Drucker on Leadership

New Lessons from the Father of Modern Management

William A. Cohen

• Publisher: Jossey-Bass
• Year: 2009
• ISBN:
  9780470542248
• Edition: 1
• Topic: Business
• Subtopic: Leadership
• Index: Business

Although Peter Drucker, "The Father of Modern Management, " died in 2005, his timeless teachings are studied and practiced by forward-thinking managers worldwide. His lessons and wisdom on the topic of leadership—the central element of management—are in constant demand, yet he wrote little under that actual subject heading.

In Drucker on Leadership, William A. Cohen explores Drucker's lost leadership lessons—why they are missing, what they are, why they are important, and how to apply them. As Cohen explains, Drucker was ambivalent about leadership for much of his career, making it clear that leadership was not by itself "good or desirable." While Drucker struggled with the concept of leadership, he was well aware that it had a critical impact on the accomplishment of all projects and human endeavors. There is no book from Drucker specifically dedicated to leadership, but a wealth of information about leadership can be found scattered throughout his 40 books and hundreds of articles. Drucker's teachings about leadership have saved many corporations from failure and helped guide others to outstanding success.

Many of the leadership concepts revealed in this book will surprise and perhaps shock Drucker's followers. For example, who would have thought that Peter Drucker taught that "leadership is a marketing job" or that "the best leadership lessons for business or any nonprofit organization come from the military"?

Written for anyone who values the insights of the man whose name is synonymous with excellence in management, Drucker on Leadership offers a deeper understanding of what makes an extraordinary leader.

PART ONE

The Leader’s Role in Shaping the Organization’s Future

Peter admonished us in class: “You cannot predict the future, but you can create it.” His method of creation was what we term strategic planning—a topic some senior executives ignore as an important element of leadership. Several years ago one CEO of a major corporation called his senior executives together on his ascension to the position and announced: “Gentlemen, I’m dismantling the strategic planning division and ceasing all strategic planning. I am not a believer.” Peter, however, was not only a believer, he thought that strategic planning was the foundation of all leadership. In his view, a leader’s primary responsibility was to think through the organization’s mission clearly and then to promote it throughout the organization, setting goals, priorities, and standards to measure progress along the way.

Peter emphasized that though planning, especially strategic planning, was difficult and risky, it was the first priority of the leader. He told us that strategic planning is not about making decisions in the future, since decisions could only be made now, in the present. So what we were really talking about was making decisions now to create a desired future. The idea was to reach the goals or objectives we set regardless of the environmental conditions we might later encounter, and this would require adjustments and changes along the way. It was crucial to start with the leader’s objectives derived from the definition of the mission of the organization, the answer to the question, What business are we in? Only then could we decide on the actions we needed to take now, in the present, to realize these goals in the future. And these actions incorporated the most important task: to anticipate crisis.¹

All of this had to do with a basic definition he developed for the difference between management and leadership: “Management is about doing things right; leadership is about doing the right things.” Only the leader could make the decisions as to what were “the right things,” even the right risks to take. Integrate this into a systematic process, and leaders fulfill their primary responsibility through strategic planning. The first five chapters describe what Drucker taught us about how to do this.

CHAPTER 1

The Fundamental Decision Determining the Business of the Organization

Amajor responsibility of any leader, according to Peter Drucker, is to determine the real business of an organization. I learned this lesson even before I met Drucker and became his student. I was a young manager, but although I had held management and executive titles in several business situations, I knew very little about business management. As a West Point graduate who had served in the Air Force, I knew something about leadership, but I hadn’t sufficiently applied those skills to business management.

Shortly before meeting Drucker, I became director of research and development for a small company producing life support equipment for military aviators as well as commercial airlines. The company was facing increasing difficulties resulting from the government’s purchasing policies and timing. My company would receive a contract, and when the work was complete and the product delivered, it would have to wait another year for the next contract. This made planning difficult and resulted in a continuous cycle of peaks and valleys in production, leaving us with too many or too few workers.

About 60 percent of our products went to the government, the remainder to the airlines. We had no product for the individual consumer. About every five years the president would raise this issue and arrive at essentially the same solution: develop a consumer product that would use the same machinery, workers, and materials to smooth out the peaks and valleys. Success would mean an end to this problem. Unfortunately, the result was always the same: initial enthusiasm and high hopes followed by a considerable investment, followed by failure and a big loss. Each failure apparently resulted from a different cause, so no one ever considered there might a larger issue.

One year, at our annual sales meeting, we gave each attendee a copy of Drucker’s book, Management: Tasks, Responsibilities, Practices . In it, Drucker exhorted managers to determine what business they were in. This subject was number one on the agenda, and it soon became obvious why our efforts to enter the consumer market always failed. The products had nothing to do with our core business of providing life support protection for aviators. For example, we entered the market for protective motorcycle helmets, about which we knew nothing except how to produce the helmet. It turned out that what the military valued and what the consumer valued were entirely different. Furthermore, we had no idea how to reach the motorcycle helmet consumer. In the end, the company invested a million dollars, produced a heavy, very protective but very uncomfortable and high-priced motorcycle helmet that no one wanted, and almost went bankrupt trying to introduce it.

Defining Your Business Is No Small Thing

Drucker taught that determining what business you are in is essential to creating an organization’s future, and therefore is any leader’s primary responsibility. Once that’s determined, a lot falls into place. An entire set of decisions follow naturally about how to run any organization.

Accurately defining your business automatically saves time, money, and resources that would otherwise be wasted on something that detracts from, rather than adds value to, your business. It also helps you focus on those opportunities and possibilities that are important to building your business. Just as no leader has enough resources to pursue every opportunity or avoid every threat, until you decide what business you are in, your organization will drift, no matter how effective a leader you otherwise are. This is a constant theme in management and leadership: resources of any kind are always limited. Therefore, leaders must make choices and concentrate their always limited resources where they will do the most good. This is true whether yours is a for profit business, a nonprofit organization, a government agency, or any other organization. Your staff may be striving with all their abilities to support a direction that can hurt your business simply because they don’t have a clear understanding of what the real business is or where it should be going.

Today, we call this definition a “mission statement.” Drucker’s favorite mission statement, though not recent or short, came from a very old business, Sears Roebuck. Simply stated, it was to be the informed and responsible retailer, initially for the American farmer, and later for the American family.¹ It changed Sears from a struggling mail order house, which was sometimes close to bankruptcy, to the world’s leading retailer, all within ten years.

How to Obtain Commitment to the Mission Throughout the Organization

Of course, there is only one leader, and ultimately this leader is responsible for the final mission statement and the business. That said, Peter learned much from the Japanese. He had observed an interesting difference in American and Japanese management practices. American leaders made decisions very quickly but gained little real support for their decisions from leaders at all levels, which caused many of their initiatives to fail.

Japanese leaders made decisions more slowly. This frequently frustrated American leaders negotiating with them. However, once the decision was made, the entire organization was committed to it, and supported it much more than their American counterparts.

Why was this? Drucker found that the Japanese practiced a system known as ringi, where all major decisions had to be reviewed and commented on by managers throughout the company. This could require several cycles and months of feedback and revision. However, the consensus built by ringi resulted in major commitments by leaders at all levels, who all felt ownership in the decision.

I doubt that adopting ringi in all countries would be very effective. During the Japanese management fad of the early 1980s, many U.S. firms tried it. It didn’t work. American emphasis on rapid decision making goes back to the frontier days when leaders had to make decisions quickly, and it became ingrained in our culture and the way our leaders operate.

Ideas usually cannot be imported without modification. The cultures and other aspects of leadership and management are different; therefore, that they fail without some modification shouldn’t be surprising. Even adopting simple devices may cause problems. For example, traffic signals were invented in England, although the version used today was developed in the United States. Despite their successful use elsewhere, when traffic signals were introduced in Ireland, the Irish were so outraged they actually rioted. Why? Because the red light was on top and the green light on the bottom, and to the Irish, red is the color of Britain; green, Ireland. That red was placed over green was infuriated many Irish people. The solution was to mount the traffic lights horizontally.

Although copying ringi in America didn’t work either, Drucker recognized the merit of the idea—in particular, the value of consensus for all organizations—and adapted the concept to involve subordinate leaders, but in different ways than the Japanese.

In the past, meetings attended by all managers, or at least those most relevant to the question, were used to garner consensus. Usually someone in or outside the company facilitated the process.

These days, there are many ways to incorporate shared participation in the decision making process, and these frequently involve new technologies. Glassdoor.com, an online site, allows employees to anonymously review their employers and share salary information. In its annual list of “the naughtiest and nicest chief executives” of 2008 (based on the anonymous reviews), Glassdoor picked Arthur D. Levinson, CEO of Genentech, as the “nicest.” He had an amazing 93 percent approval rating. The New York Times quoted a strategic planner at Genentech who wrote that Levinson had implemented a decision-making structure that forced authority downward to the lowest possible level in the company, which provided many opportunities to participate and exercise judgment.²

Contrary to what some think, general participation in the decision making process does not make the leader seem weak or ineffective. In fact, an early advocate of this type of approach was the most effective chief of staff the Israeli Army ever had, General Moshe Dayan, the man responsible for victory in two of his country’s major wars: the Sinai campaign of 1956 as chief of staff, and the Six Day War of 1967 as minister of defense. Observers accustomed to directive, high speed decision-making by military leaders were amazed to see Dayan make some major decisions in his staff meetings by discussion followed by a show of hands!

Why Everyone Should Be Heard

One major reason for listening to everyone as you define your mission statement is to gain commitment. Another, which goes right along with commitment, is that other leaders also have good ideas, and may know something that you do not. By hearing all, you not only gain commitment, you may avoid missing both opportunities and threats to your mission statement. Some executives are reluctant to conduct public meetings about such a major decision, either fearing criticism or that their proposed definition will be defeated. If either happened, your proposal probably should be defeated, or at least modified. As Drucker noted, when making decisions about your business, dissent is a very good thing.

Finally, as Drucker pointed out, the answer to “What is our business?” is never obvious. You need help from others on your team.

Deciding on the central issues of your business or organization with a systematic method in which all key managers participate is essential. With others in your organization focused on the same question, you as leader are far more likely to come up with the answer that makes the best sense and enables you to build your business for the future.

Of course, you need not follow General Dayan’s example and settle this issue by a show of hands. The concept can be modified and applied as necessary. Your job is not to sell your preconceived notion but to arrive at an optimal definition of your business through consensus. Do this, and you will not only sharpen the wording of your original definition, you will see everyone in the organization quickly get behind and support the business definition decided upon.

How to Answer the Question, What Is Our Business?

To formulate a definition, you need more than opinions. You must see the business from the customer’s point of view. As Drucker wrote, “The customer defines the business.”³ That means certain questions must be asked and answered. Among them:

• Who exactly is the customer?

• Where is the customer located?

• What does the customer buy and why?

• How does the customer define value?⁴

Who Exactly Is Your Customer?

Entrepreneur Joe Cossman started selling garden sprinklers—a flexible plastic hose with holes in it—mainly through supermarkets and similar outlets. One day he read that the poultry business used it to inexpensively cool poultry pens during the ho...