“If you weren’t already in a business, would you enter it today ? If the answer is no, what are you going to do about it?” – it is with this type of questions that Peter Drucker became known as one the leading management consulting practitioners and theorists in the second half of the XXth century.
I randomly stumbled at the airport upon a summary of his voluminous work (more than 30 books), “The Definitive Drucker: Challenges For Tomorrow’s Executives — Final Advice From the Father of Modern Management”, by Elizabeth Haas Edersheim.
So here’s a summary of the summary in a way, as I found the ideas of Drucker extremely modern for our digital age, when many companies still grapple with challenges stemming from new ways of working and re-thinking their business.
The LEGO world described by Peter Drucker owes a lot to the digital revolution
According to Drucker, our world went through a “silent revolution” with key changes such as:
- information flows are now in real-time,
- companies can now reach the whole world through global marketplaces,
- basic demographic assumptions are upended with people looking to fulfil more emotional needs (customer experience anyone?)
- customers taking more control through social media,
- walls delimitating a company are falling apart
Most of these changes are stemming from and/or accelerating by digital technologies and the power of the crowd, whether from a crowdsourcing/ideation perspective, or through how digital changed our needs, pushing us to demand more ways to get socially recognized, or simply to benefit from the increased convenience brought by pure players such as Amazon or Expedia (just compare the experience to your local bookstore or national airline website if you’re unsure).
Drucker uses the comparison with LEGO to stress how atomized the landscape of business is today, with different bricks of businesses, people, trends, consumers, and the need for decision makers to have a holistic understanding of these changes.
Outside-in is critical to understand and work in a digital age
Elisabeth summaries Drucker’s thought: “what gives life and sustains the corporation resides on the ‘outside’, not within its direct control, and the customer is the primary mover of these external realities and forces. Direct, personal contact carries an emotional intelligence which is not readily reported on paper. This task cannot be delegated!”
I like this insight very much as it fully aligns with the Design Thinking methodologies startups have been using for a while, and which large companies still struggle to understand and embrace.
Drucker shared his feeling of most companies: “you’re still looking from the inside out, and the landscape you see is yesterday’s landscape.“
This is a big call, not just to go back to your customers (one my of favorite questions in consulting missions is to ask the client when is the last time they met a real-world, fleshy, messy customer -> most of the time it’s a few years back), but also other companies, peers, partners, who can bring a fresh perspective.
To innovate, you should know how to abandon first.
To truly innovate, says Drucker, you have to radically change your customers’ expectations, not just focus on product development or brand extension. Starbucks is a good example, as it defines itself as a place of respite between home and office, “the extended living-room”, where you can “stay as long as you like”.
He adds some pointers to push leaders to re-thinking not what is innovation, but how it can happen:
- Meeting expectations is NOT innovating. Aim high, not just incremental improvements.
- If you are not the number #1 or number #2 of a business line, close that part of the business and free up resources to strengthen the core of the company.
- Systematic abandonment: “Even when a product is being launched, its target abandonment date should be set”. Drucker goes as far as to suggest to organize regular abandonment meetings
Beyond abandonment, Drucker advocates for a systematic method to identify opportunities that provide new value for consumers, and he shares some key categories to look into:
- The unexpected: build a system to track every inquiry for service you do not provide
- Industry disparities: market differences (WeChat in China, frugal innovation in India)
- Incongruities: discrepancy between what the company think the customer wants, and what he/she really wants. Airlines: no-frill offers vs better flying experience asked by travellers.
- Process vulnerability: when some piece of the workflow is not working. Real-estate: 80% of buyers don’t trust agents and check information online.
- Demographic changes: new segments such as Muslim consumers (just learned one of the largest travel companies with resorts in APAC has no halal options in more than 20 of their locations), silver economy.
- Perception & Priority changes that shift buying habits: perception of online payment changed and opened new possibilities (paying bills online)
- New knowledge: scientific breakthrough such as P&G’s fluoride toothpaste.
Two other important parts of the innovation process are discussed in the book. First, the brainstorming and ideation capability, which, like a muscle, can, and must be trained. Some points:
- Listening skills are critical, especially from higher-level positions
- Customer by customer, where are these possible problems and solutions that can create value?
- What would it take from you to seriously consider this idea?
- Do you aim high enough?
I would add that, again from Design Thinking, a few exercises can really help to ideate beyond “just thinking”, such as working on opposite ideas (what are the worst possible ideas we can have? How could we defend one positive point inside it? Now how to build the positive point into a good idea?), building on each other ideas (Yes, and), mashing up services and idea (let’s imagine the Uber of higher education), etc.
Secondly, do not allocate scarce resources to businesses on the decline! Drucker shares the parallel and diverging stories of GE’s agility vs Siemens’ inability to reinvent itself:
- At GE, Jack Welch was very clear: “we’re #1 or #2. If not we close this part of the business” -> it gave them a strong capability of abandonment. Welch is also known to show the 10% worst performers of GE the door.
- Siemens AG: the company started with culture of serving public-sector clients in regulated markets -> brought complacent and civil-servant attitude. They bet on computers where it was not good and lost money for decades.
To meet the full range of customer needs, you need to partner with other players.
Drucker shares this concept identifying your company’s “front room”, the one strength or activity that stirs your passion and shows off your excellence.
Everything else is your “backroom”, and should be done with partners. For instance, Dell proved to be excellent at selling DIY computers with other manufacturers’ brands. So Dell focused of making its own front room the ability to plan and configure customized PCs, with a strong focus on logistics to make it happen for the customers.
Hiring and retaining the best people and knowledge
Peter Drucker was very obsessed with the way companies managed their people, stating that “the first sign of decline of a company is loss of appeal to qualified, able, and ambitious people”.
It’s both a fascinating and terrible feeling, when, working with clients, you can feel their inability to hire the best, and the weight average and low performers put on the organisation. It’s also something you see very fast “from the outside”, as a consultant.
His main obsession is about understanding if a company’s employees are provided with the means to make their maximum contribution to the organization’s success:
- Is the mission clear and direction as well? A mission statement should fit into a tee-shirt. Every enterprise and team need a simple, clear, and unifying objectives.
- Are people given autonomy and support? Employees who bring substantial intellectual capital need a large measure of autonomy, real freedom to pursue the mission in their way.
- What core capabilities are needed to provide value to the customers? Which of those capabilities are the company’s unique strengths? Is the company maintaining and enhancing those skills?
In a nutshell, Drucker stresses that what attracts people is what is truly interesting and the chance to make a significant contribution.
Decision making: you shouldn’t decide that much!
In today’s companies people can not all be supervised: managers have to support their people to make effective decisions, and in a context where the information overload makes for a fast-moving landscape. In a way, managers need to take not the least risks, but the right risks.
Senior executives should spend as little time as possible to decide: their emphasis should be on making sure they have time, information and concentration to make the right decision about the relatively few things that demand senior-level decision making and then making sure the words are translated into action.
Drucker asks “Have you built in time to focus on the critical decisions – have you lightened your load?” and adds: “every decision is like surgery. It is an intervention into a system and therefore carries with it the risk of shock”.
He suggests to assess who should make the decision needs to be revisited through the following five points:
- The time frame of the commitment
- The speed with which the decision could be reversed if necessary
- The number of people or areas affected
- The level of social considerations
- The extent to which a precedent is set (is it a new situation? Will it be repeated?)
When decision-makers need to act and choose a solution, he suggests the following pointers:
- What are the priorities and minimum results required?
- What are the minimum organizational commitments (people, time, money) required?
- What are the risks the organization can not afford NOT to take?
- How long will it be until we find meaningful results?
Last but not least, after being able to delegate decision-making and looking for the right type of solutions, Drucker shares about getting people to engage and commit to the decisions taken:
- Which results are expected of the implementer, and by when?
- What skills do the implementers need to achieve the results?
- How will they acquire these skills in time?
- How to communicate with the implementer so he/she sees it as an opportunity, not a threat?
- How should incentives and performance measures be changed to support the implementer’s commitment
The XXIst century CEO
In this fast-changing world, Drucker bets that the biggest trait of leaders must be courage, as Elizabeth Haas sums up: “it takes courage 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 line or business that “you wouldn’t get into if you were not in the business today”.
To conclude in a powerful and concise statement from the grand-master: “Manage is doing things right; leadership is doing the right things”
I really recommend the reading of the book, as it will give you a strong density of insights and thoughts (not mentioning the quantity and quality of the Drucker questions) about business in general, and how to be a better leader.