Peter Drucker Review

“For every business…systematic, purposeful work on economic tasks and decisions has to become a way of life. What the tasks are and how they might be organized has been the concern of this book.”

Executives are responsible for managing and entrepreneurship. Without management, economic results wither. Without economic results, management is without purpose.

Moreover, for management to maximize economic results, executives must show employees how “to become effective executives.” (226) Employees must learn how to “contribute to economic results.”

(Managing for Results, Conclusion)

To manage and ensure performance, three things need to happen. First, decisions need to be carried out, therefore a plan is needed. A plan by definition requires goals. For a plan to work and for goals to be achieved, work needs to be assigned. Finally, the plan, goals, and assignments need to be oriented toward organizational goals.

Second, performance should support and advance “business practices.” One example is the assessment of new opportunities. Not only should new opportunities be assessed and compared together, but the best and worst outcomes of each opportunity should also be assessed in terms of their effect on the organization as a whole.

Third, employees must be motivated to contribute toward results. According to Drucker, motivation occurs when people recognize the impact their jobs have on the organization and results. Moreover, promotions to positions that are next in line for top management need to be made based on performance and results.

(Managing for Results, chapter 14)

“One job that always needs to be organized as a distinct activity is the economic analysis of the business, its dimensions and tasks, and the program for performance.”

For an organizational performance program to be realized, four “big areas” need to be thought through. First, executives need to understand and prioritize their opportunities and risks. Drucker explains additive, complementary, and breakthrough opportunities. He also classifies risks. Some risks should not be taken, others should not not be taken. A risk may align with and promote the idea of the business, or it may not align and require a reconsideration of the idea.

Second, executives need to consider the scope of the business. Meaning they need to consider how they will manage the demands of specialization, diversification, and integration. These must be considered in light of markets and knowledge areas. And when markets and knowledge areas change, the scope should change too.

Third, opportunities, risk, and scope require executives to consider the method of action in regard to finances and organization. Drucker provides short reasons why a business sale, acquisition, or joint venture is in order. Decision factors include the organization’s market, knowledge, and management structure.

Fourth, Drucker adds strategy and structure. The corporate ordo salutis of results and growth. Drucker believes that management structure should fit and promote “the idea of the business, its excellence, its priorities, and its opportunities.” (216)

(Managing for Results, chapter 13)

“The hard reality of the present must not be obscured by the lure of tomorrow’s promises. But the difficult and discouraging work for tomorrow must also not be smothered by the urgencies of the present.”

This chapter introduces the third part of the book, A Program for Performance. In it, Drucker summarizes three decisions that every organization must make. These decisions form a strategy.

The first decision is “The idea of a business.” The idea provides direction and it takes into account all of the analyses explained in the first part of the book and summarized in the questions of “What is our business?” and “What should it be?”. It must not be too broad or specific. For example, a consulting business would be too broad. While a laptop manufacturer would be too specific. Drucker gives an example of an office supply business that provides office managers with office equipment. This idea includes the market and the knowledge area.

L.L. Bean is a business driven by an idea. Provide those involved in outdoor activities with affordable, quality products that make outdoor experiences more enjoyable and successful.

The second decision is the excellence of the organization. This is an area of knowledge essential for gaining a leadership position. Drucker writes that it must lead to action in products and services, and determine hiring, promotions, and corporate benefits and rewards.

Priorities are the third decision. They are based on knowledge of what the business is and should be. Drucker says that strategy is determined by them. Without priorities, the best opportunities will not be maximized.

These three decisions need to be made deliberately and “systematically” by organizational leaders. They will help leaders balance the needs of the present with the future.

(Managing for Results, chapter 12)

“The purpose of the work on making the future is not to decide what should be done tomorrow, but what should be done today to have a tomorrow.”

Organizations that achieve objectives are in a dangerous position. They are likely to rest on their success and become mediocre. Instead, to grow, organizations must notice, accept, and exploit new risks. This is what it means to make the future today.

Drucker explains two ways this can be done. First, an organization can anticipate the future by exploiting an event that has already happened. Drucker gives several examples, the most fundamental being population change. A significant rise or fall in birth rates will change the future.

The other way is to make the future today through an idea with “wealth-producing potential.” One example in the book is IBM’s decision to provide data processing. No matter the event, data processing would always be needed, but changes had in fact made data processing a huge need. Another example is Sears Roebuck’s idea to increase the poor’s ability to buy on par with the rich.

The bottom line is that great companies do not rest on past successes. And they do not try to predict the future. Like an entrepreneur, they notice significant events and take calculated risks. If this is not done in a systematic way, an organization’s best days are probably behind it.

(Managing for Results, chapter 11)

“Dangers and weaknesses indicate where to look for business potential. To convert them from problems into opportunities brings extraordinary results. And sometimes all that is needed to accomplish this transformation is a change in the attitude of the executives.”

According to Drucker, there are three ways to find business opportunities. The key is noticing problems and concerns and turning them into opportunities. While not all businesses can do this–and certainly not easily–threats and challenges not turned into opportunities, remain.

First, whenever there is a “restraint” or a “limitation” on a process, industry, or market, there is business potential: an opportunity for innovation and results. Drucker gives an example of a paper-making company whose profit was limited by waste. The company bought trees, but only a quarter of each tree was used for paper. This was a restraint with business potential.

Second, companies are often out of balance. Their operations, services, resources, or research cannot be maintained by revenue. Moreover, companies often are not big enough to afford the management they need. “Imbalances” require executives to reimagine their businesses. One manufacturing company with national sales operations did not make sufficient revenue, so it decided to become a distributor. This quintupled sales.

Third, fear is a sign of opportunity. Drucker gives the example of the emergence of discount stores, spurring many department stores to start their own, without much success. One company did the opposite. They “upgraded” their quality and thus increased the demand for their products.

Interestingly, Drucker observes through case studies that “outsiders” are often the ones who turn problems into opportunities. They lack a vested interest in maintaining the status quo.

(Managing for Results, chapter 10)

“…because there are so many different areas of importance, the day-to-day method of management is inadequate even in the smallest and simplest business. Because deterioration is what happens normally–that is, unless somebody counteracts it–there is need for a systematic and purposeful program.”

In this chapter, Drucker begins the second part of the book called “Focus on Opportunity.” By now the analysis of the business has been done. Executives have an understanding of the business’s present health and the direction it should go. Now leadership needs to determine what approach they will use to grow the business.

Drucker provides three methods or “approaches.” The first method defines an ideal business. The second focuses on the best opportunities. The third determines where to put the best resources to achieve results. For each of these methods, Drucker provides a case study.

CEO Alfred P. Sloan, Jr., in the 1920s, designed and orchestrated an entirely new business concept. Instead of producing cars for everyone, he designed and promoted cars for specific markets. His market-based, systematic approach made General Motors the world’s largest car company and manufacturer.

Thomas Edison and Werner von Siemens used the second method. They innovated to create what was necessary to take advantage of opportunities. For Edison, the incandescent light bulb was a key part of a larger strategy to build America’s electric power industry.

The Rothschilds illustrate the final method. They placed top resources–their sons–in locations suited to their strengths. Thus, their strengths were applied and aligned with opportunities for developing the family business.

These methods are not only individual pathways for growth, but they are also integrable. Defining the ideal provides the “target” against which all can be planned and measured. Attending to opportunities enables companies to focus on the innovation necessary for results and economically beneficial tasks. Focusing on resources allows a company to align its best resources with the best opportunities.

This is a brilliant chapter, by reading it, executives gain an understanding of what must be done to develop “a systematic approach” to achieving results.

(Managing for Results, chapter 9)

“The analyses sketched out in the preceding chapters should provide the executive with an understanding of the business adequate to the demands of his economic task…a business should be able to understand itself; to diagnose itself; and to direct itself.”

The four areas of business analysis are the result areas of a business, its cost centers, markets, and knowledge areas. These are necessary for understanding how a business is doing and what it should be doing. Ducker believed that the last two analysis areas–market and knowledge–once accomplished, should be used to reconsider the state of the business in regard to its results and costs.

The chapter provides several case studies that illustrate how major conclusions were adjusted. One company realized that its market was not dying after all but that it had moved overseas. This insight came as a result of asking a question it had not quite asked. Instead of asking “Where is our market?” the company asked, “Where is the market?”

Another company realized that they needed to sell life insurance to housewives in the morning, not to husbands at the end of the work day.

Lastly, Drucker explains the value of reconsidering past conclusions, such as knowledge that needs to be developed or added to, to maintain and increase one’s leadership position.

(Managing for Results, chapter 8)