Peter Drucker was one of the great leaders in business management, and what has surprised me is how often his oldest books are surprisingly prescient. Many of the tidbits in this several-decade old management book are still relevant in a world of fast evolving technology.
Drucker wrote, “A knowledge economy’s biggest danger is becoming a Mandarin meritocracy … where we do not value individuals in terms of performance but credentials.”
Drucker foresaw the rise of preferring MBAs as managers who never worked in the industry over people who successfully led teams for years, especially pushing out people with 20 years of good performance as managers to put people with more credentials in place because the credential means more than the demonstrated performance. While credentials do provide a way of verifying someone is qualified to meet IT security standards, assuming the person with more credentials after their name is more qualified in general is a mistake.
“The key to productivity of knowledge workers is to make them focus on their true assignment.”
The practical implementation of this cocnept is to assign English majors to turn data into reports with some input from the engineer, instead of asking engineers to write reports that they don’t do well. Hire technical writers to write the IT manuals with some input from your IT staff, instead of assuming the top system administrators are suited to writing how-to documents.
“In post-capitalism, power comes from transmitting information to make it productive, not from hiding it … that means you have to be intolerant of intellectual arrogance.”
Drucker detested the deliberate complexity in communication that creates an “in-group language”. I heard the same thing at a TED talk talking about how scientists don’t even understand each other’s papers outside of their specialties, because you need a dictionary to understand their long lists of acronyms and each group’s unique use of common terms. The end result is silo-ing information and killing productivity. Exposure to related fields and rotating through supporting roles helps fight this trend, as does ensuring subject matter experts to write their papers and documentation in a way that doesn’t limit its value to fellow experts.
“Worse yet is the empowerment concept. It is not a great step forward to take power at the top and put it at the bottom … to build achieving organizations, you must replace power with responsibility.” Drucker compares organizations to teams, whether a soccer team where most are replaceable by others or a baseball team where everyone is specialized depends on the organization’s mission. However, in all these cases, they need a common mission and management by the coach. If players all act independently without the shared vision and regular direction, the team loses. However, each person needs to be free – and supported – to act immediately in accordance with their role. Give them responsibility so you gain responsiveness, but not a delegation of key decision making authority. And give them rewards and recognition for doing so, instead of standing there doing nothing unless yelled at.
Drucker brings up how many businesses try to reorganize and re-engineer, using processes like TQM and bench-marking, and they fail to succeed. His book states the root of the problem is that their processes are based on outdated assumptions, and more efficiently working to support processes with obsolete assumptions isn’t a success. They aren’t necessarily doing the wrong thing but the right thing ineffectively, no matter how you reorganize it, because the processes don’t fit reality.
An obvious example is making your buggy whip business more efficient to improve profit margins while people replace horses with cars. Or think of the more efficient manufacturing products for products priced as high as the market could bear, while lower priced and simpler models are flooding the market and getting snapped up. Reducing your prices 10% doesn’t help you compete against products that offer the basic functions and third of the cost customers want.
Another version of this scenario comes to services. Software as a service has exploded because companies have found it generates more regular cash flow, greater control of software upgrades and fights piracy. Freeware with support contracts for paying customers also exists. But if you offer seek to streamline your services or reorganize the IT department but don’t offer the services people want, you lose out in the marketplace.
“Assumptions about environment define what an organization is paid for. Assumptions about mission define what an organization considers to be meaningful results … assumptions about core competencies define where an organization must excel to maintain leadership.”
Determine what the business environment is, both today and many tomorrows from now, so that you can position your products to meet shifting demand and growing customer needs. Select a mission, even if it is selling subscriptions to a secure hybrid cloud service or delivering low cost business CRM software with basic functionality to small businesses. Then your goals will be based on meeting those performance criteria. Know what you do best or must do best in order to succeed, so you don’t add too many features to the product and price yourself out of the market your product was aimed for or offer too many unrelated products and services such that you ignore the products that are your mission.
Valid theories of business first must have assumptions about the environment, mission and core competencies, and these assumptions must fit reality. Too many businesses and government policies have failed when they projected unrealistic growth and planned around it.
Second, assumptions in all three areas must fit each other. Your business theory must work with the real world and technologies or the technologies you can reasonably create, for which there is demand and your competencies fit the products and services you intend to deliver. Third, your theory of business must be known and understood throughout the organization. Then people will be able to check ideas for new products against that vision and understand when management says “no” or drops failing initiatives. And they will focus their efforts to achieving what the business considers most important.
The theory of business must be tested constantly, whether seeing if your core competencies must shift, failing products need to be dropped, or core product and service delivery need to be made more efficient. IBM and several other big companies have shifted from hardware delivery to software or IT services delivery, though their goal is still supporting their computing customers. Any such shift must be supported by people capable of delivering it. And abandon what is failing instead of putting your best people in sinking projects and product lines to try to keep them going a little longer. This is the original version of the mantra “fail faster”.