“The most spectacular of the mergers tend to be . . . what business analysts call ‘strategies of despair.’”
— Peter F. Drucker, 2001
May 242012
May 232012
Every time cereal manufacturers face tough times, headlines say they’re feeling the crunch. We’re not saying that, of course, because we’re better than that.
However, the soggy economy appears to be taking a bite out of General Mills. The cereal maker announced this week that it’s going to eliminate 850 jobs, or about 2.4% of its global workforce. That news came as Hewlett-Packard unveiled details about its own, much steeper job cuts: 27,000 employees, or about 8% of its rolls.
Wise cuts or panicked cuts? We can’t know for sure. But we do know that Peter Drucker supported moves like this under certain conditions. Downsizing can be “a powerful tool,” he wrote in Managing In a Time of Great Change. In the mid-1980s, Drucker found that “middle managements today tend to be overstaffed to the point of obesity.”
At HP, Chief Executive Meg Whitman said that “while some of these actions are difficult because they involve the loss of jobs, they are necessary to improve execution” and to “streamline operations.” General Mills sounded a similar theme, as a spokeswoman explained that most of the reductions will come from “administrative and support positions”—an area that Drucker singled out as particularly problematic.
“It isn’t only in the armed forces that ‘support’ has grown to the point that it overshadows the combat troops and employs many more people,” Drucker wrote. “A good many businesses large and small have become equally bureaucratic and equally suffer from gross overweight around the midriff.”
Of course, in a time of high unemployment, like now, it’s harder to argue that too many companies are flabby. And in any case, Drucker also warned against being too hasty in cutting jobs. “Management picks up a meat-axe and lays about indiscriminately,” he observed. “In many if not most cases, downsizing has turned out to be something surgeons have for centuries warned against: amputation before diagnosis. The result is always a casualty.”
Far more successful were the companies that “turn things around, by rethinking themselves,” Drucker wrote. “They did not start out by downsizing.”
What do you think: Is most downsizing today “amputation before diagnosis,” or are companies smarter than that?
May 152012
“The most believable forecast for 2020 suggests that manufacturing output in the developed countries will at least double, while manufacturing employment will shrink to 10% to 12% of the total workforce. . . . The decline in manufacturing as a creator of wealth and jobs will inevitably bring about a new protectionism, once again echoing what happened earlier in agriculture. The fewer farm voters there are, the more important the ‘farm vote’ has become. As numbers have shrunk, farmers have become a unified special-interest group that carries disproportionate clout in all rich countries.”
—Peter F. Drucker
Drucker was most certainly right about the rise of protectionist sentiment in developed countries as a result of low-wage competition from developing countries. We as a society benefit overall from free trade and globalization, but particular geographical areas in the United States have been hit hard.
A recent MIT study, “The High Price of Losing Manufacturing Jobs,” reports that American imports from China grew tenfold between 1991 and 2007, causing the loss of 1 million jobs, or a hefty 25% of all lost jobs in manufacturing in the U.S. during the period.
To the extent lost jobs are due to currency manipulation, we must be in a protectionist mode with China. But the only sure way out of our dilemma is to upgrade manual manufacturing methods with knowledge workers. A while back, I wrote the book Lasting Value, which featured the stories of such high-productivity U.S. manufacturing companies as Lincoln Electric and the steelmaker NUCOR. Drucker endorsed the book, saying that the lessons in Lasting Value “have particular force for the new job facing management: building organizations of knowledge workers who perform and who create Lasting Value.” The book shows that America’s great manufacturing companies have relatively low unit manufacturing costs—2% in the case of Lincoln’s Ohio operations and under the cost of foreign freight at NUCOR.
The solution is all about bringing knowledge to bear on the manufacturing workforce in America. We have powerful examples of success.
– Joe Maciariello
May 112012
Colleges are a bit like funeral homes. Talking about getting your money’s worth strikes some as a little crass.
But overcharging people is crass, too. College demands an increasingly big chunk of change, and the returns aren’t necessarily there. Writing recently in The Wall Street Journal, Jack Hough lined up a number of experts to dispute a claim by President Obama that college is a great investment. Hough pointed out that “tuition and fees have increased 184% in 20 years after accounting for inflation, but wages for college grads have risen just 9%, according to Labor Department data.” Moreover, sites such as PayScale indicate that some students end up with a flat-out negative return on tuition investment.
“Mr. Obama’s investment tip is well-intentioned,” Hough wrote, “but in college as on Wall Street, returns aren’t guaranteed.”
Peter Drucker thought about education all his life. He also, as we’ve pointed out a number of times, thought a lot about paying for it. One of his most extensive considerations of the topic was in Landmarks of Tomorrow, first published in 1957, at a time when tuition was already on the rise.
“The educator usually distrusts economic discussion of education,” Drucker noted. “He points out with reason that individual excellence, knowledge and responsibility, rather than goods and services, are the ‘products’ of education.”
But Drucker countered that this was not an excuse to stop thinking in terms of return on investment. “We cannot afford education that does not make the individual a bigger, a better, a more dedicated or a more excellent—that means, a more productive—person,” he wrote. “Whatever does not add to the capacity for sustained growth of personality or contribution is impractical—and may indeed be deleterious. That this or that subject adds to a man’s ability to get a job, or to do well on his first job, is not irrelevant.”
Also, while Drucker believed in the value of student loans, calling it “equitable to expect the graduate to repay, in dollars over the years, the cost of his education,” he, too, may have blanched at the debt burden borne by recent college graduates scraping by at or near minimum wage. As he asserted, “A free society will not finance education by indentured labor.”
What do think: Has a college education ceased to provide a reasonable return on investment? Why?
May 082012
Peter Drucker
Recent selections from around the web that, we think, would have caught Peter Drucker’s eye:
1. The Structural Revolution: Is our current recession a down cycle or a grand reset? David Brooks writes in the New York Times that many people on the left think what we’re going through is a deeper-than-normal cyclical downturn. But Brooks believes that’s missing the truth: “The recession grew out of and exposed long-term flaws in the economy. Fixing these structural problems should be the order of the day, not papering over them with more debt.”
2. Why a Little Pessimism is a Good Thing: Americans are optimists in general. And if they’re not, they get told they’d better be. But Leslie Brokaw makes a good case on the Improvisations blog at MIT Sloan Management Review that pessimism should get a little more respect as a tool in its own right: “For one thing, it’s a good defensive tactic.”
3. Why Innovation Dies: If you have a wonderful innovation to suggest and want to make sure it goes nowhere, put it into the hands of a committee. That is what entrepreneur Steve Blank writes on his site. Blank offers many reasons why committees are no good for making innovation happen. One of them: “New market problems call for visionary founders, not consensus committee members.”
4. The Dx Comment of the Week: In response to our question about what it means that, according to new research, the workplace tends to be dominated by a small band of superstars and a large mass of below-average workers—a Pareto curve rather than a bell curve of talent distribution—Scott Kuethen had this to say:
Maybe the true stars are high-performing individuals who are team players. Fewer of those types than the masses to be sure.
Apr 102012
We’ve all experienced price increases, and we don’t much like them—unless, that is, we’re the ones who are selling. But with the economy barely limping along, some economists have recommended a dose of inflation as a way to help cure unemployment. Do Dx readers think that’s a good idea?
No way, said reader Richard B Mann PhD:
As Drucker indicated, inflation does more harm than good! The “Iron Law of the marketplace” is that the economy depends on what a willing buyer will pay and a willing seller will accept—like water, it seeks its own level. When prices are propped up by stimuli, subsidies, loopholes, inflation, etc.—the market place is distorted. The current problem was created by the government demanding no-down, no-doc loans for people who could not make the payments, and the financial markets manipulation of mortgages.
Reader Joe Digman, who said the harm or benefit of inflation “depends on the context and the amount,” took exception to the idea that zero-down loans were to blame for today’s crisis:
You cannot have a market, Iron Laws or not, when willing sellers can defraud willing buyers, or when huge pockets of wealth distort demand and create price and speculation bubbles, or when aggregate demand (wages) has been so depressed that a huge portion of the population can’t participate in these markets. In an oligarchy, free markets are a fantasy.
Reader Brendan said inflation would make the United States less competitive as a job market:
Inflation is an unruly beast that can easily spiral out of control. The reality is, as things become more expensive, marginal businesses will only look to find ways of sourcing their products more cheaply, which may in turn drive more jobs overseas.
And reader john karayan, jd phd wrote in with numerous bibliographic suggestions and asked us what we were smoking when we said that Peter Drucker would have found today’s inflation rate to be historically low:
Inflation is not, in any way shape or form, “historically low right now.” Not in the world, not in Western Europe, not in Japan. Peter pointed out in Claremont Graduate School courses of his which I attended that the inflation rate in the U. S. between 1789-1913 included negative inflation rates. He said the same for Tokugawa Japan, and for Western Europe.
Apr 062012
“Ever since the Great Depression, unemployment has been seen as both the endemic and the most dangerous disease of modern society and economy,” Peter Drucker wrote in The Pension Fund Revolution.
Today, that disease proved to be at least a bit more severe than previously hoped, as employers created what the New York Times called a “disappointing” 120,000 jobs in March. This was about half the number recorded in each of the preceding three months.
It’s the sort of thing that prompts some economists to urge policymakers to change direction. Writing in the New York Times, Paul Krugman argued, “We’d be better off if the Fed paid less attention to inflation and more attention to unemployment.” He added, “Indeed, a bit more inflation would be a good thing, not a bad thing.”
Drucker advocated basing decisions on evidence and feedback, so he would certainly have recognized that inflation is historically low right now, in contrast to breathless warnings from “inflation hawks.”
And Drucker was quite familiar with the debate over inflation versus unemployment. “The question whether unemployment becomes the lesser evil, and just how much unemployment a society can and will accept in order to control inflation, can . . . be expected to become a central political issue,” Drucker noted.
But he also considered inflation a grave danger to society, one that economists too often dismiss too easily. “We have known for a long time that inflation is a corrosive social poison, dissolving the bonds of trust in community and society,” Drucker wrote. “Economists, however . . . have tended to laugh off inflation as an economic problem, if not to proclaim that a little inflation is a permanent good.”
In another essay, Drucker flatly warned: “It is easy . . . for a government to do harm to its domestic economy. All it has to do is drive up the inflation rate.”
What do you think: Would a little more inflation help us right now, or is that a dangerous road to start going down?