THE JOURNAL OF LEADERSHIP APPLICATIONS
Vol. 7, No. 10
(626) 350-1500 Ext 102
“Extraordinary achievements demand extraordinary leaders.“
Recent Linked Articles by Dr. Cohen not Published in the Journal of Leadership Applications:
Peter Drucker’s Path to Creating an Engaged Worker from Human Resources IQ
The Seven Deadly Sins of Leadership from Human Resources IQ
Integrity is Not About Profit from Human Resources IQ
Tough Times from Leadership Excellence
Making the Fundamental Decision of the Organization
© 2009 William A. Cohen, PhD
From the Forthcoming Book Drucker on Leadership to be published by Jossey-Bass in November 2009
Peter Drucker placed an enormous emphasis on determining the real business of an organization. He saw this as a major responsibility of any leader. It was one of the first lessons I learned from Drucker, and I learned this lesson even before I met him and became his student. In those days, I was a young manager, but one who knew very little about business management though I actually had management and executive titles in several business situations. Being a West Point graduate, and having served in the Air Force, I knew something about leadership. But I hadn’t thought much about how these skills might be applied 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 and the airlines. While I was getting things organized in research and development, the company began to run into increasing difficulties due to the U.S. Government’s purchasing policies which were dependent on its fiscal year and its approval of funds for the coming year. The Government received this approval for funds expenditure once a year. It would go on contract and give my company work. When the work was complete and the product delivered, we had to wait for another year for the next contract. As a result, our workload was a continuous cycle of peaks and valleys in production. Among other difficulties, we always had too many or too few workers.
About 60% of our products were for the Government, the other 40% was for the airlines. We had no product for the individual consumer. Every five years or so the president would look at this issue and arrive at essentially the same solution: get a consumer product to smooth out the peaks and valleys. We could use the same machinery, workers, and materials. A successful result would mean the end of this problem. Unfortunately, the result was always the same. At project initiation there was much enthusiasm and high hopes followed by a considerable investment, and then ultimate failure with a big loss. Each time the failure was apparently due to a different reason, and no one ever figured out that maybe a larger issue was causing things to go awry. However, the result was always failure.
One year we had the annual sales meeting and it was decided that the company would present a copy of Drucker’s book, Management: Tasks, Responsibilities, Practices to each attendee. In the book Drucker exhorted managers to determine what business they were in first. This subject was number one on the agenda for our meeting, and a lengthy discussion followed its introduction. It soon became obvious why our efforts at getting into one consumer market or another always failed. The consumer market had nothing to do with our business of providing life support protection for aviators. For example, at one point the company had decided to enter the commercial market for motorcycle protective helmets, about which we knew nothing. Sure we knew how to produce a protective helmet. We were doing that for aviators. But motorcycle helmets were different. What was considered value to the consumer was different. The consumer valued light weigh and comfort and then price. For the military, it was protection, and the government, not the user, paid the cost of this protection. We didn’t even know how to reach the consumer of the motorcycle helmet product. The end result was that the company invested a million dollars, produced a heavy, very protective, but very uncomfortable and high-priced, motorcycle helmet that no one wanted, and the company not only lost money, but almost went bankrupt trying to introduce this new product line.
What Business You Are in is no Small Thing
Determining what business you are in is the top rung in creating an organization’s future, and Drucker knew and taught that it was a primary responsibility of any leader. Once you determine this one aspect about your business, a lot falls into place. An entire set of decisions follow naturally as to how to run any organization. Accurately defining your business will automatically save your wasting time, money and resources on something which detracts rather than adds value to your business. At the same time it will help you to focus on those opportunities and possibilities that are important to building your business. Until you decide what business you are in your organization will drift, no matter how effective a leader you are in other ways. It is akin to a constant theme in management and leadership, and that is that resources of any kind are always limited. No leader has enough to pursue every opportunity, or even to avoid every threat to his or her business. Therefore, you must pick and choose and concentrate these always limited resources where they will do the most good. This can only be accomplished after you decide what you are really about: what business you are in — and this is true of the leader of a for-profit business, a non-profit organization, or any organization at all. Without this important definition a good many members of the organization may be striving with all their abilities in support of a direction that can hurt your business rather than help it simply because they don’t have a clear understanding of what the real business is or where it should be going.
Nowadays, we speak of what business we are in primarily as a “mission statement.” Drucker had a favorite mission statement. Although mission statements are for all types of organizations, not just businesses, Drucker’s favorite was from a very old business. But this mission statement, though not recent and very short, almost a one-liner, was his favorite for a very important reason. It changed Sears Roebuck from a struggling mail order house which was sometimes close to bankruptcy to the world’s leading retailer, all within ten years. Simply stated, it was to be the informed and responsible buyer first for the American famer, and later for the American family.1
Who Does the Deciding?
Of course there is only one leader, and ultimately it is this leader’s responsibility for the final decision as to the mission statement and deciding on the business. Having said this, Peter learned much from the Japanese. Peter had observed an interesting phenomenon which contrasted American and Japanese management practices. American leaders made decisions very quickly, but they gained little real support for their decisions in the organization. This cause many of their initiatives to fail for no other reason than lack of support by leaders at all levels.
Japanese leaders made decisions much slower. This frequently frustrated American leaders negotiating with them. However, once the decision was made, the entire organization was committed to these decisions and supported them to a much greater extent than leaders were able to gain general support for their decisions in American companies.
Why was this? Drucker found that the Japanese practiced a system known as “ringi.” In ringi all major decisions had to be reviewed and commented on by managers through out the company. This could require several cycles and months of feedback and revision. However, once the decision was finalized the consensus built by “ringi’ resulted in major commitments by leaders at all levels of the organization because they all felt ownership in the decision.
I doubt whether adopting ringi for leaders in all countries would be very effective. As a matter of fact, this was tried in the U.S. during the Japanese management fad of the early 1980’s. It didn’t work. However, as is true of many ideas originating elsewhere, they cannot usually be copied in whole cloth. The cultures and others aspects of leadership and management are different, and that they fail without some modification shouldn’t be surprising. American emphasis on rapid decision making by leaders goes back to the frontier days of America. Ours was a country in formation, not centuries old like Japan. It was important for leaders to make decisions quickly, in some cases on-the-spot, and this became ingrained into our culture and how we operate as leaders.
Even the adoption of simple devices may cause problems when the application is to another culture. Traffic signals were invented in England, but the version in use today was developed in the U.S. and first used in 1912. This was a worthy invention and there were no difficulties with it until the traffic signal was introduced into Ireland. In Ireland people were outraged and use of traffics signals which had been so successful elsewhere actually caused riots. This was for the simple reason that the red light was on top and the green light on the bottom. These are the conventional locations for the two lights, and not at all noteworthy in any other country; that is, except Ireland. Red is the color of Britain; green, Ireland. Seeing the red color placed over the green in Ireland itself was considered a national insult and it infuriated many Irishmen. The solution which finally worked at the time of introduction was to mount the traffic lights horizontally. Simply copying ringi in America didn’t work either. However Drucker recognized the merit of the idea and realized that consensus was valuable for all organizations. Drucker adapted the concept without ringi. We do this by involving subordinate leaders in different ways than the Japanese.
Once getting others involved was accomplished exclusively through meetings attended by all managers, or at least those most relevant to the question. Usually someone was brought in to facilitate the process. Sometimes this was an outside facilitator, sometimes not. Frequently this commitment is demonstrated by not only being present and participating, but by running the discussion. However, this isn’t always necessary. There are many ways of incorporating a shared participation in the decision making process.
Glassdoor.com, an online site which allows employees to anonymously review their employers and share salary information picked Arthur D. Levinson, CEO of the Silicon Valley biotech company, Genentech as its “nicest” in its annual list of “the naughtiest and nicest chief executives” of 2008 based on these anonymous reviews. He has an amazing 93 percent approval rating. The New York Times quoted a strategic planner at Genentech who had written that Levinson had implemented a decision-making structure that forced authority downward to the lowest possible level in the company. This in turn provided many opportunities to participate and exercise one’s judgment.2
If you think that this type of general participation in this basic decision leads to the leader being seen as weak or ineffective in practice, you would be mistaken. An early advocate of this type of approach was the most effective Chief of Staff that the Israeli Army ever had. General Moshe Dayan assumed his position prior to his fortieth birthday, yet he was 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. In both wars his army attacked against enemies superior in numbers, resources, and equipment. Observers accustomed to directive, high speed decision-making by military leaders the world over were amazed to see Dayan make some major decisions in his staff meetings by discussion followed by a show of hands!
Why It is Important for All to Be Heard
You’ve already seen one major reason for hearing from everyone: to gain commitment. Another reason goes right along with commitment. Other leaders in the company have good ideas, too, and may in fact know something that you do not. So by hearing all, you not only gain commitment to the final outcome of asking this question, you can avoid missing both opportunities and threats in your business definition. Unfortunately, some executives are reluctant to conduct public meetings of such a major question. They are concerned with being criticized or that their own proposal in answer to this question will be defeated. However, if this is the case, in all likelihood your definition should be defeated, or at least modified. Drucker noted that for the purpose of deciding on your business, dissent is a very good thing.
Finally, as Drucker pointed out, the answer to the question “What is our business” is never obvious. You need help from others on your team. Many universities define themselves as either “teaching” or “research” schools. As for the teaching schools, one can simply look at the records of those granted tenure and promotion as professors. Although three components are almost always considered: teaching, research, and service, the only one that really counts is research, and not teaching. In most, a professor can be a poor to average teacher, in an acclaimed “teaching school,” do minimum service, whatever service means at that university, and still gain tenure and promotion so long as the professor is a good researcher and publishes that research.
But, the research schools are no better in this regard, and maybe worse, because the central issue as seen by the customer in any college or university is not teaching, or research. The customer, of course, is the student, and for the student, learning and graduating in the easiest and quickest way possible is what is most valued. This is why education over the Internet has grown and is growing at 200-300% per year and why even some of our most prestigious universities offer courses, or in some cases entire degrees, online. Harvard and Stanford both offer online courses for academic credit, and Boston University offers an entire doctorate degree over the Internet.
It may seem trivial whether others participate or not in this decision, but it is not. Deciding on the central issues of one’s 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 will enable you to build your business for the future.
Of course you need not follow General Dayan’s example and settle this issue by voting and a show of hands. It is the concept that must be modified as necessary, and applied. Your job is not to sell your preconceived notion of what your organization’s business is, but to arrive at an optimal definition of your business to which all will arrive through consensus. Do this, and not only will you be amazed at how you have sharpened the wording of your original definition, but also of the commitment and the speed with which everyone in the organization gets behind and supports the business definition decided upon.
How to Answer the Question: “What is Our Business?”
Once you have everyone together, you want more than just opinions. You must see the business from the customer’s point of view. As Drucker wrote: “The customer defines the business.”3 So you have certain questions you need to ask and answer in order to do the analysis that leads to a complete definition and answers your question “What is our business?”
· Who exactly is the customer?
· Where is the customer located?
· What does the customer buy?
· What does the customer consider to be value?4
Who Exactly is Our Customer?
Entrepreneur Joe Cossman started selling garden sprinklers that consist of a flexible plastic hose with holes in it. He sold mainly through supermarkets and similar outlets. One day he read that his hose was being used in the poultry business as an inexpensive way to cool poultry pens during the hot summer months. This caused him to redefine his business and open an entirely new market for his product.
Many businesses don’t track their sales, or if they do, they make little use of the information to analyze and define, or redefine, if necessary, their business and to ensure that both the product itself and how it is sold supports the definition of their customer.
Where is Our Customer Located?
Why is this so complex a question, it’s hard to fathom. Again it’s primarily an issue of keeping track of our sales and the trends associated with them and what this means. Drucker pointed out that in the 1920’s, Sears Roebuck successful redefined its mission when it defined its customer as the American farmer. It constructed its catalogue according to this definition. These and other customers were reached mainly by catalogue. Years later in 1993 Sears quit using the catalog when it saw that the nature of retailing had changed to a significant degree due to customer relocation to cities such that mail order catalogues were of far less importance.
It is interesting to note that it was Aaron Ward at rival Montgomery Ward who first introduced the mail order catalogue in 1872. It was a single sheet of paper plus a price list. At its height Montgomery Ward was one of the largest retailers in the country, originally all through the mail. It was said that every farmer owned two books, both of which were prominently displayed. One was the Holy Bible, and the other was the Montgomery Ward catalog. However, times change. The two rivals diverged beginning around the time of World War II. Montgomery Ward never redefined its business until it was too late and the original business ceased operations completely in 2001-2002 although four years later, the name was purchased and so though Montgomery Ward still it exists, but it is not the original,5 becoming an important cautionary tale for defining who our customer is.
What Does the Customer Buy and Why?
Some years ago Falstaff beer, a popular beer in the East attempted to expand into the lucrative California market. Early attempts failed although blind taste tests confirmed that the brand was exactly what the Californians wanted. The error was in the advertising, not the product, which did not properly promote the qualities of beer desired by the customer in this market.
Of course in the mid-1980’s Coca Cola made a similar and grander mistake on a national level when it attempted to new introduce “New Coke” in response to “The Pepsi Challenge” which was slowly eroding Coke’s market. To much fanfare Coke introduced “New Coke” as sort of a revolutionary soft drink. They had carefully conducted blind taste tests and formulated a product which was consistently preferred over either its own original product or that of its rival, Pepsi Cola.
The problem was that taste was not why customers bought Coke. It was its image. It represented America as much an icon as Mom, Apple Pie, and John Wayne. With this market, “Coca Cola’s campaign of the “The Real Thing” resonated. America rebelled in mass against “New Coke” which appeared not to be “the Real Thing.” Eventually Coke surrendered and old Coke was billed as “Classic Coke” and eventually “New Coke” was quietly withdrawn from the market. The strange thing was that even blind taste tests proved that Americans really liked the taste of “New Coke,” although most really couldn’t tell the difference between specific brands. In one famous blind taste test conducted before several million viewers on television, one of the leaders of the rebellion and campaign against New Coke identified Pepsi Cola as his one and only “old Coke.”
When Should You Ask the Question: What Business are we In?
Most leaders don’t ask this question at all, or if they do so it is usually only when they get into trouble, and then it is too late. A smart leader will keep asking this question when the business is formed and then periodically and not wait until the situation is critical. Waiting too long is somewhat like a doctor who is approached by a patient only when it is too late for a cure. For a variety of reasons the nature of life is change which we will examine more closely in a future chapter. Interestingly the presidential election of 2008 revolved around this very word. In order that trends are spotted and addressed before it becomes too late to take advantage of opportunities or avoid threats, it is wise to do this once a year formally, and even more frequently informally, and on your own, if you are the organization’s leader.
Drucker’s Concepts on Making the Fundamental Decision as to the
Business of the Organization:
· This is a primary responsibility of the leader
· The terrain is littered with organizations that failed to do this until it was too late
· The leader shouldn’t make this decision alone but together with other relevant organizational leaders
· To analyze and get to the right answer to the question “What is Our Business” you must answer the following questions first: Who exactly is the customer? Where is the customer located? What does the customer buy? What does the customer consider to be value?
1 Drucker, Peter F. Managing the Nonprofit Organization (New York: Harper Collins, Publishers, 1990) p.4.
2 Claire Cain Miller, “Glassdoor.com Lists Naughtiest and Nicest C.E.O.’s of 2008,” The New York Times Technology, December 26, 2008, Accessed at http://bits.blogs.nytimes.com/2008/12/26/which-ceos-were-naughty-and-nice-in-2008/?scp=1&sq=best%20CEOS%20to%20work%20for&st=cse , December 27, 2008.
3 Peter F. Drucker, Management: Tasks, Responsibilities, Practices ( New York: Harper & Row, Publishers, Inc., 1974, 1974) p. 79.
4 Ibid pgs. 80-86.
5 No author listed, “Montgomery Ward,” Wikipedia, Accessed at http://en.wikipedia.org/wiki/Montgomery_Ward , May 5, 2008.
6Peter F. Drucker, Management: Tasks, Responsibilities, Practices ( New York: Harper & Row, Publishers, Inc., 1974, 1974) p. 79.
7 Ibid pgs. 80-86.
THIS IS WHAT THEY’RE SAYING ABOUT THE BOOK
Bill Cohen’s Drucker on Leadership is the best collection of Peter Drucker’s unique insights, deep wisdom, and practical advice I have ever read. Cohen channels Drucker as only a three decades-long colleague and student can. You will find the lessons highly accessible, immensely enjoyable, and wonderfully fresh. – Jim Kouzes, Award-winning co-author of the bestselling, The Leadership Challenge
Cohen has written with clarity and authority about the major challenges facing leaders today. And Cohen, like Drucker, emphasizes responsibility and integrity in leadership, qualities so desperately needed today. I strongly recommend this book to you. – Joseph A. Maciariello, Horton Professor of Management, Peter F. Drucker and Masatoshi Ito Graduate School of Management and Co-Author of The Daily Drucker by Peter F. Drucker and Management by Peter F. Drucker
Cohen’s unique relationship with Peter Drucker, as student and friend, allows him to extract valuable leadership lessons from Drucker’s writings and teachings on management. Bill Cohen’s “labor of love” provides the essential lessons for leaders straight from the Father of Modern Management. – Ronald E. Riggio, Henry R. Kravis Professor of Leadership and Organizational Psychology, and director of the Kravis Leadership Institute at Claremont McKenna College
For those who aspire to lead – and we need a new generation of Drucker— like leaders in organizations in every country around the world — Bill Cohen distills the essential leadership lessons from the world’s greatest management thinker. – Ira A. Jackson, Dean and Professor of Management, Peter F. Drucker and Masatoshi Ito Graduate School of Management
Through a blend of anecdote and analysis, Bill Cohen has given us great insight into Peter Drucker’s thinking on leadership—an aspect of Drucker’s work that many have misconstrued or overlooked altogether. This is a new prism through which to view Drucker and, as such, a valuable contribution to the field. – Rick Wartzman, Executive Director, The Drucker Institute
What Cohen learned as Peter Drucker’s student, and their personal relationship afterwards, changed Bill’s life. Reading Drucker on Leadership will change the way you look at and apply leadership forever. – Bruce Rosenstein, author of Living in More Than One World: How Peter Drucker’s Wisdom Can Inspire and Transform Your Life
I read Dr. Cohen’s books in Chinese, and with the help of a translator, reviewed a draft of Drucker on Leadership in English. Peter F. Drucker helped me found the Peter F. Drucker Academy in China. It was a pleasure to see his concepts and what he instructed me brought together in one place and explained so that they could be applied by any executive. This is a valuable and useful book. – Minglo Shao, Chairman and CEO of the Bright China Group, Founder of the Peter F. Drucker Academy
For more information, contact me directly by e-mail at firstname.lastname@example.org or telephone (626) 794-5998. Yes we do give international seminars — The U.S. country code is 01.
THIS MONTH’S THOUGHT FOR LEADERS
What business are you in?
– Peter F. Drucker