Peter Drucker Review

“To be able to do something well as others is not enough…It does not give the leadership position without which a business is doomed. Only excellence earns a profit; the only genuine profit is that of the innovator.”

Without knowledge, an organization will perish. Knowledge is the critical resource that differentiates a company from others. Management is responsible for understanding what it is so that it can be used, maintained, and adapted.

Drucker, in this chapter, explains knowledge analysis. How to understand what one’s knowledge area is, the nature of this knowledge, and what must be done to maintain and use it well.

For a company to understand its knowledge area, it should ask: “What have we done well–and without any sense of great strain–while somebody else has failed to do the same job?” Drucker sees this as a critical question. Without confronting it organizations risk closure.

The purpose of accurate knowledge is to focus on the right opportunities, to become a leader in the market, and to understand what improvement is needed.

One executive dedicated a quarterly meeting to knowledge analysis, asking his team “Have our recent experiences borne out our previous conclusions that this particular ability gives us leadership?” (118)

(Managing for Results, chapter 7)

“…the most important questions about a business are those that try to penetrate the real world of the consumer, the world in which the manufacturer and his products barely exist.”

Up to this point, Drucker has been concerned with “how the business is doing.” Now he shows how to understand what a business should become. This chapter is a high-level summary of the critical aspects of market analysis. First, he explains customer realities that companies often overlook, forget, or do not realize. One example is that customers do not really buy a product or a service, they buy the satisfaction or prestige that they associate with it. Another reality is that what a company believes to be irrational customer behavior is precisely what it needs to understand.

Second, Drucker expands market analysis beyond customers and markets to non-customers and non-markets. He shows the importance of understanding why non-customers buy elsewhere, how they use their discretionary time and income, and how they see reality.

This is a phenomenal chapter that should be read and then read again.

(Managing for Results, chapter 6)

“Altogether focusing resources on results is the best and most effective cost control.”

This chapter provides a cost-control strategy and several case studies. Drucker believed that executives should focus on the areas of a business that generate the most costs. He called these areas cost centers. They include sales, manufacturing, and investment. The biggest cost centers are often outside the corporation such as raw materials. Every cost center has cost points such as salesmen and materials.

To help executives see and control costs Drucker classified them into categories. For example, production costs are incurred when products are manufactured or knowledge is provided. Production costs are limited by applying the best resources to the best revenue opportunities.

Some cost categories are hard to see, such as opportunity costs. Or when capabilities are underused such as a half-filled airliner or freight ship. Recurring costs need to be reimagined and reworked.

Another hard-to-see cost, that Drucker did not identify, is under-used data. If data is consumed and stored it should be put to some purpose. It should lead to action. Otherwise, resources are wasted.

In summary, to control costs executives should focus on opportunities. They should learn how costs are connected inside and outside of the business. They should focus on cost centers and categories that generate the most costs. By controlling costs well, executives free up resources.

(Managing for Results, chapter 5)

Drucker defines eleven product categories including “Today’s breadwinners”, “Tomorrow’s breadwinners”, and “Yesterday’s breadwinners.” Today’s breadwinners are at peak performance. Resources should not be added, if anything, they should be slowly removed from the product. Tomorrow’s breadwinners are profitable and profit will increase as resources are added. Yesterday’s breadwinners are no longer profitable. Resources should be transitioned to other products.

How can one tell when a product has changed categories? If expectations for a product are not met, then it has likely changed from one to another.

When executives understand where products are in their lifecycle they can quickly determine where resources belong. For example, if an executive spots a low-input high-output product that could be tomorrow’s breadwinner, resources should be transitioned from higher-input, lower-output products, certainly away from yesterday’s products or from what Drucker called “Investments in managerial ego.”

This analysis provides a snapshot of how a business is doing.

(Managing for Results, chapter 4)

Business analysis is the subject of this chapter. Drucker explains how to “diagnose” the health of a business’s products and services. The goal is to understand which are the most valuable in terms of revenue contribution and cost share. Through this analysis, a business gains insight into what its future products may be and which ones need to be abandoned.

Interestingly, Drucker says the most profitable businesses are often smaller companies. Their narrow focus enables them to become a leader and provide better value to customers. Big companies try to do too much and they end up supporting products that are not as valuable to customers.

Finally, the most promising products and services need to be supported by the best resources.

(Managing for Results, chapter 3)

“The basic business analysis starts with an examination of the business as it is now, the business as it has been bequeathed to us by the decisions, actions, and results of the past.”

Products eventually become incongruent with market desires. This decreases business revenue and increases costs. Therefore, regular assessments are necessary.

The first step is to evaluate products, services, and accessories. Executives should ask questions. What are customers actually paying for? Do customers value the main product or an accessory? This evaluation will help executives promote the right product mix.

The second step is to assess distribution channels and markets. Are they in harmony with what is being sold? Product offerings need to be congruent with the desires and brand of the distributor. Distributors need to be in harmony with the market or else the products will fail.

Drucker told a story about a food manufacturing company that tried to sell a gourmet product to a mass audience in high-end grocery stores. It completely failed. The revenue generators–product, distributors, and markets–were incongruent.

All of this analysis should be led by an executive. If done well, leaders will understand the state of the business.

(Managing for Results, chapter 2)

“…the belief of so many companies that they could–or should–have leadership in everything within their market or industry is a major obstacle to achieving it.”

It is common knowledge that executives spend too much time on the urgent tasks of the day instead of what is truly important for tomorrow’s results. They dash, surge, and scramble. They have more to do than time to do it and they are not happy with what they do get done. Drucker understood this and offered a solution: a comprehensive and integrated strategy. One that encompasses the present and the future business. One that understands the economic realities, opportunities, and how resources should be applied.

The quote above is one economic reality. Leading in every market is fiction. An executive needs to decide what the company’s leadership area will be. This requires asking questions:

• What past or present event will make the future?
• What opportunity will I go after?
• What resources will I commit?
• How will I avoid being overcome by problems?
• What is the minimally viable way?
• What needs to be done to continually focus on opportunities?
• What are my success measures?

(Managing for Results, chapter 1)