Inside Drucker's Brain

Book review

INSIDE DRUCKER’S BRAIN

JEFFREY A. KRAMES

Portfolio         2008

Introduction: In Search of Drucker

• Although Drucker had written three dozen books on business and society, I thought a definitive book on Drucker had not yet been written; one that would showcase his most important management philosophies and signature strategies, and how they are as useful today as they were when Drucker first espoused them; and to reveal how many of the best-selling business books of the last two decades were built on ideas that he originated.
• Drucker’s contribution is as much a mind set as a methodology; about getting managers to ask the right questions; to see beyond what they think they know, to look past yesterday so that they might get a glimpse of tomorrow.
• We set the dates of the interview for December 22 and 23. “The questions are fine, but there are far too many of them.”  How could we spend two days discussing six questions?
• His entire career – not to mention his entire perspective – was based on looking forward, not back. Abandoning yesterday wasn’t merely one of his management principles, it had become part of Drucker’s DNA.
• In twenty-plus years I had published management books by countless authors. Yet no one gave me the education I had gained at Drucker’s side in that one remarkable day.
• His lessons delved into the areas of education, society, politics, and medicine. Drucker was the ultimate Renaissance man, and when he died, an enormous body of knowledge died with him.
• Drucker lived a life based on embracing tomorrow and abandoning yesterday, discovering an important paradox: in order to build, one must tear down. Abandoning what did not work, leave behind what was no longer important. That was how he was able to accomplish so much.
• The following chapters contain the essence of what Drucker passed on to me that day. They also showcase many seminal management and leadership insights and strategies and give readers a key to Drucker’s world, one in which tomorrow always comes first.

 

Chapter 1: Opportunity Favors the Prepared Mind

• It was the publication of Concept of the Corporation (1946), that gave people the first close look at the inner workings of General Motors, or any large corporation, warts and all.
• That watershed book, which argued for decentralization, would gain greater traction in the decades ahead. By the 1980s, Drucker had inspired more than three quarters of Fortune 500 companies to become decentralized.
• Drucker also argued that workers should be empowered to make more decisions, arguing for creating the self-governing plant community.
• Drucker was never concerned with conforming to convention. To the contrary, from his earliest days he showed a propensity for abandoning the old and charting a new path. He never cared what people thought. He also exhibited great courage.
• In his early twenties, shortly after Hitler came to power, he wrote two small books that he knew would be banned and burned by the Nazis, because it was important to him to be counted, so that at least he would know that he had taken a stand against tyranny, hatred, and fascism.
• Each step of Drucker’s career put him in uncharted waters. He never turned his back on a favorable opportunity if he felt it was the right one. He maintained flexibility to take advantage of opportunities as they came his way. Opportunity favors the prepared mind.

 

Chapter 2: Execution First and Always

• Drucker understood from the outset that sound management was all about performing, organizing, contributing, developing, preparing, and achieving. Responsible action that advances the objectives of the organization is the chief determinant of managerial success. Performance is the ultimate measure of success.
• It is a great mistake to leave non-performers in place to continue their incompetent ways. It is not fair to the organization or to those performers who are meeting or exceeding standards.
• Drucker coined the term knowledge workers to describe educated rather than apprenticed workers.
• Execution is not only accomplishing things – it’s accomplishing the right things.
• Organizations that consistently outperform their peers are those that discard outdated strategies, products, and processes. Only through this cleansing process can an organization renew itself.
• Abandonment is the key to innovation – both because it frees the necessary resources and because it stimulates the search for the new that will replace the old.
• Executives who fail to abandon the cash cows of yesterday, despite mounting evidence of impending failure, are guilty of poor execution.
• The following specific factors can interfere with a manager’s ability to execute consistently: failure to practice purposeful abandonment; excessive bureaucracy or management layers; the absence of clearly defined values and an operating system to share learning and ideas; the wrong management structure; no clear strategy or one not communicated throughout the organization; an insular culture that focuses on the wrong things and rewards the wrong behavior.
• The goal of management by objectives (MBO) is to enhance the productivity of the organization by setting clear objectives for individuals who contribute to the strategic objectives of the firm.

 

Chapter 3: Broken Washroom Doors

• During our day together Drucker was intensely focused on what managers did right, what they did wrong, what worked, and what didn’t.
• He spoke of nonprofit organizations as examples that had gotten it wrong more often than they had gotten it right, and what all managers could learn from their mistakes.
• To raise productivity managers should regularly assess their key people, their strengths, and the results they achieve. What changes in people, jobs, and job functions can we make that will yield greater results?
• By the mid-1980s, Drucker had grown disgusted with corporate America. The salaries of chief executives were totally out of control with CEOs being paid millions in salary and stock options regardless of how their companies performed, while laying off tens of thousands of workers.
• Stock options were shortsighted and rewarded the wrong outcomes, since they gave managers an incentive to manage for today while sacrificing tomorrow.
• It was obscene for CEOs to be paid hundreds of times that of a typical worker, while in Japan the typical CEO was being paid no more than forty times the average worker.
• Between 1970 and 1990, CEO pay increased by roughly 400% while the pay of average workers barely budged when adjusted for inflation. Workers are a company’s greatest asset – not a cost – as had been the prevailing wisdom. A CEO’s pay should be capped at about twenty times the average worker.
• The institution that has the most broken washroom doors is the hospital. Hospitals only work well on patients facing life-threatening illnesses. Other than dealing with life-threatening emergencies, hospitals are totally disorganized. 80% of the patients are not crises.
• In reframing the 80/20 principle from a different perspective – how a business is organized for the minority of its customers – Drucker forces us to rethink some of the basic assumptions and strategies upon which our businesses are based.
• Drucker urged managers to pay close attention, not only to a firm’s customers but its noncustomers.
• Hospitals must be designed and organized for the 20%. They have no choice. They are the last line of defense for serious illness and trauma. However, the hospital example is an extreme one. The vast majority of organizations are not as constrained.
• There are things a manager can do to minimize mishaps, bad policies, unsound methods, and habits that inhibit performance: make sure your best people are placed where they can make the greatest contributions; write down your priorities, but no more than two; maintain an outside-in perspective by ensuring that all managers spend time with customers in the market place; review systems, processes, and policies and abandon any that add to bureaucracy and diminish productivity; review compensation systems to make sure that you are rewarding outcomes that can actually move the needle.
• One of the complicating factors is Only a customer can define business purpose.
• He had no use for generalities such as “Our mission is health care”. The hospital is not a health care provider; the hospital takes care of illness. Mission statements have to be operational; otherwise its merely good intentions.
• A hospital emergency room is giving assurance to the afflicted since it acknowledges the 80% as well as the 20%. Giving assurance is what the emergency room does for the vast majority of people who visit.
• Only specific mission statements tell the rank and file what they need to contribute for the organization to reach its objectives.
• Book publishing is unique in that its products come from the hearts, minds and creativity of its authors; books are not market tested before publication; there is not one focused brand but about 100 new titles per publishing season. About 90% of its revenues come from about 10% of its products.

 

Chapter 4: Outside-In

• Peter Drucker was the intellectual father of the outside-in corporation, meaning abandoning yesterday’s perspective. It means embracing a new reality: seeing your organization from the customer’s vantage point.
• What I call Drucker’s Law was described in his watershed book The Practice of Management in which he said: “There is only one valid definition of business purpose: to create a customer.”
• In his 1964 book, Managing for Results, Drucker advances his discussion of outside-in, explaining why management by in-basket is a prescription for failure.
• Drucker’s eight business realities may be summarized as: result and resources exist outside the business as there are no profits within the organization, only cost centers; results are achieved by exploiting opportunities, not solving problems; to obtain results, resources must be allocated to opportunities; the most meaningful results go to market leaders as profits are the rewards for making a unique or distinct contribution that the market accepts as value; leadership is short-lived and not likely to last as business tends to shift from leadership to mediocrity; what exists is getting old, just as generals tend to prepare for the last war; what exists is likely to be misallocated as the first 10% of effort produces 90% of the results; to achieve the greatest economic results, concentrate.
• In The Effective Executive Drucker suggested that many organizations become shortsighted and insular because they do not spend enough time in the market place.
• These realities provide a picture of the obstacles that confront every manager every day. One reality is that an executive’s time belongs to everyone else. Captive executives have a hard time seeing past their in-basket, never mind getting a clear view of the market place.
• The executive sees the outside only through thick and distorting lenses – through an organizational filter of reports.
• Many great companies have fallen from grace because they failed to recognize that some key market dynamic changed the reality of their operating environment.
• Reshaping mind-sets is a big part of what Drucker is all about. Abandoning an outdated mind-set for one that fits a new reality is classic Drucker.
• To develop an outside-in perspective, consider the following: go where the customers are; invite customers and suppliers to meet with your people; use technology to enhance customer satisfaction; spend 2 to 4 hours each week on competitive websites or wherever your competitors are.

 

Chapter 5: When Naturals Run Out

What a manager does can be analyzed systematically. What a manager has to be able to do can be learned. But one quality cannot be learned or acquired but must be brought with him. It is not genius; it is character.

• Drucker told me what he felt were his six most important books: Concept of the Corporation; The Practice of Management; Managing for Results; The Effective Executive; The Age of Discontinuity; Innovation and Entrepreneurship.
• Drucker explained that World War II changed everything, due in large part to the G.I. Bill that promised that the U.S. government would pay for college and offer business loans to all returning servicemen.
• By the time the bill ended 7.8 million had attended college or other forms of formal education, adding millions of educated ‘knowledge workers’ to the work force.
• Making new naturals lies as much in the selection of managers as it does in their training, development, and experience gained on the job.
• Drucker’s born managers can place people as they have an intuitive sense about putting people where they can make the greatest contribution; they can hire or fire people without becoming emotionally upset; they decide priorities; they consistently ask themselves ‘What do I need to do to maximize my contributions to the firm?’; they know that asking the right question is more important than finding the right answer; they understand that when the seas get rough they do not hold another meeting; they know that morale and organizational culture is their responsibility.

 

Chapter 6: The Jefferson Ideal

Chapter 7: Abandon All but Tomorrow

Chapter 8: Auditing Strengths

Chapter 9: The Critical Factor

Chapter 10: Drucker on Welch

Chapter 11: Life-and-death Decisions

Chapter 12: The Strategic Drucker

Chapter 13: The Fourth Information Revolution

Chapter 14: The Leader’s Most Important Job

Chapter 15: A Short Course on Innovation

Epilogue: From the Monster to the Lamb: The People Who Shaped Peter Drucker

Acknowledgements

Sources

Index