The Feedback

Jan 102012
 

Is GDP any good as a measure of economic health? That’s a question we raised last week, and our readers had a lot of interesting answers.

The response from reader Mihaly Csikszentmihalyi (who happens to be one of the world’s leading authorities on happiness and creativity) was that other factors are much more important:

If we want to assess the state of the economy and to predict its future, what we need to measure are the habits that young people are developing: what are they learning? What are they hoping for? How are they spending their time? Without such metrics we will keep moving ahead like a ship with a blindfolded crew.

For reader Mike Grayson, the metrics were more simple: 

A nation’s overall economic strength can easily be measured by their debt-to-income ratio, as can a business or even an individual. It is simple math and no mystery.

We also took a look last week at how I.B.M. had become a role model for any company looking to abandon lines of business gracefully. What should we learn? Reader Sergio said that several theories of abandonment have proven effective:

There’s a helpful practice defined by Charles Handy called the Sigmoid Curve. The idea is to anticipate and prepare for change despite current successes. This is just one of many forms of continuous improvement practice. The Japanese automobile industry’s version was “Kaizen,” which was key to their competitive success in the 1980s. In the software development world, Martin Fowler introduced the practice of “Refactoring,” which has become a key practice for achieving software development agility.

And when we noted the “sad news,” as we called it, that Eastman Kodak may be headed for bankruptcy, reader David Marquet wasn’t feeling it:

Why is this sad? There is displacement. There are people who will lose jobs. There are shareholders who lost money. But the ability of an economy to build new industries and shed old ones is necessary for enduring vitality.

Somehow, when it comes to the Great Yellow Father, we’re still feeling a little blue. 

A Topic We Just Can’t Seem to Abandon

Jan 042012
 

We know we’ve covered the importance of “planned abandonment” before. But as Peter Drucker once wrote, “What has been learned earlier has to be repeated again and again, and applied again; it has to be reaffirmed or else it is forgotten.”

So let us repeat: Abandon stuff, all ye who enter business—products, processes, policies, distribution channels—for everything eventually becomes obsolete. And do so before you want to, let alone before you have to.

When we last addressed this topic, our focus was on Hewlett-Packard. At the time, HP Chief Executive Leo Apotheker had announced a plan to spin off the company’s PC business. We suggested that this might well be a smart move. But this line of thinking was generally met with skepticism—and, in fact, Apotheker was ousted just a few weeks later. The word now is that HP, with Meg Whitman at the helm, will be keeping its PC business after all. 

For contrast, let’s consider I.B.M. Last weekend, the New York Times published a farewell to its chief executive, Samuel J. Palmisano, who has just stepped down after nearly a decade of leading the company. The tech giant, the Times declared, has become “so consistently successful, I.B.M. is almost boring.”

But getting there hasn’t been easy. One of Palmisano’s toughest decisions, in fact, was to exit the PC business. The company sold it off to Lenovo of China in 2004. “If you decide you’re going to move to a different space, where there’s innovation and therefore you can do unique things and get some premium for that, the PC business wasn’t going to be it,” Palmisano told the Times.

Palmisano’s decision wasn’t popular internally—abandonment, as Drucker noted, always creates “enormous resistance”—but the gamble paid off.

“Abandonment comes first in the turnaround strategy,” Drucker wrote in Post-Capitalist Society. “Until it has been accomplished, nothing else gets done.” 

Photo Credit: Anders Naesset

What, if anything, should HP (and the rest of us) learn from I.B.M.’s approach to abandonment? 

The Feedback

Dec 062011
 

Last week, we wondered if a sharp drop in the national unemployment rate was really the result of people losing heart and giving up on the hunt for work. What would keep you going, we asked, after months and months of fruitless searching?

Reader Ken, who wrote of being unemployed for long stretches, said there’s no choice but to keep marching onward:

I got laid off this latest time in March 2008, and I’m a few weeks from finally getting a permanent job w/ benefits again, this time as a DoD intelligence analyst. I left my marketing dreams behind . . . and reinvented myself by going back to graduate school for something that could get me a job. It’s been a long, hard road, but I feel like I’m one of the lucky ones.

My only advice is to keep on trying, keep on thinking, and keep on praying. Eventually things will change.

Christopher Hastings provocatively tied in a different Drucker principle that’s often cited in the context of product lines:

Drucker wrote about intentional abandonment. How do you know what to abandon? When you hit a wall. Or you are too successful and blinded by it. Giving up entirely sometimes seems like the only option, and if you haven’t experienced that, your time will come.

‘Try something new’ isn’t bad advice, but it must augment the earlier statements – do something to keep investing in others, volunteer, keep thinking, praying, waiting, trying what works, abandoning what doesn’t. And in the absence of something working, try something else. Unemployment is as much about managing the heart as it is putting a particular skillset out there.

And when we asked about how to keep employees motivated when the promotional ladder is crowded, reader Sergio had this to say:

There’s a good chance that a highly-motivated software engineer, for example, became that way through the daily process of designing, creating and solving challenging problems. . . . Promoting workers of this type ‘up the ladder’ will certainly move them away from what they do best, disrupting the balance of motivation in the process. In this particular case ‘lateral promotion’ is a valuable alternative.

 

Joe’s Journal: Strengthening the Whole by Weakening a Part

Oct 182011
 

“There is one fundamental insight underlying all management science. It is that the business enterprise is a system of the highest order: a system whose parts are human beings contributing voluntarily of their knowledge, skill and dedication to a joint venture. And one thing characterizes all genuine systems, whether they be mechanical like the control of a missile, biological like a tree or social like the business enterprise: it is interdependence. The whole of a system is not necessarily improved if one particular function or part is improved or made more efficient. In fact, the system may well be damaged thereby, or even destroyed. In some cases the best way to strengthen the system may be to weaken a part—to make it less precise or less efficient. For what matters in any system is the performance of the whole; this is the result of growth and of dynamic balance, adjustment and integration, rather than of mere technical efficiency.”

– Peter F. Drucker

I worked in systems for a long time, so I understand Peter Drucker very well here. What he is saying is very important now given the state of our economic systems and the meltdowns that we have experienced.

Financial function in the economy as a whole and in organizations is over-weighted and the result has been that we’ve had a financially driven economy that is focused more on finance than on production, engineering, quality services and the like. What Drucker is saying is that the best way to redirect our economy is to reduce the strength and role of finance within our organizations and our government and political systems.

In academia we have worked hard to improve financial functions, but even here at the Drucker School for example it can be a challenge to find a balance between the field of finance and management philosophy. Drucker himself understood that there needed to be a balance; he did not downplay the importance of finance, but he understood that there ought to be a balance and that finance could and should not simply dominate.

Overall, I think that on a personal, organizational and national level we now have to shift the focus away from finance. We have to weaken this part of our political and economic system in order to strengthen the whole. We need to find ways to create incentives for people to pursue non-financial areas like math, engineering and science where we are seriously lagging behind the rest of the world. We need to understand that just because we can do these technical things with finance very well, it doesn’t mean that we ought to be so focused on them and that, in fact, we will have to move away from them if we have any hope of recovering.

– Joe Maciariello

Netflix Rewinds

Oct 102011
 

Was it only three weeks ago that Netflix announced plans to split into two businesses—one for online video streaming and another called Qwikster for DVDs by mail?

For Netflix Chief Executive Reed Hastings, who has received a ceaseless torrent of unfavorable publicity since announcing the strategy, the three weeks have probably felt more like three years. Now, to stop a customer exodus, the company has done an about-face. Although Netflix is sticking with a price increase that it also announced earlier, there will be no second business.

We wrote earlier about some of the possible reasons that Netflix went astray. Ultimately, though, what caused the company to reverse course was that the customer spoke, and the customer didn’t like the new plan. It was that simple.

“It is clear that for many of our members two websites would make things more difficult,” Hastings explained, “so we are going to keep Netflix as one place to go for streaming and DVDs.”

Peter Drucker certainly would have appreciated the concession. “Customers only want to know what the product or service will do for them tomorrow,” Drucker wrote in Management: Tasks, Responsibilities, Practices. “All they are interested in are their own values or wants. Any serious attempt to state ‘what our business is’ must start with these truths about the customers.”

Clearly, whatever assumptions Netflix originally made about the market in deciding to split into two businesses was, in some way, invalid. But its willingness to reconsider the approach, rather than forge ahead in the face of the evidence, is most admirable. “Failure of the strategy to produce the expected results is usually the first serious indication that the Theory of the Business needs to be thought through again,” Drucker noted in Management Challenges for the 21st Century.

What’s more, such failure doesn’t have to end in disgrace. Instead, Drucker said, failure is often a timely wake-up call—and a potential spur to innovation. “Failure should always be considered a symptom of an innovative opportunity and taken seriously as such,” Drucker wrote in Innovation and Entrepreneurship. “It is precisely because the unexpected jolts us out of our preconceived notions, our assumptions, our certainties, that it is such a fertile source of innovation.”

What kind of innovative opportunity might Netflix find in its unexpected failure?

Going Postal

Sep 082011
 

Looks like you might have to deliver those wedding invitations by email instead.

The U.S. Postal Service is about to go bust, according to Postmaster General Patrick Donahoe. The real trouble may start this month with USPS set to fail to meet a $5.5 billion payment to its retiree health fund. “The rise of email has dramatically curbed the mailing of old-fashioned letters, while competitive delivery companies have put the squeeze on the post office’s business model,” the Los Angeles Times reported. Last year, the paper noted, the post office delivered 171 billion pieces of mail, a 20% drop from four years earlier.

Donahoe would like to stop Saturday delivery, shutter post offices and lay off 120,000 workers, but lawmakers may not permit that.  Sen. Tom Carper, a Delaware Democrat, finds this unfair. “No business, facing the kinds of difficulty the Postal Service faces today, would survive very long if it were told how many retail outlets they should have and where they should be located,” Carper said recently. “Yet that’s what Congress does to the Postal Service.”

If Peter Drucker were to offer an explanation of whom to blame, he might present two alternatives. The first would be to blame us—or the officials we elect.

Image credit: Matt Chase

“Even a regulated monopoly can become dysfunctional,” Drucker warned in The Frontiers of Management. “As soon as there is any competition, as soon as there is an alternative way of producing the same consumer satisfaction or filling the same consumer want, regulation becomes counterproductive. It no longer ‘regulates,’ but it still forbids and stifles . . . It can, and will, make it difficult for its industry to compete, to modernize itself, to meet the new threat.”

A prime example of this, said Drucker, was—tadah!—the Postal Service: “Witness the vicissitudes of the U.S. post office, beset on one side by electronic mail and on the other by private express services.”

The second choice for blame would be the Postal Service itself. “Large, dominant producers and suppliers, having been successful and unchallenged for many years, tend to be arrogant,” Drucker wrote in Innovation and Entrepreneurship. “At first they dismiss the newcomer as insignificant and, indeed, amateurish. But even when the newcomer takes a larger and larger share of their business, they find it hard to mobilize themselves for counteraction.”

An example of this phenomenon? Why, the Postal Service. “The U.S. post office did not react when UPS and FedEx took away larger and larger shares of its business,” Drucker noted. “What had made the post office so vulnerable was rapid growth in the demand for urgent delivery of time-sensitive documents and packages.”

What do you think? Who or what is to blame for the woes of the U.S. Postal Service—Congress, USPS, or something else entirely?

PC RIP?

Aug 192011
 

When the world’s largest personal-computer maker decides to stop making personal computers, eyebrows get raised.

This week, Hewlett-Packard announced that it’s weighing whether to spin off its PC business, a move that HP projects would raise profit margins even as it reduces revenue by a third. Rival Michael Dell mocked the idea, and The Wall Street Journal dinged HP Chief Executive Leo Apotheker for engaging in “a strategic flip-flop.”

But flip-flops aren’t necessarily an indication of bad decisions as much as an indication of new (or newly considered) data. And HP’s decision was apparently made after an analysis of market trends indicating that PCs face an inexorable decline—what Apple’s Steve Jobs, for one, has dubbed a “post-PC era.”

Image credit: Frank LaRosa

As we’ve noted before, Peter Drucker repeatedly emphasized the benefits of purposeful abandonment. “The change leader puts every product, every service, every process, every market, every distribution channel, every customer and end-use on trial for its life,” Drucker wrote in Management Challenges for the 21st Century. “And it does so on a regular schedule.” Drucker told managers to ask themselves a simple question: “If we did not do this already, would we, knowing what we now know, go into it?” If the answer is no, then the groundwork for abandonment has to be laid right away.

Drucker identified three cases in which outright abandonment is the correct course of action:

1. When a product has a few good years of life, but only a few. Such products require lots of attention, Drucker noted, and “tie down the most productive and ablest people.”

2. When the only argument for keeping something is that it’s been fully written off. This “has its place in tax accounting, but nowhere else,” Drucker said.

3. When an older product on the wane is diverting resources away from new products on the rise.

Is HP’s possible abandonment of the PC good business? What other kinds of products and services should other corporations be abandoning right now? 

 Older Entries