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The Definitive Drucker

The Definitive Drucke

Amazon link: The Definitive Drucker: Challenges For Tomorrow's Executives -- Final Advice From the Father of Modern Management

 

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We need a new theory of management. The assumptions built into business today are not accurate.” — Peter Drucker

 

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For sixteen months before his death, Elizabeth Haas Edersheim was given unprecedented access to Peter Drucker, widely regarded as the father of modern management.

drucker business week

He liberated people from the prisons of the past

 

At Drucker’s request, Edersheim, a respected management thinker in her own right, spoke with him about the development of modern business throughout his life—and how it continues to grow and change at an ever-increasing rate.


The Definitive Drucker captures his visionary management concepts, applies them to the key business risks and opportunities of the coming decades, and imparts Drucker’s views on current business practices, economic changes, and trends—many of which he first predicted decades ago.

It also sheds light onto issues such as why so many leaders fail, the fragility of our economic systems, and the new role of the CEO.

Managing in the Next Society

Drucker’s insights are divided into five main themes that the modern organization needs to, as Drucker would say, “create tomorrow” by:

bbx Connecting with customers

bbx Innovating without abandoning what works

bbx Developing lasting partnerships

bbx Creating and retaining knowledge workers

bbx Establishing disciplined decision making

radar differences

where to jump next


Drucker’s penetrating questions, posed to those seeking his advice, helped business, corporate, and political leaders throughout the 20th century to see their work in a new perspective, and create phenomenal innovation.

Edersheim’s extensive interviews with some of these luminaries, including Warren Bennis, Ram Charan, Bill Gates, George Gallup, Jr. and A.G. Lafley offer compelling commentary on Drucker’s vast influence.


Delivering keen analysis and revealing insights into business, The Definitive Drucker is a celebration of this extraordinary man and his life’s work, as well as a unique opportunity to learn from Drucker’s final business lessons how to strategize, compete, and triumph in any market.

 

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radar

Every thing below
will have to be worked on
at multiple points in time.
Waiting until there is an obvious need is a recipe for trouble.


“It’s not the will to win,
but the will to prepare to win
that makes the difference.” — Bear Bryant

“If You Keep Doing What Worked in the Past
You’re Going to Fail” — A Class With Drucker


“To know something,
to really understand something important,
one must look at it from sixteen different angles.

People are perceptually slow,
and there is no shortcut to understanding;
it takes a great deal of time.” read more


What executives should remember and
follow links to Drucker on Asia

 

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Contents of The Definitive Drucker

  • Foreword by A.G. Lafley Chairman, President, and CEO P&G

  • Introduction by Elizabeth Haas Edersheim

  • Doing Business in the Lego World

  • The Customer: Joined at the Hip

    • Medtronic

    • Connecting With Your Customer: Four Drucker Questions

    • Who Should Be Considered A Customer?

    • Ideas In Action: Shadow Customers

    • Customer Versus Competitor?

    • Who Is Not Your Customer?

    • Which Of Your Current Noncustomers Should You Be Doing Business With?

    • What Does Your Customer Consider Value?

    • Does Your Customer’s Perception Of Value Align With Your Own?

    • How Do Connectivity And Relationships Influence Value?

    • Which Customer Wants Remain Unsatisfied?

    • What Are Your Results With Customers?

      • How Are You Measuring Your Outside Results?

      • How Are Outsiders Measuring And Sharing Results And Information …

      • Are You Fully Leveraging The Information Your Results Provide?

      • Are You Honest And Socially Responsible In Presenting Your Results?

        • An enterprise needs to examine the ethical dimension

        • Perils of the inside-out approach

        • Outside-in perspective

          • Individualized strategies

    • Does Your Customer Strategy And Your Business Strategy Work Together?

    • Procter & Gamble

      • Quotation

    • The Grandfather Of Marketing

      • According to Harvard professor and business writer Theodore Levitt, “Peter Drucker created and publicized the marketing concept.”

      • In an essay on Drucker’s importance to marketing, Arnold Corbin, former professor of marketing at New York University, states that despite being essentially a management writer, Drucker “has probably contributed more to the development and understanding of marketing than any ‘marketing man.’”

    • Conclusion

  • Innovation and Abandonment

    • Creating Your Tomorrow: Four Drucker Questions

    • What Do You Have To Abandon To Create Room For Innovation?

      • If You Weren’t In This Business Today, Would You Invest The Resources To Enter It?

      • What Unconscious Assumptions Limit Your Innovative Thinking?

      • Are Your Highest-Achieving People Assigned To Innovative Opportunities?

    • Do You Systematically Seek Opportunities

      • Do You Look For Opportunities As If Your Survival Depended On It?

      • Are You Looking At The Seven Key Sources Of Opportunities? (find “windows of opportunity” in Innovation and Entrepreneurship)

        • The Unexpected

        • Industry Disparities across Time or Geography

        • Incongruities

        • Process Vulnerabilities

        • Demographic Changes

        • Perception and Priority Changes That Shift Buying Habits

        • New Knowledge

      • Collectively

    • Do You Use A Disciplined Process For Converting Ideas Into Practical Solutions?

    • Does Your Innovation Strategy Work With Your Business Strategy?

      • What Is Your Company’s Target Role In Defining New Markets?

      • Do Your Opportunities Fit With Your Business Strategy?

        • Corning Example

      • Are You Allocating Resources Where You Want To Be Making Bets?

    • How Innovation Enables GE’s Longevity And Valuation

    • Making Innovation Everyone’s Business

    • In Contrast To GE: Siemens AG

      • Different Cultures

      • Differing Results

    • Conclusion

  • Collaboration and Orchestration

    • Peter’s vision of collaboration

    • The Power Of Collaboration

    • Collaboration And Orchestration: Three Drucker Questions

      • Three Groups of Drucker Questions

        • Goals

          • What Are The Goals Of Your Collaboration?

        • Structure

          • How Should The Collaboration Be Structured?

        • Operate and Orchestrate

          • How Can You Orchestrate Your Collaboration to ...

      • Some unmet needs are simply not possible without collaboration

        • Service and Gadget Connections

        • Seamless Wireless Coverage

      • Barriers of the Prevailing Academic Model

      • Barriers between the Private-Sector and the Academic World

      • Dell Example

      • Example from Developing Countries

      • Identify your “Front Room” and Outsource the Rest

      • Myelin Repair Foundation Approach

      • Linux Example

      • Toshiba Example

      • More Drucker Thoughts

    • Create A Living Business Plan

    • Structure Communications For Agile Decision Making

    • Track Progress As Measured By Expected Results

    • Evolving Business Models

    • Adaptation and Orchestration at LM Ericsson

    • Learning the Nuances of Working with Japanese Partners

    • Conclusion

  • People and Knowledge

    • Drucker’s People First Thinking

    • Feedback from Drucker Clients

    • Alcoa and People (example)

    • Drucker’s Basic People Views

    • Drucker listed five rules for making hiring decisions:

      • Look at a number of potentially qualified people

      • Think hard about what each candidate brings to the position and the organization

      • Have a variety of people get to know the candidate as a person

      • Discuss each of the candidates with several people who have worked with them

      • After the hire, follow up to make sure the appointee understands the job

    • Investing In People And Knowledge: Five Drucker Questions

      • Who Are The Right People For Your Organization?

        • What Is The Task?

          • Whole Foods example

        • What Knowledge And Working Style Will Help An Individual Win?

          • Breadth of Experience — Lou Gerstner example

          • The Conference Board example

        • Are You Accessing The Full Diversity Of The Population?

      • Are You Providing Your People With The Means To Make Their Maximum Contribution To The Organization’

        • Is There A Clear Mission And Direction That Builds Commitment?

          • Clairol example

          • A mission statement should fit on your T-shirt

          • Palo Alto Research Center example

        • Are People Given Autonomy And Support?

        • Are You Playing To People’s Strengths Rather Than Managing Around Their Problems?

      • Do Your Structure And Processes Institutionalize Respect For And Investment In Human Capital?

        • Do You Systematically Match Strengths With Opportunities?

        • Do Your Structure And Processes Maximize The Knowledge Worker’s Contribution And Productivity?

          • Whole Foods example

          • Examples from U.S. health-care system

        • Do You Systematically Develop Employees?

      • Is Knowledge And Access To Knowledge Built Into Your Way Of Doing Business?

        • Is Knowledge Built Into Your Customer Connection?

        • Is Knowledge Built Into Your Innovation Process?

        • Is Knowledge Built Into Your Collaborations?

        • Is Knowledge Built Into Your People And Knowledge Management?

          • Bain & Company example

          • Leap-frogging the consultants

          • A knowledge world view

          • What Is Your Strategy For Investing In People And Knowledge?

            • Knowledge and a specific company

            • Four types of knowledge strategy

              • The knowledge provider

              • The service provider

              • The commodity player

              • The relationship-dependent connector

              • Summary (rename)

    • Electrolux example: Using Talent Management To Accelerate Strategic Change

      • Background

      • A Changing World (for Electrolux)

    • Knowledge, Information, People and Organizations

      • Polaroid example

      • Every enterprise must build knowledge into its value proposition

    • How People Make The Difference At Edward Jones

    • Google’s 10 Golden Rules For Knowledge Workers

      • 1. Hire by committee

      • 2. Cater to their every need

      • 3. Pack them in

      • 4. Make coordination easy

      • 5. Eat your own dog food

      • 6. Encourage creativity

      • 7. Strive to reach consensus

      • 8. Don’t be evil

      • 9. Data drives decisions

      • 10. Communicate effectively

    • Conclusion

  • Decision Making: The Chassis That Holds the Whole Together

    • Examining/Exploring the Strategic and Unfolding Landscape

    • Decision Making: The Right Risks

    • Decision Making: Four Drucker Questions

      • Have you built in time to focus on critical decisions—have you lightened your load?

        • Is Action Required?

        • Who Should Make The Decision?

      • Does your culture support making the right decision with ready contingency plans?

        • What’s The Real Issue?

        • What Specifications Must The Solution Meet?

        • Have You Fully Considered All The Alternative Solutions?

        • Guidelines for Choosing Alternatives

      • Is The Organization Willing To Commit To The Decision Once It Is Made?

      • As Decisions Are Made, Are Resources Allocated To “Degenerate Into Work”

        • Have You Gained Commitment And Capacity Of The Implementers?

        • Do You Have Mechanisms That Provide Tracking And Feedback?

        • Clairol example

    • The Decision Process

    • Toyota Example

      • How Toyota Gets Its Edge

      • The Origins Of The Toyota Way

      • How Toyota Makes Decisions

        • Do the Homework First

        • Look at All Solutions, Build Consensus among Stakeholders, and Set Sights High

        • Implement Rapidly

    • Decision Making By Alfred Sloan

    • Conclusion

  • The Twenty-First-Century CEO

  • Endnotes

  • Books By Peter F. Drucker and below

  • Acknowledgments

 

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Be aware that the author’s world view
is not nearly as far-sighted, strategic or effective as Drucker’s.
In spite of her efforts she maintains a day-to-day, operational view
because that’s how she started out.
It is very hard to do a brain erase.

 

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I was tempted, not to mention flattered, but commitments ricocheted through my head: In the next few weeks, I had to fly to Brussels for a global meeting at Avon Products, ride in a Starbucks delivery truck through downtown Manhattan at dawn observing the stores from a logistical perspective, and meet with senior pharmaceutical executives in New Jersey to discuss a new packaging format that could help patients remember to complete prescriptions.

But this was Peter Drucker, and he was 94.

It might be the last book he worked on.

I told him I needed to think about it.


At the time, several ideas were coalescing in my mind about how management can best step up to the scary and exhilarating challenges of the twenty-first century.

As a consultant, I work with clients in businesses ranging from chocolates to athletic gear, from diesel engines to computer chips.

Much of what I do professionally is based on Drucker’s take-home pointers about focusing on results and how to be effective.

I am also the mother of two teenagers, and even in that realm his books offer good advice.

My kids shrug their shoulders whenever I trot out my favorite expression, which comes right from Drucker: “Don’t confuse motion with progress.”


I have been working with managers in a dozen industries for over 25 years and have recently seen their struggles intensify as the traditions of the business world are being upended.

Changing customers, changing technology, and changing ways of doing and even defining business are jolting these companies to the core and often challenging their very survival.


When I started as a consultant at McKinsey & Company in the late 1970s, I worked with midwestern companies whose survival was being challenged by Japanese competitors with their lower-cost cars, televisions, and machine tools.

By the mid-1980s, my clients were consumer goods companies that were struggling to meet the demanding requirements of an enterprise that my friends in New York had barely heard of—an Arkansas company by the name of Wal-Mart.


In the late 1980s, I started my own consulting firm and worked primarily with leveraged buyout companies (LBOs) that had paid too much for acquisitions and needed to drastically improve the economics of the companies in their portfolios.

It was here I learned the expression, “The sins of omission are greater than the sins of commission.”

At my firm, we continually tried ideas to test their viability rather than be paralyzed by fear of failure.

As I later learned, this was very much a Drucker thing to do.

In the early 1990s, almost overnight my client list became crowded with electronics companies and medical equipment companies.

They were losing out to Asian and other competitors that churned out cheaper and cheaper knockoffs.


Throughout all those years we didn’t know how lucky we were.

We could look inside a company, study the customers, and reinvent the business.

We could often simply research other industries and top-flight companies to get ideas.

For example, with Sealy Mattress, an overpriced LBO, we could pull $50 million out of cost and guarantee next-day delivery to retailers, fundamentally changing the retailers’ need for inventory.

With Motorola, we could connect with police stations and work with UPS to repair police mobile radios and return them within 24 hours.


But then the world got a lot more complicated.

I began advising one company after another that it had to completely rethink its style and its core practices or else it would become uncompetitive and destroy tremendous shareholder value.

There were no natural solutions or approaches to follow.

Management had to take risks.

Huge risks.

Doing nothing was an even bigger risk.


At the time of Drucker’s call, I was working with three clients, and all three needed a dose of Drucker.

The first, a New England university hospital, was struggling with the decision to install a wireless network that would enable interns to swap patients’ medical records on their laptop computers, speeding up the bureaucratic process and eliminating paper shuffling.

The system had another benefit: It would qualify the university for more Medicare and Medicaid payments.

But it contradicted everything hospital administrators held sacred about centralized information and patients’ rights to privacy.

Like many hospitals, this one was so bent on doing things the old way that it was heading toward bankruptcy.


My second client, a paper company mired in long-standing traditions, had taken a bold step by acquiring a dozen independent packaging companies.

The companies served many diverse industries, from media to health care, and were based in many far-flung nations, including Brazil, the United States, Russia, and Europe.

Senior managers wanted to seize the opportunity to help their clients use new packaging designs to grab customers’ attention, but they used a painstakingly deliberate engineering approach to making decisions.

The company had been through a slew of management consultants, from McKinsey to the Boston Consulting Group to Deloitte & Touche, and even management guru Ram Charan, a University of Michigan professor.

I was working with the head of the packaging group to create a design center for customers, identifying potential partners in China and India.

But after three critical years, executives were no closer to uniting their various acquisitions to provide designs for clients than when they had begun.


My third client was a cosmetic company with a household name that had too many ideas and way too little discipline.

At the same time, it was uniquely positioned to touch customers around the world, but, like many consumer-goods companies, it was being slowly asphyxiated by the complexity of its offerings.

The sales reps were so overwhelmed that they had become more like clerks processing orders than salespeople proactively describing a product.

Manufacturing facilities produced one item, then the next, and the next, unable to capture economies of scale and often discarding unused inventory.

This company was an ace at customizing orders and delivering them quickly to all reaches of the globe, yet it was missing great opportunities.

And it wasn’t just my clients that were being overwhelmed.

Something has gone wrong with business in the twenty-first century.

Consider this: Since 2000, the management at 18 different public companies—18 companies!—has each destroyed more than $50 billion in shareholder value.

That’s more than Enron did, 18 times over.

Why?

Because, in most cases, the CEOs, boards of directors, and other well-paid managers held on to yesterday—to doing business the way they always had—and didn’t know how to free their organizations to embrace tomorrow.


Management in the twenty-first century faces fundamental changes in the size and scope of opportunities.

Businesses have historically defined “opportunity” as a chance to capture market share and rake in higher profits through greater productivity, a new and improved product or service, the acquisition of a competitor, or expansion into a new territory.

But increasingly, opportunity is all about seeing, or even creating, white space—uncharted markets that can be identified only by looking hard at both the external environment and the numerous unsatisfied demands of increasingly informed customers.

What is fascinating is that often the customers aren’t even conscious of what they want until someone comes up with a product and a marketing campaign that makes people say, “I need that cell phone that shows the Comedy Channel.”

In a very real sense, truly innovative products and services create their own markets.


As I traveled to Brussels and bumped around the streets of New York in a Starbucks truck, I couldn’t get Drucker out of my mind.

All these companies—all the CEOs, all the CFOs, all the COOs, all the Chief-You-Name-Its I was dealing with—were trying to cope with this bewildering 24/7 world of outsourcing, changing demographics, sharpened competition, and new customer requirements.

They were dealing with the very challenges Drucker had anticipated for decades, before anyone truly understood what he was talking about.


As I began to reread Drucker’s books and articles, several things quickly became clear.

No one has understood the implications of social trends and transformed them into opportunities the way Drucker has (see sidebar on page 13).

No one has done a better job of helping organizations capitalize on opportunities.

Despite the vast numbers of business books, no book clearly and powerfully explains the implications of the transitions that are underway and how to effectively manage in this new world.

Something told me that this man, who had been the first to emphasize the human element of management, had some of the answers. Jump

 

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Drucker Ideas

As I began to write about Peter’s ideas and share my own perspectives on them, he opened up.

I would pick one topic from my list of Drucker ideas and discuss with him how it applied to the challenges of this century.

He generally liked me to send him my questions in advance of my visit.

I would write down his responses and study them, reread something he wrote, call a client or two, and test the thinking.


For example, when we were discussing the knowledge worker, Peter said, “Today the corporation needs them more than they need the corporation.

That balance has shifted.”

I called my friend Alan Kantrow, head of the knowledge effort at Monitor, the Boston-based consulting firm.

Without missing a beat, Alan said, “We are constantly asking ourselves—what are we providing to the knowledge worker to keep him or her here, rather than go off and be an independent contractor.

We believe it is the opportunities they get and the people they have a chance to work with that keeps them here.

It is not the money.”

I then called David Thurm, head of operations at the New York Times.

In this era of job-hopping executives, David is as much of a company lifer as I know.

I asked him why he worked for the Times, rather than as an independent contractor.

He replied, “I’m proud to be associated with such a great institution.”


Drucker had told me that there is no such thing as unquestioning loyalty: An organization has to earn the loyalty of its employees every day.

David agreed and said that the Times was still earning it.

I called three other high-level executives and asked them what keeps them at their corporations.

They said they stayed on because of job security.

I guess asking this Druckerian question prodded them to think.

Since then, two have left their corporations.


While I continued consulting with companies large and small, I kept on thinking about how management could navigate this difficult new landscape and what lessons from Drucker’s 70 years of observations could help them.

I questioned executives whom I admired, added my own ideas, and shared the results with Peter as we discussed the book.


On a warm August day in 2004, during an intense conversation about what makes a good leader, Peter looked at me and said, “The most important thing anybody in a leadership position can do is ask what needs to be done. See here and here

And make sure that what needs to be done is understood.”

At the time, the newspapers were full of headlines about once-thriving businesses that were faltering badly and about scandals at Tyco, Enron, Adelphi, and WorldCom.

He continued, “You ask me why do so many people in leadership fail.

There are two reasons.

One is that they go by what they want, rather than what needs to be done.

And the second is the enormous amount of time and effort to make oneself understood—to communicate.”

I asked how leaders can be certain they know what needs to be done.

He emphasized two things: asking and listening.


Drucker was known for his Socratic style—asking questions and asking the right ones.

I once asked Dan Lufkin, a founder of Donaldson, Lufkin, & Jenrette, to describe working with Drucker back when the firm was starting in the 1960s.

First, he said, Drucker made sure everyone was focused on the questions that needed to be asked.

“I can’t tell you how important he was to the development of the firm.

He forced three young and ambitious guys doing well to step back and think, and on occasion make decisions.”


I have used Drucker’s most insightful questions to structure every chapter in this book.

As Peter often said, the right questions don’t change as often as the answers do.

As you read, think how you might answer the key questions in each chapter if you were asked them by your CEO or your customer.


The book also reflects Drucker’s passion for making organizations and management work well in the present and to create tomorrow.

The importance of and need for great management are reflected in virtually all his writing.

Peter’s passion was the direct outgrowth of having witnessed Europe’s economic free fall in 1930.

The failures and collapse that he wrote about in the 1930s were, to his mind, directly connected to poor business and government management.

He was convinced that the lack of a viable economic engine in Europe is what brought Hitler to power.


The rise of Fascism and Communism only confirmed Drucker’s view of the critical need for vibrant businesses in any society.

Without economic opportunity, he wrote in 1933, “The European masses realized for the first time that existence in this society is governed not by what is rational and sensible, but by blind, irrational, and demonic forces.”

He then went on to say that the lack of an economic engine isolates individuals and they become destructive.2


Drucker’s understanding of the fragility and interdependency of our economic systems and the enormous human cost of failure is even more relevant in our global economy.

And, as Drucker emphasized, we all must step up to the responsibility to manage our way to an optimal tomorrow.

“Human values, capabilities, and tenacity comprise the engine that keeps the world going.

In short, we are all charged with influencing and managing the changes that will define our future.”


Peter and I saw this as a book for a wide assortment of people: A CEO leading an organization, a recent recipient of an MBA or a graduate of an executive education program who wants to think about the challenges and possible solutions that academics don’t dwell on, a mid-level manager worried about declining sales, a vice president who is dealing with dilemmas of outsourcing, a CFO who is keeping a wary eye on competition from a company in another country, probably another continent.

These people have some common traits: They want the best for their businesses.

They are leery of short-term profit making at the expense of long-term growth.

And they want their careers to make a mark.

 

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Doing Business in the Lego World

The assumptions on which most businesses are being run no longer fit reality. 1

—Peter F. Drucker

WESR ::: The theory of the business ::: Management’s new paradigms

As I crisscrossed the country over the past couple of years, interviewing Peter Drucker and working with clients, something struck me.

The staid world of business—the world I’d studied, the world I felt I’d mastered during 20 years at McKinsey & Co. and as head of my own consulting firm—had been turned upside down by a silent revolution.

In this chapter, I describe that revolution, tell you how Peter helped me understand this radical transformation, and explain what it means for you right now.


The Silent Revolution

Change came gradually, predictably, to businesses in the period following World War II through the early 1990s.

But then, boom! A silent revolution took place on five fronts:

1. Information flew.

2. The geographic reach of companies and customers exploded.

3. The most basic demographic assumptions were upended.

4. Customers stepped up and took control of companies.

5. Walls defining the inside and outside of a company fell.

Developments on these five fronts played off one another, further accelerating the revolution.

First, information flew.

Since the expansion of the Internet, information travels instantaneously, without regard for distance, and its widespread availability is unprecedented.

In the globally integrated economy, management must make decisions at all hours of the day and night.

Purchasing managers in Plano and distributors in Dubuque can now distinguish between good suppliers and bad ones instantaneously.

The greater velocity of information has accelerated the pace of everything in business.

Success is measured not by the quarter or the month, but by the minute or second.

Every industry, from manufacturing to movies, has had to adjust to this fast-forward world.

As Lynda Obst, a producer at Paramount, recently noted, “We used to have a weekend to get our money out of a movie like Stealth or Doom.

Now we get one night, tops.” 2

---XXX---

For decades, information was power.

But today, with the unprecedented availability of instant information to anyone with a laptop, true power comes from screening, interpreting, and translating vast quantities of information into action.

Second, the geographic reach of companies and customers exploded.

Remember that cartoon of the kid scraping a hole in the ground and saying, “Hi, Mom, I’m digging to China”?

Today that same 11-year-old gets on his Mac and connects to a peer in Guangzhou for a game of war, and his 13-year-old sister goes to sweetandpowerful.com to buy a fleece pullover made in Sri Lanka.

Companies and their customers now have an astounding geographical reach.

Even mom-and-pop firms can scour the world for resources.

And in this global marketplace, brands are created and gain widespread recognition in weeks or months rather than years, cutting down the advantage of the big-brand players who used to be the select members of an exclusive club.

---XXX---

Companies and their customers now have an astounding geographical reach.

Third, basic demographic assumptions were upended.

Populations in the developed world have been jolted by an aging group of workers and a declining birth rate.

The migration from industrial to knowledge workers and the increasing success of women in the workforce have changed customers’ needs and forever changed the relationships of corporations with both customers and employees.

Until quite recently, only customers in affluent countries reached the apex of Maslow’s pyramid of self-actualization, which starts with the basics of food and shelter.

Now, millions more people in all social strata have been freed from worrying about the basics; they seek service and fulfillment.

---XXX---

With longer life spans, later retirements, and a record number of women in the workplace, convenience matters more than ever.

I noticed recently that my supermarket was touting pre-made peanut butter and jelly sandwiches for parents who don’t have an extra 60 seconds to slather two spreads on bread.

With changes in how customers are distributing their income, companies are offering more useful information and more service.

The three fastest-growing consumer purchases today are not traditional consumer goods; they are activities (such as sporting events and health club memberships), health care, and education.

Health care and education make up almost a third of America’s gross national product (GNP).

---XXX---

To managers, the biggest effect of these demographic changes is that societies, markets, and workplaces are driven by new populations with new demands.

Once-dependable workers over age 50 do not necessarily keep on toiling as full-time, 9-to-5 employees.

Instead, many dive into the labor force as temporaries, part-timers, consultants on special assignment, or knowledge workers.

Some of these older workers will be pushed into free agent status because of layoffs and buyouts.

Fourth, customers stepped up and took control.

Never before have customers been so clearly in the driver’s seat.

They are engaged with companies in ways that would have astounded Henry Ford or Thomas Watson.

Customers are no longer simply passive recipients of goods and services; they are active participants from the product inception, whether as groups evaluating the product or as individuals working with software programs and design engineers to custom-build everything from Levi’s jeans to light fixtures.

Consumers can access virtual shelves for almost any product, and they want customized products delivered with the click of a mouse.

---XXX---

Customers create their own weblogs with their own online content.

Hachette closed its Elle Girl Teen magazine while its competitor, Condé Nast, is launching a Web site with all its content created by teen readers rather than by Condé Nast staffers.

We read each other’s blogs and socialize at virtual meeting places such as MySpace.com and the online dating site Match.com.

Shopping for a mate has become almost as easy as shopping for a book on Amazon.com (“Add this man or woman to My Cart!”).

---XXX---

Savvy customers have become part of the process that used to exclude and dismiss them with condescending remarks like, “You’ll have that dining room table delivered in eight weeks.

And, no, we cannot make it three inches taller just because you have a relative in a wheelchair—you’ll have to find a carpenter to do that.”

Today you design it with one of several manufacturers such as Thomas Moser—often online—exactly the way you want it.

Finally, defining walls fell.

These days, a company draws on capabilities outside its own walls in ways that would have been unheard of just a few years ago.

To test ideas, companies now use expertise drawn from completely different industries and form alliances with other companies with overlapping missions.

Since Home Depot recognized that its strength was internal to its stores, it has passed all its logistics issues off to UPS; now UPS manages everything at Home Depot connected with shipping.

This partnership allows the two companies collectively to serve Home Depot customers more efficiently.

---XXX---

Sometimes companies even team up with direct competitors.

Last year, two global rivals, China National Petroleum Corp. and India’s Oil & Natural Gas Corp., teamed up to buy a Syrian oil field, and this year they jointly bid for another one in Colombia.

---XXX---

Walls have fallen to bring the best people and divisions within companies together rapidly and to enable organizations to adapt without huge write-offs.

Whereas independence was once key to speed and a barrier to the entry of competitors, it has come to signify isolation.

And isolation is corporate death.

The impact of this silent revolution hit me one day in 2005.

Although I had studied the company carefully twice before, I was making my first visit to Procter & Gamble (P&G) in Cincinnati as a writer.

Everyone welcomed me, from sales reps to the chairman, president, and CEO, A.G. Lafley.

They wanted my thoughts, and they were eager to give me every bit of information I requested.

---XXX---

What a vast change this warm reception was from my two prior dealings with the firm in 1990 and again a decade later in 2000.

I wasn’t working for P&G on either occasion; I was studying it for a competitor.

Back then, the Cincinnati behemoth was so secretive that the chairman of my client company told me not to even so much as mention P&G’s name in any report.

He felt that if P&G found out I was analyzing it, there would be “repercussions.”

I dubbed it Company S for “secret”—as if any executive couldn’t figure out who was making all those soaps, detergents, and diapers I was writing about.

---XXX---

Now here I was in Cincinnati in 2005—feeling a certain amount of dread mixed with excitement—interviewing Lafley over a lunch of chicken and green beans in his office.

At the conclusion of our meeting, he told me to call with any questions.

And it wasn’t just Lafley who was forthcoming.

Rather than a hermetically sealed conglomerate, I found a company so open that it invited me, an outsider, to visit one of its product testing centers.

The company is intent on tapping outside sources and retirees for research and development (R&D) and is even testing a program with DuPont to link the two firms’ technology centers.

P&G had changed its attitude so radically that it was letting employees write articles about how they were managing.

Drucker’s influence was apparent.

He had been working with P&G since about 1990, and he had constantly pushed executives to see beyond the borders of Ohio.

And they had listened.

---XXX---

On my way home, I reflected on my day.

What impressed me was not just that P&G was more open; what was really striking was that it was rethinking the way it did everything.

I had seen the same ability to rethink the present and embrace the future at GE’s corporate headquarters in Connecticut, and then across the country at a completely different place—the Myelin Repair Foundation, a little-known start-up foundation in northern California.

 

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Embracing The Future

My GE experience began as I prepared to interview its former chairman, Jack Welch, a long-time Drucker client.

Before seeing this legendary executive, I wanted to know what GE insiders thought and what tips they could offer for drawing Welch out.

I called Dave Stevenson, a friend who used to run GE’s major appliances marketing group.

He told me that he had created his own company, doing research on major consumer expenditures.

Seven companies, including GE, were buying his research and market planning.

That was unusual for GE, which used to distrust outside researchers.

But Dave said that Welch had forced the major appliance group to ask not only what others could do better, but what activities should be spun off and which department heads could work independently.

When Dave had volunteered to take marketing outside, the bosses surprised him by agreeing to it.

Dave gave me his tip: Listen to Jack Welch and don’t be offended by his rough style.

Another thing: Jack likes specific questions that demand specific answers.

---XXX---

When I called Welch at the appointed time, I grabbed his attention by asking what he was doing for his birthday.

He asked me how I knew, and I told him it was the same as Peter Drucker’s—a bit of trivia that surprised him.

My second question was how Peter had influenced him.

He said that Peter had made him conscious of GE’s ability to work with another organization that was excited about something that GE found boring.

“If it’s not your front room,” Peter had asked Welch, “can you make it someone else’s front room?”

Peter had expressions that everyone seemed to remember.

His point was that if you don’t have passion for a particular activity, then find an ally who has expertise and passion for that activity and can do it better.

Harness GE’s clout and the ally’s passion and move forward.

“GE recognized that they were never going to be the best in the world at programming and found a company that was passionate about it in India 20 years before anyone else,” Welch told me.

This wasn’t what the press calls outsourcing.

Outsourcing is meant to save money or make things easier for the manufacturer.

Instead, GE wanted to put the best teams together, even if some members were external and including them added to logistical demands.

It sought partnerships that would deliver the best value to the customer.

Jack termed this shift “boundarylessness” and indicated that it is a continual challenge for most companies.

---XXX---

Over the years GE executives continued to ask themselves that question and go outside its walls more and more.

This effort began in earnest with Peter exhorting Welch to focus on strengths and find somebody else to do the rest.

---XXX---

Big, profit-hungry companies aren’t the only ones breaking boundaries.

After talking to Welch, I visited the Myelin Repair Foundation, an innovative group in northern California that is trying to find a cure for multiple sclerosis (MS).

(This organization is discussed in detail in Chapter 4.)

Its approach challenges two long-standing practices that create barriers in research.

First, the foundation is connecting separate, competing research groups that used to share findings only after their papers were published.

A group of five leading neuroscientists from different universities are piloting a new, collaborative approach to medical research with a shared research plan right from the start.

---XXX---

Second, the foundation is collaborating with patients at every step—something even the best researchers don’t do.

Their meetings include not just researchers and fund-raisers but also patients, the people most affected by MS.

The patients’ presence creates a new sense of focus and urgency in the researchers.

This isn’t an academic exercise that will culminate in articles for specialized journals.

This is about life and death and about finding a breakthrough in a few years, not in a future someone’s lifetime.

The scientists are looking for take-home solutions to the deterioration of myelin, the protective insulation surrounding nerve fibers of the central nervous system, which is destroyed by MS.

This relatively small foundation is pioneering the twenty-first-century way of doing business.

---XXX---

Industrial mainstays like P&G and GE and newcomers like the Myelin Repair Foundation are reshaping where and how companies work with customers, other stakeholders, and even potential rivals.

These innovators are accelerating the pace at which companies connect, disconnect, and reconnect.

P&G and GE recognize that the financial market values soft assets, such as customer relationships, international access and agility, and intellectual capital, and that’s where they put their investments.

We’ll learn from their successes—and some of their mistakes—throughout this book.

---XXX---

To paraphrase Drucker, embracing the new requires abandoning the past.

In our conversations, he often said that we are at a moment of transition where businesses and organizations will be redefined.

If they don’t, they’ll go the way of pterodactyls.

 

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The Primacy Of Knowledge

I was eager to test my observations about the silent revolution with Peter Drucker the visionary who had an astounding track record in predicting and shaping the future.

The companies I advised were reeling from the changes around them, and I knew his counsel would make my advice better.

It was a lucky coincidence that several of the companies I worked with had consulted with him decades earlier.

---XXX---

When I drove to Drucker’s house in a middle-class enclave of Claremont, California, in February 2005, a lone Toyota sedan was parked in the driveway.

I remembered my first visit the previous summer when we began to talk about the possibility of my writing a book.

On that day, I drove by the house three times, checking the address.

It was a nice house, but not ostentatious—an average ranch house in an average neighborhood.

It did have distinctive landscaping.

The lawn resembled one of those British creations where someone manages to cram in twice as many plants as you’d think possible and make it look wonderful nonetheless.

---XXX---

This time, with the book under way, I rang the bell and heard Peter’s usual, “Just a moment!”

Then I heard a thumping noise through the house.

Peter opened the door and commented, “I’m not as fast as I used to be.”

The thought flashed through my mind, maybe not physically.

He continued, “Pleased to see you.”

He grabbed my hands and said, “Well, come in.”

We walked past Doris’s office and a shelf stacked with mail.

We walked through the living room, which was always immaculate.

The Financial Times was spread on a long table.

---XXX---

We sat down in the den, next to a round coffee table, with me on his right, by his better ear.

Peter enjoyed small talk, but today we plunged right into a business discussion.

I wondered if he had noticed the phenomenon of the outside world becoming part of companies.

I began by asking his thoughts about the most important challenge for managers today.

I used the classic B-school question: What should be keeping managers up at night?

He laughed and said, “I don’t know.”

---XXX---

By now, I understood him well enough to realize that he did know.

This was his way of prodding a questioner to dig for the answer.

Then he’d go into his “I’ll-tell-you-something-else; we’ll-get-back-to-that-question-shortly” routine.

---XXX---

We did get back to it, and this chapter does too, in a moment.

Peter often talked in circles—beginning with something that might appear totally unrelated and ending with an insight into a question.

Somehow it connected to his initial observation.

---XXX---

In this case he didn’t start by discussing managers, or even science.

He talked about World War II.

It was, he said, the first war won on industrial power, not military depth.

It was the first time in which industry was not an auxiliary but the main fighting force itself.

In fact, in the first six months, the United States manufactured more aircraft, tanks, and artillery than Hitler and his advisers thought the Americans could make in five years.

They did it by applying the discipline of management from operations research and quality control to rapidly convert factories from making cars to producing tanks.

Peter then mentioned my friends from the Sloan School and the role they had played.

That led him to a soliloquy about peace.

He said that any peace following such a war must be an industrial peace—a peace in which industry is not just on the periphery but at the center.

He was on a roll, tracing the transition from a mercantile economy to an industrial economy and the concomitant tension between policy and reality.

---XXX---

Peter observed that we are now in another critical moment: the transition from the industrial to the knowledge-based economy … We should expect radical changes in society as well as in business.

“We haven’t seen all those changes yet,” he added.

Even the very products we buy will change drastically.

---XXX---

I asked how the Americans won the Gulf War in 1991.

He didn’t take his usual moment to collect his thoughts.

“Technology,” he shot back.

When I asked how the war on terrorism will be won, he took a moment and said, “Knowledge.”

He then explained the difference to me: “Technology is the application of yesterday’s knowledge.

The war on terrorism will be won based on our ability to apply knowledge to knowledge—or someone else’s ability.”

He meant the ability to integrate the pieces and add to what we know individually.

---XXX---

And that brought us to management, or what he called “knowledge-based management.”

He spent the better part of the next two hours defining and pulling this idea apart: the importance of accessing, interpreting, connecting, and translating knowledge.

He spoke about how critical it is to find and manage knowledge in new places like pharmaceutical companies as they move beyond chemistry to nanotechnology and software.

How would this search and application
be choreographed?

Knowledge-based management is also critical to old multinationals like GE as they begin to build infrastructure for the developing countries, with the caveat that they first need to fully understand those countries.

See Anthony Bourdain: Parts Unknown

Essentially, GE has to access information about the developing world and its infrastructure, interpret this information, and connect it with the rest of GE.

The educated person

Drucker commented that information will be infinite; the only limiting factor will be our ability to process and interpret that information.

That is what he meant when he emphasized the importance of the productivity of the knowledge worker.

---XXX---

Peter had a way of looking at something and teasing out both the positive and the negative.

“On the one hand, it’s important to specialize,” he said.

“On the other hand, it’s dangerous to overspecialize and be isolated.”

The ability to access specializations while cutting across them—that’s what I’d seen at the headquarters of the Myelin Repair Foundation only a few hundred miles away.

Finally, Peter was answering my questions — finding a way to specialize enough, but not too much, and without isolation.

“That,” he said, “is what should keep managers up at night.”

---XXX---

Doris appeared.

All too quickly my morning session with Peter had ended.

That afternoon, when I went back, our topic was Thomas Friedman’s best-seller The World Is Flat.

Friedman argues persuasively that it doesn’t matter where work gets done—it makes no difference whether a computer company produces a part in India or Indiana.

---XXX---

Everywhere I went, executives seemed to agree: The world is flat.

I asked Peter if he thought the world was flat.

---XXX---

“From whose perspective?” he asked.

---XXX---

“Yours,” I said.

---XXX---

I have trouble walking around my living room,” he joked.

“It doesn’t seem flat to me.”

---XXX---

His mind was so spry that sometimes I forgot he was 95 years old.

“All right,” I said, “then from the manager’s perspective.”

---XXX---

He paused and said, “Their landscape is flat only if there is an opportunity from it being flat.

But if there is an opportunity, it will not be flat for long."

 

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The Lego World

After several more discussions with Peter, I came to understand what he was telling me.

The management world is flat only if you take an industrial perspective.

If you just want the lowest cost, the capabilities exist virtually every place in the world to get the lowest cost.

But if cost is not your only concern and you recognize that the industrial world has given way to an information and knowledge-driven world, you will see that the world is not flat and that Indiana and India are not interchangeable.

Indeed, the ability to put together and connect the pieces in different ways and with the customer all the time defines an enterprise’s performance.

Many more than two dimensions of place and time matter all the time.

Even country geography is not flat.

Silicon Valley is different from Silicon Alley which is different from Wall Street.

---XXX---

In the twenty-first century, businesses exist in a Lego world.

Companies are built out of Legos: People Legos, Product Legos, Idea Legos, and Real Estate Legos.

And these aren’t just ordinary Legos; they pass through walls and geographic boundaries, and they are transparent.

Everything is visible to everyone all the time.

Designing and connecting the pieces is at least as important as providing them.

It’s crucial to remember that these aren’t simply pieces of plastic or metal—they are not just factories or warehouses.

They are also humans who program computers, train newcomers, and think about innovation as they prowl malls, libraries, and parks, coming up with new products.

These pieces are constantly being put together, pulled apart, and reassembled.

---XXX---

My company’s Legos—manufacturing, distribution, skills, and services—cannot be unique unto themselves; they have to connect with your company’s Legos.

I can build my company, but in a year or two, my CEO and I might have to tear down and rebuild part of it in a totally different configuration, perhaps with fewer American People Legos and more of your company’s People Legos in Sweden or South Africa.

Leading visionaries in business are expressing the same notion.

Ray Ozzie, Microsoft’s chief software architect, recently explained: “What’s more important than any one individual Lego is that you know how to build with all the Legos.

With everything out there, all those programs and applications and accessories, what’s important is the ability to find a way to connect fragmented software pieces rather than simply finding the next piece of software.” 6

---XXX---

That’s the idea that Peter embraced, but it was larger than software and components.

He thought in terms of people, with a tremendous sense of humanity and compassion for the individual.

That’s the beauty of it.

We are not talking about commodities.

We are talking about individuals and their ability to create.

Connections

A society of organizations

Management Challenges for the 21st Century | The Change Leader

Making the Future

Serious Creativity

The bright idea

Sur/petition

Creativity Workout

Only connect

As these Legos connect and interconnect in ways we could never have imagined a decade ago, when the Internet was in its infancy, we find a powerful, human structure.

In an organization, we can connect individuals’ strengths, minimizing their weaknesses.

And across organizational boundaries, we can connect the strengths of each corporation and provide the customer with far greater value than can any single enterprise.

---XXX---

Dell is a classic example of a Lego manufacturer.

It has configured its offering so that customers can custom-build computers to meet their individual needs.

Michael Dell claims that the firm’s important capabilities are the management and integration of information and the ability to quickly build a computer to a customer’s specifications.

Dell’s Product Legos include anything from processor and memory capacity to screen size.

Its internal network includes vendors, shipping locations, and the location of the customer service center (depending on the time of day, customers can be helped by someone in South Africa, India, or Texas).

Connecting pieces include Dell’s systems, user interface, assembly centers, and customer support service.

Although Dell recognizes customer service as its weakest link, Dell can deliver a customer-tailored product to anyplace in the world at an incredible speed, largely because of the interchangeability of its components, which is at the heart of Dell’s “Lego-like” operations.

Dell’s challenge will be to disconnect and reconnect in a new way as the PC moves from a work-tool to the entertainment and communication center.

---XXX---

Amazon exemplifies the Lego approach in the retailing arena; it connects with other vendors who have expertise in making everything from textbooks to toys.

Its Web site links you to book publishers, third-party used bookstores, individuals reselling books, and vendors for any product you can dream of—from televisions to telephones to T-shirts.

Amazon knows you, and, when you log on, it welcomes you by name and offers you purchase suggestions at lightning speed.

It often knows what I want before I do.

It’s the high-tech version of the old grocer who not only knows you by name but also has a hunch you need sugar before you run out.

The company is connected to you, your mind, and your credit card.

It is the connection that is important.

Dell took its expertise and understanding of the electronics world and connected that capability with each consumer to greatly increase its impact.

Amazon linked one Lego to another, from baby clothes to DVDs, and created a simple interface offering the consumer scores of products and incredible ease of use-one-click checkout.

Jeff Bezos had the patience and foresight to build a company around connections, and, after a decade of testing, learning, and growing, he made a profitable business.

He also had the insight that told him that building an initial customer base around books would ensure that his core customer would be literate, savvy, relatively affluent, and likely to return to purchase more.

 

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Note how rapidly her company examples become dated

A New Solution Space

The most significant trends affecting business transcend all companies and all industries.

They cross borders and touch all areas of civil society.

Business as we know it is disappearing.

Companies aren’t selling products; they’re selling experience.

(Warning: this is the author and her mental patterns “speaking” and not Drucker on marketing)

Relationships have gone far beyond the roles of buyer and seller.

There are no competitors.

Let me repeat that, because it’s something that Peter Drucker loved to say: There are no longer competitors, just better solutions and more choices that can be put together in more ways.

In other words, companies focused on competitors are focused on the past, not a future full of technological and demographic opportunities.

---XXX---

The evolution of cellular phones into instruments capable of doing much more than handling voice communication offers a striking example.

The obvious convergence of functions to give a customer a product that does many things-capturing and transmitting still and moving digitalized images, connecting with the Internet, even functioning as a TV—not only means serving a wide range of consumer needs but also guarantees that customers will upgrade to a new device frequently because they want the latest version with new and enhanced capabilities.

And the carriers will constantly have to upgrade infrastructure and systems in order to not only constantly improve service, coverage, and signal quality but also to be prepared to offer new forms of service functions.

Sprint “competes” with Verizon in recruiting and retaining subscribers by focusing on constant innovation, which is the primary engine of growth and sustainability.

By constantly innovating in both technology and range of services offered, what was once an enterprise offering a commodity—cellular phone service—becomes one offering a rapidly increasing range of value-added services.

The winner is the organization that offers the most varied menu from which a customer can pick, choose, and customize.

And this trend is driving change not just in electronics generally, but in a variety of goods and services unimaginable even 10 years ago.

Implications For Managers

One of Drucker's talents was his ability not just to see trends but also to shed light on their implications so that managers could act on them.

In our conversations, we discussed three consequences of the silent revolution:

1. Financial markets now value knowledge more highly than they value hard assets, underlining the emergence of the knowledge economy.

2. The U.S. economic engine is facing the gravest threat of the past 100 years: the need for corporations to be strategic collaborators rather than unilateral superstars.

3. Strategy has become a crucial ongoing activity for management, not simply an annual planning exercise.

Financial markets value companies based on what they think they can earn over time.

For decades—since the Industrial Revolution, really—what mattered was hard assets: factories, inventory, and accounts receivable, or the ability to build products.

Reflecting the preeminence of the knowledge economy, the silent revolution has prodded the financial markets to value the intangibles, such as relationships, intellectual property, and knowledge, and to quantify the value they might generate in the future.

We are buying services more than products—health care, education, personal trainers.

The market reflects this shift in value.

In the last five years, soft assets-intellectual property, patents, and connections—have doubled in value compared to traditional assets, such as plant and equipment. 7

---XXX---

Drucker noted two developments that drove this shift to soft assets.

Old companies, like Boeing, were being revalued as their physical assets took a back seat to their knowledge, relationships, and ability to connect.

At the same time, innovative companies, like Google, Yahoo!, and Craigslist, were launched in cyberspace with very little in the way of physical assets, providing services that had never existed before.

Unlike a traditional newspaper that relies on classified ads, Monster.com is a forum, a truly interactive business.

At first it sounded like just an electronic version of the classified ad—hardly a big advance.

But browsers can see what is happening in the labor market, how jobs are being described, and which industries are prospering.

It offers a much more comprehensive view of the job market than does a stack of the Sunday New York Times, or even nytimes.com.

---XXX---

Consider Craigslist, which, though not a newspaper, has had an even more profound effect on the print media, because it does not charge for classified ads.

In just one day, I sold my car on Craigslist to someone who lives just outside the circulation area of my hometown newspaper—and rather than paying $50 for agate type that might or might not lure a buyer, I didn’t pay a cent.

And then I was hooked.

I started buying garden equipment from people in my suburb who posted ads on Craigslist.

In just one week, I gave up my lifetime habit of scanning the classifieds in my hometown paper.

Monster.com and Craigslist are more than mere services; they are locations—virtual Starbucks.

You join a crowd.

It’s comfortable.

---XXX---

The second challenge is one that Peter and I talked about frequently and one that keeps me up at night: U.S. companies’ ability to cooperate in the global marketplace.

America’s institutions—even our economy and our mindset—are designed for the individualism of an industrial economy, not a Lego world.

The game has changed.

Peter agreed.

He kept saying, “The theory of business has changed.”

He saw a warning in England’s behavior at the time of the later stages of the Industrial Revolution.

By holding on to the past, England survived as a nation but lost its world leadership.

Peter foresaw a time when many countries would be as strong economically as the United States.

The booms in India, China, and even Brazil have created world-class competitors.

---XXX---

Americans will have to play as equals, something that’s not easy when you’ve spent a good part of a century as the undisputed Number One.

We have to retool our schools so that students don’t simply learn how to answer multiple-choice questions.

They need to synthesize information and think critically.

If we want our children to thrive in this new world, we should immerse them in Mandarin or another language by the age of five so they learn to connect to other cultures and languages.

---XXX---

The most significant business implication of the silent revolution is the new role and importance of a good business strategy.

Simply put, a strategy focuses critical resources on tasks aimed at producing results.

I used to assume that business strategy was like strategy in chess.

You had a quantifiable number of moves to choose from.

Everyone played on the same basic board from year to year, from decade to decade, learning a few new moves and facing new competitors.

The best strategist won the game.

---XXX---

But, today, it’s as if chess is played in four dimensions, on multiple boards, simultaneously by experts on five continents.

And in business you don’t have to worry about competitors so much as ever-changing rules and unidentified customers.

---XXX---

From 1950 to 1990, the boundaries of strategy were well defined, as were the customers, markets, competitors, suppliers, and potential threats.

Enemies—regulators or rivals—were clear.

Companies spent three to six months every year crafting their strategies, which were then translated into budgets, capital requests and approvals, and personnel changes.

---XXX---

But not in the Lego world where strategy arises from proactive and innovative moves that create opportunities.

The boundaries may be global; the markets may not even fit into any convenient categories, such as 13-year-old girls with $50-a-week allowances who like fleece pullovers.

The resources will likely extend outside your own company, and the direction of your business will have to align with other strategies.

Even if you own the right physical assets and employ the best minds, you are no longer guaranteed control over the right-of-way to the customer; too many filters influence a customer’s purchase decisions.

For example, when influential teenagers with a presence on MySpace.com decide that teens must buy their pullovers from a hot new place, it’s bad news for the old place.

In the Internet age, the classic value delivery chain makes about as much sense as a chain letter.

---XXX---

Strategy has to move and be refined at a speed comparable to what used to be called tactics; it has to be in real time.

You don’t have six months, or even three months, to create a master plan.

Opportunities disappear as rapidly as they can be captured.

---XXX---

Strategy is not a goal; it is a direction, a blueprint for putting the pieces together and building.

It must have continuous feedback to translate real-time results into refinements and changes as appropriate.

In a Lego world, fluid design and the ability to connect and reconnect provide a new agility that is a central element of the twenty-first-century enterprise.

---XXX---

As Drucker often pointed out, companies face unparalleled demands.

They must craft and communicate a strategy that invigorates their employees and collaborators and that gives them a shared purpose and direction.

They must be ready to adopt almost anything that will give them an edge in innovation and enhanced productivity.

A company that builds on each individual’s potential is far more likely to succeed than one that inches people forward in dull tasks.

Creating tomorrow—by taking advantage of opportunity and human talent and capability, in a manner which enhances society—is the challenge of management in the twenty-first century.

 

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Conclusion

As Drucker maintained for over 70 years, businesses are the critical engine of a thriving and sustainable society that values individuals and reward achievement, with management effectiveness the determining factor in keeping the engine running.

Let’s be clear: Business isn’t just business.

It’s the economic engine of democracy.

---XXX---

Drucker believed that with the right questions, the right judgment, and the right mindset, the manager who “walks outside” and thus liberates himself or herself and others from the confines of “what you think you know” is more than capable of rising to the occasion.

We will not all be the genius Peter was, but we can all learn from his approach, beginning with asking the right questions.

 

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Connecting With Your Customer: Four Drucker Questions

When Peter talked about the customer, he had four classic themes that he came back to over and over again.

These themes ran through 70 years of his work.

Peter asked every one of his clients:

1. Who is your customer?

2. What does your customer consider value?

After long discussions answering those two questions, he would then ask:

3. What are your results with customers?

4. Does your customer strategy work well with your business strategy?

Virtually every one of Peter’s clients I spoke with had a story about the tremendous impact of these questions.

Rethinking the answers with Peter changed how the clients thought about the business they were in.

Southern Pipe, a regional plumbing company, redefined its customer; instead of serving contractors alone, its branches began serving local communities and homeowners as well as contractors.

Herman Miller, the design-centered furniture company, changed its customer focus from midwesterners with an eye for a striking look to large city dwellers and lovers of modern art.


When I interviewed John Bachmann, the retired managing partner of the financial service firm Edward Jones, he described his moment of truth about the customer.

Peter got into a disagreement with Ted Jones, the managing partner at the time, about who the firm’s customers were.

It began when Peter asked Ted, “How do you decide where you put your offices?”


Being clever, Ted said, “Well, you do it like the baseball player, Wee Willie Keeler.

We hit ‘em where they ain’t.”

Ted explained that they targeted cities where there were no competitors, where Edward Jones was the only stockbroker in town.

Peter, pushing him, asked, “Why would you do that?”

Ted responded, “Because we do better.”

Peter asked how much better and suggested that they look at the facts.

When they lined up all their offices, they found that Edward Jones did 25 percent better where there were competitors.

Ted had seen the market geographically and had defined the customer as the rural American with no alternative access to the stock market.

In fact, their customers were people who wanted personal service and relatively low-risk investments.

Peter’s questions fundamentally changed their understanding of their customer and their value proposition.

When I drive by their office near my home in Westchester, New York, I smile, thanking Peter for putting them there.


The question, “Who is your customer?” seems awfully simple.

But don’t be deceived.

The customer is no longer a passive receiver of products but is engaged in designing and refining them.


The question, “Who is your customer?” seems awfully simple.

Mission statements and quarterly reports suggest that most companies and nonprofit organizations know the customer as intimately as a favorite neighbor.

But don’t be deceived.

In this complex, ever-changing Lego world, identifying the customer is not the straightforward task many assume it to be.

For one thing, the real customer is not necessarily the one who pays for the product or service, but the one who makes the buying decision.

Every marketing analysis needs to start by assuming that the business doesn’t know its customers and needs to find out who they are.

The customer is no longer a passive receiver of products but is engaged in designing and refining them.

Consider health care.

It is now standard procedure for patients to investigate symptoms on the Internet, learning about diseases and treatments and tracking records of doctors and hospitals.

Patients assess the latest clinical drug trials and experimental procedures.

Consumers are now actively directing their own medical treatments.

The specialist or MD doesn’t make the decision; he or she advises and is an influencer.

It’s a clear example of the customer taking charge in the new world.

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Do You Match Up Ideas With The Opportunity?

Will the idea respond effectively to the real-world opportunity?

Finding the answer to this question falls somewhere between science and intuition.

An idea is a possible mechanism for serving a customer need, such as a pink cell phone.

Opportunities are unmet customer needs, such as the customer’s desire to be stylish.

The challenge is to assess the scope of the need and the ability of the idea to meet that need.

With the proper analysis—often utilizing targeted market research—you can predict in many cases which ideas will be successful.

Aim high!

Minor modifications rarely address unmet needs.

When I spoke to Peter about this, he leaned back in his chair and told me: “If an innovation does not aim at leadership from the beginning, it is unlikely to be innovative enough to change the customers’ habits.”

He continued, “Aiming high is aiming for something that will make the enterprise capable of genuine innovation and self-renewal.

That means inventing [(creating?)] a new business and not just a product-line extension, reaching a new performance capacity and not just an incremental improvement, and delivering new, unimagined value, and not just satisfying existing expectations better.”


But how do we know what’s right?

“Most good ideas will not generate enough wealth to replicate the business’s historical success, and many more will fail,” Peter explained.

“Thus, the need to aim high is a practical reality; the one big success is needed to offset the nine failures.”


At the same time, Peter always stressed the need to be practical.

When it came to innovation, he felt that the most practical approach was to use the absolutely best people.

In many ways this is the art of innovation: remaining practical while having the courage to aim high.


The criteria listed in the box on the next page help assess whether an idea matches an opportunity and whether you are aiming high enough while still taking market realities into account.

The analysis must also address the risks of success, of near success, and of failure.

 

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Drucker’s Basic People Views

Peter always believed that, “Management is about human beings,” that a company is really its people, specifically, their knowledge, capabilities, and relationships.

And well before the Internet arrived—even before PCs—Peter anticipated a different breed of worker, motivated by pride, accomplishment, and professional association.

In the late 1950s, Peter coined the term “knowledge worker.”

He used the term to mean a white-collar worker whose primary task was interpretation, translation, and problem solving—requiring the use of gray matter rather than muscles.


A company is really its people their—knowledge, capabilities, and relationships


With his human orientation and ability to translate trends into social implications, Peter pointed out that the old ideas about employee loyalty and retention no longer apply.

He saw that knowledge is portable, and its application is not confined to a narrow specialty in one company or industry.

In a sense, knowledge workers are more like independent contractors than like employees.

They don’t leave their work at the office—they take it home with them.

They work for a series of companies over time (and may work in a number of different functional positions within a company).

They value their knowledge and competence, and the recognition and prestige that come with it, as much as, if not more than, their jobs.

While they expect to be well compensated for their work, they also insist on a far greater degree of autonomy, self-management, and respect.

They respond best to the standards of excellence associated with their expertise rather than to the discipline imposed by traditional management practices.


Peter believed this new type of worker required a different type of management.

He articulated this difference as effectiveness versus efficiency.

For manual work, efficiency, that is, the ability to get things done, is key to management.

For knowledge workers, effectiveness, or the ability to get the right thing done, is paramount.

So instead of just getting the job done, a knowledge worker has to decide which job to do.

Peter was the first writer to pick up on this critical distinction, understand it, and translate it to management principles.


For knowledge workers, effectiveness, the ability to get the right thing done, is paramount.


Peter also noted the rise of the service worker whose tasks support customers or help with transactions, such as a UPS delivery-man or a waitress, but who does not need extensive knowledge or high-level, problem-solving skills.

Management here is another unique challenge.

Service workers need to feel good about themselves; they are representing the company to customers, and their feelings are often reflected in their interactions with customers.


Today, according to the U.S. Bureau of Labor Statistics, knowledge and service workers together constitute just over 75 percent of the U.S. workforce, with knowledge workers slightly outnumbering service workers.

In our conversations, Peter indicated the current need to approach these two types of workers differently from the traditional blue-collar worker.

All workers need respect and pride, and to be set up to win.

They need to feel they are making a difference.

How management sets workers up to win varies to some degree for the different types of workers.

Much has been written about managing and motivating the traditional, blue-collar workforce; our focus in this chapter is knowledge and service workers.


People are more important to an organization’s success and thus more powerful than ever before.

As Drucker put it, “The knowledge world begins to reverse the balance of power between organizations and individuals.”

Nevertheless, most individuals still need organizations—not so much for a paycheck, but to combine their expertise with other people’s complementary skills, insight, and relationships.

They need to work toward a mission (in Drucker on Asia) that has an impact on the customer and thus the world.

They need colleagues.

They need to be able to measure their effectiveness.

This is what management must offer the knowledge worker.


“What differentiates organizations is whether they can make common people perform uncommon things.”


In the rest of this chapter, we examine Peter’s classic questions about people and knowledge tuned to the twenty-first century and study Electrolux.

Then we’ll look at how a focus on people and knowledge drives day-to-day corporate life and strategy at the financial firm Edward Jones.

 

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Many highly intelligent people use their thinking
to back up or defend their immediate judgement of a matter.
… a perception-broadening tool (attention-directing)
forces a thinker to explore the situation
before coming to a judgement — Edward de Bono

situation

“To know something,
to really understand something important,
one must look at it from sixteen different angles.

People are perceptually slow,
and there is no shortcut to understanding;
it takes a great deal of time.” read more


Attention directing is exploring

attention

Questions are attention directing tools

the definitive drucker

Questions in The Definitive Drucker.

Social ecologists try to find the right questions

Using your ignorance to your benefit

What impact might an educated person add to the thinking?

questions

Larger

Effectively working on questions
requires a
foundation for future directed decisions

books

Sometimes alternative answers
need to be combined
to create an effective “constellation.”

A constellation

Larger

books

Dense reading and Dense listening


A tool for harvesting, collecting, and organizing “information”

scrivener

Larger ::: Scrivener


Larger view of challenge thinking and an alternativeoperacy

challenge thinking

Dense reading and Dense listening
and Thinking broad and Thinking detailed
by Edward de Bono

Google site search: asking right questions

See Drucker books for more questions

 

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Peter Drucker: Conceptual Resources

The Über Mentor

A political / social ecologist
a different way of seeing and thinking about
the big picture
— lead to his top-of-the-food-chain reputation

drucker business week

about Management (a shock to the system)

 

“I am not a ‘theoretician’; through my consulting practice I am in daily touch with the concrete opportunities and problems of a fairly large number of institutions, foremost among them businesses but also hospitals, government agencies and public-service institutions such as museums and universities.

And I am working with such institutions on several continents: North America, including Canada and Mexico; Latin America; Europe; Japan and South East Asia.” — PFD

 

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List of his books

 

Large combined outline of Drucker’s books — useful for topic searching.

 

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High tech is living in the nineteenth century,
the pre-management world.
They believe that people pay for technology.
They have a romance with technology.
But people don't pay for technology:
they pay for what they get out of technology.” —
The Frontiers of Management

 

“The greatest danger in times of turbulence is not turbulence; it is to act with yesterday’s logic”. — Peter Drucker


The shift from manual workers who do as they are being told — either by the task or by the boss — to knowledge workers who have to manage themselves ↓ profoundly challenges social structure

Managing Oneself is a REVOLUTION in human affairs.” … “It also requires an almost 180-degree change in the knowledge workers’ thoughts and actions from what most of us—even of the younger generation—still take for granted as the way to think and the way to act.” …

… “Managing Oneself is based on the very opposite realities: Workers are likely to outlive organizations (and therefore, employers can’t be depended on for designing your life), and the knowledge worker has mobility.” ← in a context

 

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These pages are attention directing tools for navigating a world moving toward unimagined futures.

It’s up to you to figure out what to harvest and calendarize
working something out in time (1915, 1940, 1970 … 2040 … the outer limit of your concern)nobody is going to do it for you.

It may be a step forward to actively reject something (rather than just passively ignoring) and then figure out a coping plan for what you’ve rejected.

Your future is between your ears and our future is between our collective ears — it can’t be otherwise. A site exploration starting point

 

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