Because It’s Not Enough Just To Believe You’re Helpful

Apr 302012
 

Cutting defense spending is hard enough. But we also suffer from a “social services-industrial complex” that may be even harder to cut.

So asserted Daniel Stid, a partner at the nonprofit consultancy the Bridgespan Group, in a recent piece for the Washington Post.

“The dirty little secret of the social sector is that once government money starts flowing, the nonprofits that have advocated for it and/or who are benefitting from it have a vested interest in keeping it going, even as evidence shows ‘weak or no positive effects,’” Stid wrote.

That, of course, is never a good thing. But it’s especially troubling at a time when budgets are so tight. “In a time of mounting austerity, the only practical way to direct more public funding to what works is to reallocate it from what doesn’t work,” Stid argued. “But this challenges the status quo and is thus politically much more fraught.

That nonprofits and other service institutions barrel on despite lacking evidence of effectiveness isn’t news. As we’ve talked about, Peter Drucker felt that nonprofits, not just businesses, must learn to measure outcomes and abandon what’s not working.

Illustration credit: Matt Kenyon

But when government is involved, and the organization is large, that can be especially hard to do. “The public service agency is always in danger of frittering away its best people as well as a great deal of money on activities which no longer produce, no longer contribute, have proven to be incapable of producing, or are simply inappropriate,” Drucker noted in Toward the Next Economics.  “Unless results can be appraised objectively, there will be no results. There will only be activity, that is, costs.”

Because government programs, or government-sponsored programs, can be nearly impossible to kill, Drucker therefore advocated killing them in advance.

“Instead of starting with the assumption that any program, any agency, and any activity is likely to be eternal, we might start out with the opposite assumption: that each is short-lived and temporary,” Drucker proposed in the Age of Discontinuity.  “We might, from the beginning, assume that it will come to an end within five or 10 years unless specifically renewed. And we may discipline ourselves not to renew any program unless it has the results that it promised when first started.”

What do you think is the best way to get rid of federal spending on non-performing social services?

Tata For Now

Mar 282012
 

One benefit of being an underachiever is that you have a lot of potential.

According to an article in the McKinsey Quarterly, the manufacturing sector of India knows that all too well. The authors point out that India’s “exports are growing” but that “its manufacturing sector generates just 16% of India’s GDP—much less than the 55% from services.”

As a result, people who invest in Indian factories often find themselves disappointed. “A majority of India’s largest manufacturers don’t return their cost of capital, a factor that dampens investment in the sector and makes it less attractive than its counterparts in competing economies,” the article explains. “If India’s manufacturing sector realized its full potential, it could generate 25% to 30% of GDP by 2025, thus propelling the country into the manufacturing big leagues.”

This is, most broadly, a problem of management, a topic about which Peter Drucker had a few things to say. But it’s also more narrowly about figuring out what sort of productivity would be best for today’s India, given its capital resources.

Drucker saw great benefits to the industrialization of India—among them that it was eroding previous social boundaries. “In India, industrialization has begun to corrode the Hindu caste system,” Drucker observed in The New Society, which was first published in 1950. “Ritual restrictions on proximity and intercourse between castes simply cannot be maintained under factory conditions.”

But it had to be the right kind of industrialization—the kind that returned the cost of capital. In the 1960s, many experts “proclaimed that development is an automatic and direct function of the size of capital investment,” Drucker wrote. “But that is not productivity; it’s waste and incompetence.” Others seemed to “define productivity as whatever uses the most labor,” Drucker observed. “But that, too, is incompetence.”

Assembly line in Manesar, India. Photo credit: Pankaj Nagia/Bloomberg

 

The right way to think of productivity is as follows: “Productivity is whatever generates the highest overall yield from an economy’s resources of capital, labor, physical resources and time.”

In India’s case? As we’ve mentioned, Drucker felt cars, bikes, radios, and other products had a higher multiplier effect. And India has made great strides in these sectors. To that extent, Drucker would say India’s choice of investments of capital has become wiser. The next challenge is to manage that capital better.

Would you invest in India’s manufacturing sector? Why or why not?

A Nod From the Homeland

Feb 072012
 

Peter Drucker was born in Austria in 1909, and then left to go study and work in Germany in 1927. He didn’t last long. By 1933, he had fled for Britain and, a few years after that, the U.S.

“All around me society, economy and government—indeed civilization—were collapsing,” Drucker later recalled of his decision to leave Germany, where the Nazis had burned and banned some of his earliest writings.

Things, of course, have changed completely in the decades since Drucker’s departure. And so it was fitting this week to see Frankfurter Allgemeine Zeitung, a leading German paper, rank Drucker as the year’s most influential management thinker.

Frankfurter Allgemeine Zeitung, February 6, 2012

How Olympus Should Refocus

Dec 162011
 

Rick Wartzman

In his latest column for Bloomberg Businessweek online, Drucker Institute Executive Director Rick Wartzman takes a look at the accounting scandal gripping Japanese camera maker Olympus.

Wartzman notes that former Olympus chief executive, Michael Woodford, who blew the whistle on the company’s decades-long effort to hide more than $1.5 billion in losses, has rightfully become a hero in many eyes. But Wartzman also explains that Woodford, who is actively trying to reclaim his old job, earned a reputation for being a micromanager. 

“In spite of Woodford’s popularity and record of operational success during his 31 years at Olympus,” Wartzman writes, “it is worth asking if his tendency to forcefully press his opinion on the smallest of matters—down to what kinds of personal items employees can keep on their desks, as described this week in a Wall Street Journal profile—is really the best way to manage any company.”

Wartzman notes that Peter Drucker “very much appreciated leaders who pay attention to the details. . . . But the idea is to inspire every employee to adopt such a mind-set on his or her own—not to try and command it from on high.”

“Start empowering them by making sure they are trained properly to do their jobs, and then give them responsibility to do it,” Wartzman quotes Drucker as saying. “Provide room for failure.”

“For instinctively heavy-handed executives,” Wartzman writes, “this can prove difficult.” But, in the end, the “managers on the firing line” are “the ones on whose performance everything else ultimately rests,” Drucker pointed out in Management: Tasks, Responsibilities, Practices. “Viewed structurally and organically, it is the firing-line managers in whom all authority and responsibility center; only what they cannot do themselves passes up to higher management.” 

Joe’s Journal: On the Right Kind of Control

Nov 152011
 

“The greatest advantage of Management by Objectives is perhaps that it makes it possible for a manager to control his own performance. Self-control means stronger motivation: a desire to do the best rather than just enough to get by. It means higher performance goals and broader vision. Even if Management by Objectives were not necessary to give the enterprise the unity of direction and effort of a management team, it would be necessary to make possible management by self-control. 

‘Control’ means the ability to direct oneself and one’s work. It can also mean domination of one person by another. Objectives are the basis of ‘control’ in the first sense; but they must never become the basis of ‘control’ in the second, for this would defeat their purpose.”

– Peter F. Drucker 

Peter Drucker often warned his readers about “writing off” a subject because he or she did not particularly like it. His concern was that intellectual arrogance may cause us problems in life when we really do need information from the subject area that we have written off. Such is the case with the subject of “control” or “managerial control.”

As Drucker states, “management by domination” is to be avoided. And one of the definitions of control is “domination.” We must try to avoid dominating anyone in our organizations by the use of controls. Yet “control” in the sense of meeting objectives is virtuous and of critical importance, especially now.

At about the turn of the century, the emphasis in the management literature shifted decisively from “managerial control” to “empowerment,” and that was for good reason: The trend toward empowerment is consistent with a knowledge society in which workers are equipped to carry out their responsibilities using self-control. Yet the entire field of “Management Control Systems” has become anathema to academics in this age of empowerment.  I advise you not to buy into this intellectual arrogance.

Strong controllers are needed today more than ever. Budgets of nations all over the Western world are “out of control,” and we are paying a big price for it in economic, social and political instability. Strong controllers could help this nation close the budget gaps we are experiencing at all levels of government.

Budgets of federal, state and municipal governments should be scrutinized in detail. And the word “control,” a seven-letter word, should not be treated as a four-letter word. Constructive controls are healthy for each of us and for our governments.  Beware intellectual arrogance!

– Joe Maciariello 

The Feedback

Nov 152011
 

Sometimes employees with negative attitudes have to be fired. But maybe not as often as you think—or at least not before you’ve seen whether management is part of the problem. That was the idea we floated last week at the Drucker Exchange, drawing on a number of things Peter Drucker wrote about employee morale.

Some of you said that a lot of employees would like their work much better if management didn’t get in the way. Reader Patrick Welsh wrote:

I am a high school teacher and many of my colleagues are made negative by the meaningless paperwork and meetings involved in attempts to improve the school; however they still enjoy being teachers once they close the classroom doors and are with their students.

Others said management should first take stock of itself, but mustn’t rule out the possibility that an employee may just be a nuisance, no matter what anybody does. Reader Sergio wrote:

I agree with Drucker that management must first look inward to understand if they themselves are at the root of negative co-workers’ behavior. I’ve seen situations where management . . . took corrective action to undoubtedly improve the working environment (i.e. fewer meetings, improved trust) but co-workers decided it wasn’t enough. 

Reader Maverick18 was unmoved:

The majority of businesses are small businesses and any manager of a small business knows that when an employee is toxic, i.e. impacts the working team and work environment more negatively than positively, he or she has to go. It’s a competitive issue. Businesses can’t afford to maintain toxic employees, especially when there are so many applicants with positive potential to choose from.

And reader Greg Zerovnik pointed to General Electric’s Jack Welch, who evaluated employees within a quadrant of qualities: good bottom-line numbers versus bad bottom-line numbers, and good values versus bad values.  Promote good/good, and fire bad/bad. As for the rest:

In category three are those who don’t make the numbers, but have good values. Counsel them, give them another chance. Then, if they turn the numbers around, keep them. If not, they need to go. Lastly, those who make the numbers but have poor and/or destructive values: fire them right away. There’s no saving those with a bad value set.

Actually, maybe they can find new jobs on Wall Street. 

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