MA Insights #5

Jim Drennen, CPIM

WWDD?  (What Would Drucker Do?)

Peter Drucker is the father of modern management. His books are still regarded as foundational for leading and managing a business. Because he published in the 1940s all the way to the beginning of the 21st century, it may be tempting to say that Drucker is not relevant today. This would be akin to saying we can ignore certain artistic principles since they are not modern. (Try telling that to Beethoven.)

Drucker offers a clairvoyant vision in the manner of a business truth teller. He possessed an edge like that of an inspired entrepreneur. In Peter Drucker: Shaping the Managerial Mind, author John Flaherty says,

"Drucker asserted that it was possible to improve performance in the existing business by using the entrepreneurial approach of converting problems into opportunities and thus neutralizing resource misallocation and modifying vulnerabilities.”

Drucker also foreshadowed JIT (just-in-time) and Lean by 20 years:

 "There is only one way to make innovation attractive to managers; a systematic policy of abandoning whatever is outworn, obsolete, no longer productive, as well as the mistakes, failures, and misdirection of effort."

Abandonment frees up time, talent, and resources for working capital. To support his contention, Drucker offered the Bernoulli theorem: in any series of endeavors, the chances of succeeding are reduced 50% with each new effort. The time and resources expended are sunk costs and are not justifications to keep a failed project in the mix. 

Several of Drucker’s pearls of wisdom can be found through an Internet search. Keep in mind, many of these items were written in the 1950s, 60s, and 70s. In Drucker’s case, truly if you want a new idea, read an old book.

  • Decentralization and simplification. Drucker discounted the comand and control model and asserted that companies work best when they are decentralized.
  • The concept of "knowledge worker" in his 1959 book The Landmarks of Tomorrow. Since then, knowledge-based work has become increasingly important in businesses worldwide.
  • The concept of what eventually came to be known as "outsourcing." He used the example of "front room" and "back room" of each business: A company should be engaged in only the front room activities that are critical to supporting its core business. Back room activities should be handed over to other companies, for whom these tasks are the front room activities.
  • Respect for the worker. Drucker believed that employees are assets not liabilities. He taught that knowledgeable workers are the essential ingredients of the modern economy. Central to this philosophy is the view that people are an organization's most valuable resource and that a manager's job is both to prepare people to perform and give them freedom to do so.
  • The need for "planned abandonment." Businesses and governments have a natural human tendency to cling to "yesterday's successes" rather than seeing when they are no longer useful.
  • A company's primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company's continued existence and sustainability. .
  • An idea of so-called "non-customers." Drucker stated, "The great reservoir of potential demand lies in the category of noncustomers." To grow a business, align products and processes to the category of non-customers.

Lessons Learned: Key business success factors include converting problems into opportunities and thus neutralizing resource misallocation; to make innovation attractive to managers, embrace a systematic policy of abandoning whatever is outworn, obsolete, and no longer productive.