What Peter Drucker Would Be Reading

May 152012
 

Peter Drucker

Recent selections from around the web that, we think, would have caught Peter Drucker’s eye:

1.  Leadership Lessons From Johann Sebastian Bach: Drawing management principles from music—something Peter Drucker loved to do—Steve Denning writes at Forbes.com about the “overwhelming” musical experience he recently enjoyed: listening to Bach’s Mass in B Minor in the National Cathedral in Washington. “So far as we know, Bach did not set out to compose the work in its entirety,” Denning writes. “Instead he proceeded in an iterative fashion over some 15 years.”

2.  To Be More Productive, Limit Interruptions:  We know how costly interruptions can be during the workday. Researchers say the effects can be worse than those of pulling an all-nighter. But Leslie Brokaw at the MIT Sloan Management Review’s Innovations blog says it’s not enough to stop others from breaking up your concentration, because sometimes you’re the responsible party. “It’s one thing to deal with people who interrupt you,” she writes. “It’s another thing to deal with your own tendency to interrupt yourself.”

3.  To Innovate, Turn Your Pecking Order Upside Down: Even the greatest idea with the greatest brain trust can go wrong if you don’t put the right people on the right tasks. Chris Trimble, writing on the HBR Blog, says one thing to which we’re especially resistant is fiddling with established power structures. But if you want to get something truly innovative done, you can’t afford to leave hierarchies untouched: “To build the right kind of team, for any breakthrough innovation effort, you have to think, quite literally, as though you are building a new company from scratch.”

4.  The Dx Comment of the Week: In response to our post “The ROI on That Sheepskin,” in which we asked whether a college degree was still worth the increasingly enormous sums required to pay for it, reader Rob Perhamus had this to say:

Will Bill Gates’s projection that technology will reduce a four-year higher-ed degree from $200,000 to $2,000 over the next 10 years come true? Will universities embrace technology or attempt to defend themselves from Adam Smith’s ‘invisible hand’? My opinion is that there is no defense. I would hate to be the person who paid $200,000 for a $2,000 degree.

Peter Drucker Goes Bananas

Apr 242012
 

Rick Wartzman

In his latest column for Forbes.com, Drucker Institute Executive Director Rick Wartzman examines an investment by Dole Food in a company called Healthy Foods LLC, whose so-called Yonanas machine turns bananas that are starting to turn soft and brown—consumers’ No. 1 complaint about the fruit—into a tasty frozen dessert.

With its investment, Dole is illustrating a principle that Peter Drucker “thought every company should aggressively seek to implement: finding ‘hidden opportunities’ in problems or threats,” Wartzman writes.

“Any threat to a business or to an industry is an indication of a change in the environment: in markets, in customers or in knowledge,” Drucker wrote in his 1964 book Managing for Results. “If a business continues to stick to the existing, traditional, established—or denies that anything else is possible—a change may destroy it in the end. But a change should always be an opportunity to do something different and profitable.”

Wartzman notes that “for Dole, the fact that bananas become mushy may not constitute a truly dire threat, but it certainly hasn’t helped business at a time when per-capita consumption of the fruit has been declining.” “In most households,” Wartzman quotes Dole executive Marty Ordman as saying, “bananas with brown spots are relegated to the wastebasket, and Dole research has shown that consumers abhor waste.”

“Once they own a Yonanas maker, however, consumers actually seek out bananas that are already quite ripe or even spotted,” Wartzman explains. “Grocers can now continue to display older bananas as ‘Yonanas-ready’ or package and sell frozen bananas as a value-added product. All of this is expected to drive higher banana sales, along with sales of other Dole frozen fruits.”

According to Wartzman, among the machine’s top fans is Dole Chairman David Murdock, “who obviously understands what Drucker meant when he wrote: ‘Dangers and weaknesses indicate where to look for business potential.’

“Are you actively hunting for such potential?” Wartzman asks in conclusion. “As the folks at Dole can attest, you’d be wise to keep your eyes—if not your bananas—peeled.”

A Bridge to Somewhere, and Fast

Apr 182012
 

Sometimes government service improves. When that happens, we must be thankful.

In Massachusetts, the Department of Transportation has started finding contractors who can replace bridges not in years, but in days. The secret to their speed lies in using enormous prefabricated pieces that get slid into place, rather than building on site. It’s not simple, but it’s effective, and, as the New York Times reported this week, “rapid replacement . . . tends to cost the same as slower approaches, if not less.”

Reconstruction of Interstate I-93 in Boston, MA. Image source: Gill Engineering

“The highway department didn’t use to see the drivers as customers,” Frank DePaola, administrator of the highway division for the department, told the Times. “For a while there, the highway department was so focused on construction and road projects, it’s almost as if the contractors became their customers.”

DePaola’s words would certainly have resonated with Peter Drucker. The deceptively simple question “Who is our customer?” was central to Drucker’s writings and consulting. And Drucker would undoubtedly have lauded the gains Massachusetts has made, especially given his deep skepticism of the public sector’s ability to get things done.

But what’s less certain is whether Drucker would automatically have agreed with DePaola’s analysis of who the customer is. As simple as the question “Who is our customer?” might be, the answer is often very tricky. “The right answer to ‘Who is the customer?’ is usually that there are several customers,” Drucker noted in Management: Tasks, Responsibilities, Practices.

In the case of Massachusetts’ infrastructure, taxpayers may vote, but they don’t have direct control over the highway department or the contractors fixing the road. “Not ‘who pays’ but ‘who determines the buying decision’ is the ‘customer,’” Drucker wrote in Managing For Results. For instance, areyou the customer when you buy a prescription drug? Or is your doctor the customer? “The drug companies clearly do not agree in their answers to these questions,” Drucker wrote. “Yet a different answer leads to very different measures.”

What do you think: Who is the real “customer” when it comes to government service?

What’s In Store for Stores?

Apr 112012
 

To purchase a product for a bargain at a store is nice. But to find a product in a store and then purchase it even more cheaply online—often from a rival purveyor—is heavenly.

It’s a practice known as “showrooming,” and, as The Wall Street Journal explained today, the customers who practice it “have become the bête noir of many big-box retailers.”

Not surprisingly, these brick-and-mortar stores are scrambling to stave off the trend. Target, for instance, has “pushed its suppliers to offer it exclusive products that can’t be found elsewhere,” the Journal reported.

Whatever happens, showrooming is merely the latest phenomenon to roil the industry. “The retail store has . . . changed many times over the past 300 years of its existence,” Drucker pointed out in Managing in a Time of Great Change, noting that “new retailers” grasp that shopping is “no longer a satisfaction” but a chore.

Drucker made this observation in 1993, as new chains like Wal-Mart were growing fast. “Still, there are signs that theirs, too, may be a fairly short-lived success,” Drucker warned. “Retailers now talk of ‘shopping without a store’ through interactive TV.”

The potential of online shopping, in other words, was already visible (to Drucker, at least) two decades ago. “The technology for all this is available and is increasingly less expensive,” Drucker wrote. “And there are quite a few signs that a substantial number of customers are becoming receptive to it.”

As for what Drucker would advise traditional retailers to do now, we can’t say for sure. But he would probably have supported Target’s focus on exclusive brands, even if they aren’t moneymakers. “A store whose reputation rests exclusively on the brand names everybody else can carry has no reputation or identity at all,” Drucker wrote in Managing for Results. “All it has is an address.”

Illustration credit: Sylvia Nickerson

And he may also have urged some of the retailers to reconsider their basic business model, as Sears did early in the 20th century. As Drucker recalled, Sears evolved “from a near-bankrupt, struggling mail-order house at the beginning of the century into the world’s leading retailer within less than 10 years” by altering its mission from serving the American farmer (through its catalogue) to serving the American family (through its stores).

If this kind of insight can transform a struggling mail-order house into a leading retailer, perhaps it can also transform a struggling retailer into a leading mail-order house (which, of course, is basically what Amazon is).

What do you think is going to happen to big-box retail over the next decade?

Who’s Not Buying It?

Apr 092012
 

If you heed the advice of Jeff Bezos, founder of Amazon, you probably won’t go too far astray in business. In the latest issue of Forbes, there’s a list of quotes from Bezos on how he’s succeeded as an entrepreneur. They include lines like “We are willing to be misunderstood for long periods of time” and “If you want to be inventive, you have to be willing to fail.”

One thing Bezos stresses repeatedly is the need to focus on the customer. He counsels the business owner to “obsess over customers,” and to “determine what your customers need, and work backwards.”

Clearly, this has worked pretty well for Bezos, if creating one the biggest businesses in the world is any measure. But Peter Drucker might have added one more consideration: the importance of obsessing over noncustomers.

“Traditionally, business have researched their own customers and know, or try to know, as much as possible about them,” Drucker observed. “But . . . the most important knowledge is the potential customer.”

The math alone makes it so. “Even the biggest enterprise (other than a government monopoly) has many more noncustomers than it has customers,” Drucker wrote in Management Challenges for the 21st Century, noting that hardly any companies supply even 30% of a given market. “And yet very few institutions know anything about the noncustomers—very few of them even know that they exist, let alone know who they are. And even fewer know why they are not customers.”

Some businesses have neglected this only to see their downfall. In Managing in the Next Society, Drucker pointed to the department store as Exhibit A. “Nobody knew more about their customers than did these stores,” Drucker explained. “But they had no information about noncustomers. They had 28% of the retail market, the largest single share. However, this meant that 72% didn’t shop at department stores. And the department stores had no information on these people. And they couldn’t have cared less.”

Eventually, as people’s shopping habits changed, the department stores had fewer and fewer customers despite all their research. Or, as Drucker put it, “After a time, they knew more and more about less and less.”

Does your organization pay sufficient attention to its noncustomers?

The Feedback

Apr 032012
 

When Cesar Chavez went to Peter Drucker for counsel, he was told to make sure that his volunteers and employees had responsibilities in line with their authority. We asked our readers where, in government or business, they saw perilous mismatches between authority and accountability.

Reader Richard B Mann PhD said the biggest dangers are in the public sector:

In government, because of various laws, authority is denied, but responsibility is assessed. However, even though a person is responsible, he or she cannot be fired for serious mistakes. One area that I found particularly annoying was having to accept secretaries, assistants and associates already as part of my unit. Some were upset at having a new boss and subtly sabotaged programs or made it difficult to accomplish the required mission.

Reader Mike Grayson concurred, but on slightly different grounds:

The most dangerous mismatch between authority and responsibility lies with the government, and their eagerness to exert authority over fiscal matters but their complete lack of responsibility when it comes to cleaning up their mistakes.

Reader Linda Fishman said both government and business have major authority-responsibility gaps that are a threat to public trust:

It is indeed a paradox that corporations are treated as persons by our laws—yet the very structure of a corporation legally removes anyone from personal liability in civil matters. . . . The federal government is in some ways worse because it is so large and so lacking in transparency that it is impossible to find out where or who made any mistake.

Finally, on the question of whether or not India would be a good investment right now, reader Maverick18 said no:

All foreign investors are backing off because of the tax cases in which India is trying to reach back retroactively for years and impose taxes. . . . Drucker would not approve this attack by the Indian government on the golden goose.

Drucker for Future Leaders

Mar 212012
 

“Step It Up” is the latest installment in our collection of animations. It tells the story of Sam’s efforts to win the affections of Rosi, all by using Peter Drucker’s “Five Most Important Questions.”

As part of the Drucker Institute’s “Drucker for Future Leaders” program, this short film provides a way for middle- and high-school students to learn basic principles of management. Watch to see if Sam succeeds in getting himself permanently out of “the friend zone.”

The “Drucker for Future Leaders” curriculum unfolds in five parts and is designed to be implemented over the course of a semester as part of a broader classroom curriculum.

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