The Definitive Drucker
Amazon link: The Definitive Drucker: Challenges For Tomorrow's Executives -- Final Advice From the Father of Modern Management
“We need a new
theory of management.
built into business today
are not accurate.” — Peter Drucker
For sixteen months before his death, Elizabeth Haas Edersheim was given unprecedented access to Peter Drucker, widely regarded as the father of modern management.
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:
Connecting with customers
Innovating without abandoning what works
Developing lasting partnerships
Creating and retaining knowledge workers
Establishing disciplined decision making
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.
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
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
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?
Does Your Customer Strategy And Your Business Strategy Work Together?
Procter & Gamble
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.’”
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 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?
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
Collaboration and Orchestration
Peter’s vision of collaboration
The Power Of Collaboration
Collaboration And Orchestration: Three Drucker Questions
Three Groups of Drucker Questions
Operate and Orchestrate
Some unmet needs are simply not possible without collaboration
Barriers of the Prevailing Academic Model
Barriers between the Private-Sector and the Academic World
Example from Developing Countries
Identify your “Front Room” and Outsource the Rest
Myelin Repair Foundation Approach
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
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?
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?
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?
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?
Electrolux example: Using Talent Management To Accelerate Strategic Change
Knowledge, Information, People and Organizations
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
Decision Making: The Chassis That Holds the Whole Together (about Decisions)
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?
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”
The Decision Process
Decision Making By Alfred Sloan
The Twenty-First-Century CEO
Books By Peter F. Drucker and below
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.
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.
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.
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
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.
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
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.
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.
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).
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.
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!”).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.”
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.
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.
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.
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.
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.
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
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.
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.”
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.
Everywhere I went, executives seemed to agree: The world is flat.
I asked Peter if he thought the world was flat.
“From whose perspective?” he asked.
“Yours,” I said.
“I have trouble walking around my living room,” he joked.
“It doesn’t seem flat to me.”
His mind was so spry that sometimes I forgot he was 95 years old.
“All right,” I said, “then from the manager’s perspective.”
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."
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.
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.
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
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.
A society of organizations
Management Challenges for the 21st Century | The Change Leader
Making the Future
The bright idea
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
What Do You Have To Abandon To Create Room For Innovation?
1. If you weren’t in this business today, would you invest the resources to enter it?
2. What unconscious assumptions might constrain your business practices and limit your innovative thinking?
3. Are your highest-achieving people assigned to innovative opportunities? Or are they merely working on yesterday’s problems and yesterday’s products?
If You Weren’t In This Business Today, Would You Invest The Resources To Enter It?
I spoke with Jack Welch while I was writing this book.
He said that by far the most important lesson he learned from Drucker was to ask the above question.
It led him to issue an edict early in his tenure as CEO: Each of GE’s businesses had to be number one or number two in its market, or the manager would have to sell it or close it.
Welch said that Drucker’s questions raised the bar for every business unit in GE and freed up resources, thereby greatly strengthening the whole company. ¶¶¶
GE is one of the best-known examples of Drucker’s principle of abandonment in action.
Another is Kimberly-Clark, the giant paper company.
For one hundred years, Kimberly-Clark was mainly a coated-paper manufacturer with mills in the United States and overseas.
In 1972, Darwin Smith took over as CEO.
Despite the company’s large historical investment in paper mills, he believed that making paper was a mediocre business, and he decided to sell most of Kimberly-Clark’s mills and put its muscle behind two brands, Kleenex and Huggies.
Both product lines had shown promise but lacked corporate support.
Darwin Smith took an enormous risk by abandoning everything Kimberly-Clark had done successfully until then.
He planned to market what were essentially afterthoughts, going head to head against the globally recognized leader Procter & Gamble and Scott Paper, a strong American rival.
Without the will to take risks, to venture into the unknown and let go of the familiar past, a corporation cannot thrive in the twenty-first century.
One board member described Smith’s decision as “the gutsiest move I’ve ever seen a CEO make.”
Critics inside and outside of Kimberly-Clark were less diplomatic, calling the idea stupid and Smith a fool.
Wall Street analysts downgraded the stock.4
Forbes magazine lambasted the move.
Thirty-three years late Kimberly-Clark’s revenues had jumped from less than $1 billion to over $15 billion, and Forbes recanted its criticism.
By 2006, Kimberly-Clark owned Scott Paper, its former rival, and was outselling Procter & Gamble in six of its eight categories. ¶¶¶
Darwin Smith exemplifies the courage it takes to innovate.
Without the will to take risks, to venture into the unknown and let go of the familiar past, a corporation cannot thrive in the twenty-first century. ¶¶¶
Yet courage isn’t enough when it comes to breaking from the past.
Companies that want to innovate must adopt what Drucker called systematic abandonment, the deliberate process of letting go of familiar products in favor of the new or as yet unknown.
Peter went further than almost anyone: “Even when a product is being launched, its target abandonment date should be set.”5
As part of routine operations, you need to constantly evaluate which of your existing businesses should be jettisoned, and revisit these decisions annually, quarterly, or even monthly.
Peter went so far as to advocate regular abandonment meetings.
Of course, unprofitable businesses are clear candidates for abandonment, but so are businesses reaching the end of their useful lives whose growth has slowed or stopped.
The same goes for those where it is becoming more difficult to compete—often because the rules of the game have changed unfavorably.6 ¶¶¶
Drucker put it this way: “Putting all programs and activities regularly on trial for their lives and getting rid of those that cannot prove their productivity works wonders in stimulating creativity in even the most hidebound bureaucracy.” 7
What Unconscious Assumptions Limit Your Innovative Thinking?
Managers can’t stop at abandoning just a business unit or product line.
They need to leave behind their assumptions as well; they need to challenge all beliefs and make room for new ideas.
Hansjorg Wyss, chairman and CEO of Synthes, recently shared a story about challenging his company’s assumptions.
Synthes is the world’s leading provider of implants and biomaterials for rebuilding joints and bones.
The company had always assumed that having the highest-quality products was the only thing that mattered, so executives were surprised to discover that competitors’ products were being used when Synthes products were not immediately available.
Looking into the distribution problem, they learned that hospital ordering systems made it difficult to have enough Synthes implants on hand. ¶¶¶
“We didn’t sit still,” Hansjorg told me as we sat in a conference room at MIT.
“We stepped back and reevaluated how we were serving hospitals.”
The company developed an inventory management service for hospitals so that Synthes products would always be available.
These changes required innovating how business was done, rethinking customer relationships, and seeing hospital managers as well as doctors as customers to be served.
The company now also provides a counseling service for doctors to discuss which of its product fits best.
Systematic abandonment is both the most important and most difficult step in innovation.
Challenging assumptions often leads to changes in the basic operations and economics of a business.
As a pioneer in grocery home delivery, Peapod assumed that the economics of its business would require large volume (which it did not have).
Mark Van Gelder, Peapod’s president, told me about his eureka moment: Rather than build the company around the ability to move a lot of product, Peapod challenged this assumption and partnered with Stop & Shop, using its warehouses and size as the foundation for Peapod’s operations.
By partnering with an established megastore, Peapod didn’t need to spend a fortune on infrastructure, and it could turn a profit on more modest volume. ¶¶¶
This all sounds logical enough, but it is tough to break free from the relentless hold of past and present.
Sometimes the constraints are so subtle that they are hard to recognize.
In many ways, systematic abandonment is both the most important and most difficult step in innovation.
It requires real discipline to regularly challenge the organization’s assumptions and encourage the outrageous.
But as Peter said, “If you don’t abandon, you can’t innovate.
The effective organizations learn systematically to abandon or at least to build systematic abandonment into their ordinary life cycle.
Extra weight is a burden on the heart and the brain.
And volume by itself is no great benefit.” 8
Are Your Highest-Achieving People Assigned To Innovative Opportunities?
“There’s an old medical proverb,” Drucker once explained.
“There’s [probably] nothing more expensive, nothing more difficult, than to keep a corpse from stinking!”9 Most corporations waste time, energy, and precious resources on keeping their corpses—their old products—from stinking.
Because these old products are still generating large revenues, most executives don’t even recognize that they have stinking corpses.
And so the bosses assign smart people to tackle serious problems in old businesses.
This is a misallocation of precious, creative resources. ¶¶¶
In an interconnected world, trying to generate high-impact innovation, despite the high failure rate, is actually much less risky than sticking with the old standby.
The innovative organization uses incentives, employment guarantees, performance measures, and active engagement by leadership to help people embrace change rather than fear it. ¶¶¶
Peter Drucker viewed innovation as a discipline, a skill that can be learned and practiced like playing the piano.
To innovate, you must devise a systematic method of identifying opportunities that provide new value for your customers.
Many people think that the discovery of new ideas is random and unpredictable.
Far from it; such discoveries come from scouring the landscape and translating sightings into “what we don’t know that might matter.” ¶¶¶
The organization needs to be continually on the offensive.
It must watch for potential new frontiers instead of just playing defense against intruding competitors.
P&G’s Lafley put it this way: “We have to open our minds, open our doors, open our ears, and open our hearts to good ideas that can come from anywhere.”10
Playing offense requires well-placed external feelers, a careful and unbiased ear to the ground, and a disciplined process that links opportunities and capabilities within your organization.
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.
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.
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.
Decision Making: The Chassis That Holds the Whole Together PDF
A decision is a judgment.
It is a choice between alternatives.
It is rarely a choice between right and wrong.
It is often a choice between two courses of action, neither of which is provably more nearly right than the other.1
—Peter F. Drucker
It takes smart decisions and execution to traverse the new landscape, even with a strategy or map.
And by that I mean the right colleagues, and the right collaborators and strong customer connections—everything that helps spur innovative thinking.
When Peter and I spoke, we referred to this as the chassis—the organization’s ability to make well—informed decisions about what needs to be done and its resolve to get it done. ¶¶¶
Peter was passionate about management effectiveness—setting priorities, managing time, and making effective decisions.
His internationally bestselling book The Effective Executive is very much about getting the right things done.
In the Lego world, with knowledge workers and a vast array of collaborators playing important roles in the enterprise, people cannot be closely supervised.
They can only be helped and supported in their ability as managers to make effective decisions.
The days of the gray-suited micro-manager, hovering over his employees’ desks, are over. ¶¶¶
Managing in this amorphous environment is a delicate balancing act between preserving what makes the enterprise strong and channeling innovation to go beyond past successes.
Peter used a circus analogy: The company must constantly be on a strategic tightrope toward the future, finding this balance even as the safety net below is shrinking. ¶¶¶
Logic suggests that decision making and decision execution, which define this narrow and demanding path, are made easier by today’s vast amounts of information and knowledge.
This is not true.
Rather, the broad base of accessible information is rendered somewhat dense, difficult, and shifting by both the blurred boundaries between parties in the value chain and the speed of change in the market—these distinguish today from earlier periods in business history.
As Peter put it, today’s manager faces a fast-moving barrage of apparent knowledge, some relevant and reliable, some not.
Because events shift so quickly, a decision can be obsolete before it even gets put in motion. ¶¶¶
The company must constantly be on a strategic tightrope toward the future, finding this balance even as the safety net below is shrinking. ¶¶¶
So, ironically, in the age of information, intuition and judgment play an even greater role in effective decision making and well-placed strategic bets than ever before.
Don’t get me wrong.
There is no substitute for fact-based decision making, and no excuse for managing from the gut.
But with unprecedented rates of change everywhere, getting the right assortment of reliable facts can be impossible within the time window available to take action.
Sometimes we have to be able to see around the corners, and intuition and judgment play a valuable role in choosing which facts or feedback to trust.
When store-based data began pouring in as Nivea for Men was introduced, the head of U.S. marketing had a gut feel that the large discrepancies between stores had something to do with the surrounding demographics and Latino concentration.
He asked that the facts be checked store by store.
As it happened, the stores selling the most Nivea to men were in neighborhoods with very high Latino populations.
From there the company began a targeted marketing campaign. ¶¶¶
In the age of information, intuition and judgment play an even greater role in effective decision making and well-placed strategic bets than ever before. ¶¶¶
Although access to information was more limited in the past, the landscape was less volatile and managers could rely on certain assumptions or facts to inform decision making in a reasonable period of time.
Today management’s challenges are exacerbated by the increasingly bewildering transformation of the economic and social landscape.
To make things happen, management has to step up and have the stomach to take risks.
Beyond that, the culture of the organization has to support judicious risk taking.
Decision Making: The Right Risks
Certainly, risk taking has always been in the nature of business.
Companies that took greater risks made it harder or riskier for their competitors to keep up with them.
And they often have been the winners.
Today’s greater uncertainty along with the smaller room for error mean that decision makers confront even more risk.
Managers need to move forward while taking the right risks, not necessarily the least risk.
This involves making decisions at the right level of the organization, and having a disciplined, fact-based process for evaluating alternatives, making decisions, and acting upon those decisions. ¶¶¶
Whether it has to do with customers, employees, corporate organization, innovation, or something else, decision making is uniquely and distinctly a management responsibility.
Only management has the broad context needed to take into consideration factors inside the company and beyond—such as market conditions or energy costs.
However, as Peter liked to say, senior executives should not spend the bulk of their time making decisions—on the contrary, they should spend very little time doing so.
Their emphasis should be on making sure they have the time, information, and concentration to make the right decisions about the relatively few things that demand senior-level decision making and then making sure that the words are translated into action.
That’s not all.
Management must stay on top of the results of the action, and know when to abandon a decision.
Aside from this very focused decision making, they should encourage appropriate levels of the organization to make decisions.
The amount of time spent in decision making is a much less meaningful metric than the effectiveness and relevance of the decisions themselves—the results.
In fact, as Peter said, the more time spent, the more likely that the decision maker is “too busy with the little to take the time to see the big.”2 ¶¶¶
The Linux Group is a twenty-first-century firm that keeps its “in-house” decision making focused on the big picture.
Linus Torvalds established the group’s purpose—to design and make a free operating system first for the PC and later on for powerful servers.
At Linux, only a few people decide which of the many “outside-in” flows of suggested changes to include in new releases of the system.
All other decisions are the responsibility of volunteer programers, who choose which tasks to undertake, when and how to undertake them, and whether to work solo or in conjunction with someone else.
Even this seemingly flexible and agile model is being challenged.
Some long-term volunteers confided to me that Torvalds has become the bottleneck—too much is going on, and his control is limiting the ability of Linux to adapt as rapidly as users would like.
Decision Making: Four Drucker Questions
Management has a stark challenge: It must create a climate with the best chance that everyone in the organization is making the right decisions about the right issues at the right time.
There is no prescription for doing that, but there are questions that will bring clarity, guidance, and focus to this amorphous area:
1. Have you built in time to focus on the critical decisions—have you lightened your load?
2. Does your culture and organization support making the right decision, with ready contingency plans?
3. Is the organization willing to commit to the decision once it is made?
4. As decisions are made, are resources allocated to “degenerate into work?”
Successful decision making begins with the recognition that making good decisions is one of management’s most critical responsibilities.
The organization and your management team can offer invaluable support, but you need to take the time and set aside the mental space to engage in study and problem solving, to try different alternatives, to think about the issue on the exercise bike, or to sleep on it.
Although the quality of your decision does not depend on the amount of time you spend arriving at it, it does require that decision making be a priority and a commitment to spending the time needed.
To be able to do this while running an organization, you need to lighten your load—to cut through the fog in order to see clearly what situations really demand action and to find the appropriate decision maker.
You can then concentrate on the relatively few important decisions that are yours to make.
Have you built in time to focus on critical decisions—have you lightened your load?
1. Is action required?
Is there a need to make a decision?
2. Who should make the decision?
What level of management?
Is Action Required?
For reasons that go beyond the obvious waste of precious time and resources, unnecessary decisions bring unjustifiable risk and repercussions.
As Peter put it, no matter how innocuous the decision may seem, “Every decision is like surgery.
It is an intervention into a system and therefore carries with it the risk of shock.
One does not make unnecessary decisions any more than a good surgeon does unnecessary surgery.”3 ¶¶¶
In judging whether a given situation or opportunity warrants action or not, several rules can be applied. These are shown in Figure 6.1.
Applying these guidelines helps draw a distinction between the truly important and the seemingly important situations that are, in fact, simply nuisances.
The latter can correct themselves they don’t require major action.
These rules will lighten the decision-making load by eliminating the situations that don’t require intervention. ¶¶¶
One does not make unnecessary decisions any more than a good surgeon does unnecessary surgery.
Who Should Make The Decision?
Top management’s load can be further lightened by deciding early on which person within the management structure is the appropriate decision maker for a particular condition or opportunity.
We all know senior managers who micromanage or frivolously reverse the decisions of their subordinates.
Not only do they undermine the people who work for them, they distract themselves from the critical issues that require a senior-level perspective.
The need for top management to be the decision maker is often informed by the following five criteria:
1. The time frame of the commitment.
2. The speed with which the decision could be reversed if necessary.
3. The number of people or areas affected.
4. The level of social considerations.
5. The extent to which precedent is being set.
(Is the situation new and likely to be repeated?)
Peter strongly believed that where top-management involvement is not required, the organization is better served by pushing decision-making responsibility to the manager who is most knowledgeable and closest to the point of action.
In such cases, senior management’s role is to make an explicit and appropriate assignment of responsibility.
The key consideration in delegating the decision authority is: How far down in the organization can the decision be made and still be effective?
The answer is always: low enough that the decision maker has sufficient knowledge of and experience with the situation or affected function or area, yet high enough that the manager’s authority covers the affected function or area.
By ensuring that decisions are made at the right level, the organization faces an easier job of implementation and generally ends up with a better, more informed decision. ¶¶¶
Although there is no such thing as a painless or risk-free decision, wrong decisions (i.e., the wrong solution to the right problem, the brilliant solution to the wrong problem, or the postponement of an urgently needed decision) are infinitely more painful than any properly timed, correct decision that responds to the right issues.
The decision maker must commit to rigorous analysis—an integral part of fact-based decision making—and have the support of an organizational culture that is equally committed to making the right decision.
Although it may seem natural that an organization would want to make good decisions, I have known many that could not.
Some companies are biased in favor of what’s fastest and easiest, others want the solution that doesn’t rock the boat, and still others seek to avoid going head to head with tough competitors.
There are many agendas that can derail good decision making. ¶¶¶
Whether the decision maker is an executive or a purchasing clerk, his or her objective is to “get the equation right” before making any decision: As Peter would explain, “your fifth grade math teacher tried to teach you to spend time on setting up the equation.
It’s very easy to find a mistake in the manipulation and to correct it if the equation is right.
If, however, you get the wrong equation and you do your figuring right, you can’t really ever correct it.”
Does your culture support making the right decision with ready contingency plans?
1. What’s the real issue?
What are you trying to accomplish?
2. What specifications must the solution meet?
What are the minimum results required, and what organizational commitment is needed to achieve them?
What are the risks?
3. Have you fully considered the entire range of alternatives in order to choose the best one?
Do you have a contingency plan?
What’s The Real Issue?
As I was listening to Peter, my mind was racing over my experiences as a consultant.
One of the most useful tools we used to help clients define the real issue and break the problems into manageable pieces was the construction of an issue tree.
The team would brainstorm the scope of the problem and agree on the key issue.
They would then systematically identify the sub-issues underlying the key issue and then move on to breaking down the sub-issues into their component issues.
The most eye-popping moments of insight always relate to issue trees. ¶¶¶
At Pepperidge Farm, we were working with management on how to reduce waste in the manufacturing process using an issue tree.
By carefully thinking about what the subcomponents of waste were, the company looked at its manufacturing process in a new way, ultimately saving the organization a lot of money.
We defined waste as what it didn’t sell; shop floor management defined waste as what it threw away.
The foremen believed that they were caring for the customer, in accordance with the company philosophy, when they put a little extra batter into the cookies.
In reality, the customer was on occasion getting fewer cookies per one-pound bag and Pepperidge Farm was spending extra money to boot.
When we opened two bags of cookies that had 14 cookies in them, not the standard 15, and yet had passed the total weight test, it became obvious that waste is not just what you sell to the pig farmers; it’s what you buy that you don’t sell to the consumer.
The consumer was buying 16 ounces and 15 cookies, not 18 ounces; 2 ounces were being wasted.
The light-bulb quickly went on, and the shop floor changed its practices to provide exactly what is required and not deviate. ¶¶¶
One of the decision maker’s gravest and most common mistakes is to assume that his or her initial understanding of the issue is correct.
As Peter maintained, only by taking the time to investigate what the decision really needs to be about can the decision maker distinguish between the symptom and the ailment, between the need for a topical or localized treatment and a systemic or surgical treatment: “You don’t make a decision about symptoms when you have a fundamental, underlying, degenerative structure problem.
Conversely, you don’t fiddle around with the structure when all you have is an allergic rash.” 5
Only by taking the tune to investigate what the decision really needs to be about can the decision maker distinguish between the symptom and the ailment.
To avoid focusing on the wrong issue and prepare for effective execution down the road, the successful decision maker invites and requires those who will be the implementers to participate in the study of the problem or opportunity.
Not only will this make it easier to implement the eventual decision, but it will make for a better decision by drawing on the perspective and knowledge base of those who live with the problem every day.
This group needs to be small enough to be functional, but ideally should include everyone with relevant experience and knowledge—including network partners and, if necessary, outside experts.
Assembling this group is not, however, tantamount to abdicating decision-making authority.
Rather, the purpose is to utilize the knowledge and perspective of those closest to the scene to define the issues and gain insight into their capabilities, while ensuring that the people who are going to have to carry out the decision are involved early in the process.
What the decision maker asks from this group is a situation report, not recommendations.
Such situation reports identify constraints and opportunities; their purpose is to inform, not to assume.
Peter advised, “Don’t go for a consensus, but insist on having enough disagreement in the group to get a little understanding.
This is where we can learn from the Japanese.
They take this group activity very seriously and don’t allow anyone to have a recommendation at this stage.” 6
My own experience suggests that the influential player is often the trouble maker.
Engaging that individual to challenge the assumptions and be part of the solution goes a long way toward shifting the mindset of whole organizations.
What Specifications Must The Solution Meet?
Having worked toward understanding the true nature of the problem or opportunity, the decision maker is ready to begin defining solutions.
It is surprisingly useful and very Peter-like at this point to articulate the organization’s overall goals in devising these solutions through a series of questions, beginning with:
- What is the prize you are going after?
- What change are you trying to create—so as not to lose sight of the broader purpose of the decision?
The successful decision maker then specifies the boundary conditions that the action or solution must satisfy through the questions below. These specifications provide the framework for evaluating alternatives and for measuring the progress (or signaling the need for abandonment) of the ultimate solution:
Within the context of the overall business strategy and the particular situation, what are the priorities and minimum results required?
Where is the need and/or opportunity greatest?
What are the minimum organizational commitments (people, time, and money) required?
Are they realistically available, or will getting them require overcoming constraints?
What are the risks, including risks that the organization cannot afford not to take?
As Andy Grove, the cofounder of Intel, noted, "Only the paranoid survive." Home Depot and Wal-Mart were paranoid ahead of Hurricane Katrina — a week before the storm hit the Gulf Coast, they had the logistics lined up to move people out and move goods in.
Often, however, the paranoid can't afford to be risk-averse: The risk that you will miss an opportunity is every bit as serious as the risk of failure.
Given the rapidity of changes in the business environment, how long will it be until you get meaningful results?
How long until you evaluate your success?
How long until you revisit your decision?
The successful decision maker remains open to the full array of alternative solutions.
Have You Fully Considered All The Alternative Solutions?
It is tempting at this point to push the easy button and opt for the solution that is the least disruptive, the least likely to meet with organizational resistance, and the most comfortable for the organization.
But the successful decision maker remains open to the full array of alternative solutions.
According to Peter, “This entails real brainstorming.
What we want to know here are all the conceivable alternatives.
And some should be weird.
The function of the weird ones is to stimulate your thinking.” 7
And as usual, Peter practiced what he preached.
Richard Ellsworth, professor of management at Claremont, described for me the first time he met Peter.
He had just joined the faculty at Claremont.
They were in a senior executive conference together.
Richard presented his talk, and the room seemed in agreement.
Peter stood up and said, “I don’t agree,” and proceeded to offer another view.
And a discussion began.
At the break, Peter went up to Richard and confided, “I really do agree, but I think we needed to discuss some alternatives.” ¶¶¶
Now is the time to take a sheet of paper and list all possible and seemingly impossible alternatives that might satisfy the specified boundary conditions.
Then, for each alternative, ask:
- What would have to be done to make it viable?
- What are the risks, effort, and commitment required and the expected results if successful?
- How is this alternative better than others in satisfying the boundary conditions?
Here the decision maker strives for honest thinking about each alternative, guarding against stilted presentations or assumed solutions.
Not only is this open-mindedness necessary to ensure the integrity of the decision, but it is an absolute requirement to guarantee that a safety net of contingencies is in place in the face of navigating through future unknowns.
Peter put it this way, “The universe doesn’t stand still and freeze the circumstances in which the decision was made.
If you have no alternative to fall back on, you begin to drift if the decision doesn’t work out.” 8
With the alternatives cut to a small number of serious ones, reality-checked intuition and informed judgment come into play.
In The Effective Executive, Peter points out:
The important and relevant outside events are often qualitative and not capable of quantification.
They are not yet “facts.”
For a fact is an event which somebody has defined, has classified and, above all, has endowed with relevance.
To be able to quantify one first has to abstract from the infinite welter of phenomena a specific aspect which one can name and finally count.
Man, while not particularly logical, is perceptive-and that is his strength.
The danger is that executives will become contemptuous of information and stimulus that cannot be reduced to computer logic and computer language.
Executives may become blind to everything that is perception (i.e., event) rather than fact (i.e., after the event). 9
“If you have no alternative to fall back on, you begin to drift if the decision doesn’t work out.”
The effective decision maker chooses the alternative that best satisfies the specifications by providing a reasonable balance between:
Risk and results.
Time required and time available.
Resources (people, capabilities, and investment) required and resources available.
The best possible outcome and the minimum outcome required to move forward.
Striking this reasonable balance can be much less straightforward than it seems, and this is truly a test of the decision maker’s mettle.
Organizational support and culture aside, when the rubber hits the road, the decision makers who want to change the world must be willing to lead the organization out of its comfort zone—in contrast to the decision makers who want to do the best they can in the world they know.
Ask yourself, of the last 100 decisions you made, how many carried real risk?
How many were fundamentally strategic rather than tactical? ¶¶¶
Until a decision has degenerated into work and reaches the stage of actual execution for all intents and purposes there is no decision. ¶¶¶
Striking the balance between the daring and the doable typically requires some concessions and adaptations to gain the necessary organizational commitment.
Here is where decision makers must be courageous and have the conviction to stay true to the boundary conditions that will determine success, yet be pragmatic (half a loaf of bread is better than none).
They must quickly come to some acceptable compromise.
Otherwise, they stumble into a bad compromise (half a baby is worse than none) or risk a prolonged “selling time” so that when there are finally results, it’s too late. ¶¶¶
This final step takes the most effort.
Until a decision has degenerated into work and reaches the stage of actual execution, for all intents and purposes there is no decision.
To get any results, the organization needs to convert the decision into effective action, and support that action by tracking results and providing the feedback necessary to refine the action plan.
Is The Organization Willing To Commit To The Decision Once It Is Made?
1. Are you willing to opt for the bold move to get the required results?
2. Can you marshal support for your decision within the organization and not rehash the decision?
3. Can you balance the visionary and the practical?
As Decisions Are Made, Are Resources Allocated To “Degenerate Into Work”
1. Have you gained the commitment and the capacity of the resources who will convert the decision into action?
2. Have you put mechanisms in place to provide organized tracking and feedback?
Have You Gained Commitment And Capacity Of The Implementers?
As Peter pointedly reminded me, decision makers in the United States and other Western countries can take a lesson from their Japanese counterparts, who put great emphasis on turning a decision into reality almost immediately.
Japanese companies get a head start on making the decision effective by taking very seriously the early inclusion of those who will be part of the action.
The decision maker who builds the implementers into the process has an ownership platform in place at the execution level of the organization and a good sense of the implementers’ capabilities. ¶¶¶
This enables a fast start in converting the decision to action.
The Japanese are also well aware that people, not policy statements, carry out decisions.
Until you have assigned responsibility for execution with a deadline to somebody who has made a commitment to action, you have nothing more than a good intention.
To gain that commitment, the decision maker must address the following:
- What results are expected of the implementers and by when?
- What skills do the implementers need to acquire to achieve the desired results?
- How will they acquire these skills in time to be consistent with the time frame for the expected results?
- How do I/we communicate in language that resonates with each implementer so that each understands what is required of her or him and views the action as an opportunity, not a threat?
- How should incentives and performance measures be changed to support the implementer’s commitment?
- What else do I and other members of management need to do to celebrate and support this commitment?
Do You Have Mechanisms That Provide Tracking And Feedback?
Organized tracking of progress and results, accompanied by feedback, are nonnegotiable elements of any effective action program for many reasons. ¶¶¶
First and foremost, motion does not guarantee progress, and converting good intention into meaningful action requires accountability.
The decision maker and the implementers have to be held accountable for the expected results within the determined time frame. ¶¶¶
Second, working hard to choose the right solution does not guarantee that the decision is correct, especially in a fast-changing world.
Feedback is essential to alert management to the need for fine-tuning and to guide refinements.
As Peter wrote, “Neither studies nor market research nor computer modeling [(See Serious Play)] is a substitute for the test of reality.” 10
Third, decisions can quickly lose their relevance as circumstances change.
If they are not monitored and periodically reviewed as part of an explicit process, action plans put in place will linger past their useful life, eating up precious resources and time along the way. ¶¶¶
Finally, tracking and feedback are essential for spotting unexpected successes, where actual results far exceed expected results.
The organization that is unaware of or inattentive to such occurrences puts its opportunity at risk or loses it outright. ¶¶¶
Organized tracking of progress, results, and feedback are nonnegotiable elements of any effective action program.
In 1993, when Clairol relaunched its Herbal Essences shampoo, it viewed itself as a hair-color company with some hair-care products, not as a hair-care company.
With management focused on color, Clairol did not pay sufficient attention to the performance of the relaunched shampoo.
In fact, the first indication of trouble came during a golf outing, where a key buyer complained to a Clairol salesman that the product was moving off the shelf much faster than the shelf was being replenished.
Steve Sadove, president of Clairol at the time, recognized that this inventory “trouble” was actually evidence of an unexpected success.
He delayed the international launch of the product so that the North American market could be better serviced, and he called in an outside consultant and asked, “If this product sells in the volume of Pantene (the number one shampoo at the time), where can I find capacity to make it?”
The answer was, “Abandon your hair-color business assumption that outsourcing of a critical chemical balancing process is never viable.
Put on your hair-care business glasses and look for third-party capacity to get you over the hump while you plan for longer-term capacity to handle this unexpected success.”
Sadove called the head of R&D and said, “Test the stability and tolerance of these formulas, and have the Quality Assurance process revised to support a third-party manufacturer.” 11
At the same time, he created a plan to triple Clairol’s in-house capacity.
The Herbal Essences relaunch was an opportunity that could not wait.
Over time, it virtually doubled the value of Clairol as the unexpected success exploded into a broad spectrum of other Herbal Essences hair-care products.
The Decision Process
Disciplined management knows how to negotiate the tightrope the organization will walk while moving ahead in the amorphous future.
As Peter said:
Effective executives make effective decisions as a systematic process with clearly defined elements and in a distinct sequence of steps.
They do not make a great many decisions.
They concentrate on the important ones.
They are not overly impressed by speed in decision-making.
They want to know what the decision is all about and what the underlying realities are which it has to satisfy.
They want impact rather than technique; they want to be sound rather than clever.
They are not content with doctoring the symptom alone.
They know when a decision has to be based on principle and when it should be made on the merits of the case and pragmatically.
They know that the trickiest decision is that between the right and the wrong compromises and have learned how to tell one from the other.
They know that the most time-consuming step in the process is not making the decision but putting it into effect. 12
When Peter commented that he believed one major reason for Toyota’s success is its strong decision-making sense, I took a closer look at the Toyota way, the rigorous and systematic decision-making process that has made Toyota the world’s second-largest auto company.
How Toyota Gets Its Edge
Toyota is one of the world’s great companies.
Since the early 1990s, business magazines have been trumpeting its rise, and, under the leadership of Hiroshi Okuda, it has overcome a brief period of stagnation and is now making its mark as a leader.
In 2003, Toyota passed Ford to become the second largest car manufacturer in the world, and with its own predictions of a 10 percent increase in vehicles manufactured in 2006, it is expected to pass GM shortly. 13
Even as number two, Toyota posted 2004 and 2005 profits greater than its three most profitable competitors combined.
It has been the highest-ranked non-American company on the Fortune Global Most Admired Companies list for three years running. 14
With success comes scrutiny.
Certainly much attention has been paid to Toyota’s production efficiency, and rightly so.
The Toyota Production System (TPS) has been the focus of countless books and articles, and several of its key elements, like “just-in-time” and “lean manufacturing,” are now common business terms and methods.
Toyota’s efficiency on the factory floor is part of its overall approach to business, known inside the company as the “Toyota Way.” ¶¶¶
What has received far less attention is the effectiveness of the Toyota Way.
Contributing to Toyota’s indisputable effectiveness is its ability to make and successfully execute the right decisions and “bets” that have moved it up the ranks in the troubled automobile industry.
What underlies this decision-making effectiveness is a disciplined process; well worthy of closer investigation by other organizations seeking to learn from the very best.
The Origins Of The Toyota Way
Much of the way Toyota operates can be traced back to the business climate in which it was born—a climate that had some things in common with the globalized business world of today.
Founded as the Toyoda Automatic Loom Works in 1926, the company originally manufactured a type of automatic loom that was invented by its founder, Sakichi Toyoda.
In 1930, Toyoda sold the rights to his looms to a British manufacturer and invested the proceeds in starting the Toyota Motor Company.
(“Toyoda” was changed to “Toyota” because in Japanese “t” has one fewer stroke than “d”—thus saving time on printing signs and advertisements—an early indication of the ceaseless focus on efficiency that would come to characterize the organization.)
It wasn’t until after World War II, as Japan was trying to-rebuild, that Toyota really began to grow. ¶¶¶
The car market in Japan at that time was small, since capital for investment in anything not an absolute necessity was scarce.
Moreover, countless new companies were opening every day, and with infrastructures completely destroyed, there was no advantage for old players over new.
Because the competition was so stiff and capital so hard to accumulate, Toyota had to do everything possible to minimize the time between when it purchased parts and assembled vehicles and when it received payment—hence, the birth of the company’s vaunted “just-in-time” production methods.
At the same time, to offer a vehicle that no one would buy or to develop a plant that couldn’t work properly would have been a catastrophic error, an inexcusable waste of money that had been painstakingly accumulated.
Any business decision had to be reached carefully and through group discussion and consideration with all parties involved, to allow for quick and problem-free implementation.
How Toyota Makes Decisions
Japanese companies are long-time, avid students of Drucker (who was himself an avid student and onetime professor of Japanese art and culture).
Consequently, the overlap between the Toyota Way and the Drucker Way is not surprising, and Toyota’s decision-making process is no exception to this shared mindset.
Toyota believes that it can and must always do better; that change is an opportunity, not a threat; and that its strategic bets must be well informed by an outside perspective.
Its decision-making process is fully in sync with this culture.
Do the Homework First
Whether the issue at hand is a problem, an opportunity, or both, Toyota takes the time and effort to do the homework necessary to see the full landscape and past the obvious, so that its decisions distinguish between the root causes or the root enablers and the symptoms.
Accordingly, Toyota emphasizes always going to see for itself, and then asking “why” five times. ¶¶¶
Going and seeing for yourself means that managers at all levels have to be willing to “get their hands dirty.”
This firsthand involvement is important to keep a growing company true to its roots, but even more so if it is going to extend its global reach and create and act on opportunities to market products in cultures other than its own.
In 2003, when Toyota was redesigning its Sienna minivan to compete with the then-dominant Honda Odyssey import in the North American market, Yuji Yokoya, the chief engineer of the project, took time off and drove through every U.S. state and Canadian province, and through much of Mexico.
The new Sienna included features that made it more appropriate for: Canadian roads (which have a higher crown than Japanese, American, or Mexican roads), American trip lengths (Americans cities are farther apart, so American drivers are more likely to eat and drink while driving), American storage needs (Yokoya spent a day outside a Home Depot in Ann Arbor, Michigan, watching customers load their cars and trucks), and countless other small differences that no Japanese engineer could have discovered without visiting North America and no North American manager could have focused on without an outsider’s perspective.
The redesigned 2004 Toyota Sienna was voted best minivan of 2004 by Car and Driver. ¶¶¶
Going and seeing for yourself helps managers understand how problems and/or opportunities manifest themselves.
However, Toyota’s homework is not completed until the Toyota managers, as I noted before, ask “why” five times to get to the root causes of the problem or the root enablers of the opportunity.
As Taiichi Ohno, the originator of the Toyota production system, explained, “To tell the truth, the Toyota production system has been built on the practice and evolution of this scientific approach.
By asking why five times and answering it each time, we can get to the real cause of the problem, which is often hidden behind more obvious symptoms.” 15
There is a puddle of oil on the factory floor.
The machine is leaking oil.
It has a broken gasket.
Because we bought gaskets made from a cheap material.
Because we got better pricing on them.
Because purchasing agents are rewarded and evaluated based on short-term savings rather than on long-term performance.
So what is the real issue and hence the specifications that the solution must satisfy?
Is it the puddle of oil on the floor that could easily be swept away in less than two minutes and escape management’s notice?
Or is it the purchasing agents’ incentives, which have resulted in buying faulty equipment and must therefore be changed?
Sweeping away the oil will address surface issues but won’t prevent the problem from recurring, whereas a new purchasing rule will.
Look at All Solutions, Build Consensus among Stakeholders, and Set Sights High
Once it is clear “what this is all about,” a round of meetings is held so that all possible solutions, no matter how implausible, can be discussed.
In the case of the Prius, the first hybrid-powered car to be developed commercially, exploring all possible alternatives initially included analysis of over 80 hybrid engines.
The list was eventually narrowed down to ten, then four.
After that, tests were run on the four, and one engine was finally selected.
By giving each of the 80 possible engines equal consideration in the beginning, Toyota engineers were able to see the problem from a variety of angles, and the final engine included modifications that reflected the best features of the original 80, modifications that engineers would never have incorporated without first examining such a wide range of options. ¶¶¶
At Toyota, every worker who might be affected by the process must be consulted.
This inclusionary approach not only enriches the perspective of the original developers, but also enhances the likelihood of a smooth and rapid implementation by anticipating problems, creating early buy-in of those participating in the development and production processes, and providing clear signals that Toyota cares what the stakeholders and executers think. ¶¶¶
Toyota also purposefully sets its goals or expected results high, so high as to seem unattainable.
By setting goals of 50 or 60 percent improvement rather than 5 or 10 percent, Toyota guarantees that its solutions will not simply address superficial issues but will generate real structural change.
In 2000, when Toyota’s North American Parts Organization (NAPO) branch wanted to eliminate the waste that had built up during its rapid growth, it set goals that seemed almost laughable.
In three years: improve customer service by 50 percent, save $100 million in distribution costs, and cut $100 million of inventory out of the supply chain—all this for a business that was turning a steady profit, albeit in the face of rising costs.
But by constantly pushing employees in groups to work toward those goals, NAPO achieved or came very close to achieving each of them in the allotted time.
By 2003, NAPO had become a much leaner and more efficient business than anyone in 2000 believed possible. ¶¶¶
Toyota also ups the ante by outlining goals in contradictory pairs.
The first Lexus, for example, was expected to deliver increased fuel efficiency, but also a fast smooth ride; decreased noise, as well as a light body; elegant styling, and great aerodynamics, among other criteria.
Having made a decision, Toyota is a robust planner and a rapid but effective implementer—in stark contrast to those organizations that mistakenly believe a fast launch equals a successful implementation.
To elaborate on this difference, given a 12-month time period to implement changes, many companies will spend 6 months planning and then implement the program ahead of schedule.
Once the final product is in the field, however, questions and concerns that might have been anticipated and addressed prior to implementation have to be handled in a triage situation.
By arbitrarily reducing the time allocated for the planning activity, management is likely to delay the expected results from the new program or, even worse, to render the program obsolete before it can come to fruition.
At Toyota, however, the planning process takes 11 of the 12 months.
Actual implementation is then carried out very quickly and effectively—with the support of the entire organization and with many possible problems thought out in advance. ¶¶¶
Perhaps the greatest testament to how rapidly Toyota can implement its plans is its product development: Toyota has managed to shrink the time from conception to production to just 12 months—half that of most automobile companies.
Even the Prius, the first commercial hybrid-powered car, which required the development of a new engine, body, production process, and marketing strategy, was (at the prodding of Okuda) taken from clay model to production in just 15 months.
The benefits of this kind of agility cannot be overstated.
Being so effective in its decisions allows Toyota to anticipate and respond quickly to customer demands and to constantly innovate to meet customer requirements, and the impact of the few inevitable failures is minimized when just one year later a new version can be released. ¶¶¶
As former Toyota president Fujio Cho described the Toyota decision-making process, “We place the highest value on actual implementation and taking action … You can realize how little you know and you face your own failures and you can simply correct those failures and redo it again and at the second trial you realize another mistake or another thing you didn’t like so you can redo it once again.
So by constant improvement, or should I say, the improvement based upon action, one can rise to the higher level of practice and knowledge.” 16
Decision Making By Alfred Sloan
Many of Drucker’s theories came from watching the work of those he admired, including GM’s chairman Alfred P. Sloan during and following World War II.
Sloan influenced many of Drucker’s ideas, particularly that one of the most important responsibilities of a manager is to make assumptions given future uncertainty, test them for soundness, and revisit them in light of external and other changes, and to do so with rigor and discipline.
In Sloan, Drucker saw this responsibility embraced and executed flawlessly: ¶¶¶
As I sat in more GM meetings with Sloan, began to notice his way of making decisions … I noticed it first in the heated discussions about the postwar capacity of GM’s accessory divisions.
One group in GM management argued stridently and with a lot of figures that accessory capacity should be expanded.
Another group, equally strident, argued in favor of keeping it low.
Sloan listened for a long time without saying anything.
Then he turned off his hearing aid and said, “What is this decision really about?
Is it about accessory capacity?
Or is it about the future shape of the American automobile industry?
It seems to me that you argue over the future of the automobile industry in this country and not about the accessory business, do you agree?
Well then,” said Sloan, “We all agree that we aren’t likely to sell a lot of GM accessories to our big competitors, to Chrysler and Ford.
Do we know whether to expect the independents—Studebaker, Hudson, Packard, Nash, Willys—to grow and why?
I take it we are confident that they will give us their business if they have any to give.” ¶¶¶
“But Mr. Sloan,” said the proponent of accessory expansion, “we assume that automobile demand will be growing, and then the independents will surely do well.”
“Sounds plausible to me,” said Sloan, “but have we tested the assumption?
If not, let’s do so.” ¶¶¶
A month later the study came in, and to everybody’s surprise it showed that small independents did poorly and were being gobbled up by the big companies in times of rapidly growing automobile demand and that they only did well in times of fairly stable replacement demand and slow market growth.
“So now,” Sloan said, “the question is really whether we can expect fast automobile growth, once we have supplied the deficiencies the war has created, or slow growth.
Do we know what new automobile demand depends on?”
“Yes, we do know, Mr. Sloan,” someone said, “demand for new automobiles is a direct function of the number of young people who reach the age of the first driver’s license, buy an old jalopy, and thereby create demand for new cars among the older and wealthier population.”
“And what do population figures look like five, ten, fifteen years out?” [Sloan asked] And when it turned out that they showed a fairly rapid growth of the teen-age population for some ten years ahead, Sloan said: “The facts have made the decision—and I was wrong.”
For then, and only then, did Sloan disclose that the proposal to increase accessory capacity had originally been his. ¶¶¶
Sloan rarely made a decision by counting noses or by taking a vote.
He made it by creating understanding. 17
Though Sloan may not have seen himself as establishing a role model for leadership, Peter believed he did exactly that:
“Sloan invented the professional manager …
[Sloan] was in many ways very narrow, with absolutely no understanding of this whole generation of anything outside the company.
He didn’t understand society.
He didn’t understand politics …
He never understood why the workers unionized.
He was … focused on the business.
But within that … he never asked who was right.
He only asked what is right.
He never, never was the star, although he was one.
And yet it was absolutely clear that if he made a decision, it was the decision.”
In today’s world, every knowledge worker is responsible for a contribution that can materially affect the capacity of the organization to obtain results.
The decision mechanisms and values of a corporation support or impair the right decision, be it the research chemist’s choice of projects or the logistics manager’s schedule of deliveries.
Creating a healthy environment to support these decisions has become more critical, and the importance of intuition and judgment (human perception) [(needs to be rethought)] has never been greater:
1. Very few decisions need to be the responsibility of top management.
Taking the time to do justice to those that are cannot be understated.
2. Doing the right thing (even if not perfectly executed) is far superior to perfectly executing the wrong thing.
3. Decisions need commitment to become action.
Without action, no progress is made.
4. A decision remains inert until resources are allocated for its implementation.
5. Decisions need to be viewed as a step on a path—moving two steps forward and one step back, learning, and adapting as appropriate—moving forward.
With all the elements in place to successfully traverse today’s landscape, and a chassis holding the pieces together with solid decision mechanisms, the last requirement is to infuse vision and values into the whole through the actions of an effective CEO—the subject of our final chapter.
The Twenty-First-Century CEO
CEOs have work of their own.
It is work only CEOs can do, but also work which CEOs must do …
Each knowledge worker must think and behave like a chief executive officer. 1
—Peter F. Drucker
In the last years of his life, Peter Drucker focused like a laser on what had increasingly fascinated him — the role of the CEO.
As corporations grew more unwieldy, worldwide competition sharpened, and customers and shareholders alike became more litigious, Peter rightly saw CEOs as more important than ever.
They had to provide leadership — strategic leadership, moral leadership, human leadership — and balance.
Today’s rate and magnitude of change leave little room for leadership error.
Peter believed that the CEO role was the next area of management research.
Procter & Gamble’s CEO, A.G. Lafley, called it “Peter’s unfinished chapter.” ¶¶¶
Good or bad, the CEO sets the tone for an organization, its mission and culture, and its actions and results during his or her tenure if not thereafter as well.
As a consultant and adviser, Peter worked with hundreds of CEOs and observed a remarkable diversity of leadership personalities in action, from Jack Welch at GE to Frances Hesselbein, head of the Girl Scouts of America; from President Eisenhower in 1950 to Mike Zafirovski, who ascended to the top spot of Nortel at the dawn of the twenty-first century almost seven decades after Drucker first worked with Alfred Sloan at General Motors. ¶¶¶
For decades, Peter thought about how CEOs could be more effective.
He mused about how they could change more than just corporations and foundations — how they could even shape the course of countries.
And he worried about how they could harm all sorts of people if they were less than ethical.
Once again, Peter offered us keen insight into the future.
The reputation of CEOs has taken a pounding in recent years because of what I call the “Enron effect” (but one could also call it the “WorldCom wake”). ¶¶¶
With all the emphasis in the business press on the highest-level executives, it is easy to overlook the need for each knowledge worker to be his or her own CEO.
The knowledge worker exists in a somewhat amorphous professional space.
As Peter explained, “Knowledge workers are neither bosses nor workers, but rather something in between — resources who have responsibility for developing their most important resource, brainpower, and who also need to take more control of their own careers.”2 ¶¶¶
The knowledge worker’s professional life will typically span five or six or seven decades — far surpassing the life expectancy of most institutions and encompassing a variety of situations given the new mobility in space and time.
It is both a great freedom and a responsibility to keep the bounce in our work and the spark of curiosity in our brain. ¶¶¶
The stages of Josh Abrams +
From my earliest days at McKinsey to my time with my own business, I have been a consultant to dozens of companies from the small, family-owned variety to the multinational Fortune 100, and I have been a CEO of a small firm.
Yet I didn’t truly appreciate Peter’s near obsession with the CEO role until I spent a couple of years working with him.
To distill into one word Peter’s thoughts on what makes a truly great CEO, it would be courage.
I have shared with many a client the four-word summary from the legendary CEO of Electrolux during the 1970s and 1980s, Hans Werthen.
When asked what it took for a small Swedish company to become the global leader in the white goods industry, Werthen responded: “Tigers don’t eat grass.”3 ¶¶¶
Whether one is at the helm of a company or a self-managing knowledge worker, it takes courage to do what is right, such as turning away from the temptation of quick short-term profits at the expense of investments for the long term.
It takes courage to trailblaze change in an industry.
It also takes courage to continuously redefine the business the company is in.
It takes courage to face reality and get out of any product lines or businesses that “you wouldn’t get into if you were not in the business today.”
Again, I stress what Jack Welch makes clear in his writings; he never hesitated when faced with the painful structural decisions or betting on the success of new ventures.
Peter recognized that management’s most important capability is to take uncertainty out of the future by helping organizations see and selectively move around corners and place courageous bets. ¶¶¶
We are at a moment in time when there is often greater uncertainty in resisting or ignoring changes than in playing or placing bets.
CEOs have the vision to place the bets for enterprises; they must have the guts to lead change. ¶¶¶
In our conversations, Peter defined three characteristics unique to a CEO:
1. A broad field of vision and the ability to ask and answer what needs to be done.
2. His or her thumbprint on the organization’s character and personality.
3. The influence he or she has on people-individually and collectively.
This chapter discusses each of these characteristics and illustrates them in action at a company Peter worked with closely: Donaldson, Lufkin & Jenrette, better known as DLJ.
It also mentions other companies where I’ve seen the dramatic effect Peter described.
The chapter concludes by translating these characteristics to individual knowledge workers as CEOs of their own careers.
Field Of Vision
Peter constantly exhorted his clients to produce good results by looking at the whole.
Theory is not enough.
Theory grasps the relatively thickest threads and ignores the rest, the nuances of real life.
But theory without observation is meaningless.
Observations of the whole and observations of how theories are applied to solve the challenge of the enterprise are the most important thing in Drucker’s methodology. ¶¶¶
The most important thing in Drucker’s methodology — looking at the whole. ¶¶¶
No one has the ability to see the whole like the CEO.
At many companies, engineers tinker away with a particularly knotty technical or design problem, but they don’t look at 50-year trends in buying habits.
Meanwhile, the vice president of marketing keeps close tabs on competitors but may have no idea how or at what expense his or her own company makes components.
In any organization, the CEO links the inside — the organization — with the outside — society, the economy, technology, markets, customers, collaborators, the media, public opinion.
Inside there are only costs.
Outside there are results. ¶¶¶
In looking at the whole, the CEO must ask, “What needs to be done?”
To answer this question, the first task of the CEO is to define the outside of the organization, the outside where results are meaningful.
Coming up with this definition obviously requires looking beyond the bricks and mortar (or sometimes virtual walls).
But a truly honest and robust definition also means challenging assumptions, assessing what needs to be done and when, and selectively creating platforms for redefining and innovating the business, the organization, and even the industry.
Through such courageous challenging and visioning, the CEO lays the foundation and boundaries for what needs to be done by asking essential questions (and not just assuming that the answers are obvious): What is our business?
What should it be?
What should it not be?
The answers to these questions establish the boundaries of an institution.
And they are the foundation for the work to be done by the CEO. ¶¶¶
When CEOs fail to question long-standing assumptions or fail to listen to or see evidence that says, “These assumptions are no longer relevant to the opportunity that is our future,” their companies are guaranteed to have short lives.
The average life of a company on the Standards & Poors list is just under 10 years; of the original companies on the first Forbes 100 list, published in 1917, only 5 of those made the 2005 global top 100 list (DuPont, Ford, General Electric, General Motors, and Procter & Gamble).
In 1999, at Drucker’s ninetieth birthday celebration, he predicted that by his one-hundredth, in the year 2009, there would be five global automobile companies and that GM would not be one of them. ¶¶¶
Experts summon all sorts of reasons why companies fail or are reconfigured into different pieces.
Yet here’s the simple truth: The inability to adapt to changing landscapes leads to the premature deaths of companies that were once vibrant.
As Peter said, “Most business issues are not the result of things being done poorly or even the wrong things being done.
Businesses fail because the CEO’s assumptions about the outside provide decision frameworks for the institution which no longer fit reality.” 4 These assumptions involve markets, customers, competitors, technology, and a company’s own strengths and weaknesses.
The best CEOs don’t just ask what needs to be done; they also challenge assumptions along the way, and take off the table what doesn’t need to be done. ¶¶¶
I’ve touched on failure, so I should mention success.
Six of Business Week’s top ten fastest-growing small American companies, and seven of the ten companies that have shown the greatest equity value gains over the last five years, didn’t even exist twenty years ago.
This dramatic performance highlights a key challenge to CEOs: to wrest the ability to challenge assumptions and redefine the way business is done from the financial markets.
Up until now, the venture capital and equity markets have served as the primary vehicles for creating new ways of doing business and even innovation — closing companies and opening new ones.
Sure, shareholders liked this power, but it flies in the face of the business’s need to sustain itself.
Ultimately this short-term obsession with results is closing down businesses, displacing employees, and ruining communities.
It is the CEO’s responsibility to use his or her uniquely broad field of vision to challenge the status quo when answering the question “What is needed?” so that companies and communities can remain viable.
On top of everything else, CEOs must do an astounding balancing act: They must lead the enterprise for the customers and employees and accommodate, but not bow to, the harsh demands of the stock market. ¶¶¶
Not long ago, Dan Lufkin, one of three founders and co-CEOs at DLJ, ushered me to a long table in his fairly simple conference room overlooking Fifth Avenue in New York City.
It was a plain space with just a few pieces of art on the wall.
I didn’t even notice the astounding view until I was leaving because Lufkin was so engaging.
He was reminiscing about the spectacular rise of Donaldson, Lufkin & Jenrette, from a minuscule company to a Wall Street heavy hitter.
It was all because of a bold move that Peter encouraged.
But first, as Lufkin noted, Peter helped the three leaders see things clearly.
By 1961, Peter had helped them see that the future was not in brawn but in brains, through an information society. ¶¶¶
Skipping ahead to 1969, DLJ had built a good reputation, but the three founders, Bill Donaldson, Dan Lufkin, and Dick Jenrette, were frustrated by how their own limited capital constrained their ambitions.
While larger firms were copying their ideas and growing, Donaldson, Lufkin, and Jenrette didn’t have the personal capital they needed to truly grow their brokerage business.
With the growth of automated transactions and the ascendance of the institutional investor, serving the customer now required big blocks of capital. ¶¶¶
Peter sat down with the three at the end of the turbulent 1960s.
Rather than telling them what to do, he posed questions.
Lufkin still remembers how the questions started: “How will you grow?
What is the right thing to do for your clients, for your employees?
What is the right thing for the New York Stock Exchange?”
The questions got increasingly detailed: “Without some form of permanent capital infused into the structure of the New York Stock Exchange, can it exist in the future?
How can it work with this growing community of institutional investors?” ¶¶¶
Peter didn’t stop there.
He continued: “Would the strengthening of the greatest free market the world has ever known be enhanced by a more permanent growing base of capital?
That being the case, tell me how would you do this if you didn’t go public?
What other tools are there available?”
Lufkin smiled when remembering Peter’s way of pushing his clients to think: “He would launch into some esoteric description of what happened in Germany during the 1930s that had little to do with the case.”
But Lufkin always came away from his interactions with Peter understanding that if he (Lufkin) were patient enough, Peter’s ostensible “side stories” would ultimately lead to and help inform a broader field of vision.
At a 1969 speech to the New York Stock Exchange (NYSE), Peter shared some of the same side stories. ¶¶¶
Lufkin reflected on that crucial moment.
“He forced us to think with the assumption that we could change the rules of the New York Stock Exchange.
He forced us to think about the issues created by the lack of permanent capital against a growing base of business, and how to solve that problem.
We honestly believed that this was in the best interest of the New York Stock Exchange itself.
We needed more permanent capital and so did the whole Exchange.
And that led to what was a very courageous act.” ¶¶¶
At this point, I should explain that in those days members of NYSE such as DLJ were not allowed to sell shares to the public and be traded on the New York Stock Exchange because of a long-standing tradition.
The Exchange was set up in 1792 with 14 members and limited numbers of companies’ shares traded.
The Exchange had to approve every single shareholder of every member firm.
Furthermore, the Exchange was a partnership — all members had joint and several liability for the solvency of the partnership.
Members were also not allowed to trade their own shares because this was viewed as a conflict of interest. ¶¶¶
Apparently customs had changed in the rest of the world — but not at the intersection of Wall Street and Broad Street.
When DLJ announced it was going public, the Exchange went ballistic.
Richard Jenrette has clear memories of that moment: “The Exchange was very comfortable approving every shareholder of every member.
They were opposed to us going public because they said things like, ‘The Mafia might take over Wall Street.”
Exchange officials were also worried that investors would see exactly how profitable Wall Street was.
DLJ had a 50 percent pretax profit margin at the time.
Jenrette added, “In reality, the member firms were afraid that institutional investors, their best customers, would gain access to the New York Stock Exchange.
There was a fear of big, institutional customers like the banks.”
In fact, the fear of bank membership was realized many years later with the dilution, or weakening, of the Glass-Steagall Act in the 1990s, but the NYSE’s worst fears were not.
Securities laws and conflict of interest considerations precluded the bank trust departments from monopolizing the brokerage business through their own nonbank subsidiaries, and the growth of the institutional investor changed the balance.
The pension funds and endowments became increasingly independent of the bank, and independent mutual funds began to expand rapidly.5 ¶¶¶
The printed prospectus of the original offering of DLJ contains a puzzling line.
Essentially it says, “You are buying shares in a company that given the possibility that the offering will not be approved by the board of governors of the New York Stock Exchange,” and, “If the rules of the New York Stock Exchange are not changed to allow this offering, DLJ will, at the stroke of the first share’s sale, lose 70 percent of its revenues.”
If you read that in 1970, you might have asked, “are they crazy?”
Cut 70 percent out of any business that you know of, and tell me how it survives. ¶¶¶
The CEO sets the course for the company and commits to the goals that will define the company. ¶¶¶
Finally, after DLJ threatened to resign from the Exchange and take its trades to a third market, officials caved.
DLJ was allowed to go public and raise new equity capital, which it did in 1970, and became the first brokerage firm to trade on the New York Stock Exchange.
As Donaldson remembers, “Institutions cheered when DLJ went public.”
With that move, DLJ changed Wall Street forever.
In retrospect, DLJ and Drucker’s insights were prescient.
In the following 24 months, a period of extraordinarily high interest rates, many of the firms that hadn’t followed DLJ’s example of raising permanent new capital by going public failed to survive.
The Exchange itself eventually altered its own legal status and today is publicly traded on the New York Stock Exchange.
The permanent capital raised through public ownership is a major reason why Wall Street has remained the financial capital of the world.
Donaldson, Lufkin, and Jenrette redefined their business, and in some ways their industry, with their vision. ¶¶¶
The CEO’s broad field of vision defines the business that the enterprise is in.
The CEO sets the course for the company and commits to the goals that will both define and set external performance expectations for the company.
This takes a keen scrutiny of the landscape, courage, and sometimes the ability to listen carefully, agree that there are potential and substantial risks-and still plunge ahead and make a tough decision.
On my first meeting with Frances Hesselbein, in her Manhattan office crammed with books, she described what she saw when she took over the Girl Scouts in 1976.
She found a reliable — but not dynamic — organization that still prided itself on its history of awarding merit badges for sewing and cooking, as it had done since the 1950s. ¶¶¶
Frances came in with a strong message: “We manage for the mission, we manage for innovation, we manage for diversity, we manage for results.”
She then asked Druckerian questions: What do we mean by great results defined by our mission?
How do we know if we are actually impacting the lives of young girls and transforming them into capable women?”
And it was there that Frances began to engineer a change in the Girl Scouts.
She looked at the organization and said, “if we are going to deliver the results, not the input, the results of strong, capable women, then we must confront the fact that its a different world than what people faced in the 1950s.”
She added, “That was all fine and good for a previous generation, but for the current generation, we need conversations around where’s the accounting merit badge, where’s the math merit badge, where’s the fitness merit badge.
Because what it means to be a capable woman in this era will be different.
And we have to think not about our inputs, we have to think about our outputs.
The outputs are the results defined by what happens to those girls.
Results, results, results, results.” ¶¶¶
Frances’s message permeated the total organization; it became a leadership benchmark — a simple but powerful way to describe the management and the focus of this great American institution.
As Frances said, “Leadership is a matter of how to be, not how to do,” and, “I learned that from Peter.”
The CEO Brand
The CEO works to shape the company, define and create new opportunities and realities, and make the organization leaner and more competitive.
Of course, he or she also keeps in mind the importance of creating a legacy.
When we think of the early days of the Ford Motor Company and IBM, we inevitably think of Henry Ford and Thomas Watson — even those of us who can’t recall their first products. ¶¶¶
Every CEO, whether at a small family company or a multinational, leaves an imprint.
As I visit clients and gain a sense of the company’s history, I’m often struck by how a particular CEO shapes the future of the company.
For example, at Campbell’s Soup there is the Dr. John Dorrance era — when condensed soup was invented and introduced to the mass market — and condensed soup remains the identity of the company today.
There are others as well.
There’s the James McGowan era, when Campbell’s expanded into key ingredients — chickens, mushrooms, tomatoes — and the philosophy of caring about every ingredient is ingrained in the culture today.
There’s the William B. Murphy era, when the company expanded internationally; the Gordon McGovern era of acquisitions, growth, and low profits; the David Johnson era of back to basics; the Dale Morrison era of revitalizing brands; and the Doug Conant era of revitalizing the business. ¶¶¶
As the CEO nurtures and forms an organization’s personality, inevitably his or her own personality, or brand, rubs off on the place.
Peter saw this thumbprint as being of the utmost importance to the next generation’s leading organizations.
He wrote, “In the next society, the biggest challenge for the large company — especially for the multinational — may be its social legitimacy: its values, its mission, its vision.”6 ¶¶¶
The cofounders of DLJ had a dream.
Fundamental to that dream was that each person in the organization could create or enhance an opportunity.
The culture was that of letting a thousand flowers bloom.
Donaldson and Lufkin believed in hiring people with passion whom they liked.
And they were role models on what you can do with a passion.
Donaldson and Lufkin had a passion for doing great research in smaller companies with strong management.
Jenrette’s fingerprint was institutionalizing the idea of letting each person soar, while the firm grew.
The 2000 Wetfeet.com guide to DLJ quotes an insider describing the job: “I actually have some control over what kinds of deals I work on.
I can tell VPs I really want to work on this deal or work in a specific industry, and they try to make it happen.”
The site quotes a recruiter’s insight as, “A low enthusiasm level is the kiss of death at DLJ.”
Jenrette described the culture he worked to cultivate and institutionalize: “It was important that everyone took pride in what he/she did and understood that you didn’t have to be the CEO to do well.
We always had at least a half-dozen people that were paid more than the CEO.
We never had any contracts telling you in writing that you could not leave at year end.
Each DLJ’er was responsible for putting in writing what he or she had accomplished and their goals for the coming year. ¶¶¶
The CEO nurtures and forms an organization’s personality. ¶¶¶
“In the 70s, when the market was down, we did not lay anyone off.
And we did not distribute under-valued options to executives.”
Indeed Jenrette had to sell his townhouse during those down years.
But he remembers the feeling of determination that carried the company through difficult times “We were all in this together.
We never quit having fun and doing what we thought was right for our customer.” 7 (Think for a minute.
Would our colleagues use those phrases?) ¶¶¶
The personal risks and people bets paid off.
Under Jenrette’s leadership, the firm grew to just under 10,000 people.
In the 1980s and 1990s, it had the lowest staff turnover rate of any Wall Street firm. ¶¶¶
After leaving DLJ, Donaldson put his fingerprint on a number of organizations: The New York Stock Exchange, where, as chairman, he changed the fundamental focus of the enterprise, lengthened trading hours and opened up the Global Exchange; the Yale School of Management, which he helped found and then shape as the school’s first dean; and Aetna, where he stepped in as chairman and turned the company around.
More recently, Donaldson served 26 months as head of the SEC.
Thanks to his action orientation, the SEC made more changes during his tenure than at anytime since 1929, including imposing hefty fines on corporate wrongdoers and granting increased independence to boards of mutual-fund companies. ¶¶¶
When things go badly, the CEO is responsible.
He or she cannot say, “I didn’t know.” ¶¶¶
Peter maintained that the CEO sets the tone in all ways.
That includes ethical standards.
The CEO can take some credit when business surges, when profits rise, when analysts recommend the stock.
When things go badly, the CEO is responsible.
He or she cannot say, “I didn’t know.” ¶¶¶
The story of Peter Drucker’s life and work is one of optimism, a belief in tomorrow, and a passion to help businesses and nonprofits survive and excel.
But in the 1990s, Peter became disenchanted with several companies and CEOs that seemed to reward greed rather than performance.
Drucker made bold statements regarding the excessive riches awarded to mediocre executives.
He stood up to the greed, saying, “It is morally and socially unforgivable to reap massive earnings while firing thousands of their workers” 8 He emphasized that companies are not just about profit.
Leaders forgot their missions when they became obsessed with raking in profits and ratcheting up the stock price.
Drucker viewed the corporation as a human community built on trust and respect for the customer and the worker and not just a profit-making machine.
And to counter what he saw as a culture of short-term gain, he stepped up consulting work with nonprofits as well as the CEOs he believed in. ¶¶¶
At a company, someone must be in charge.
That is why we have CEOs ¶¶¶
In the final years of his life, Drucker was distressed to note that some bad players tarnished the image of the CEO.
He would shake his head as he read about scandals at Enron and Arthur Andersen, scandals at Adelphi, scandals at WorldCom.
Drucker felt personally betrayed.
Not only did these cases reek of duplicity and misdeeds and outright lies, but what made them worse was that the people at the top often proclaimed that they were innocent because they didn’t know what was going on.
To Peter, that was a sin.
At a company, someone must be in charge, which requires that he or she be both fully informed on every significant aspect of the business and accountable for what happens.
That is the role of the CEO.
When Frank Weise became the CEO of Cott Beverage, the leading provider of private label sodas — including Sam’s Choice — he needed to very rapidly change the personality of the business.
Weise stepped into the role in 1998 after the founder, Harry Pencer, had died, and the company was failing.
Despite great products, it wasn’t delivering on commitments.
The company’s relationships with customers were deteriorating because of persistent stock-outs and unfulfilled commitments.
Cott was regarded as a company with great products and impressive selling skills, but one that constantly failed to deliver on its promises. ¶¶¶
Frank is one of the nicest people I know.
When I met him at an airport outside of Philadelphia, he went out of his way to introduce me to his mother and to make sure I knew my way around his local airport.
I started consulting with him after he stepped into the turnaround position.
Initially, I wasn’t sure if he had the stomach to do what would be required to turn things around at the company. ¶¶¶
I watched in amazement as he put his name on the line and showed a firm resolve to do what needed to be done.
The senior executives all had stock options that they could have exercised for 12 months after the company changed hands at a value of about $9.00 per share.
Six months later, when Frank became CEO, the stock was trading at $3.
Shortly after he arrived at Cott, we had a conversation about which executives he could not afford to lose.
There were two whose departure I felt might jeopardize the company short term.
There was a tear in his eye as he confided that he expected to lose one of them, but he was confident that this potential loss would not keep him from doing what he felt was necessary to put integrity back into the company.
He told senior executives that they would keep their jobs only if they demonstrated their confidence in the company by not cashing in their stock options.
He lost six of the top eight executives, including one of the two had identified.
Frank shared with every customer what he was doing to make the company live up to its potential and restore its good name.
He invested in operations, brought in a head of quality with Six Sigma experience, and put in tracking mechanisms that provided a daily snapshot of what was happening at every plant and with every buyer.
The stock rose as high as $35 and settled in at around $25 before Frank retired in 2005. The CEO is the brand, and Frank knew it from the day he took over.
Influence On People—Collectively And Individually
The impact CEOs can have on people, their actions and their lives, is unmatched.
As Peter wrote to Bob Buford, the CEO of a cable television network in 1990, “As I tried to stress, your first role is the personal one.
It is the relationship with people, the development of mutual confidence, the identification of people, the creation of a community.
This is something only you can do.”
Peter went on: “It cannot be measured or easily defined.
But it is not only a key function.
It is one only you can perform.” ¶¶¶
With Peter’s encouragement, DLJ changed the game by embracing a people policy fundamentally different from that of any other Wall Street firm.
Peter helped design this policy and helped ensure that it was woven into the fabric of the firm and its orientation around people. ¶¶¶
As Bill Donaldson remembered, “If we were going to spend as much time as we were going to in the business, we felt that it ought to be fun.
And for it to be fun, we had to have a measure of people around us and with us that were good people that were great fun to be with, intellectually smart.
In other words, we didn’t think we had to get some hard-nosed person that we couldn’t stand being with just for intelligence.
We thought we could find intelligence with people who shared our values, and shared the sense of fun and building something. ¶¶¶
“DLJ worked hard to create a collegial atmosphere where colleagues also considered each other friends-certainly not the convention at the time.
On Wall Street, up until that time, everybody was on a commission basis.
They were building their own little businesses; they were fighting for accounts, etc.
We didn’t do any of that.
Nobody was on commission.
Nobody had an account.
They were all firm accounts.
We evaluated what people did at the end of the year both by them telling us what they thought they’d done during that year, as well as what we thought, as well as what our customers thought.
Based on that, the compensation and rewards and so forth were allocated.
It was sort of a total triangulation of evaluation.
That made for teamwork.
It allowed members of the firm to say that the fellow in the office next door really helped him, you know, and we rewarded that.
And so we created an atmosphere, or DNA, if you will, at Donaldson, Lufkin & Jenrette that existed for over 40 years.”10 ¶¶¶
Vision, Organizational personality, and influence take uncertainty out of the future in the twenty-first century. ¶¶¶
And Dick Jenrette noted, “Peter harped on how important people were and are.
We had a number of organizational structures that played to the concept that the people were our most important asset.
Peter also encouraged us to think of our employees as a volunteer organization would think of their volunteers.”11 ¶¶¶
The human policy that DLJ had was built on themes only a CEO could define and make real — and in the case of DLJ it took three CEOs to turn the words into a thriving organizational personality.
The CEO’s impact is also seen in how what he or she says or does is interpreted and translated into action, how it becomes part of the enterprise’s personality.
Soon after Richard Block became president of AGI (Album Graphics Incorporated, a media artwork company), he visited the company facility in Meirose Park, Illinois.
It is the largest plant and houses a significant group of its management team.
After touring the plant, he commented to the plant manager, “Why is there a window in the plant?
Couldn’t that harm some of the art work?”
The next time he visited Melrose Park, about a month later, every window in the building, office and plant had been cemented over.
He learned quickly the impact a CEO can have on actions.
Understanding that power, Richard put it to good use, spending the next 20 years building an organization and culture that would challenge him and others to make the right decisions.
AGI rose to become the number one media graphic supplier in the world, prior to its being sold to a venture capitalist.
Each of these characteristics — vision, organizational personality, and influence — needs to be understood, and nourished.
None of them can be assumed.
Field of vision requires listening and looking — not telling.
It requires regular eye checkups and allocating time to step back and interpret what you are seeing, perhaps the hardest part for a CEO.
Personality means looking in the mirror, checking translations and amplifications, and recognizing that you are always a role model.
Influence requires respecting people and treating the organization as a living entity that needs care and feeding.
Each of these characteristics — vision, organizational personality, and influence — takes uncertainty out of the future in the twenty-first century.
That is what a CEO — and only a CEO — can do.
Each Of Us As CEO
What can the self-managing knowledge worker learn from these three characteristics as CEO of his or her own career?
Maintaining a broad field of vision requires having a sense of where you are going and what you are building.
It is the same for individuals, or a company with one knowledge worker, as it is for a grand enterprise employing thousands.
Know your strengths.
The first question to ask is what needs to be done.
Every six months, ask yourself, what do I want to be remembered for?
One of my clients had a great analogy: “Have you ever been driving behind the elderly lady who is looking three feet in front of her at a time?
She starts, and stops, and swerves.
Compare that with a race-car driver who is looking at the whole track as well as feeling the immediate ground beneath her car.”
That is the difference in vision in your career — are you going one step at a time, or being the broader landscape.
We have to place bets on ourselves, learn, and bet again.
To make the greatest contributions, we have to put our heart and mind into it and be able to respond to the unexpected opportunities. ¶¶¶
Peter maintained that this ability to see the whole and its immediate challenges and opportunities simultaneously requires a self-knowledge that most of us don’t have.
We need to know our strengths, our values, and our passions, and we have to admit to our arrogance.
Knowing our true strengths requires a sometimes painful level of consciousness.
In Peter’s world we must “ask, check, and see.”
Here’s one of his techniques for maintaining this orientation only few of us have: Whenever you make a key decision or take action, write down what you expect will happen.
Then look back at it six to nine months later and compare what happened to your expectations.
Ask people to exercise this form of self-discipline every day.
Try to use your strengths in your work and your connections.
Get feedback concerning where and how your strengths work and connect. ¶¶¶
The second characteristic — organizational personality or brand — is about knowing yourself and what gives you passion (or, on the contrary, what puts you to sleep).
As Peter so often reminded former students, working in an organization whose value system is unacceptable or incompatible with your own condemns you to frustration and to lackadaisical performance.
He told me the story of a woman who was the daughter of a prominent banker, had majored in finance, and always assumed she would be a financial adviser.
When she began her career, she was miserable.
Two years later, she was an administrator in a hospital having the time of her life.
She had to learn what gave her passion to unlock her willingness to leave a thumbprint.
At one point during that conversation, Peter commented that he thought finance never really interested David Rockefeller.
As CEO of the Chase Manhattan Bank, Rockefeller was known for his people skills and unique ability to relate to customers.
He could open doors to any company in any country.
During a meeting at Chase, Rockefeller would inquire about the client’s entire family (including pets) by name and birthday.
But he did not seem to take an active interest in the day-to-day management of the bank.
After retiring from Chase, he was free to stop doing what he was not interested in and could pursue his passion for serving and working with people through philanthropy.
Knowledge workers have to learn to ask a question that has not been asked before: What should I contribute?
As Peter wrote in 1999, “Throughout history, the great majority of people never had to ask the question, what should I contribute?
They were told what to contribute, and their tasks were dictated either by the work itself — as it was for the peasant or artisan — or by a master or a mistress.”12 ¶¶¶
Knowledge workers have to learn to ask a question that has not been asked before: What should I contribute?
And to answer that question they need to understand and meld their strengths and passions, and they repeatedly have to ask themselves the fundamental Drucker question: “If I were not in this career today, would I have gotten into it?
If not, what am I going to do about it?”
Finally, the knowledge worker is both influenced by and influences others.
We are influenced by the CEO — the premier role model who lives the purpose, values, and principles of the organization.
That influence can and should be inspiring and transformative.
Peter always said that if we are going to be passionate about our jobs, we must get the right signals from the top.
We are also influenced by our individual passion and strengths.
And, throughout our careers, we influence those many other knowledge workers with whom we connect. ¶¶¶
The CEO has to live the purpose, the values, and the principles of the organization.
Successful careers are not planned; they are managed.
And to manage them, we need to put on our CEO hat.
The way we manage our careers — switch from company to company, or become consultants or contractors, or start our own business — will be the next revolution.
Managing your own life and career takes courage.
We have to take calculated risks as individuals if we are going to make the most out of the cards we’ve been given to play in life.
These days, we are not simply salaried employees.
We are collaborators, and we all need to think like a CEO.
Peter said it years ago: “Each of us is a CEO.”
As the CEO managing his own career, Peter Drucker was quite clear on what he wished his legacy to be.
During one of our last conversations, he told me that he wanted to be remembered for one single accomplishment: “Enabling a few people to get the right things done.
I mean that literally.
I think the specific concepts for which most people know me, management by objectives, or what have you, are of very limited importance.
My contribution, such as it is, is to create … no, not create … to highlight the concept of the responsible and effective executive of management as work and function and responsibility.
The traditional definition of a manager is somebody who’s got subordinates.
My contribution is the definition of a manager as somebody who has results.
That’s very different.
And it is not generally accepted.
Most organizations staff their problems and starve their opportunities.
And one of the things I’m good at is to counteract.
And when people begin to start talking about problems, I say, ‘No, wait a minute.
Let’s first look at the opportunities.’
Those are my contributions.
I try to make them look forward instead of backward.
Opportunities have a habit of asserting themselves.
As things collapse, you can’t say, ‘I’m busy.” ¶¶¶
Peter said it years ago: “Each of us is a CEO.” ¶¶¶
Peter’s last words to me were: “OK.
I’m getting tired, and that’s one thing I’m not allowed to do.
I’ll be here.
I’m not going anyplace.”
He has left our physical world, but kept his promise to “be there”— his influence is embedded in our management past, our management present, and our management future. ¶¶¶
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
“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
Questions are attention directing tools
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?
Effectively working on questions
foundation for future directed decisions
Sometimes alternative answers
need to be combined
to create an effective “constellation.”
Dense reading and Dense listening
A tool for harvesting, collecting, and organizing “information”
Larger ::: Scrivener
Larger view of challenge thinking and an alternative — operacy
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
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
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
List of his books
Large combined outline of Drucker’s books — useful for topic searching.
“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