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What if Peter Drucker were your CEO
Now and again, I find it healthy for my business thinking to exercise an imponderable. I get to consider problems and opportunities in an entirely different manner. It's an exercise that stretches and challenges my present business logic and forces me to think on a more strategic level. Such is the case as I ponder what Peter Drucker, renowned business guru and ‘father of modern management', would do differently if he became CEO of a company in today's environment. What approach would he use? Would his business acumens and tenants play in today's rough and troubled business climate? What pearls-of-wisdom would I glean by reviewing his books and articles? What would he do differently that makes a difference?
Peter Drucker has impeccable credentials. Educated in Austria and in England, he holds a doctorate in Public and International Law from Frankfurt University in Germany. He has been honored with many national and international awards citing his continuing and significant contributions to society, economics and businesses. A prolific writer and solid thinker he has written numerous articles on economics, politics and management that, some say, are as relevant today as they were when first written - some more than 25 years ago. With over 30 books to his credit, his insights and views on business and economics have influenced the thinking of top management from fortune 500 companies to private enterprises for the past 5 decades. Always fresh in his thinking, at 92 years of age, he still dispenses solid business advice.
Peruse just a few of Drucker's writings and it quickly is apparent that he doesn't mince words - his thinking is strong, and served straight up! Basic to his thought process is that enterprises are developed to create wealth, not control costs. Yet, traditional business measurements are woefully inadequate for management to perform the firm's basic responsibility - create shareholder wealth! Drucker's view is that management's key responsibility is to help workers to achieve (productivity) and to maximize corporate assets (move capital to most productive use - see: Marketing Tip #407 increase asset productivity). Most enterprises don't know how to accomplish this because they don't have the tools that timely provide the information necessary to make informed decisions.
After years of practicing, and refining his business thinking, Drucker developed key tools top management will benefit from, if used. Each area brings focus and information to senior managers enabling them to make more informed decisions. There are three categories: baseline information, productivity information, and competency information.
I found them to be thought provoking and worthy of your review. For lack of a better term, I call them Drucker's executive tool kit. After you read on, you may want to compare your business metrics to these and see where you might benefit.
Baseline information - These are very traditional measurements and metrics. They might include cash flow, inventory, revenue, profits, receivable, etc. Fairly routine financial information, needed to run any operation, and easily understood by the financial community, but not material enough, or timely enough (most metrics are lagging indicators) to help senior managers make investment decisions or productivity audits. Although these basic metrics are important, more ‘leading' indicators are required. Which brings us to the next tool.
Productivity information - This portion of the tool kit is vital and includes metrics that deal with the productivity of significant resources. A business must make visible the productivity of the labor pool - both manual and knowledge-based workers. However, this doesn't tell the whole story. Measuring productivity requires more than a traditional P&L statement. Today's astute business leaders recognize that profit may or may not
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create shareholder wealth. That until profit covers the cost-of-capital the enterprise operates at a loss. Businesses must implement metrics such as (EVA) economical value add (see: Marketing Tip #407 EVA - drive more value into your business!) which is better at providing the enterprise with a cleaner picture of its performance in creating or destroying shareholder wealth.
EVA fundamentally measures the value added over all costs, including the cost of capital. This provides a simple, easy method for non-financial managers to understand if their decisions regarding programs and investments make economic sense to the enterprise. EVA metrics can also improve the effectiveness of compensation or bonus programs normally used to enhance worker productivity. EVA allows a business to objectively determine if the task (programs, new product, etc.) creates or destroys shareholder value.
Competence information - Perhaps one of the more esoteric of measurements Drucker talks about, but none-the-less equally as important is competence information. A business must find ways to measure and constantly analyze their core competence. At minimum, businesses should do this as a part of their yearly planning exercise. Marketing folks call it a SWOT analysis - strengths, weakness, opportunities and threats. However, I would suggest quarterly would be more appropriate. The core competency of any business determines its ability to be a market leader. In other words leadership is the ability to do something other companies in your field cannot or find extremely difficult. Core competency blends together customer value with the enterprises' special ability to produce or service customers better than any competitor.
Companies that already get this point use benchmarking as a tool to determine trends in core competency. They determine what their special ability is and objectively compare it to direct and emerging competitors. On-going analysis (monthly is not unusual for certain companies) track and trend what is working and not working in the market place. What works should be straightened. What doesn't work needs further review, and may provide an indication that your customers are losing value in your offering or finding degradation in your core competency. Either way, it becomes an early warning that a change is occurring in your targeted customers' valuation of your product or service. You may then, more effectively, redirect corporate assets to meet this threat. This brings added opportunity and continued leadership.
Final Thoughts
Peter Drucker as the CEO. Of course it can't happen, but it stimulated me into thinking of possibilities that I may not have otherwise thought about. There is no ‘silver-bullet' that magically transforms your business, but hopefully this article presented a thoughtful blend of Drucker's wisdom, experience, and knowledge wrapped in his pragmatic approach and directed at motivating you to focus on creating shareholder wealth.
You might find a new book from John E. Flaherty, Peter Drucker: Shaping the Managerial Mind - How the World's Foremost Management Thinker Crafted the Essentials of Business Success worth the read. It helped to shape some of my thoughts as I wrote this piece.
Drucker is quoted as saying, "Efficiency is doing things right; effectiveness is doing the right things. " Which is your business doing and what measurements are you using that give you this truth?
About the Author
Frank Williams is a marketer and astute businessman. With many post graduate courses in management, leadership, marketing and technology to his credit, Williams is widely respected speaker, author and technologist. He has significant knowledge in marketing strategies and sales development programs and is the founder and CEO of Global Marketing, Inc. - a leader in business, marketing and sales consulting
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