His knowledge of modern management is nothing short of encyclopedic. Peter honored the Delphi Group once again as the keynote speaker at our Collaborative Commerce Summit. He also hosted an illuminating and intimate discussion with about 40 attendees. Here are some of the insights he shared with us on the New Skills of the Executive.
San Diego June 3, 2001 -- The experience of talking with Peter Drucker can best be described as that of walking into a history book. At the age of 92, Drucker has seen, experienced, and influenced, events that most of us have only read about. He is a living, breathing documentary of 20th-century business.
His insights are as clear and as sharp as ever. But to capture Drucker’s insights in writing is like trying to capture the emotional experience of a perfect sunset with a Polaroid i-Zone (ask your ten-year old).
For example, during our dinner together on the night prior to his keynote I asked him what made a good leader. He launched into a discourse on Alfred P. Sloan, Harry Truman, Generals Marshall and Patton, Jack Welch, and a veritable who's who of other twentieth century leaders. The depth and breadth of his experiences with these people rivaled a Biography Channel production. (Read on for his answer to what trait all of these men had in common and a summary of his keynote lecture.)
Then there is the experience of listening to a Drucker keynote. It is about as close to a state of reverence as you will ever get outside of an audience with the Dali Lama. There were 400 people crammed into the room at the Del Coronado, each one completely silent. Needless to say I was pink with pride when Peter Drucker - the man who literally wrote the book on management, has authored a dozen Harvard Business Review articles, and who penned the management column for the Wall Street Journal - spent the first and last few minutes of his speech in praise of "The X-Economy," my latest book with Nathaniel Palmer. It is one thing to have accolades from your peers, but another matter altogether when the man who shaped modern enterprise unabashedly tells 400 people to read what you have to say! (I’m still glowing - can you tell?)
(read more about "The X-Economy" at Amazon.com)
Drucker's keynote thesis was, as always, a simple one. We are undergoing a basic shift in the way we view the organization and the value chain. Strategy, according to Drucker, not ownership, will define the organization of tomorrow.
It is such a subtle point; the terms ownership and strategy are used in myriad ways, and could mean just about anything you want. At first I thought he might have been referring to the work of Hernando de Soto, the Peruvian economist who has written extensively about the role of property rights in facilitating Western capitalistic economies, including his 2000 book, "The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else."
(read more about "The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else" at Amazon.com)
Strategy, according to Drucker, not ownership, will define the organization of tomorrow.
Not exactly. Drucker does not necessarily agree with the global applicability of DeSoto's work, which focuses heavily on Latin America. His point is simpler: For the entirety of the industrialized world, ownership has been the linchpin of organizational scale and success. Control over a value chain, a market, a partnership, an employment relationship, has required explicit ownership over the factors of production - if not outright ownership of the entire value chain.
This has steadily eroded as highly vertically integrated industries have disintegrated into more molecular structures.
Yes, amazingly, Drucker was talking B2B.
He went on to describe three new skills today’s executive must cultivate:
1) Be many people.
2) Become information-literate.
3) Shift to price-lead costing.
Skill #1: Be Many People
If this sounds like the Confucian curse about living in interesting times, it is. Drucker was severe when he said that we must figure out a way to somehow integrate the multiplicity of roles that each of us has into a seamless existence. To make matters worse, he was clear about one point that may seem counterintuitive: Hierarchy is not dead, he admonished. As ownership diminishes in its ability to control employees and partnerships, hierarchy is more important than ever.
Sounds like a blatant contradiction, doesn't it? But Drucker's point was that hierarchy exists on a project-by-project basis. In other words, hierarchy is not static, like ownership, but is governed by strategy, which is governed by structure. At any given point, a complex system has structure; but as internal or external conditions change, so does the structure.
Hierarchy is not dead, he admonished. As ownership diminishes in its ability to control employees and partnerships, hierarchy is more important than ever.
Drucker compared Covisint with Toyota to demonstrate the two approaches. Covisint (in concept) allows any capable supplier to participate in the supply chain for an automobile, but Toyota only sources two suppliers, at most, for each component. Covisint’s structure is flexible; however, in the latter case, the suppliers are hardwired. Drucker acknowledged that you cannot say with absolute certainty that one method is right or another is wrong. Ultimately, the strategy must be driven by the customer (e.g. the demand chain) rather than by ownership (e.g. the supply chain).
Does this sound daunting? Take heart. Drucker’s caveat about this skill was that we have a good ten years ahead of us to figure this out.
He then shifted to a discussion about how this same principle impacts employment relationships.
This was classic Drucker.
I remember years back asking him to identify the greatest contributor to the information age economy. His response then was precisely his point here. It is not technology. It is education - or more precisely, the availability of it - to a much larger population that has fundamentally shifted power away from employers and to employees. (The same principle applies to the shift of power from supply chain to demand chain.)
Employees, according to Drucker, need to be treated as though they are volunteers, with the ability to get up and walk out at a moment’s notice, taking all of their intellectual capital with them. It's not a new theme, but Drucker tends to elaborate on it much more than most, claiming that education creates four distinct dynamics in the workforce:
1) Unlimited upward mobility.
2) Confidence.
3) Ever-increasing expectations.
4) Altered power structures.
For those who want to embrace this new attitude, he recommends dropping the phrase "managing people" from your vocabulary. Replace it with "managing people's productivity." Again it seems counterintuitive until you consider that the best we can do with volunteers is to create the right context in which they can do well. We don't own them. At best, all we own is the environment where they work.
Skill #2: Become Information Literate
According to Drucker, we are data literate. Few of us are information literate. He used his granddaughter when she was four years old as an analogy: She believed that having a phone book made it possible for her to call anyone in the world - before she could yet read the names in the book!
He joked that since the invention of the computer in the 1950s, businesspeople have wanted computers, they just didn’t know why. To this day, he said, computers have not had the impact we thought they would. Most of the impact is operational at best. He used the analogy of a piano tuner who can take the three-hour task of tuning a grand piano by hand/ear and, using software, turn it into a nine-minute process.
His feeling is that we are just now getting to the point where computers are having a strategic impact on organizations, not so much answering the question of "What info do I need to do a job?" as asking, "Why do the job?" Drucker even went so far as to say that not only have computers failed to impart information, they have damaged it! Data clouds issues, it does not necessarily inform them. It also makes us inwardly not outwardly focused.To make the point he said that his greatest mistake was coining the term "profit center," which has been widely used and abused. This sort of analysis has misplaced the focus of many enterprises. There are no profit centers inside an enterprise, only cost centers exist, he said. The only real profit center is the customer whose check does not bounce!
It is from this perspective, that of the customer, that IT has had little impact until very recently. When dealing with customers, the challenge is coordinating the external supply of information. Be alert, he cautioned, to the fact that changes always come from the outside, from non-customers (another recurring Druckerism).
There are no profit centers inside an enterprise, only cost centers exist, he said. The only real profit center is the customer whose check does not bounce!
He went further to point out that change certainly does not come from the data-literate - in other words, from the Information Technology people. Asking IT what business you should be in is like asking the gas attendant where you should be driving. In other words, don't confuse the person who fuels your engine with the person who sets your compass! It’s Drucker’s way of focusing us on operations vs. management. The navigators should be management.
Skill #3: Start with the Results - (Price-Lead Costing)
Cost-based pricing was the driving force of the industrial era. It's over, says Drucker. Results must drive the process and the pricing. Price-lead costing is the future. It's a simple way to focus on the ultimate driver of the enterprise of tomorrow: the customer. Although we may claim to have always been led by customers, it is clear that the power has truly shifted, perhaps as a result of the Internet, due to a newfound democratization of global consumers, or perhaps because of a generally higher level of educated citizenry. The analysis matters less than the fact that the demand chain is in control, ownership as it has been defined is a thing of the past, and that strategy must rule the dynamic, volatile markets and organizations of the future.
So there you have it, Drucker’s formula for the future - in Cliffs note fashion. I have to say that I am always amazed at how much more impactful it is to hear him talk about it in person. It may be his methodical cadence or his ability to weave in and out of historical anecdotes with teleprompter ease that makes him seem so wise - Tom Peter’s once commented to me that it is his thick Austrian accent. My take is that it is the simplicity of his observations. The truth, it seems, is never complex, despite all of our efforts to make it so.
Which leads me to the answer to my opening question. So what makes a good leader? In a word, Drucker says, trust. Good leaders trust that others will do what's right and are in turn trusted by those around them to do the same. But once that trust is broken, great leaders never offer you a second chance to regain it.
In the end it may be that trust is the one thing technology can never replace.
Sage words for uncertain times.
As Drucker is fond of saying after the history lesson is over, "End of sermon."
T. Koulopoulos
