Drucker Institute Recently Published

Drucker's Question: What Will You Do Differently on Monday?

Fri, 05 Feb 2010 00:00:00 PST

Over the course of his long career, Peter Drucker headlined countless conferences and huddled with untold groups of executives — corporate chiefs, nonprofit leaders, and government officials who hung on his every word. But he would have been the first to question whether any of these gatherings amounted to much in the end. "One either meets or one works," Drucker wrote — an observation that seems particularly timely following last week's World Economic Forum in Davos, Switzerland. "One cannot do both at the same time."

It was with this in mind, perhaps, that Drucker liked to challenge his consulting clients: "Don't tell me you had a wonderful meeting with me. "Tell me what you're going to do on Monday that's different."

The Drucker Institute at Claremont Graduate University, which I run, hosted a CEO Forum last October with about 30 participants from the business world, social sector, and academic community. And from the beginning, we were determined to make sure that the event reflected Drucker's steadfast desire to turn ideas into action.

The forum — which revolved around former Procter & Gamble Chairman A.G. Lafley's HBR piece "What Only the CEO Can Do" — generated a host of fascinating insights into four areas: shaping the values and standards of organizations; defining and interpreting "the meaningful outside"; determining which business you're in — and which you're not; and balancing yield in the present with investments in the future.

In an earlier blog posting, HBR's Ellen Peebles noted the tremendous level of passion on display at the session, especially around the issue of social responsibility. For those of us at the Drucker Institute, though, the ultimate question was: Did any of the participants actually make good on Lafley's repeated reminders to follow Drucker's do-something-on-Monday dictum?

The short answer: Absolutely.

While we didn't attempt to conduct a scientific survey, my colleagues and I were thrilled to discover that all four of those we contacted — Costco CEO Jim Sinegal, Macy's CEO Terry Lundgren, Teach for America CEO Wendy Kopp, and Lafley himself — had, in fact, gone out and done something different because of what they'd heard at the forum.

Lafley, for instance, was inspired by the discussion in Claremont to review P&G's capital spending and product commercialization plans to ensure that the company was investing appropriately in its mid- and long-term growth. In addition, he committed to monthly talent reviews to make certain that P&G is developing the leaders it needs for the future.

Meanwhile, Sinegal drew on the forum's exploration of corporate values to think through a pay raise for the bulk of his company's frontline workers. "Because of the downturn, our employees are having a tough time," he says. "They deserve a pay increase. Even though it would be painful as a retail business at this moment to approve one, the unfair thing would be not to give them an increase."

As Sinegal explains it, most of the conversation he had on the matter with Costco's executive committee revolved around the size of the boost. "At one point, a person in the meeting stopped and said, 'That says something about our culture right there. All our attention is not on the question of whether to approve an increase, but on how big it should be.'"

Kopp, for her part, also zeroed in on culture. Inspired by a McKinsey & Co. program described at the forum by the firm's former managing director, Rajat Gupta, Teach for America has now embarked on a formal effort to convert its core values into practice among a new generation of managers. Says Kopp: "We are engaging our whole organization in reflecting on what about our current values is most crucial to succeeding in our long-term plan; what the unintended consequences of our values might be; and what other core principles might be missing that might be important."

As for Lundgren, he came out of the forum focused more than ever on Macy's customers. "I need to shift my time and attention to really put a significant amount of my energy and words and visibility behind becoming the 'chief customer officer' of the company," he says. "Whatever we've done in providing customer service has been adequate, but not differentiating. We need customer service to be our differentiator." In recent weeks, Lundgren has visited Macy's stores in more than two dozen cities to spread this new customer-is-king gospel.

So, how about you? What's the best idea that you ever took away from a conference or symposium that you actually acted upon? What's your Monday moment?

Insourcing and Outsourcing: the Right Mix

Fri, 05 Feb 2010 00:00:00 PST

Admittedly, it's not Cooperstown. But about a year ago, Peter Drucker received a major posthumous honor when he was inducted into the Outsourcing Hall of Fame—recognition of his having helped ignite the field with his 1989 article Sell the Mailroom.

Yet ever since, it has been hard not to notice that the flip side of the equation—the insourcing of activities—seems to be getting renewed attention. And Drucker, his election to the Hall of Fame notwithstanding, would have been the first to praise the shift.

"In some areas we have outsourced too much," General Electric (GE) CEO Jeffrey Immelt acknowledged in a speech last summer as he announced plans to open a new manufacturing research center outside Detroit that will create more than 1,000 jobs. Shortly after Immelt made his remarks, Boeing (BA) acquired a South Carolina factory from one of its key suppliers, Vought Aircraft Industries. Bringing the facility in-house, Boeing said, would help "accelerate productivity and efficiency improvements" on its much-troubled 787 Dreamliner jet program.

An In-House Chip

Meanwhile, the latest high-profile example of doing things under one's own roof came last week when Apple (AAPL) unveiled its iPad touch-screen tablet computer. What many analysts quickly seized on was that Apple had designed the guts of the device, a semiconductor called the A4, instead of turning to a chip supplier such as Intel (INTC). During the product's introduction, Apple CEO Steve Jobs even crowed about the company's "custom silicon."

Notoriously tight-lipped, Apple hasn't said a whole lot else about the A4, and reviews of the technology have been mixed. But the company clearly believes that having its own chip provides an edge—an optimal balance between battery life and speed, perhaps—that will allow it, in Drucker's words, "to create a customer."

"Leadership" in any industry, Drucker wrote, "rests on being able to do something others cannot do at all or find difficult to do even poorly. It rests on core competencies that meld market or consumer value with a special ability" that the business possesses.

Avenues for Advancement

As Drucker saw it, the only areas a company should farm out are those in which it demonstrates no "special ability." And in these cases, it shouldn't hesitate to outsource at all. Drucker thought this made good economic sense and also considered contracting out an important social innovation—especially for service workers who are hungering to find pathways for advancement.

If "clerical, maintenance, and support work" are undertaken by an outside vendor, "it can offer opportunities, respect, and visibility," Drucker explained in his 1989 piece, which appeared in The Wall Street Journal (NWS). "As employees of a college, managers of student dining will never be anything but subordinates. In an independent catering company they can rise to be vice president in charge of feeding the students in a dozen schools; they might even become CEOs of their firms. If they have a problem, there is a knowledgeable person in their own firm to get help from. If they discover how to do the job better or how to improve the equipment, they are welcomed and listened to."

Notably, Drucker didn't call for outsourcing only the drudgery. He suggested that knowledge work—such as that performed by a quality-control specialist—was ripe for the same kind of treatment. In short, "you should outsource everything for which there is no career track that could lead into senior management," Drucker advised.

Not Just For Cutting Costs

But as keen as he was on the concept, Drucker also recognized that outsourcing was not without its pitfalls. Most serious of all, he warned, were the "substantial social repercussions" that would result "if large numbers of people cease to be employees of the organization for which they actually work."

Beyond that, Drucker anticipated dangers for the company itself. Many corporations, of course, have become quite sophisticated at managing their supply chains. But plenty of others still see outsourcing primarily as a blunt instrument to cut costs—a limited perspective that Drucker labeled "a delusion."

A company's real aim, Drucker said, should be to enhance effectiveness, not to try to lower expenses. (Drucker maintained that outsourcing, properly executed, might even increase costs.)

To that end, he added, the overriding question for executives is, "Where do activities belong?" Inside the company's walls? Or outside its doors? Or should they be reorganized as part of a joint venture or some other type of alliance? The answer isn't always so obvious.

To illustrate the point, Drucker cited a top manufacturer of consumer goods. For a time, the company assumed that the more it manufactured itself, the better. But on closer analysis, it decided to outsource its final assembly to a host of suppliers. At the same time, Drucker related, the company asserted greater control over other aspects of its operations, insourcing basic compounds to achieve higher quality.

The lesson in all this: Structure should follow strategy. Or, as Apple has shown, the last thing you want to do is outsource simply because it may save you a little money in the short run—and then just let the chips fall where they may.

A Lesson in Performance Metrics

Fri, 22 Jan 2010 00:00:00 PST

In calling last week for wholesale changes to the way public school teachers are evaluated, American Federation of Teachers President Randi Weingarten noted that her union had developed its plan in conjunction with some of the nation's leading authorities in the field, including Harvard researchers Susan Moore Johnson and Thomas Kane. But it was hard not to feel in her bold remarks the spirit of another longtime educator: Peter Drucker.

For years, Drucker warned that, in a knowledge economy, there was no choice but to take the kinds of steps that Weingarten is now urging to measure the quality of classroom instruction and, where necessary, to remove bad teachers.

"Schools are…becoming much too important not to be held accountable—for thinking through what their results should be, as well as for their performance in attaining these results," Drucker wrote in his 1993 book Post-Capitalist Society. "To be sure, different school systems will give different answers to these questions. But every school system and every school will soon be required to ask them, and to take them seriously."

Yet Drucker would have appreciated another truth reflected in Weingarten's National Press Club speech: the inherent complexity in devising a measurement framework that is fair and focused on the right things.

Indeed, one might broadly interpret Weingarten's push to make use of "good and meaningful data" as an imperative not just for our sick schools but also for any enterprise. The truth is, no matter what sector they're in, relatively few organizations define and measure results very well.

"A Tool of Control"

For starters, too many corporations, nonprofits, and government agencies fail to look at metrics as resources that employees should use to improve their performances. Instead, the boss mainly wields them to criticize and penalize. "As long as measurements are abused as a tool of control," Drucker asserted, "measuring will remain the weakest area" for most managers.

Even finding the right mix of measures is tricky. In his 1973 classic, Management: Tasks, Responsibilities, Practices, Drucker pointed out that many businesses use annual return on investment as a key determinant in judging success. He then went on to tell the story of a chemical company that failed to develop a much-anticipated new product for three years. When pressed on why there was such a delay, the executive in charge fessed up: "My entire management group gets its main income from a bonus geared to return on investment. The new product is the future of this business. But for five or eight years there will be only investment and no return. I know we are three years late. But do you really expect me to take the bread out of the mouths of my closest associates?"

Today, teachers are typically evaluated when an administrator makes a quick-and-dirty visit to the classroom once a year—a method that sheds little light on what's actually happening day to day and gives high marks to too many mediocre educators. In her address, Weingarten advocated a far more comprehensive approach: classroom observations, self-evaluations, appraisals of lesson plans, portfolio reviews, rigorous assessments of student work, and test scores that demonstrate real growth throughout the year.

Meeting the Mission

Drucker would have undoubtedly been impressed by Weingarten's instinct to collect both quantitative and qualitative data. "These two types of measures are interwoven—they shed light on one another," he wrote.

But there is also a danger here. Lots of executives get so caught up in counting this and analyzing that—often rolling out fancy IT systems to capture a whole host of numbers and other indicators—they forget that any measurement is at best meaningless and at worst counterproductive if it's not done in the service of helping the organization meet its mission.

Implicit in this notion, of course, is that the organization has a clearly articulated mission that it fully embraces—what Drucker described as its "purpose and very reason for being." Many do not.

"Finding the right metric has a lot less to do with technology than it does with the culture of the organization," says strategy consultant Howard Dresner. "The question is: What are the right metrics that will reinforce the right behavior?"

Teachers Teaching Managers

In his book The Performance Management Revolution, Dresner compares the data that most companies generate to what appears on a scoreboard at a sporting event: "It doesn't tell spectators anything about the play action that led to the teams achieving that score. It doesn't provide any information to the coach of the trailing team that would help it catch up and overtake its opponent. It doesn't tell individual players what they can do to play better for the remainder of the game." What's missing is context.

To her credit, Weingarten is envisioning an evaluation process that doesn't lose sight of the big picture. "We propose rigorous reviews by trained expert and peer evaluators and principals, based on professional teaching standards, best practices, and student achievement," she said. "The goal is to lift whole schools and systems: to help promising teachers improve, to enable good teachers to become great, and to identify those teachers who shouldn't be in the classroom at all."

If Weingarten and the teachers' union reach their aims—and given the depth of the challenge and the politics involved, it's far from certain that they can—they will do no less than lift the fortunes of millions and millions of young people. Nothing could be more crucial for the health of society. But there would be a pretty nifty side benefit, as well: By measuring results so skillfully, the teachers would provide a powerful lesson for managers everywhere.

Big Solutions Should Start Small

Fri, 08 Jan 2010 00:00:00 PST

Even if Harry and Louise hadn't killed off President Clinton's health-care reform initiative in the planning stages, Peter Drucker believed it would have been doomed in practice by two other culprits: enormity and complexity.

"You have to start small," Drucker remarked during a 1996 interview, as he zeroed in on "the problem" with ClintonCare. "The big cure-alls never work."

It is this very insight that likely would have made Drucker a fan of the historic health-care legislation that Congress is in the final stages of passing. And it is an insight that managers far beyond the medical world should take note of, as it applies to practically every kind of organization.

The notion that the health-care package now on Capitol Hill is, in fact, based on a "start small" paradigm has gained currency in recent weeks, thanks to the publication in The New Yorker of a compelling article by Atul Gawande, a Boston surgeon and former Clinton adviser. Despite all the critics who have warned of a "big government" takeover of medicine, Gawande points out that nearly half the 2,000-plus pages in the Senate health-care bill are devoted to relatively small-gauge pilot programs that would "test various ways to curb costs and increase quality."

Avoiding Grandiosity

"There is a pilot program to increase payments for doctors who deliver high-quality care at lower cost, while reducing payments for those who deliver low-quality care at higher cost," Gawande writes. "There's a program that would pay bonuses to hospitals that improve patient results after heart failure, pneumonia, and surgery. There's a program that would impose financial penalties on institutions with high rates of infections transmitted by health-care workers. Still another would test a system of penalties and rewards scaled to the quality of home health and rehabilitation care. Other experiments try moving medicine away from fee-for-service payment altogether."

It seems counterintuitive, in some respects, to take on a gargantuan task by trying a little of this and a little of that. But Drucker taught that this is the only way for a potential game-changer to get off the ground. "Grandiose ideas for things that will 'revolutionize an industry' are unlikely to work," Drucker asserted. At another point, while discussing the development of education policy, he put it like this: "We need innovation; therefore, we need experimentation."

Bill Pollard, the chairman emeritus of ServiceMaster, a pest-control, lawn care, and housecleaning company, says that one of the most valuable lessons he ever learned from Drucker was that "the potential for the new always requires testing and piloting."

"Worth Doing Poorly"

"For a new idea to be successful, it must get off the drawing board and beyond a market analysis or focus study group," explains Pollard, a Drucker consulting client and close friend. "It's important to get started—to start servicing a few customers to learn from the practical application of an idea. Ideas can be studied and analyzed until they are suffocated. If a thing is worth doing, it is worth doing poorly to begin with … to learn from experience."

Of course, truly learning from experience takes real effort. Drucker stressed that every new endeavor must have built into it from the beginning carefully considered tools for flagging when an undertaking has gone off course and isn't likely to pan out.

At the same time, Drucker made clear that such assessments must not become too sharply focused on what's broken. "The first aim," Drucker wrote, "is to find out what we are doing well, for one can always go ahead and do more of the same, even if we usually do not have the slightest idea why we are doing well in a given area."

In his piece, Gawande makes the case for advancement through trial and error by tracing how a series of U.S. Agriculture Dept. pilot programs revolutionized farming in the early 20th century. "What seemed like a hodgepodge eventually cohered into a whole," Gawande reports. "The government never took over agriculture, but the government didn't leave it alone, either. It shaped a feedback loop of experiment and learning and encouragement for farmers across the country." The result: Food prices tumbled while productivity and quality soared.

Pilot Testing the New Deal

Drucker, for his part, drew similarly on history. He concluded that the parts of President Franklin D. Roosevelt's agenda that fared the worst—including, for instance, the National Recovery Administration—started out as overly ambitious conceits that spanned the country. By contrast, Drucker said, "it is no coincidence that practically all successful New Deal programs had been pilot tested as small-scale experiments in states and cities over the preceding 20 years—in Wisconsin, New York City, or elsewhere in New York State, or by one of the Chicago reform administrations."

Drucker certainly understood the limits of the federal government and would have insisted that the actual implementation of these pilot programs and any follow-ons be left, wherever possible, to local agencies, nonprofits, and businesses. As the saying goes, Uncle Sam has to steer more and row less.

Yet interestingly, Drucker also discerned the seeds of what Gawande just wrote about, commenting in that 1996 interview: "The outline of a new American health-care system is slowly emerging out of literally hundreds of local experiments."

If health-care reform becomes law and more of these pilot projects reach full flower, maybe we'll hear a different—and more uplifting—watchword coming out of Washington: It's too small to fail.

Peter Drucker's revolutionary teachings decades old but still fresh

Thu, 31 Dec 2009 00:00:00 PST

The mark of a truly revolutionary thinker is that his revolution has to be fought anew in every generation.

That's the case with Peter F. Drucker, whose teachings on business management retain their startling wisdom four years after his death at the age of 95 and seven decades after the publication of his first book -- the first of 39.

This year was the centenary of Peter Drucker's birth. It wouldn't be right to let the year expire without reviewing how his ideas apply to business today.

As is true with every revolutionary thinker, Drucker's most enduring ideas contradict conventional wisdom. That's why business leaders need to relearn his lessons every few years, and that's why his insights seem perennially fresh.

Forbes put its finger on the phenomenon with its headline on a 1997 cover story about Drucker: "Still the youngest mind." Drucker was then 87.

Born in Vienna on Nov. 19, 1909, Drucker joined a London investment firm upon Hitler's rise to power, then immigrated to the United States in 1937. After teaching politics and philosophy at Bennington College, he moved to the graduate business school of New York University, where he stayed 20 years, and subsequently to Claremont Graduate University, where he held a professorship from 1971 nearly until his death.

Drucker's most important insight concerned the role of the corporation in society. "The business enterprise is a creature of a society and an economy, and society or economy can put any business out of existence overnight," he wrote in 1974. "The enterprise exists on sufferance and exists only as long as the society and the economy believe that it does a necessary, useful, and productive job."

From that simple observation sprung a wealth of further insights. It placed the corporation's social responsibility in perspective by establishing its breadth and its limitations.

Drucker showed that there is no "inherent contradiction between profit and a company's need to make a social contribution," but that the former is indispensable to achieve the latter. He also warned that an enterprise that fails to "think through its impacts and its responsibilities" exposes itself to justified attack from social forces. Consumerism and environmentalism, he taught, are not enemies to be vanquished, but symptoms of business' failure to understand its broad social role.

"Peter was talking about this in the 1950s," or long before corporate social responsibility became a formalized management principle, says Rick Wartzman, a former Times colleaguewho is executive director of the Drucker Institute at Claremont Graduate University.

His views placed him in conflict with classical economists of the Milton Friedman stripe, who considered profit maximization the be-all and end-all of corporate behavior.

Profit may be the motivating force of the businessman, Drucker wrote, but it fails as "an explanation of his behavior or his guide to right action." Worse, this narrow view of the corporation's role inspires the hostility toward profit that is "among the most dangerous diseases of an industrial society."

He held that the purpose of a business is to serve the customer by providing a good or service useful in both personal and social terms. Businesses that took their eyes off that objective in favor of pursuing profit as a paramount goal could not succeed. Such subtle distinctions eluded classical economists.

Of course, Drucker could not have maintained his position as one of the world's most sought-after management consultants had he limited his work to social philosophy. Few people could match his crystalline understanding of what it took to be an effective manager of enterprises or people. Credit the years he spent observing business organizations up close, starting with a consulting assignment at General Motors in the 1940s.

His targets included the celebrity chief executive and excessive compensation at the top. "Every CEO, it seems, has to be made to look like a dashing Confederate cavalry general or a boardroom Elvis Presley," he wrote in 1988. But real leadership "has little to do with 'leadership qualities'; and even less to do with 'charisma.' It is mundane, unromantic, and boring. Its essence is performance."

Are there real-world examples of this? Think Hewlett-Packard, which almost tore itself apart under its dazzlingly glamorous CEO Carly Fiorina yet has become one of high-tech's most successful companies under her resolutely colorless successor, Mark Hurd.

Real leaders, Drucker observed, are leaders of teams showing respect for people and their work. Nothing destroys that as efficiently as excessive CEO compensation. He maintained that the appropriate pay range was 20 to 25 times what the rank and file earned -- it's now in the hundreds. That level of inequality foments disillusionment among mid-level managers, as he said in a 2004 Fortune interview, and corrodes mutual trust between the enterprise and society.

Excessive compensation, he wrote in 1974, is designed to create status rather than income. "It can only lead to political measures that, while doing no one any good, can seriously harm society, economy, and the manager as well."

And when a financial benefit accrues to managers who lay people off, he stated in 1996, "there is no excuse for it. No justification. This is morally and socially unforgivable, and we will pay a heavy price for it."

Drucker was not the first management guru. Among the pioneers he acknowledges in his work are Frederick Winslow Taylor, who died in 1915 and is regarded as the father of scientific management, and Chester Barnard, who wrote classic textbooks on executive leadership before his death in 1961.

Drucker eclipsed these forerunners, in part by his more lasting influence. Indeed, it's not unusual upon reading the work of the latest generation of management experts to come across a rule or finding articulated by Drucker decades before. Consider "Good to Great," the 2001 bestseller by Jim Collins, an acknowledged Drucker disciple. Collins employed a platoon of researchers to help him determine the common factors in the emergence of superperforming companies like Walgreens, Gillette and Kimberly-Clark from the pack.

Here's the first factor: a humble, self-effacing CEO most often selected from within the company -- a plow horse rather than a show horse, as Collins puts it. Drucker made the same point years earlier, without the help of a team.

That's not to say he reached his conclusions by pure ratiocination. "One of the things that drives a lot of analysts crazy about Peter is that he's not empirically based," Wartzman told me. "But he was around so long that he was able to create his own statistical sampling from his own observations."

Shareholders, customers and society at large would be better served if Drucker's precepts became ingrained in business management. That's unlikely: Greed and the short-term mind-set are powerful forces pushing the other way. But at least Drucker's writings will always be around to point us in the right direction.

Getting Toyota Out of Reverse

Fri, 18 Dec 2009 00:00:00 PST

Shoichiro Toyoda, the honorary chairman of Toyota Motor (TM), once recounted a conversation between two Japanese educators—Atsuo Ueda, an expert in the management practices of Peter Drucker, and Masatomo Tanaka, who was responsible for teaching about the automaker's vaunted production system.

"Toyota," Ueda observed, "operates exactly the way Drucker-san said a company ought to operate."

Tanaka replied: "Yes, when we have trouble explaining what we're doing, we can usually find a good explanation in one of his books."

Never, of course, has there been a more crucial time for Toyota to go back to the books. The company recently recalled 3.8 million cars and trucks, as regulators investigate hundreds of complaints that its vehicles are prone to accelerating without warning. At the same time, Toyota's finances have lurched into reverse: In May, the company reported a $4.3 billion deficit for the fiscal year—its first net loss since 1950. And with Toyota's luster fading, consumers appear to be turning their attention elsewhere.

A few weeks ago, a San Diego consulting firm called Strategic Vision released its annual Total Value Index, based on feedback about prices, expected fuel economy, innovation, and other factors from 48,000 car buyers who'd purchased 2009 models. For the first time since the index was launched in 1995, Toyota did not have a single winner in any of the 23 categories, which range from small cars to heavy-duty pickups. Instead, Ford, Volkswagen, and Honda dominated the list.

Turnaround in the Works

Toyota's struggles aren't new. Two years ago this column took note of the company's mounting quality problems and suggested that executives would be wise to slow down in their headlong rush to become the world's largest carmaker.

But what's called for now is not more piling on. Some seem to delight in knocking Toyota almost as much as they do in tearing down Tiger Woods. (One blogger has posted on the Web a song called My Toyota, sung to the tune of the old hit by The Knack, My Sharona: Are you gonna stop?/Speeding up/Such a scary ride, always speeding up.)

Rather, what's instructive is to focus on how Toyota President Akio Toyoda, Shoichiro's son, and his team are trying to engineer a turnaround. Not surprisingly, one can see some Drucker-like thinking in their approach.

Last October, Akio addressed the media in Tokyo. What captured most of the attention were his remarks that Toyota stood on the brink of "irrelevance or death" and was "grasping for salvation"—a public display of contrition extraordinary even by Japanese standards.

Waning Passion

But what Drucker would have zeroed in on, I think, was Toyoda's less hyperbolic comment that consumers have been demonstrating a decided lack of enthusiasm toward the company's products, even in its home market. "They say that young people are moving away from cars," Toyoda said. "But surely it is us—the automakers—who have abandoned our passion for cars."

To combat this, Toyoda—a self-described "car nut" who is qualified to race professionally—has been pushing his company to offer more autos that are "fun and exciting to drive." This might sound like pure fluff. But for Toyota, which has long made quality and reliability its only real hallmarks, it amounts to nothing less than a shift in what Drucker termed "the theory of the business."

"Every business, in fact every organization, operates on such a theory—that is, on a set of assumptions regarding the outside (customers, markets, distributive channels, competition) and a set of assumptions regarding the inside (core competencies, technology, products, processes)," Drucker wrote. "These assumptions are usually taken for holy writ by the company and its executives. It is on them that they base their decisions, their actions, their behavior. The longer such a business theory works, the more it pervades the organization.

A New Business Theory

"But, as an old proverb has it: 'Whom the gods want to destroy they send 40 years of success,'" Drucker added. "For a business theory is not a law of nature. Eventually it becomes inappropriate to the realities of the market and technology. Then long-successful companies—especially big ones—begin to deteriorate. They lose their bearings. And the only thing that can effect the needed turnaround is rethinking and reformulating the company's business theory and repositioning the business on a new set of assumptions."

This repositioning, Drucker advised, always starts with a few basic questions: Who are the company's customers and noncustomers, and what do they value? What are other players in the market doing and not doing? What assumptions are they making?

In the case of Toyota, the Total Value Index provides some answers, and it suggests the company is on the right track with its emphasis on "fun and exciting." The auto market, according to Strategic Vision, is undergoing "a revolution in buyer perceptions," with more and more manufacturers having greatly improved the quality of their cars over the years—inspired in part by Toyota's traditional excellence in this area. And that means Toyota is going to have to differentiate itself in other ways.

More Dazzle?

First and foremost, Toyota must overcome its production-line troubles. If it doesn't restore its own reputation for consistently high quality, nothing else will matter. But beyond that, it has to give customers more: a bit of dazzle along with the durability and dependability.

"Professor Drucker was long a believer … in always improving," Shoichiro Toyoda explained. "Asked which of his books was the best, he would reply, 'The next one.'" Similarly, he said, Toyota "is always better today than yesterday and better still tomorrow."

I'm not so sure about today. But if the company can manage to adjust its theory of the business, it may well be right about tomorrow.

Note: "The Drucker Difference" will return on Jan. 7, 2010. Happy holidays to all.

Authentic Engagement, Truly

Fri, 04 Dec 2009 00:00:00 PST

Whenever something is labeled "authentic," it's a good bet that it's anything but.

Nevertheless, every manager would be wise to consider what FSG Social Impact Advisors, a Boston organization co-founded by Harvard Business School's Michael Porter, is calling "Authentic Engagement." The idea is for companies to take on social problems but in a competitive context—to look for ways to contribute to the larger community while tackling key business objectives.

"Many progressive companies…are seeing social issues through this new lens," FSG reported in its latest newsletter, citing a number of examples, including Toyota's (TM) targeting "zero emissions mobility," Unilever's (UN) promoting good health practices through its Lifebuoy soap, and the fragrance and flavor giant Firmenich's working with poor vanilla farmers on sustainable growing techniques.

One can easily imagine what Peter Drucker's response to this flash would have been: It's about time.

In his 1973 book Management: Tasks, Responsibilities, Practices, Drucker urged companies to see social ills "as major sources of opportunity." What's more, he counseled them to make sure these opportunities were "built into the strategy" of the enterprise, not viewed as some philanthropic afterthought.

The Ultimate Responsibility

Yet it was even earlier, in 1954's The Practice of Management, when Drucker began to argue that meeting a corporation's mission and helping to transform society positively are not only compatible but also mutually reinforcing. "It is management's…responsibility to make whatever is genuinely in the public good become the enterprise's own self-interest," he wrote.

Drucker didn't view this as some quixotic exercise. Indeed, he believed it essential that a seamless blending of public and private gain become a common feature of corporate life. "In this lies the real meaning of the "American Revolution" of the 20th century," Drucker declared. "That more and more of our managements claim it to be their responsibility to realize this new principle in their daily actions is our best hope for the future of our country and society, and perhaps for the future of Western society altogether.

"To make certain that this assertion does not remain lip service but becomes hard fact," he continued, "is the most important, the ultimate responsibility of management: to itself, to the enterprise, to our heritage, to our society, and to our way of life."

Ersatz Engagement

A half-century later, we can only shake our heads and wonder what went wrong. That we now feel compelled to use a term such as "Authentic Engagement" is a measure of just how far from Drucker's original vision we have strayed.

To start with, there is an awful lot of ersatz engagement out there. For many companies, invoking "corporate social responsibility" has become a halfhearted statement of noble intentions or, worse, a PR stunt.

Tellingly, the marketing firm TerraChoice announced last April that companies were guilty of some form of "greenwashing," or misleading the public about their environmental qualities, in 98% of the 2,219 products it had examined.

In addition, too many executives have become focused on doing well, with little regard for doing good—a mindset that helped trigger the global financial crisis that continues to hurt so many people.

Some theoreticians and practitioners contend that the persistent pursuit of maximum profit will, in the end, accrue to everyone's advantage. But Drucker held this Gordon Gekko-like logic to be nonsense, dangerous even. "A society based on the assertion that private vices become public benefits cannot endure," he warned. "For in a good, a moral, a lasting society, the public good must always rest on private virtue."

Customer Creation

Still, discovering ways to satisfy corporate goals and society's needs simultaneously—what FSG describes as "shared values"—isn't necessarily easy. A survey released last summer by IBM (IBM) found that only 30% of executives receive adequate data on carbon emissions, labor standards, product composition, and the like to figure out how to make a societal contribution in these areas, even if they want to.

Companies, meanwhile, must also guard against being pushed or pulled into projects that don't make sound financial sense. "Whenever a business has…assumed social responsibilities that it could not support economically, it has soon gotten into trouble," Drucker wrote.

Yet Drucker, as well as others who share his philosophy, would also encourage companies to recognize that, as globalization accelerates and technology spreads, there is an ever-increasing chance—if not an obligation—to both further economic performance and make the world a better place.

"Business, as the most powerful institution in society, must be the instrument of social justice," management scholar C.K. Prahalad, author of The Fortune at the Bottom of the Pyramid, proclaimed a couple of weeks ago in Vienna, at a forum marking what would have been Drucker's 100th birthday. At the same time, he stressed "the practical value" of this approach—namely, how 5 billion underserved and unserved people across the globe present an extraordinary opening to carry out what Peter Drucker said was the primary purpose of any business: creating a customer.

Opportunities Everywhere

For many, looking at things this way requires an adjustment in thinking—a lesson David Cooperrider, a professor at Case Western Reserve University, learned when he visited Drucker in 2003, two years before Drucker died at age 95. "Can social responsibility also be profitable?" Cooperrider asked.

Drucker smiled and told his guest that he had it backward: The question is not whether social responsibility can be profitable to a company, but how profitable a company can make social responsibility. "Every single social and global issue of our day is a business opportunity in disguise," Drucker told Cooperrider, echoing comments he had first made decades earlier. The insight helped spur Cooperrider to launch the Center for Business as an Agent of World Benefit, which is advancing the concept through research and action.

Let's just hope he resists the temptation to rename his venture the Center for Business as an Agent of Authentic World Benefit.

Temporary Workers and the 21st Century Economy

Mon, 30 Nov 2009 00:00:00 PST

The White House is turning its nose up at last month's spurt in temporary work—the one bright spot in an otherwise grim jobs report. It claims that such work is proof that the economy is still malfunctioning. The truth is that this surge in temporary workers is not only good news for the economy, it's the future of the 21st century labor market. If Washington wants to jump start job growth for the 3.5 million white-collar workers who have lost jobs in this recession, it should start by scrapping the outdated legal and regulatory hurdles to temporary work.

I know something about this because I run a business that places talented individuals into temporary consulting and interim executive assignments. Amid the worst recession in decades, our business is up 70%. Yet there would be much more growth in this sector if Americans—from the White House down to the personnel department—stopped discriminating against temporary work as inferior or anomalous.

Today, demand for high-end temporary business talent is not focused on cost-cutting projects, as some might suspect. Instead, firms use temporary executives to drive innovation. In uncertain times, firms are simply more comfortable with deploying talent on a flexible basis.

Temporary work also boosts economic efficiency because not all executive roles require permanent staff. For example, one pharmaceutical company client took on a temporary marketing executive to help launch a new drug. The old way of doing this was to make a new permanent hire (or a small team) who would have been under-utilized after the launch. The availability of temporary staff who can get the job done quickly means that firms can rethink how work is organized.

Which brings us to another case for temporary work: Top business talent increasingly wants to work this way. In one situation, a VP-level executive we placed was developing his own new business. He valued the way a part-time senior role allowed him to support his family while he worked on his own project. For others, working in a series of temporary assignments may be their preferred full-time occupation.

Given the contribution that temporary work makes to the economy, it's time Washington embraced it. Here are three things the feds could do immediately to make it easier for firms and executives to work this way:

First, the Obama administration should create a two-year "safe harbor" for independent professionals doing temporary work. Currently, the rules governing independent contractors are determined on a case-by-case basis and are subject to state law variations. This leaves risk-averse personnel departments wary of hiring temporary executives for fear that they could be reclassified as employees, saddling employers with liabilities. The solution is to create a two-year safe harbor provision that lays out a clear test for being classified as an independent contractor. The White House could streamline these rules, beginning with the IRS, if it made it a priority.

Second, Washington should apply any new employment tax subsidy to temporary jobs. There is much talk of a new jobs tax subsidy, but as it currently stands it would exclude temporary work. This is 20th century thinking. Any new subsidy should seek to boost temporary roles as well.

Third, the feds should let independent workers buy into the congressional health plan. A huge barrier to temporary employment for professionals who prefer to work this way is their inability to access group health coverage outside the permanent employment setting. Though Congress may pass health reform this year, the new insurance exchanges that would remedy this problem won't come into play until at least 2013. Congress should allow temporary workers to buy into the congressional health plan until then.

As we reboot the great American jobs machine, it's time to shelve outdated assumptions and accept that a portfolio of multiple assignments is what growing legions of companies and executives want. This new relationship between talent and firms isn't a failure to be stigmatized, but the latest sign of our economy's endless capacity for renewal and innovation.

Drucker’s ideas stand the test of time

Mon, 23 Nov 2009 00:00:00 PST

In 1974, the New York Times reported that sales of Peter Drucker’s latest book, Management: Tasks, Responsibilities, Practices, had overtaken those of Alex Comfort’s illustrated primer The Joy of Sex. For one brief moment, management was the hottest topic of all.

Only Drucker could have achieved this. “No other person has had the impact on the practice of management that he did,” according to one of today’s leading authorities, CK Prahalad. This November marks the centenary of Drucker’s birth – he died in 2005 just short of his 96th birthday – and the anniversary has been celebrated in a series of events round the world.

Last week in Vienna, the city where Drucker was born and spent the first 18 years of his life, an international conference debated his significance and continued relevance. But the idea was to look forwards and not back, as Richard Straub, the conference organiser, explained. “We are not opening a museum here,” he said. “We have plenty in this city already.”

Debate centred on the views and legacy of the father of modern management. What would he be advising us to do now? And what would be his response to the great financial and economic crisis?

Unsurprisingly, perhaps, Drucker’s disciples chose to give business school orthodoxy (particularly the “Anglo-Saxon” kind) a clobbering. Armed with MBAs, personal profit maximisers had selfishly pursued their own interests, ignoring their moral responsibility to concentrate on the sustainable success of the organisation (and society) as a whole. As Ira Jackson, dean of Peter F Drucker and Masatoshi Ito Graduate School of Management in California, put it: “If we were producing doctors, they would have some difficulty getting insurance cover against future malpractice.”

Drucker’s critique of greed and irresponsibility pre-dated today’s crisis. He admired what managers and organisations could achieve when they put their minds to it. But having witnessed managerial incompetence as well as political extremism at first hand in Europe in the 1920s and 1930s, he understood what the worst consequences of bad practice could be.

Joseph Maciariello, a colleague of Drucker’s, told the conference that he believed organisations needed to be structured “to counteract, minimise or redirect the darker forces of human nature”. Harvard Business Review has this month reprinted Alan Kantrow’s 1979 article on Drucker, in which he argued that “[he] is so deeply concerned about the profession of management because he is profoundly afraid of what might happen if the major institutions of western society fail in their essential responsibilities”.

In this spirit, Professor Prahalad argued that the true Druckerian task for the 21st century would be “to reinvent the social compact of business”. While that sentiment seemed, to a few delegates, to be straying too far from Drucker’s Schumpeter-inspired emphasis on entrepreneurialism, innovation and even “creative destruction”, the majority felt the profession of management would benefit from rededicating itself to an explicitly moral approach.

In fact, Drucker’s greatest virtues were his plain-spoken insights and practicality. If one word was mentioned more than any other at the conference, it was “purpose”. Drucker’s “five most important questions you will ever ask” should help any manager ensure that he or she leads a purpose-driven enterprise. Those questions are: What is our business (or mission)? Who is our customer? What does the customer value? What are our results? What is our plan?

Although hailed as a visionary by some – he first started talking about “knowledge workers” some 20 years before anyone else – Drucker rejected that label, and the “guru” one as well. “I never predict,” he once said. “I simply look out the window and see what is visible but not yet seen.”

Drucker might also have been a little impatient with the reverence with which he is now discussed. “I do not intend to be an icon,” he declared.

Too late. There are Drucker Societies all over the world, and he continues to be the one management writer almost everyone agrees is worth reading. Prof Prahalad summed him up in admirably Druckerian terms: “He tells us how to do stuff, not just how to think.” I expect he will still be remembered 100 years from now.

How to Reinvent Yourself Post-Recession

Fri, 13 Nov 2009 00:00:00 PST

A successful wealth-management executive contacted our Halftime office last week looking for help in reinventing himself for his "second half," seeking to redesign not only his career but his life. It's a common theme in Corporate America these days.

The first words out of his mouth were: "I got run over by the stagecoach." That's code in banking circles for being forced to rethink his career because his company, Wachovia, was acquired by Wells Fargo. While he still has a job, his dreams and career path have been drastically altered. He's afraid that he soon won't have a job, his 401(k) is sunk, and in the midst of all this he has discovered he's looking for more meaning in his life.

He is just one of the many people who the recession has driven into a new season of life I call "Halftime," which is an opportunity to pause in midlife, look back, take stock, look forward and dream, and then chart a new course for the second half. But he, like millions of others, was caught unawares and didn't feel prepared.

A decade ago the late Peter Drucker, father of modern management theory, warned us that we needed to learn to manage not just our company, not just our team, but to "manage one's self." Having been fortunate enough to have been personally mentored by Peter over decades, I had come to expect this kind of insight from him. After all, he defined and labeled the Knowledge Worker in the 1950s long before they even existed.

HIDDEN BLESSINGS

But what I am observing in these months as our economy works to reemerge out of deep recession is that this idea of managing one's self, which was previously reserved for 60-year-old rich people who had sold their company and had nothing else to do, has now been forced on millions of boomers in their mid 40s to 60s who have talent, influence, and newfound flexibility but not necessarily financial independence.

I went through this midlife reinvention myself and have written five books on the subject. I've spent a considerable portion of my last 15 years helping others find their way on this journey. It comes down to the difference between making a living and making a life. And for many, it will be the recession that will launch them on this journey, as they realize what they worked so hard to accumulate in their first half can disappear fast.

The second-half destination will look different for each of us, but the journey is remarkable similar. With Peter Drucker's encouragement, in 1997 I launched a team of smart people into the complex task of figuring out this journey, and since then we have trundled all over the globe and helped thousands of people in that process.

We've come to realize there are three important steps in this journey: You have to get clear, get free, and get going. Getting clear is an analytical process, getting free is a discipline, and getting going is a creative process of testing your way into your best fit role(s). Here's a look at all three:

1. Get Clear

This Halftime pause provides you with an opportunity to get clear about your greatest strengths, what you care most about, and the difference you would most like to make in the world. At this state in your life, you can think of numerous situations in which you excelled as well as those in which you've struggled. You've probably had multiple aptitude and personality assessments. This self-awareness is an important ingredient in designing your new life. Take a minute to answer these three questions:

• My top-two strengths are:

• I am most passionate about (what cause or group of people):

• The role I play best in an organization is:

Now combine these into a simple mission statement, and identify a couple of ways you will measure the results of living out that mission.

My personal mission is to use my XXXX strengths, to have an impact on and serve XXXX (the cause or people I am most passionate about) so that XXXX (the impact I most want to make).

2. Get Free

You undoubtedly have activities and commitments that have accumulated along the way that don't fit this new mission statement and are draining. Many times we are afraid to let go of them because they have come to define us or we have a sense of obligation. With your newly discovered (or rediscovered) sense of mission, assess every activity you regularly allocate time to and eliminate the low-value ones. Good things are often the enemy of the best. Does your career need to be adjusted as well to align better with your life mission?

3. Get Going

The first steps toward your new life are the most difficult, because they are fraught with fear of failure and the risk of letting go of what you already have and know. My Wells Fargo executive who "got run over by the stage coach" might do best not to leave the company and launch into something untested but to begin using the freedom he discovered by eliminating low-value activities to tackle a project or short assignment in his new area of interest. Many times your first-half career provides a valuable platform for your second-half impact.

By broadening your world you not only reignite the passion in your heart that often gets squeezed out during midlife, but you build a parallel track that can be useful if your life gets derailed.

Management Lessons on Nothingness, Drawn from Art

Fri, 13 Nov 2009 00:00:00 PST

Some of the world's sharpest minds on management and leadership—Warren Bennis, Ken Blanchard, Charles Handy, Stephen Covey, Frances Hesselbein, and Jim Collins, among them—came to Southern California last week to lecture and help commemorate what would have been Peter Drucker's 100th birthday. The speakers' remarks, in which they linked Drucker's ideas and ideals to their own, were chock-full of insight and inspiration.

And yet it was another Drucker Centennial event—the Monday night opening of a Japanese art exhibition—that left the biggest impression on me.

The Sanso Collection, as it's known, contains about 200 paintings, roughly half of which are associated with Zen Buddhism. Drucker, who in addition to being a management professor once taught Japanese art, loved these pieces. And he'd often use them as an excuse to pause and ponder and see the world in a different way.

Lots of Empty Space

Similarly, "he encouraged viewers to look, and look again," says the show's curator, Bruce Coats, a professor of art history and the humanities at Scripps College and a longtime friend of Drucker's.

But what Drucker hoped people would zero in on was more than the images, which include 15th-century landscapes and 19th-century sketches of monks and deities. He wanted them to observe, if not revel in, the art's omnipresent nothingness. "The Japanese paintings are dominated by empty space," Drucker wrote in Song of the Brush, a book about the collection. "It is not only that so much of the canvas is empty. The empty space organizes the painting."

The same, of course, holds true for ourselves and our enterprises: It's the creation of empty space—moments when we shut off all outside distractions and give ourselves the opportunity to think—that can determine whether we're organized effectively and whether we'll move forward successfully.

Nevertheless, we clutter our canvases instead. Punch the term "information overload" into Google (GOOG) and you get more than 1.4 million hits—itself a sign of the problem. In his book The Ten Commandments for Business Failure, former Coca-Cola (KO) President Donald Keough cites one analysis that found the typical corporate employee is besieged by 133 e-mails every day.

Omnipresent Cacophony

Beyond that, Keough writes, "they deal with multiple communications—a fax here, a text message there—attend a meeting here and teleconference with another meeting there—watch a PowerPoint (MSFT) presentation here, watch a video report there. Phones ringing on the desk and vibrating in the pocket. The average human nervous system is not built to process material at anything approaching this blinding rate of speed and volume."

Some systematically fight off this onslaught. For instance, when Patty Stonesifer became CEO of the Bill & Melinda Gates Foundation, she made a point of keeping her Fridays unscheduled so she could study, learn, and refresh herself.

Keeping the calendar blank isn't easy, however, even for the most well-intentioned executive. Often, Drucker warned, "within a few days or weeks, the entire discretionary time will…be gone again, nibbled away by new crises, new immediacies, new trivia." That's why the most able time managers, he explained, "keep a continuing log and analyze it periodically," pruning additional activities as necessary.

Still, it's not just "inbox shock" and meeting fatigue that one must guard against. Put any project or deal into motion, and "it's difficult to stop," Keough asserts. "There is a tendency toward group wishing in decision making wherein everyone is so eager to make something happen that straight thinking becomes almost impossible."

Time to Think

Keough's advice for any leader: Cease what you're engaged in every now and again and chew on it for a while. "Time to think is not a luxury," he says. "It is a necessity…Unless somebody stops to think…it's easy to make the same mistakes over and over."

This isn't simply a matter of focus. As I've noted in this column previously, Drucker was a big advocate of doing one thing at a time, and doing it well. But he also believed in not doing, so as to make time for pure contemplation. "Follow effective action with quiet reflection," Drucker said. "From the quiet reflection will come even more effective action."

Tellingly, this is a theme that cropped up several times during last week's Drucker Centennial celebration. In his keynote address, author Jim Collins urged people—especially young people—to "turn off your electronic gadgets," put "white space on your calendar," and take advantage of these "glorious pockets of quietude." And during his introduction of British social philosopher Charles Handy, Kai Ryssdal of public radio's Marketplace mentioned a scheme that Handy once had: to substitute his own "Thoughts for Today" on the BBC with a "Silent Pause for the Day."

Handy's notion, Ryssdal recalled, was to give listeners two minutes in which they could sit quietly and ruminate before heading out "into the hurly-burly of everyday life." Handy's producers nixed the idea, recognizing, as Ryssdal pointed out, that "two minutes of complete silence is not great radio."

It is, though, great management.

Note: "Zen! Japanese Paintings from the Sanso Collection" runs through Dec. 6, 2009, at Scripps College's Ruth Chandler Williamson Gallery in Claremont, Calif.

Firing Educators with Enthusiasm

Mon, 09 Nov 2009 00:00:00 PST

President Obama wants to make it easier to dismiss teachers whose students aren't performing well on tests. But what about the parents? By the president's own account, his daughter's performance jumped when he and his wife made clear their expectations, evidently without a change of instructor:

The president . . . went off script for a few moments, telling of a C grade that his 11-year-old daughter, Malia, brought home from school recently. It didn't meet the standards at the Obama home, he said, and Malia knew it.

More recently, he said, she came home with a score of 95.

"What was happening was, she had started wanting it more than us," he said.

And I wonder about negative incentives when positive ones have such questionable results; merit pay for test scores has been a disappointment, at least in Texas:

For the $300 million spent on merit pay for teachers over the last three years, Texas was hoping for a big boost in student achievement.

But it didn't happen with the now-defunct program, according to experts hired by the state.

The Texas Educator Excellence Grant, or TEEG, plan did not produce the academic improvements that proponents - including Gov. Rick Perry - hoped for when the program was launched with much fanfare in 2006, a new report from the National Center on Performance Incentives said.

"There is no systematic evidence that TEEG had an impact on student achievement gains," said researchers for Texas A&M University, Vanderbilt University and the University of Missouri.

Maybe attrition plus the dread jobless recovery will come to the schools' rescue. From the Depression into the 1960s, the teaching corps, not only in major cities, were an elite, many of whom had aced competitive examinations (the best known, Lyndon Johnson, was an outstanding classroom teacher). Not all new recruits of the postwar boom could be expected to measure up, just as the nation was spoiled by the efficiency of the mid-century Post Office, but there was more to it than the drought of investment banking jobs. Discrimination in other professions made instruction one of the few alternatives for talented women. There was also more religious and racial bias in what remained of the private sector. Fortunately, Depression-era unemployment levels, racism, and sexism are unlikely to return. So how do we recruit and train teachers?

Since teacher education and certification programs don't seem to relate to progress in actual instruction (not unusual; bar exam results aren't correlated with future legal competence) Malcolm Gladwell has proposed the sink-or-swim system used in football and financial advising. You can't evaluate aptitude in advance, so let lots of people try and keep those who work out because of a mysterious interpersonal aptitude one researcher has named "withitness." (Who, I wonder, will re-teach the kids who experience withoutitness?)

But teaching isn't like pro sports, finance or the arts. The average struggling musician can take hope, like the aspiring athlete, from a few colleagues' superstar incomes. Not teachers. Even Frank McCourt never planned to be a best-selling author -- it was his method of teaching by storytelling that helped him become one.

And we need many more teachers than quarterbacks, investment advisors, or special forces commandos. According to the Census Bureau, in 2004 there were 3.1 million primary and middle school teachers and 772,000 secondary school teachers. In 2005 we had only 800,000 physicians, and 20 years before that only 500,000, according to one unofficial report. Education's problem isn't that people don't realize it's important. Most do. The problem is that it is so important, just as health care became a greater issue with the expansion of medicine.

So if the educational establishment is still not delivering, conventional incentives are disappointing, major salary increases unrealistic because of scale and state and local fiscal crises, and sifting battalions of aspirants for Gladwellian "withitness" is a non-starter, what's left?

Musical ability was once considered the domain of "withitness" too. Shinichi Suzuki showed it was possible to train teachers to bring out latent talent in large numbers of students. We should focus not on threatening teachers but on creating better ways to help them.

The greatest of the twentieth-century gurus, Peter Drucker, was also the one who best recognized the educational side of all enterprises. Zachary First, managing director of the Drucker Institute at Claremont Graduate University replied to my query about one of his most brilliant insights, which I haven't yet found in print:

"Peter Drucker long consulted for ServiceMaster. He was both an advisor and friend to the company's Chairman and CEO, C. William Pollard. Drucker once suggested to Pollard that ServiceMaster's real business was not janitorial services or lawn care or pest control, but rather 'developing people.'"

Maybe academia can in turn learn something from the crabgrass removal business. How to develop the people who are developing people -- that's the question.

Time for Posthumous Praise

Mon, 02 Nov 2009 00:00:00 PST

With last week's release of the Michael Jackson "This Is It" movie, a fair number of articles pointed out that other famous figures--from Albert Einstein to Billy Mays--maintained their popularity, maybe increased it, after their death.

Here's someone else we might add to the list: Peter Drucker.

The name of that management guru pops to mind because this is the Drucker Centennial Week, a series of events in Los Angeles County to mark Drucker's upcoming 100th birthday. And in the four years since his death, Drucker may have gained influence.

For example, 25 Drucker societies or Drucker clubs have been created in 15 countries. In these volunteer groups, some members have formed book clubs to discuss and debate his principles and some have started Drucker-based training programs for non-profit organizations and the like, according to the Claremont Graduate University's Drucker Institute, which coordinates the Drucker societies. A Drucker-in-High-Schools program has gotten started in Los Angeles.

Drucker is one of those rare guys who was way ahead of his time. Management wasn't really thought of as a science until he came along. He coined the term "knowledge worker" 50 years ago--it must have seemed an odd concept then but an obvious one now. And his emphasis on creating effective management systems with a humanistic set of principles feeds into the kind of philosophy that appeals to today's managers, particularly young ones.

OK, so we're not at the point where Drucker's image is printed on T-shirts for sale on Hollywood Boulevard. Still, his influence seems destined to wax, not wane.

What would Drucker do?

Mon, 02 Nov 2009 00:00:00 PST

This month, the Drucker Institute celebrates the 100th birthday of Peter Drucker, the father of modern management. Drucker’s seminal teachings on ethical leadership and social responsibility in business have had a profound impact on business organizations and the teaching of management skills. Charles Handy, noted scholar, co-founder of the London Business School and Scholar-in-Residence at the Drucker Institute and Drucker School of Management, talks with AirTalk host Larry Mantle about Drucker’s legacy and how his perspective is still relevant today.

Click below to listen to the segment.

The Global Drucker Legacy

Sat, 31 Oct 2009 00:00:00 PST

As Drucker Week is almost upon us, I've been reflecting on the whirlwind of events and overall excitement over the past month that has surrounded the much anticipated, worldwide celebration of the Drucker Centennial. Having just returned from Hong Kong, one of four Chinese cities I visited in four days, I feel inspired and motivated by the series of events I've had the opportunity to participate in, and am thrilled to share some of my experiences with you.

The beginning of my travels brought me to New York City for the World Business Forum, which was branded this year to be a Drucker Centennial event. Speakers ranged from T. Boone Pickens to Gary Hamel, Jeffrey Sachs and Nobel Prize-winning economist Paul Krugman. During my address to the 5,000 attendees from the stage at Radio City Music Hall, I was able to reintroduce Peter Drucker and speak to the relevance of his principles and practices, right before introducing our keynote speaker, former President Bill Clinton.

Immediately upon my return from the World Business Forum, the Drucker School celebrated its first-ever State of the School. This commemorative event, attended by students, alumni, university-wide staff and friends from the community, provided a truly transparent look into what has transpired over the past year, and a window into some of our many plans for the future. Our celebration of the Drucker School culminated with the dedication of a new street sign and address for the Drucker School, "100 Drucker Way."

Following the World Business Forum, the CEO Forum took place, hosted by A.G. Lafley, the chairman of Procter & Gamble and one of our Drucker Centennial Chairs, who convened 30 corporate and NGO CEOs at the Drucker Institute, along with some of the world's leading academic experts on leadership, to explore the changing role of the CEO in the 21stcentury. Peter Drucker's insights and perspective and a recent article that A.G. wrote in the Harvard Business Review informed the conversation and thought-provoking dialogue. This month's special HBR issue is devoted to the Drucker Centennial and is titled: "What Would Peter Say?"

What's amazing about Peter Drucker is his truly global reach, which I was witness to during the Drucker Centennial celebration at the University of Nanjing, China, where our alumnus, Shuming Zhao, has been the pioneering dean of the business school. This major forum was attended by over 400 scholars and students and devoted exclusively to learning from the father of modern management: Peter F. Drucker.

As I returned to Claremont, an enthusiastic team of students, alumni and staff were gearing up for what promises to be a memorable Drucker Week, taking place this week - Nov. 2-8, to which you are all invited.

The Drucker Renaissance

Fri, 30 Oct 2009 00:00:00 PST

There was a remarkable movement in education, culture and the arts in Europe during the 14th through 16th centuries known as the Renaissance. It was a wide-ranging resurgence of enlightenment among society, which emerged after a period known as the Dark Ages.

Today, we see the risk of another kind of Dark Age. The staggering failure of leadership and management in our institutions in key sectors of our economy from finance to industry to health care to housing has resulted in the worst economic downturn since the Great Depression. America and the world are begging for leadership, vision and management.

There is no silver bullet that can solve these problems overnight but there is a great thinker who spelled out a philosophy that can provide a path of light out of the darkness. That thinker is the late Peter F. Drucker. As the author of 39 books and recipient of the Presidential Medal of Freedom, Drucker was one of the most influential business thinkers in history. He was concerned not only with the human side of management, but also with the larger social roles played by both companies and the individuals within them. Drucker called himself a "social ecologist," someone who studies the condition of major institutions in society much like a natural ecologist studies the health of the physical world.

His first rule hails back to the Hippocratic oath: Do no harm. It's simple but this rule is ignored every day by big companies, non-profit organizations and government. He also said that it's possible to do good and do well at the same time. If there has ever been a time when such a thinker is relevant (and needed), it's now.

It seems that the world is in the midst of a Drucker renaissance typified by the worldwide celebrations of Drucker's 100th birthday. Drucker Centennial events will take place in Vienna, Austria where a pantheon of European academic and business leaders will honor Drucker in the city where he was born 100 years ago on November 19, 1909. Our friends in South America are transforming their business expos in São Paulo, Brazil, Buenos Aires, Argentina, Mexico City, Mexico and Milan, Italy, into Drucker Centennial events as well, making our celebration truly global in scope, and involving literally tens of thousands of people. I also recently returned from a series of Drucker Centennial celebrations in China.

The common denominator, the singular language, the unifying method and message for all these celebrations, is found in Drucker's values and teachings. Everywhere I go – from boardrooms to community groups, from governors' offices to classrooms – the challenges we face as a global community call out for a Drucker-like approach to problem solving, effectiveness and performance, ethical and humble leadership, and social responsibility.

Here in Claremont at The Drucker School along with The Drucker Institute, a think tank devoted to spreading Drucker's ideas, we are commemorating his 100th birthday with a series of remarkable events in Los Angeles and in Claremont.

We start Nov. 2, with author Ken Blanchard in Claremont. On Tuesday, we convene the Leadership All-Stars in downtown L.A. On Wednesday, we have Frances Hesselbein, who will speak on "The Crucible Generation: Hope of the Future." She is the chair of the Leader to Leader Institute and was awarded the Presidential Medal of Freedom in 1998.

Stephen Covey, who will speak on Thursday at the Mark Taper Auditorium at the L.A. Central Library, has been recognized as one of Time magazine's 25 most influential Americans. He has sold more than 20 million books in 38 languages. Covey's The 7 Habits of Highly Effective People was named the No. 1 Most Influential Business Book of the 20th Century by CEO magazine.

On Friday, we will celebrate the recent publication by McGraw-Hill of "The Drucker Difference: What the World's Greatest Management Thinker Means to Today's Business Leaders." The book, which analyzes and extends Drucker's most important ideas in the context of today's turbulent business environment, was written by Drucker School faculty and is based on the course required of all entering Drucker School students.

We cap the week with two extraordinary events. First, on Saturday, Nov. 7, we will have Drucker Centennial Day with Jim Collins, bestselling author of "Built to Last," "Good to Great" and "How the Mighty Fall," giving the keynote address. Finally, the week ends with a Claremont Community Brunch hosted by Doris Drucker, who was married to Peter Drucker for 70 years.

It's clear from the reception around the world that Drucker is resonating now as perhaps never before. At the latest count, there are now 28 Drucker Societies in 16 countries on five continents.

Drucker challenged us to be good stewards, to leave the world a better place than we found it. I ask you to help us be better stewards of our world by being a part of this new renaissance of interest in Peter Drucker's ideas.

Executives Are Wrong to Devalue Values

Fri, 30 Oct 2009 00:00:00 PST

McKinsey & Co. released a survey this week on "leadership through the crisis and after." Had Peter Drucker parsed the poll, however, I think he would have found it most revealing in terms of how we got into such a mess in the first place.

When asked what are the most important organizational capabilities for managing corporate performance, the 763 executives who responded—representing a range of regions, industries, and functions—picked two more often than any other. The first was "leadership," which was described as the facility to "shape and inspire the actions of others." The second was "direction," or the "capacity to articulate where the company is heading and how to get there" in an aligned manner.

Stuck at the very bottom of the list, meanwhile, was the ability to "foster a shared understanding of values." A mere 8% of respondents cited this factor as crucial, compared with 49% for leadership and 46% for direction. What's more, those taking the survey indicated that ensuring shared values has become less vital since the economic crisis began, while the other two qualities have become more significant.

For Drucker, these numbers surely would have been troubling. The way he saw things, any organization needs to demonstrate achievement in three major areas if it's to be successful: generating "direct results," "developing people for tomorrow," and the "building of values." If a business is "deprived of performance in any one of these areas, it will decay and die," Drucker warned in The Effective Executive, his 1967 classic. "All three therefore have to be built into the contribution of every executive."

Leadership and Values: Bound Together

Of course, it is tempting to dismiss any discussion of values as pure pablum—the mushy stuff written into corporate social responsibility reports and uttered at the company's annual awards banquet. But that's a misreading of what values are all about. Every employee knows, deep down, what his or her organization stands for. And unless it stands for the right things, it is terribly easy for its people to go astray.

"We hear a great deal of talk these days about the 'culture' of an organization," Drucker noted in a 1988 Harvard Business Review piece. "But what we really mean by this is the commitment throughout an enterprise to some common objectives and common values. Without such commitment, there is no enterprise; there is only a mob. Management's job is to think through, set, and exemplify those objectives, values, and goals."

Perhaps the oddest aspect of the McKinsey findings is the suggestion that providing leadership is somehow separate from promoting values. In fact, the two are bound together—the double helix of any corporation's DNA.

As Drucker wrote: "Leadership is … example. The leader is visible; he stands for the organization. He may be totally anonymous the moment he leaves that office and steps into his car to drive home. But inside the organization, he or she is very visible, and this isn't just true of the small and local one; it is just as true of the big, national, or worldwide one. … No matter that the rest of the organization doesn't do it; the leader not only represents what we are, but, above all, what we know we should be."

Which goes a long way to explain why so many banks exhibited such a high degree of recklessness in the runup to the financial meltdown. In a report this year on lessons about corporate governance gleaned from the crisis, the Organisation for Economic Co-operation and Development cited "tone at the top" as a big part of the problem. In looking at remedies, the OECD highlighted standards calling for directors not only to approve a bank's strategic objectives but also its "corporate values," and to ensure that they "are communicated throughout" the firm.

For Every Business, a Choice

The same analysis concluded that in addition to lacking sufficient systems and procedures for properly evaluating certain types of securities, "soft factors were also at work" at some institutions. At French bank Société Générale, the study said, "an imbalance … emerged between the front office, focused on expanding its activities, and the control functions which were unable to develop the critical scrutiny necessary for their role."

In other words, like many others, Société Générale became so intent on ringing up "value," it forgot about its values. Now, according to the OECD, the bank is trying to "move towards a culture of shared responsibility and mutual respect"—one in which risk managers are as prized as traders.

Richard Ellsworth, a longtime colleague of Peter Drucker's at Claremont Graduate University, makes clear that, on some level, every business faces a similar choice. "The company can be viewed either as a moneymaking machine or as a vehicle for satisfying human needs," Ellsworth writes in a new book, co-authored with a group of Claremont faculty members, called (just like this column) The Drucker Difference. "By definition, if the central end value is not shared—if employees do not believe in its intrinsic worth—then this foundation and the resulting corporate culture are weakened, and corporate values lose much of their power to influence and direct actions."

Never mind the survey. Without setting values, offering leadership and supplying direction are hollow gestures at best.

Trust: Effective Managers Make It a Priority

Fri, 16 Oct 2009 00:00:00 PST

Last week, in describing how she has turned around Kraft Foods, Chief Executive Irene Rosenfeld highlighted the way the company has stepped up its marketing and spurred product development. But there's an additional ingredient that Rosenfeld mentioned, which far too many managers miss: inspiring trust throughout the enterprise.

As Kraft's restructuring has played out over the past few years, executives have made a real effort to be "straightforward, open, and honest"—even in the midst of plant closings and job cuts, Rosenfeld told the World Business Forum in New York. The strong sense of trust that this has fostered, she said, has "been a critical part of our ability to get things done."

Peter Drucker had a similar recipe for success. "Organizations are no longer built on force," he wrote in his book Management Challenges for the 21st Century. "They are increasingly built on trust."

No company, nonprofit, or government agency can "prevent a major catastrophe," Drucker added, "but you can build an organization that is battle-ready, that has high morale, that knows how to behave, that trusts itself and where people trust one another. In military training, the first rule is to instill soldiers with trust in their officers, because without trust they won't fight."

Plenty of businesses understand this, of course. Each year, the Great Place to Work Institute surveys tens of thousands of employees through its "Trust Index" and then extols those companies that offer extraordinary environments of "credibility, respect, fairness, pride, and camaraderie." Topping its latest roster are NetApp, Edward Jones, Boston Consulting Group, Google, and Wegmans Food Markets.

Lack of Trust Leads to Dysfunction

The stunning thing, though, is how many companies clearly don't get it. Polls in recent years by Watson Wyatt, BlessingWhite, and others have found that fewer than half of all workers trust what senior management is telling them. Too many executives try to hide things or spin them.

And once trust is undermined, everything else is prone to unravel. Patrick Lencioni, the author of The Five Dysfunctions of a Team, points out that for any organization to be effective—with results driven by employees who feel truly engaged in, and committed to, their work—there must exist an atmosphere where people can air opposing views, even passionately.

But without trust—without people willing to be vulnerable to one another and admit their weaknesses and mistakes—that's impossible. "Conflict without trust is politics," Lencioni remarked during his own World Business Forum presentation.

Drucker, who warned against reaching quick consensus when tough decisions have to be made, would certainly agree. "There is a very old saying—it goes all the way back to Aristotle and later on became an axiom of the early Catholic Church: In essentials unity, in action freedom, and in all things trust," Drucker wrote. "And trust requires that dissent come out into the open, and that it be seen as honest disagreement."

How Managers Can Establish Trust

As important as trust is, it's not easy to establish. It takes a while, which is why Drucker counseled companies not to thrust a brand-new hire into a major assignment. Even if this person is highly skilled, he or she won't yet have earned the trust of co-workers.

Wrote Drucker: "As Winston Churchill's ancestor the Great Duke of Marlborough observed some three centuries ago, 'The basic trouble in coalition warfare is that one has to entrust victory, if not one's life, to a fellow commander whom one knows by reputation rather than by performance.' In the corporation as in the military, without personal knowledge built up over a period of time there can be neither trust nor effective communication."

But how does one win trust as a manager?

In Drucker's view, it's crucial to be able to set ego aside and do what's best for the organization. "The leaders who work most effectively…never say 'I,' " he noted. "And that's not because they have trained themselves not to say 'I.' They don't think 'I.' They think 'we'; they think 'team'.…There is an identification (very often, quite unconscious) with the task and with the group. This is what creates trust, what enables you to get the task done."

Still, by far the biggest way to gain trust is simply to be consistent—to do what you say you're going to do, to act in ways that are in step with what you profess to believe in, to advance projects that are in harmony with the organization's mission and values. "Trust means that you know what to expect of people," Drucker declared. "Trust is mutual understanding. Not mutual love, not even mutual respect. Predictability."

Hypocrisy probably wouldn't rank very high on most managers' lists of the biggest missteps they could make. But it should. Your colleagues are watching closely. Trust me.

Drucker insights offered in book

Sat, 03 Oct 2009 00:00:00 PST

Something extraordinary just happened.

This week, the Drucker Graduate School of Management in Claremont has released a groundbreaking, collaborative work titled "The Drucker Difference: What the world's greatest management thinker means to today's business leaders." It's published by McGraw-Hill.

What sets this book apart?

First of all, this is the first of its kind to ever be published by any business school - the book is a truly a synergistic work developed and authored by 16 of the school's scholars. The Drucker Difference provides unparalleled insight on management and business based on the philosophy of the late Peter Drucker, a father of modern management, through the eyes, ears and perspectives of leading Drucker faculty, who have reassessed, reanalyzed and re-evaluated Drucker's work, applying his teachings to the contemporary issues affecting the business world today.

As the author of 39 books and recipient of the Presidential Medal of Freedom, Peter Drucker was one of the most influential business thinkers in history. He was concerned not only with the human side of management, but also with the larger social roles played by both companies and the individuals within them.

If there has ever been a time when such a thinker is relevant (and needed), it's now.

The Drucker Difference casts a new light on Drucker's business philosophy - throughout the 16 chapters, a professor from the school takes a single, classic aspect of Drucker's work, examines its implications in today's business environment and applies an up-to-date and contemporary interpretation of Drucker's wisdom. Each chapter covers an aspect of his teachings - from Government, Business and Civil Society, to Economic Environment, Innovation and Industry Dynamics - reassessing and interpreting each through the lens of today's ever-changing, turbulent business environment. A comprehensive guide to successful business management practices, the combination of expert insight and current scholarship reveal how organizations and executives can interpret and apply Drucker's timeless ideas.

Here's how I see the value of this book. There are more than 1,000 business schools in America, but only one that is named for and anchored by the teachings of a great thinker, management guru, and social philosopher. This book, written by all of us on the Drucker School faculty, reflects our unique values-oriented approach to management as a liberal art, and conveys the essence of what we call "The Drucker Difference."

You should also know that this book grew out of a course of the same name. A couple of years ago, our faculty was brainstorming and like many great things, some special and unique came out of a few people dreaming and thinking of what could be. By the way, the course is mandatory for every Drucker School student.

Additionally, the release of this unprecedented book is part of the worldwide Drucker Centennial, which marks the 100th birthday of Peter Drucker. The global celebration, which is being put on by the Drucker School and the Drucker Institute, will be crowned by a week of special events at Claremont Graduate University in November 2009.

You can find "The Drucker Difference: What the world's greatest management thinker means to today's business leaders" wherever books are sold, including Barnes and Noble, Amazon.com, Borders, and on McGraw-Hill's Web site. I strongly urge you to go out and get a copy.

As we approach this once in a hundred years celebration, please also take a moment to go to www.drucker100.com for additional details about the Drucker Centennial, including times and exact locations for upcoming events.

One last point: After reading this book, it occurred to me that great insights are rare. What we have here in this collection is a plethora of insight combined with application in the real world. To me, that's a pretty good deal.

An Enthusiastic Thumb's Up for Netflix

Fri, 02 Oct 2009 00:00:00 PST

Save for enjoying the occasional Charlie Chaplin or Buster Keaton send-up in his younger days, Peter Drucker was never much of a movie fan. Yet he certainly would have appreciated Netflix's efforts to upgrade its film recommendation system for its customers.

Netflix announced last week that it was awarding an international team of researchers and computer whizzes a $1 million prize for improving by 10.06% the online movie rental company's ability to predict what films its users will enjoy based on how they've rated other titles.

The winners, who bested tens of thousands of other teams from more than 180 countries, took nearly 36 months to reach the required 10% threshold as they labored to make technical advances in the field of taste prediction. By prompting scientists to wrestle with a huge data set of 100 million movie ratings, Netflix may well have spurred advances in large-scale modeling that will have widespread impact.

Achieving Concrete Results

But it was three underlying management principles, which Netflix embraced by setting up the contest in the first place, that would have earned an enthusiastic thumb's up from Drucker.

The first is that, by its very nature, a competition like this is all about achieving concrete results, not merely generating well-intentioned activity. And in the end, that's the most important thing for any organization to do. "Supplying knowledge to find out how existing knowledge can best be applied to produce results is, in effect, what we mean by management," Drucker asserted.

The second principle highlighted by the Netflix prize is that to be successful, companies must constantly strive to gain deeper insight into their customers' wants and desires. Nearly every business says that it does this, of course. But relatively few approach it with the discipline required—one reason that many corporations lose half their customers within five years. "What the people in the business think they know about customer and market is more likely to be wrong than right," Drucker wrote in his book Managing for Results. "Only by asking the customer, by watching him, by trying to understand his behavior can one find out who he is, what he does, how he buys, how he uses what he buys, what he expects, what he values, and so on."

Going Outside for Information

Drucker worried that computers weren't terribly good for this job. The information they spit out "tends to focus too much on inside information," he explained, "not the outside sources and customers that count." While Netflix, Amazon, Google, and others have made great strides over the last decade in getting inside consumers' heads, most brick-and-mortar companies must still figure out how to use their IT networks for a similar purpose.

For whether your business is online or not, Drucker's maxim holds true: Outside "is where the results are. Inside an organization, there are only cost centers." Which brings us to the third principle showcased by Netflix: a bold willingness to open up in general to the outside.

This sounds much easier than it is. After all, "it is the inside of the organization that is most visible to the executive," Drucker noted. "It is the inside that has immediacy for him. Its relations and contacts, its problems and challenges, its cross-currents and gossip reach him and touch him at every point. Unless he makes special efforts to gain direct access to outside reality, he will become increasingly inside-focused."

Gaining Traction

Still, more and more, some of the best-performing companies are getting beyond what Drucker termed this "degenerative tendency." IBM, Hewlett-Packard, Procter & Gamble, and others are engaging in collaborative research and open innovation. Intuit is devising ways, as co-founder Scott Cook has described it, for consumers, employees, sales prospects, and even those without any ties to the company to "volunteer their time, energy, and expertise to make life better for our customers." One example: a "Q&A community" that's embedded in Intuit's TurboTax software product, which provides users with a forum to learn from and share information with one another.

Meanwhile, the prize model is also gaining traction across the corporate arena as well as in the social sector. The X Prize Foundation, for instance, is promising eight-figure bounties to those able to make huge leaps in private space exploration, genomics, and alternative-energy vehicles. And sites such as InnoCentive allow companies to post challenges in product development or applied science, and then have outsiders vie for cash or other goodies as they attempt to solve them. Netflix, for its part, is already dangling another monetary prize for those who can create an algorithm that uses demographic and rental history information to predict the taste of users who haven't rated any movies.

But what every manager should keep in mind is that you don't need to stage a contest to mirror Netflix's commitment to attaining results, its attentiveness to the customer, and its eagerness to reach beyond its own walls to find and cultivate the best thinking from anywhere.

By doing these things every single day, your business will be the real winner.

10 Management Lessons from Lehman's Demise

Fri, 18 Sep 2009 00:00:00 PST

Former Lehman Brothers Vice-President Lawrence McDonald has titled his insider account of the firm's demise A Colossal Failure of Common Sense. Peter Drucker, meanwhile, was once said by the London Business School's Sumantra Ghoshal to "practice the scholarship of common sense."

With this sharp contrast in mind a year after Lehman went bust here are 10 management lessons derived from Drucker's insights:

1. Executives who are preoccupied with their company's daily stock price or consumed with quarterly earnings targets don't make very good stewards of the enterprise.

"The most critical management job is to balance short-term and long-term," Drucker declared in a 1999 interview, adding that a "one-sided emphasis" on the former is "deleterious and dangerous."

Ultimately, said Drucker, deciding "whether a business should be run for short-term results or with a focus on the long term is…a question of values. Financial analysts believe that businesses can be run for both simultaneously. Successful businesspeople know better."

2. Tying individual compensation to short-term gains only exacerbates the problem.

It rewards the executive "for doing the wrong thing," Drucker said. "Instead of asking, 'Are we making the right decision?' the temptation is to ask, 'How did we close today?' It is encouragement to loot the corporation."

The Aspen Institute recently urged companies to "define firm-specific metrics of long-term value," and then use these measures "both to communicate with investors" and to "better align executive compensation" with what truly matters. The Federal Reserve is also considering forcing financial institutions to adopt policies that tie pay to long-term performance. Drucker would have lauded this initiative.

3. People don't like it when those who've exhibited the worst cases of managerial myopia get filthy rich in the process.

Inevitably, said Drucker, there is "an outbreak of bitterness and contempt for the super-corporate chieftains who pay themselves millions." Former Lehman Chief Executive Richard Fuld, who enjoyed $40 million in pay and benefits in 2007, recently complained that he has "been pummeled. They're looking for someone to dump on right now, and that's me," Fuld said.

Drucker, it's plain, wouldn't feel sorry for him. "Few top executives," he once remarked, "can even imagine the hatred…and fury that has been created" because of their unjustified pay. "I don't know what form it will take, but the envy developing from their enormous wealth will cause trouble."

4. High profits don't necessarily mean that you're producing anything of genuine value.

Lehman, in fact, reported record earnings in 2005, 2006, and 2007. That may have impressed the investment community. But that's not what counts in the end. "Securities analysts believe that companies make money," said Drucker. "Companies make shoes."

5. Moving money around isn't the same thing as producing actual goods and services.

To be sure, financial instruments have a vital role to play in spreading risk and ensuring the smooth functioning of the global economy. But when Wall Street is generating 40% of U.S. corporate profits, something has gotten way out of whack.

Drucker called this worldwide flow of capital and credit the "symbol economy," as distinct from "the real economy." "Americans," he said, "cannot live in a symbol economy where businessmen play only with numbers."

6. When you buy and sell lots of assets at prices that are considerably higher than the underlying value of what's being traded, the run-up can't possibly last.

"The average duration of a soap bubble is known—it's about 26 seconds," said Drucker. "Then the surface tension becomes too great and it begins to burst. For speculative crazes, it's about 18 months."

7. Even professional bankers, who ostensibly are experts in "risk management," aren't immune from the soap-bubble syndrome.

Of course, this doesn't mean that they don't try to outsmart the system. The tendency is for firms to resort to "'trading for their own accounts,' that is, to outright speculation," Drucker noted. "This, however, as centuries of financial history teach (beginning with the Medici in 15th century Europe) has only one—but an absolutely certain outcome: catastrophic losses."

8. It's especially hard to avoid those losses when you don't want to hear any bad news.

Lehman and most other investment banks refused to even contemplate the "potential danger" of becoming overly leveraged, McDonald recounts in his book. "Wall Street was listening for calm seas, record profits, best-ever growth, joy, wealth, prosperity, and b-o-o-o-o-n-u-u-s. Anything less was essentially out of the culture." When Lehman's fixed-income chief warned Fuld about the unsustainable bets that the firm was making, McDonald adds, Fuld "decided to bully him, to belittle him publicly."

Other former Lehman bankers paint a similar picture, saying that Fuld and his top lieutenant weren't interested in dissenting views. But "dissent…is essential for effective decision-making," Drucker said. Without it, those at the top simply can't take on what Drucker described as "the most important task" they're responsible for: "to anticipate crisis."

9. As long as human beings are in charge of our major institutions, this won't be the last crisis we see.

"Scandals are a normal feature of the landscape," said Drucker, who wouldn't be shocked that companies are once again taking on substantial risk and selling the kinds of exotic financial products that triggered the Great Recession. "They very typically begin with something that goes wrong, and you…brush it under the rug. And you end up by trying to brush elephants under the rug. And then it doesn't work any more, and it collapses."

10. "Stupid people make stupid mistakes. Brilliant people make brilliant mistakes."

Japan: Rethinking Lifetime Employment

Fri, 04 Sep 2009 00:00:00 PST

The Democratic Party of Japan rode to victory in a landmark election on Aug. 30 by advancing an ambitious agenda, which includes reassessing Tokyo's relationship with Washington and playing a greater role in international climate talks. But there is one particular plank in its platform that managers—and not just those in Japan—would be wise to reflect upon, just as Peter Drucker did.

Among the DPJ's aims is banning the hiring of temporary workers on factory floors—a nod to the unease that many people in Japan are feeling as the country's decades-old model of "lifetime employment" continues to dissolve (and its labor practices look more and more like those of the U.S.).

Exactly how many Japanese ever really enjoyed the reliability and comfort of lifetime employment is difficult to say. Slicing the statistics and interpreting a series of changes to Japanese employment law in different ways, scholars have come up with figures as low as 20% of the workforce and as high as 80%. What is indisputable, though, is that the long-term employment security enjoyed by many in Japan (many men, that is) has been a cornerstone of the country's corporate culture and a symbol of its cohesion as a society.

"Japan's success—and there is no precedent for it in history—very largely rested on organized immobility—the immobility of 'lifetime employment,'" asserted Drucker, who first visited Japan in 1959 and was among the earliest observers to predict the nation's rise as a world economic power.

Promoting Teamwork

Indeed, the old approach certainly has its virtues, including the fostering of allegiance among employees—not a bad thing when you're trying to promote teamwork throughout the organization. Edward Lincoln, a professor at New York University and director of its Center for Japan-U.S. Business & Economic Studies, believes that Japanese workers may also have eagerly embraced technological change over the years because they didn't worry about a machine casting them to the streets. "They knew they'd get moved into another job elsewhere in the company," he says.

Drucker, too, thought that there was much to learn from the Japanese. In a seminal 1971 piece in Harvard Business Review, he praised the country's managers for the deliberate manner in which they puzzled through decisions, lauded their commitment to continuous worker training, and found lessons in the way they mentored younger employees.

Drucker also touted the concept of lifetime employment, which he deemed far less rigid than many assumed. That was in part, he pointed out, because Japanese workers faced mandatory retirement (then at age 55), making "lifetime" something of a misnomer.

What's more, Drucker wrote, companies in Japan never hesitated to lay off people when business got bad. "Yet they can do so in such a fashion that the employees who need incomes the most are fully protected," he explained. "The burden of adjustment is taken by those who can afford it and who have alternate incomes to fall back on."

Looking Beyond Tradition

Still, despite all this, Drucker over time reached the same conclusion that many Japanese executives have: Thriving in today's global economy requires more flexibility in hiring people and letting them go than the traditional system has allowed.

And so it is that, since the late 1990s, most big Japanese corporations have restructured themselves, moving from "unwieldy goliaths to nimble competitors," in the words of the University of California at San Diego's Ulrike Schaede. Among the steps they've taken has been to increase the use of low-cost part-timers, contract workers, and temporary staff. This group now makes up more than a third of Japan's labor force.

The trend isn't being driven by industry alone. As more people shift from manual work to knowledge work, some employees have come to relish the ability to bounce from job to job (presumably snatching ever better offers along the way). In the U.S., author Bruce Tulgan has dubbed this phenomenon "just-in-time loyalty."

But what worried Drucker—and what the Japanese election underscores—is that the flip side of mobility is instability, especially for those workers lacking the skills and education to be in high demand. In these cases, Drucker suggested, employers have a special obligation to help those they dismiss find their way through the dislocation and land new positions.

Helping "Redundant" Workers

This "requires active and energetic attempts at retraining for specific new job opportunities," Drucker wrote. "It requires that the employer takes responsibility for placing redundant employees in new jobs." This was advice, Drucker noted, that he dispensed both in Japan and in the U.S.

"I very much hope," he added, "that Japan will find a solution that preserves the social stability, the community—and the social harmony—that lifetime employment provided, and yet creates the mobility that knowledge work and knowledge workers must have."

It's far from clear that the DPJ has found the right answer. But it has touched on a subject—the proper shape of the social contract between employer and employee in the 21st century—that merits considerably more attention, regardless of which side of the Pacific we happen to be on.

Health-Care Reform: The Right Kind of Compromise

Fri, 21 Aug 2009 00:00:00 PST

This week's brouhaha over whether the White House is ready to give up on a public insurance plan as part of health-care reform provides a fascinating window into the give-and-take of Capital politics. But it's also a window into what Peter Drucker called "the elements of decision-making."

In that sense, the dust-up in D.C. is instructive for any leader charged with implementing a difficult decision. Invariably, he or she will be forced at some point to take a step that many people instinctively resist: compromise.

"The leader sets the goals, sets the priorities, and sets and maintains the standards," Drucker wrote in his 1992 book, Managing for the Future. Yet he also "makes compromises, of course; indeed, effective leaders are painfully aware that they are not in control of the universe.

"But before accepting a compromise," Drucker added, "the effective leader has thought through … whether the compromises he makes with the constraints of reality—which may involve political, economic, financial or people problems—are compatible with his mission and goals or lead away from them."

It was many months ago, back on the campaign trail, that President Barack Obama made the fundamental decision to move full steam ahead in trying to overhaul the nation's health-care system. In doing so, he seemed to follow to a tee Drucker's counsel regarding one of the most crucial questions that any executive should ask: "Is a decision really necessary?"

After all, as Drucker pointed out, "one alternative is always the alternative of doing nothing." And this is precisely the course that should be taken "if the condition, while annoying, is of no importance and unlikely to make much difference."

In this case, however, inaction was not a possibility—not with health-care costs soaring and not with 45 million-plus Americans uninsured and as many as 15,000 more losing their coverage every day, by some estimates.

But now has come what the President himself recently described as "the hard part." This is the inevitable stage, Drucker observed, when "it becomes suddenly quite obvious that the decision is not going to be pleasant, is not going to be popular, is not going to be easy."

Making it all the tougher for Obama is that lies are being spread about his beliefs: that he favors "socialism," government "death panels" for the elderly, and other nonsense. Maddening though this may be, the President needs to be extremely careful in the way that he and his surrogates push back, lest they stifle legitimate debate over the details of reform.

CONFLICT CAN PRODUCE GOOD SOLUTIONS

That would be a disaster because, as Drucker knew, the best outcomes emerge from sharply conflicting points of view. For starters, he explained, dissent "safeguards the decision-maker against becoming the prisoner of the organization" he or she is in. In addition, it can present other ideas to fall back on should something later go wrong with the initial effort.

"Above all," Drucker wrote in Management: Tasks, Responsibilities, Practices, "disagreement is needed to stimulate the imagination" and come up with truly "creative solutions" that require "a new and different way of perceiving and understanding."

In the end, the key is to avoid what Drucker termed "the trap of 'being right.' " Rather than beginning "with the assumption, 'I am right and he is wrong,' " Drucker wrote, a great leader "starts out with the commitment to find out why people disagree" and is then prepared to yield where it makes sense to do so.

On Aug. 18, as members of the Administration took to the Sunday morning talk shows, this is exactly what appeared to be happening. They suggested that they were not completely wedded to a "public option"—that is, setting up a government-run medical insurance plan that would compete with private insurers. Such flexibility is wise. All along, opponents have painted this proposal as a federal "takeover" of health-care, and it's this kind of rhetoric that most threatens to derail reform.

At the same time—and even more important—Obama's advisers stressed that their openness to other approaches doesn't in any way mean that the President is forsaking certain essential aims: heightening competition (which should help curb costs) and offering choice. These, though, can conceivably be met through other avenues, including the establishment of health-care cooperatives.

How all of this will shake out is far from clear. Some of the Administration's closest allies are insisting on keeping the public option. More broadly, voters remain deeply skeptical of what the President and congressional Democrats are trying to achieve.

But know this: If we do ultimately get real reform, it will be because the Administration has forged what Drucker characterized as the right kind of compromise—one best expressed, he said, in the old proverb "Half a loaf is better than no bread."

On the other hand, if too much is bargained way—if the President, in desperation, gives up not only the public option but its underlying goals as well, he will have made a very different kind of compromise, expressed in the story of the Judgment of Solomon: "Half a baby is worse than no baby at all." As Drucker noted, half a baby "is not half of a living and growing child. It is a corpse in two pieces."”

And one, we can be sure, whose parents couldn't afford any insurance to begin with.

Management as a Liberal Art

Fri, 07 Aug 2009 00:00:00 PST

I've had the opportunity to take part in several conferences and symposiums this summer revolving around topics at the center of Peter Drucker's teachings: innovation, marketing, service, and volunteering. But it's the gathering where I am now—surrounded by novelists and poets, instead of corporate executives and social entrepreneurs—that I believe Drucker would have relished the most.

Here, at the Squaw Valley Community of Writers, amid the natural splendor of the California Sierra Nevada, Drucker would have felt truly at home. He considered himself a wordsmith first and foremost. And with 39 books to his name, who could argue? In addition to works such as The Practice of Management and The Effective Executive, Drucker authored two novels: The Last of All Possible Worlds and The Temptation to Do Good.

Yet he also would have loved this place, with its nightly readings of fiction and memoir and social history, because he believed that management, when done right, incorporates lessons from all of these disciplines and many more.

ACTION AND APPLICATIONS

Management "deals with action and application; and its test is its results. This makes it a technology," Drucker explained in The New Realities. "But management also deals with people, their values, their growth and development—and this makes it a humanity…. Management is thus what tradition used to call a 'liberal art': 'liberal' because it deals with the fundamentals of knowledge, self-knowledge, wisdom, and leadership; 'art' because it is practice and application.

"Managers," Drucker continued, "draw on all the knowledge and insights of the humanities and the social sciences—on psychology and philosophy, on economics and on history, on the physical sciences and on ethics."

That too many corporations and other institutions have lost sight of this is painfully obvious today. This is not to imply that if more CEOs and regulators had merely studied Aristotle's warnings about "the unlimited acquisition of wealth" or digested Dickens' Little Dorrit, the financial crisis or the Madoff scandal would have been averted. But pausing to consider such wisdom surely couldn't have hurt.

It's not that people have stopped writing; by one estimate, a new book of fiction is published in the U.S. every 30 minutes. It's not that people have stopped reading, either (though more and more are doing so online). The National Endowment of the Arts released a survey last January showing that for the first time in more than 25 years American adults are consuming more literature.

THE NITTY-GRITTY

The problem is that the broad world of ideas has become largely separated from the world of business.

"What Drucker wanted was for knowledge to "no longer be ornamental—to be consumed to refine oneself or to impress others," says Joseph Maciariello, the academic director at the Drucker Institute, which I run. Rather, knowledge is to be brought down to the grimy earth, where we all work, and integrated so that work can be made more productive and more humane."

Maciariello is spearheading an effort to bring the concept of "management as a liberal art" into the nation's colleges and universities. The goal is to have business professors integrate the humanities more fully into their classes, while liberal arts majors contemplate "not just applied reasoning and ethics but virtuous living," as Maciariello puts it, rooted in real results. Ultimately, the intention is for these ideals to transcend the academy and reach the realm of practice.

In the meantime, the creative souls at Squaw Valley have, unbeknownst to them, underscored a few things that all managers would profit from thinking about. For starters, there's the Community of Writers itself. Founded 40 years ago by novelists Blair Fuller and Oakley Hall, the organization is thriving, thanks in large measure to a strong sense of self. "Community" is not just a throwaway word in the name here, but the very essence of the place. The authors on staff, many of them highly acclaimed, are unfailingly unpretentious and nurturing of the young writers they teach.

"Any organization…needs a commitment to values and their constant reaffirmation, as a human body needs vitamins and minerals," Drucker wrote. "There has to be something 'this organization stands for,' or else it degenerates into disorganization, confusion, and paralysis."

BRILLIANCE IS NOT ENOUGH

What has also been made clear at Squaw Valley this week is that work of value never comes easy. "I do not believe in genius," Dorothy Allison, the bestselling author of Bastard Out of Carolina and Cavedweller, declared the other night. With that, she implored everyone trying to get his or her first book published to keep honing the manuscript—through 19 drafts, need be—until it's just right.

Managers could benefit from the same basic advice. "Brilliant men," Drucker noted, "are often strikingly ineffectual; they fail to realize that the brilliant insight is not by itself achievement. They never have learned that insights become effectiveness only through hard systematic work."

Finally, and most importantly, there are the books. As I've sat and listened to Allison, Dagoberto Gilb, Lynn Freed, and others read from their latest narratives, I've been reminded how much literature can shed light on a subject that lies at the very heart of management: the human condition. "I am rereading each summer—and have for many years—the main novelists," Drucker wrote to a friend in 1997. Among them, he said, were Austen, Thackeray, Trollope, and George Eliot. "I never read management books," Drucker added. "All they do is corrupt the style."

I can, of course, think of at least one management writer whose work qualifies as a great exception.

Where Drucker Fits In

Sat, 25 Jul 2009 00:00:00 PST

The late Peter F. Drucker was known as the "Einstein of business," yet he viewed government as the most important sector of society. For him, the three key sectors of society are:
Public. Government, he implored, needs to be strong and vigorous, now more than ever.

Private. Business needs to be the engine of innovation, but it also must view its role as contributing benefits to society, not just to shareholders.

Philanthropic. Nonprofits and civil society are the new glue that binds a functioning society with engagement and responsibility to the community.

For Drucker, a functioning society meant that these three areas worked together and by maintaining a healthy balance societies could keep tyranny and extremism at bay.

What is known about Drucker and government is that his worldview was largely shaped by the rise of fascism and totalitarianism in his native Austria and in Germany. His first works were banned and burned by the Nazis. He fled Europe for America, where he wrote the first of his 39 books, "The End of Economic Man." Churchill was said to have been so impressed with this book that he assigned it as required reading for his general staff.

Drucker's focus on organizations, institutional effectiveness, personal ethics and social responsibility all flow from the formative experience of witnessing the dysfunction of society and the collapse of its principal institutions. He was haunted by the resulting tyranny and by the ideology of "isms" - fascism, totalitarianism and communism. Drucker was hardly a utopian or a dreamer. He had experienced the worst of societal failure.

Later in life, and largely reflecting upon the contemporary American experience, Drucker noted that the growing "disenchantment with government cuts across national boundaries and ideological lines" and that "we are rapidly moving to doubt and distrust of government and, in the case of the young, even to rebellion against it.

"We no longer expect results from government."

Indeed, Drucker found that "the greatest factor in the disenchantment with government is that government has not performed." In functions other than waging war and inflating the currency, government was seen as incompetent.

Drucker's specific criticism was directed at the failures of the welfare state and the war on drugs, and he finally speculated in serious conversations that perhaps we should legalize drugs and take the profit and crime out of the drug trade.

Today, when public distrust and cynicism are at an all-time high and confidence in the integrity of both business and government are at historic lows, Drucker returns us to the basics and first principles: We need government, and we need it to govern, but we shouldn't confuse governing with bureaucracy.

Drucker didn't foresee or call for the "withering away of the state." On the contrary, he asserted that we need "a vigorous, a strong, and a very active government". It is not the size or the cost or the scope of services provided by the government that is most important; rather, it is the capacity of government to make major decisions. Drucker invoked vivid imagery to enliven this perspective, comparing governing to conducting.

"The conductor himself does not play an instrument. His job is to know the capacity of each instrument and to evoke optimal performance from each. Instead of being the `performer,' he has become the `conductor.' Instead of `doing,' he leads."

We need, in essence, a government that steers, not rows, that "is strong because it confines itself to decision and direction and leaves the `doing' to others."

The government's role of ensuring equity and fairness has to be balanced with the strengths of business to provide efficiency and innovation and the benefits of civil society in creating community and offering legitimacy. In other words, government needs to govern, business needs to innovate, and civil society needs to flourish and be encouraged.

Drucker would have seen in the ideological sweep of the deregulation pendulum a dangerous abrogation of responsibility in exchange for blind faith in markets. He was concerned about rising inequality well before any Gini coefficient registered the growing disparity of income between rich and poor and the declining purchasing power of the middle class.

Drucker had an uncanny knack for looking out the window to see and feel trends and realities that others were blind to or blinded by; he saw clearly the future that is already here. Drucker's theory and conviction that a functioning society needs balance, equilibrium and recognition of the respective roles of each sector would have led him to see a dangerous disequilibrium in the excesses of consumerism, borrowing and greed.

Perhaps I'm taking too much license, but I think Drucker would have favored the stimulus bill and certainly the investments in education, health care, energy sufficiency and the environment.

I'm less certain that he would have supported the bank bailout or the subsidies for GM. He first wrote of GM's problems some 40 years ago, and he felt that GM's decline was the result of poor, ineffective and shortsighted management and predicted that restructuring was inevitable and needed.

He would have favored new international institutions like the G-20 and the WTO, the increased reach of the IMF, the emergence of the UN's Global Compact, and other mechanisms for tackling global issues that are beyond the power of sovereign states to manage or control.

It would be too hazardous to guess whether he would have favored all the actions of the Fed or the size of the likely deficits - I think not.

Drucker would have thought that this was a perfect time to ask some fundamental questions about the role, responsibility and capacity of government. He would have been insistent that the new authority vested in the government should be temporary and should have a fixed termination, especially with regard to running any previously private function. And he would have insisted on transparency and accountability, believing, as Supreme Court Justice Felix Frankfurter suggested that "sunlight is the best disinfectant."

Innovation Isn't Just for Startups

Fri, 24 Jul 2009 00:00:00 PST

We can all picture the scene: A couple of guys toiling away in a cluttered garage, perfecting the next innovation that will shake an entire industry. Meanwhile, the big corporate players in the market stand oblivious—fat, dumb, happy, and too bogged down by bureaucracy and conservatism to be innovative themselves.

It's a great image—one that has long persisted. There's just one problem with it: It's false. "The all but universal belief that large businesses do not and cannot innovate is not even a half-truth," Peter Drucker wrote in his 1985 classic Innovation and Entrepreneurship.

Yet what is true, Drucker added, is that "it takes special effort for the existing business" to get beyond the temptation "to feed yesterday and to starve tomorrow."

I was reminded recently of the wisdom in Drucker's words when I had a chance to chat with Mike Shapiro, engineering director and chief technology officer for Sun Microsystem's (JAVA) Sun Microsystem's Open Storage operation. As much as any story I've heard, Shapiro's demonstrates that, as Drucker put it, "innovation can be achieved by any business"—even the largest. But what Shapiro and his colleagues have accomplished also serves as a textbook example of Drucker's other insight: A major company must follow specific practices if it's to convert breakthrough ideas into real results.

LEAPING FORWARD
Shapiro, his partner, Bryan Cantrill, and their small team are the brains behind a family of data-storage systems—the 7000 line—that Sun introduced late last year. It features oodles of capacity, a "killer app" that uses real-time graphics so that customers can observe and understand what their storage system is doing, and a pricing model that appears to blow away the competition. I'm more of a Luddite than a techie myself, but I can tell you that reviews in the trade press have been very strong, praising the products' speed, simplicity, and low cost.

So how can a corporation pull off something like this? First, it must focus "managerial vision on opportunity," Drucker wrote. This sounds simple, he noted, but most companies spend the bulk of their time concentrating on problems instead. And you can't exactly hit a bull's-eye if you never bother to look at the target.

At Sun, Shapiro and Cantrill made a conscious decision to hunt for opportunity. Highly accomplished engineers and close friends since their days together at Brown University, the two spent a decade working on Sun's Solaris operating system. A few years ago, they became intent on pushing Sun into an area where it hasn't tread much traditionally: making special-purpose appliances. This is opposed to general-purpose computer servers, whose underlying technology other companies have been able to exploit at times and turn into moneymaking products, leaving Sun with relatively little to show for all its high-tech prowess. (It is this vulnerability that helped lead Sun into the arms of Oracle (ORCL), which is now waiting to complete its $7.4 billion acquisition of the company.)

Shapiro and Cantrill eventually settled on data storage as a particularly rich field to explore. But the duo didn't just lock themselves in a laboratory, examine the current state of storage technology, and dream up ways to improve upon it. Instead, they spent a lot of time acting as market researchers, hitting the road and talking with potential customers about what they were really looking for—a crucial step, according to Drucker.

"Because innovation is both conceptual and perceptual, would-be innovators must…go out and look, ask, and listen," Drucker wrote. "Successful innovators use both the left and right sides of their brains. They work out analytically what the innovation has to be. … Then they go out and look at potential users to study their expectations, their values, and their needs."

THE RIGHT SPACE
What Shapiro and Cantrill realized from this exercise was that they had to devise a genuinely "disruptive product"—not just a souped-up version of what was available. Because of the hassle and expense, customers weren't going to scrap their existing data-storage solutions unless Sun came up with something far superior. "We had to cost half as much and be twice as fast," Shapiro says.

The trouble was, Shapiro couldn't figure out how to create something like that within the confines of Sun. It wasn't for lack of talent. The concern, he says, was that "in large organizations, people's ways of solving problems are limited by the horizons that they see."

Shapiro also worried that his project, which by its nature needed to draw on resources from different parts of Sun, would give way to political infighting, with various vice-presidents at the Santa Clara (Calif.)-based company vying for control.

Drucker certainly would have understood Shapiro's fears. "The entrepreneurial, the new, has to be organized separately from the old and existing," he asserted. "No matter what has been tried—and we have now been trying every conceivable mechanism for 30 or 40 years—existing units have been found to be capable mainly of extending, modifying, and adapting what already is in existence. The new belongs elsewhere."

In Sun's case, the elsewhere was downtown San Francisco, where Shapiro and Cantrill—with the full support of Sun's top brass—set up a separate organization inside an old office building. Dubbed Fishworks (the "fish" stands for fully integrated software and hardware), the venture was allowed to plug away largely under wraps.

DON'T REINVENT EVERYTHING
At one point, Cantrill discovered a book called Skunk Works, written by the former chief of Lockheed's (LMT) super-secret aircraft factory. Among the lessons it provided was that when Lockheed built the SR-71 spy plane, those in charge of the program didn't try to reinvent everything. They grabbed all the standard parts they could, ripping components out of old jets, so that they could direct their energy and attention to the SR-71's radar-absorbing skin and other groundbreaking advances. Shapiro and Cantrill adopted a similar strategy. "We decided we weren't going to rebuild the operating system," Shapiro explains. "That let us tease out the things that were truly innovative and disruptive."

Or, as Drucker counseled all innovators: "Don't diversify, don't splinter, don't try to do too many things at once."

He had another piece of advice, too: "A successful innovation aims at leadership" in a given market. If it doesn't boldly seek such a position, "it is unlikely to be innovative enough, and therefore unlikely to be capable of establishing itself."

With hundreds of customers out of the gate, the Sun Storage 7000 Series has definitely established itself—and Fishworks, which Shapiro continues to run, could well prove one of the hidden gems of the Oracle acquisition. In the meantime, the new product line stands as powerful proof of what Drucker preached: When it comes to innovation, it's smarts, not size, that matter most.

Manage Your Boss

Fri, 10 Jul 2009 00:00:00 PST

The moment has come for employees everywhere to be put through the midyear microscope, as supervisors assess their employees' performances for the first six months of 2009 and gauge what they need to focus on in the future.

But this is also a useful time to remember one of Peter Drucker's most fundamental teachings: Your success depends not just on how well you do your job. It also depends, a great deal, on how well the person to whom you report does his or hers. And that means you must become adept not only at managing yourself and those who work for you but also at managing the boss.

"Few managers seem to realize how important it is to manage the boss or, worse, believe that it can be done at all," Drucker wrote. "They bellyache about the boss but do not even try to manage him (or her). Yet managing the boss is fairly simple—indeed, generally quite a bit simpler than managing subordinates."

That said, please don't take Drucker's insight as a license to suck up. He had no patience for brown-nosers. "One does not make the strengths of the boss productive by toadying to him," Drucker declared in 1967's The Effective Executive. "One does it by starting out with what is right and presenting it in a form which is accessible to the superior."

TAKE A LETTER
Among the best forms of communication, Drucker advised in his 1954 landmark The Practice of Management, is a twice-yearly letter written to one's supervisor. The goal, Drucker explained, is for the employee to spell out not only his own goals but also what he sees as the boss's objectives. After that, the employee enumerates the "things he must do himself to attain these goals—and the things within his own unit he considers the major obstacles. He lists the things his superior and the company do that help him and the things that hamper him."

"Finally," Drucker continued, "he outlines what he proposes to do during the next year to reach his goals. If his superior accepts this statement, the 'manager's letter' becomes the charter" under which one carries out his duties—and, done right, it leaves little room for confusion or second-guessing. Said Drucker: "This device, like no other I have seen, brings out how easily the unconsidered and casual remarks of even the best 'boss' can confuse and misdirect."

The dialogue between superior and subordinate shouldn't stop there, however. Drucker also recommended that, at least once a year, every employee ask his or her boss (or bosses): "What do I do and what do my people do that helps you do your job? And what do we do that…makes life more difficult for you?"

Meanwhile, Drucker provided two other bits of counsel for managing upward. First, be mindful that nobody likes surprises—especially the boss. So keep him or her in the loop.

Second, never underestimate the person with the reserved parking space. "The boss may look illiterate; he may look stupid—and looks are not always deceptive," Drucker wrote. "But there is no risk at all in overrating a boss. The worst that can happen is for the boss to feel flattered." Yet if you underrate the boss, he may well "see through your little game and will bitterly resent it."

CANDOR AND TRUST
This doesn't mean that you should be cynical or insincere in the way you connect to those in the corner office. The key to managing people for whom you work, just as it is to managing people who work for you, is building relationships based on candor and trust—and recognizing, as part of that process, that everyone has his or her own strengths, weaknesses, and idiosyncrasies.

"Bosses are not a title on the organization chart or a 'function,'" Drucker remarked. "They are individuals and are entitled to do their work in the way they do it. And it is incumbent on the people who work with them to observe them, to find out how they work, and to adapt themselves to the way the bosses are effective."

If your boss is a reader, for example, give him reports in writing. If he's a listener, approach him that way instead.

Though Drucker began writing about managing the boss some 50 years ago, it is a subject that has particular resonance today. The more knowledge-driven that organizations become, Drucker noted, the greater the likelihood that a supervisor hasn't actually performed many of the specialized tasks for which his or her employees have been hired.

LIKE AN ORCHESTRA CONDUCTOR
The interplay that develops, therefore, "is far more like that between the conductor of an orchestra and the instrumentalist than it is like the traditional superior/subordinate relationship," Drucker wrote in his 1999 book Management Challenges for the 21st Century. "The superior in an organization employing knowledge workers cannot, as a rule, do the work of the supposed subordinate any more than the conductor of an orchestra can play the tuba."

In turn, those down the ladder may hold more power than they realize. "Just as an orchestra can sabotage even the ablest conductor," said Drucker, "a knowledge organization can easily sabotage even the ablest, let alone the most autocratic, superior."

Be careful, though, before you do. Figuring out how to manage—rather than damage—the boss is very likely in your self-interest. After all, as Drucker pointed out, one of the surest ways to get ahead is "to work for a boss who is going places."

Boredom, Not Rigor, Dampens Volunteers' Spirits

Fri, 26 Jun 2009 00:00:00 PST

Michelle Obama strode across the podium in San Francisco this week and, staring out at thousands of nonprofit leaders and volunteers assembled in front of her, took note of an unmistakable trend sweeping the country: These days, it's hip to help.

"You've done everything in your power," the First Lady declared at the start of the 2009 National Conference on Service & Volunteering, "to make giving back cool again."

Somewhere, Peter Drucker is smiling.

When I last wrote about the surge in volunteerism in America, a year and a half ago, I noted Drucker's influence in the field both as an adviser to numerous social-sector organizations and as an observer of people's hunger to find something in their lives that brings them fulfillment. "What the U.S. nonprofits do for their volunteers may well be just as important as what they do for the recipients of their services," Drucker wrote in his 1993 book Post-Capitalist Society. "Citizenship in and through the social sector…restores the civic pride that is the mark of community."

Today, propelled by this way of thinking, volunteering is fast becoming a full-blown cultural phenomenon. Surveys suggest that Millennials—those born between 1980 and 2000—are more civic-minded than any generation since the 1930s. The nation's 77 million Baby Boomers are also getting into the act, as more and more folks in their 40s, 50s, and 60s look to take up a so-called encore career that's centered on volunteering and public service.

A WAVE OF DOING GOOD

Meanwhile, technology is enabling people, in a click, to find a multitude of avenues to get involved and do their part in tackling some of society's most pressing problems. Among those leading the wave is All for Good, a new Web site hosted by Google.

Nothing, though, has given the National Service Movement more of a lift than the words and deeds of the Obamas. From the President's signing in April of the $5.7 billion Serve America Act to his launching this month of United We Serve—an initiative designed to have all Americans make volunteering a part of their daily lives this summer—he has delivered on his campaign promise to make community service a centerpiece of his Administration.

Yet despite all of the momentum and the palpable excitement in San Francisco, nonprofits need to be careful or they'll wind up squandering the remarkable opportunity before them.

Earlier this year, the Stanford Social Innovation Review published a piece that noted how poorly most nonprofits manage their volunteers. As a result, more than a third of the 60 million-plus Americans who donate their time and talents one year don't do so the next—not only at the organization where they'd signed up, but at any nonprofit at all. Some call this "the leaky bucket of volunteerism."

There are a host of reasons for this pullback, according to the analysis, including nonprofits inadequately recognizing the contributions of their volunteers and a lack of training among volunteers and their managers.

But Robert Grimm, director of research and policy development at the Corporation for National and Community Service and one of the authors of the article, believes there's a more fundamental issue to grapple with: It isn't so much that volunteers have nightmarish experiences at nonprofits, he says; it's that they have "bland" ones.

MATCHING NEEDS AND SKILLS

Nonprofits, says Grimm, must "find out what people's passions are"—and do a better job of meeting those interests. They also need to take far greater advantage of the skills that volunteers bring. There's no reason for an attorney, say, to paint a fence when the organization he wants to assist could put him to work on an urgent legal matter. Why have a retired marketing executive stuff envelopes when she could be helping to devise the nonprofit's new media campaign?

The ability of nonprofits to match needs and skills effectively becomes all the more critical as an increasing number of corporations, including consulting firms such as Deloitte and PricewaterhouseCoopers, donate millions of dollars worth of pro bono services to nonprofits.

The necessity of keeping workers engaged and bestowing upon them a feeling of pride is hardly exclusive to the social sector. Drucker taught that all managers must offer their employees a way to make a meaningful contribution. For it is this, even more than money, that motivates people.

"Personal satisfaction of the worker without productive work is failure," Drucker wrote in his 1973 classic, Management: Tasks, Responsibilities, Practices. "But so is productive work that destroys the worker's achievement" and his or her sense of having made a real difference. "Neither is, in effect, tenable for very long."

When it comes to volunteers, the instinct among some managers is not to demand too much from them for fear that they'll walk away if they're overworked. But, in fact, Drucker believed that volunteers are hoping to be pushed hard—as long as it's into something that can supply a big emotional payoff at the end.

"Volunteers have to get more satisfaction from their work than paid employees, precisely because they don't get a paycheck," Drucker wrote. "They need, above all, challenges."

Nonprofits must quickly begin to provide them. Or the nation's burgeoning ranks of volunteers will no longer feel cool. They'll simply grow cold.

Drucker Institute executive director interviewed at National Volunteer Conference

Tue, 23 Jun 2009 00:00:00 PST

Rick Wartzman, the executive director of the Drucker Institute, was interviewed on a live BusinessBoomer webcast during the 2009 National Conference on Volunteering and Service in San Francisco.

Rick discussed his role at the conference, as well as the work of the Drucker Institute. To see the interview, click here.

Time to hit reset button

Mon, 15 Jun 2009 00:00:00 PST

With all the noise and negativity around us - and now "June Gloom" - I'd like to suggest a quick timeout.

We've been barraged with a buck full of bad news for some time now - Bernie Madoff, the GM and Chrysler and Lehman Bros. bankruptcies, the AIG bailout, the California fiscal crisis, menacing noises from North Korea, inflammatory rhetoric from Iran, rising unemployment, shuttered car dealerships, dangerous cutbacks in social services, drug wars in Acapulco, ballooning federal deficits, rapidly rising health-care costs, and plenty more.

There's no denying that we find ourselves with a full plate of problems to deal with and that despite the summer season, this is no day at the beach for us as a region, a state, nation or a global community.

I'm reminded of what President Kennedy said when times looked tough almost 50 years ago: "We will either master change, or change will be our master."

Contrary to what lots of people say and think about the future, I believe that our best days can be ahead of us. I refuse to believe that our kids will be worse off than we were, and that we'll be the first generation of Americans who leave things worse than we found them.

Sure we have problems, but it is showtime for solutions - and creative inventions and adaptations are the stuff that have made us successful as a nation from the very start.

We have a bucket of issues to deal with, from underperforming public schools to deteriorating infrastructure to an unsustainable financing system for Social Security and Medicare, to a record number of fellow citizens out of work, foreclosed upon, and feeling pretty desperate and alone. China is rising, India is on the move, Brazil is coming on strong, and America, some say, is in retreat.

It's precisely at times like these that summon either the basest or the noblest of instincts in a people.

I'm confident that we will again be smart and savvy and ingenious enough to make this a time of renewal for America.

Is this any tougher a time than what we faced during the Depression? Or the Second World War? Or during the Civil War?

Clearly not, but sometimes it seems as though we feel that the burden is too great on our generation and that our issues are unique or overwhelming.

A little historical perspective can sometimes help jar us loose from the complaining and the whining, and give us that little shock or spark that's needed to get us back to basics.

I didn't move here to Southern California from Boston to witness or experience the sunset on the American dream.

I came here to join with others to recreate that dream.

As Jeff Immelt, the CEO of GE put it recently, it's time to push the "reset button."

We have a tremendous opportunity - and, yes, it's also our historic obligation - to reinvent the way we do lots of things as a society. In the process and after the pain of adjustment and transition, we can and we should be able to leave things better than we found them.

The Navajo say that we don't inherit the land from our parents; we borrow the land from our children.

It's time to reset the button on how we finance and govern the great state of California. Maybe it doesn't make much sense to leave it to the initiative petition to pass legislation or to think about balancing the budget. We need to rethink whether we need a super majority to enact taxation or pass a budget. Is this any harder a problem to solve than the founders and framers of the U.S. Constitution faced back in Philadelphia more than two centuries ago?

It's time to reset the button on how business leaders behave and how they think and the way they are rewarded. Maybe it doesn't make much sense after all that CEOs of Fortune 500 companies earn 400 times what the average guy or gal on the line or in the cubicle makes each year. Maybe it's time for business leaders to take the equivalent of the Hippocratic Oath that every doctor has sworn by for 2,500 years: "First, do no harm."

It's time to push the reset button and start inventing solutions to the environmental crisis and global warming. Maybe it didn't make much sense to think that we could exhaust the supply of oil or water or land in our time and leave it depleted for the future. When the Pilgrims came over and landed at Plymouth Rock, they came with a dream of building a "city on a hill, a beacon for all mankind." They viewed themselves as stewards, feeling an intense obligation and mission to make things better, not just for themselves but also for the future. When and why did we ever think it was OK to be as indulgent and selfish and greedy and short-term as we had become as a people?

I'm going to devote the next couple of articles here to examples of people and institutions that are pushing the reset button and that I find inspiring and instructive.

We need to start to emulate best practice and race to the top, instead of lamenting mistakes or chasing things to their lowest common denominator.

Next month, I'll start sharing little vignettes about companies and organizations that are leading the way and showing us how we can recover and renew and restore our greatness and apply a can-do approach to solving our problems and paving a new path to the future.

Let me leave you this week with just a couple of inspiring thoughts from others.

Here's what Peter Drucker, the father of modern management, once said: "Every social and global problem and issue of our day is a business opportunity in disguise - just waiting for the innovation, the pragmatism, and the capacity of great companies to think higher."

What an incredible, game-changing insight that is. What if instead of creating a greater divide between the haves and the have-nots, business applied its creative and innovative capacities to lessening that divide and solving problems at the bottom of the pyramid, where most people live, and became the major source of the solution, rather than being perceived as a major part of the problem? Next month, I'll share some examples of companies that are doing just that.

Here's another of my favorites, one that Bobby Kennedy would repeat in almost every one of his speeches when things looked pretty grim during the civil-rights movement and while our cities were burning in the late '60s: Some people see things as they are and ask, "why?" I dare to dream things as they ought to be and say: "Why not?"

From a little book from Nancy Adler called "Leadership Insight," come a few others of my favorite quotes that help to motivate me to see the possibilities instead of the obstacles:

"Be great ancestors to the generations to come, " says Bill Gates, the founder of Microsoft.

In Swedish, business means "nourishment for life."

From Kofi Annan, when he was secretary-general of the United Nations: "Let us choose to unite the power of markets with the authority of universal ideals. Let us choose to reconcile the creative forces of private entrepreneurship with the needs of the disadvantaged and the requirements of future generations."

And, perhaps most importantly, simple but profound wisdom from Wayne Gretzky: "You miss 100percent of the shots you don't take."

It's our time. Let's start taking shots worth making.

GM: Lessons from the Alfred Sloan Era

Fri, 12 Jun 2009 00:00:00 PST

Last week's historic bankruptcy filing by General Motors has pundits pointing to places where the fallen car giant can learn important lessons as it seeks to revive its fortunes—rival Toyota, for example, or AT&T, which newly named GM Chairman Edward Whitacre helped turn into the world's largest telecommunications company.

But here's another, less obvious model of managerial success to consider: General Motors.

It was the GM of 60 years ago, after all, that helped define the discipline of management, having served as the subject of Peter Drucker's landmark book, Concept of the Corporation. "When this book was being written…the corporation had barely been discovered and was totally unexplored—resembling somewhat the Africa of the medieval mapmaker, a big white space across which was written: 'Here elephants roam,'" Drucker remarked some four decades after the book's publication in 1946. "Books on the corporation itself and its management could have been counted on the fingers of one hand."

As noted previously in this space, Concept of the Corporation—and GM's head-in-the-sand reaction to its mild criticisms—foreshadowed an insularity that would ultimately prove crippling to the automaker.

Yet it's also worth recalling that Drucker found many, many things to admire about GM—and especially its chairman, Alfred Sloan. In an introduction to Sloan's autobiography, My Years With General Motors, Drucker credited the no-nonsense executive with being "the first to work out systematic organization in a big company, planning and strategy, measurements, the principle of decentralization" and more. Sloan's role "as the designer and architect of management," Drucker added, "surely was a foundation for America's economic leadership in the 40 years following World War II."

DEFINING THE PROFESSIONAL MANAGER

Indeed, as Drucker saw it, Sloan was the pioneer who transformed management into a real profession, establishing the standard that the professional manager is duty-bound to put the interests of the enterprise ahead of his own. Sloan, Drucker wrote, also made clear that "the job of a professional manager is not to like people. It is not to change people. It is to put their strengths to work. And whether one approves of people or the way they do their work, their performance is the only thing that counts." Sloan's definition of performance, Drucker was quick to explain, meant much "more than the bottom line. It is also setting an example. And this requires integrity."

But of all the pointers Drucker picked up from observing Sloan, there is one in particular that today's GM might want to pay close attention to: reaching difficult decisions (Hummer or hybrid?) demands healthy dissent.

David Garvin, a professor at Harvard Business School, says one of GM's fundamental problems over the years—an inability to make the right strategic calls—has been caused, at least in part, by a dearth of open debate among top managers. Rather than frankly and candidly working through various options, executives would often line up needed votes before meetings, like a group of Chicago ward heelers, and gather privately at "pre-meetings" to eliminate any surprises at the regular session.

"All too many decisions were pre-cooked," says Garvin, who wrote a 2004 case study on GM's process for determining policy. Garvin points out that Sloan's basic challenge was in some ways the opposite of that faced by his successors. He had to take a collection of highly independent, entrepreneurial car companies and coordinate their actions. As time has rolled on, GM has had the burden of figuring out how divisions scattered all over the world could tailor their lines to meet varying customer needs.

TEST OPINIONS AGAINST FACTS

But whether you're talking about the Alfred Sloan era or the Ed Whitacre era, there are a couple of common denominators: First, the company must provide absolute clarity as to who is responsible for deciding what. This, says Garvin, got "fuzzier and fuzzier" at GM as the organization became "progressively more complex" and layered with bureaucracy.

Second, when the time comes for a major decision to be made, such as which products to pursue and which to abandon, all the alternatives must be vetted honestly.

"Gentlemen, I take it we are all in complete agreement on the decision here," Drucker quotes Sloan as saying. After everyone around the table nodded affirmatively, Sloan is said to have continued: "Then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about."

Sloan, Drucker wrote in 1967's The Effective Executive, "was anything but an 'intuitive' decision-maker. He always emphasized the need to test opinions against facts and the need to make absolutely sure that one did not start out with the conclusion and then look for the facts that would support it. But he knew that the right decision demands adequate disagreement."

That said, perhaps we can all agree on this: The New GM would be wise to study up on the GM of old.

A Company Is More Than Its CEO

Fri, 29 May 2009 00:00:00 PST

It's hard to read recent issues of The Atlantic and Harvard Business Review and not see one as a counterpoise to the other: "Do CEOs Matter?" asks a headline in the former. "What Only the CEO Can Do" trumpets a headline in the latter.

At a glance, there appears little question as to which of the two essays Peter Drucker would have found most persuasive. The piece in May's HBR was authored by none other than A.G. Lafley, the chief executive of Procter & Gamble and a Drucker disciple. Indeed, many of Lafley's insights are based on what he learned from Drucker.

But it's doubtful that Drucker would have dismissed the June Atlantic article out of hand. Written by Harris Collingwood, it asserts that "the American obsession with who sits at the top of the organizational chart has gone much too far."

We should be skeptical, Collingwood suggests, that the CEO possesses "supreme importance" and are right to challenge "the indispensability" of any single executive—even one as lionized as Warren Buffett or Steve Jobs.

What we've adopted as a culture "is Carlyle's Great Man theory of history, painted on a corporate canvas," Collingwood writes—and it's often used to try to justify inordinately "big pay packages."

TOO MUCH FOR ONE PERSON

On all of this, Drucker surely would have agreed. At the very heart of his philosophy, after all, lies the notion that the magic of management is to "make people capable of joint performance." Running any enterprise is, inherently, a team sport. No one person, no matter how capable, can handle it alone. For one thing, there's simply too much to do. "An unlimited supply of universal geniuses could not save the one-man chief executive concept unless they could also bid the sun stand still in the heavens," Drucker wrote in his 1954 classic The Practice of Management.

Beyond that, nobody—not even the CEO—is good at everything. "Strong people," Drucker pointed out, "always have strong weaknesses, too." In the end, then, having "chief executive" embossed on your business card is "not about being less or more important," Drucker wrote in his book Managing in the Next Society, "but differently important."

Which takes us back to the pages of The Atlantic and, in turn, HBR. For his part, Collingwood cites several academic studies that have concluded "external forces influence corporate performance far more than CEOs do." Yet for Drucker (and, by extension, Lafley), this is precisely the point: The first task of the CEO is to size up those external forces and decide how best to react to them.

"The CEO is the link between the Inside, i.e., 'the organization,' and the Outside—society, the economy, technology, markets, customers, the media, public opinion," Drucker declared in 2004. "Inside, there are only costs. Results are only on the outside."

Recalling these very words, Lafley says they helped him determine "which external constituency mattered most" for P&G, namely, the customer. While this may seem obvious, Lafley notes, P&G had started "losing touch with consumers" before he took the helm in 2000. At headquarters in Cincinnati, "employees were glued to their computers" and "mired in internal meetings with other P&Gers.… Too often we were working on initiatives consumers did not want and incurring costs that consumers should not have to pay for."

Now, Lafley explains, "everywhere I go, I try to hammer home the simple message that the consumer is boss. We must win the consumer value equation every day at two critical moments of truth: First, when the consumer chooses a P&G product over all the others in the store; and second, when she or a family member uses the product and it delivers a delightful and memorable experience—or not."

INFORMATION FROM "OUTSIDE"

To help maximize the chance for success, says Lafley, "almost every trip I take includes in-home or in-store consumer visits. Virtually every P&G office and innovation center has consumers working inside with employees. Our employees spend days living with lower-income consumers and working in neighborhood stores." Such activities capture beautifully what Drucker described as the second specific task of the CEO: "to think through what information regarding the Outside is meaningful and needed for the organization, and then to work on getting it in usable form."

Many businesses mistakenly view this exercise in parochial terms. "Toy makers tend to define the Outside as their toy-maker competitors," Drucker wrote. "But the most meaningful competitors for the toy maker are not other toy makers but other claimants on potential customers' disposable dollars.… Customer research, in other words, may be more important than market research."

It is only after the CEO has adequately assessed the Outside, according to Drucker, that he or she is poised to tackle the other aspects of the job: answering the fundamental questions, "What is our business? What should it be? What should it not be?"; judging which results are most relevant for the institution; deciding between "short-term yields and deferred expectations"; picking priorities—and resisting the incessant pressure "to do a little bit of everything"; and placing the right people into key positions.

So, go ahead and read Lafley's article to understand what being a CEO is all about. But just in case you find yourself intoxicated by the title, keep The Atlantic handy, too. It'll sober you right back up.

Drucker Apps

Sat, 23 May 2009 00:00:00 PST

You probably have heard about the frenzy surrounding mobile applications, more commonly known as apps. This passionate mobile obsession has become a mania (1 billion apps were downloaded off the Apple site in nine months) and is perhaps best exemplified by the story around the iPhone Ocarina app. You can download this app from the iPhone App Store for a buck.

Once downloaded you'll see four blue circles on your mobile screen and a yellow arrow in the lower right hand corner. The aim is to blow or breathe into the mike in the mobile and, guess what? Your mobile becomes a flute. Neat, right?

Well, over at The Drucker Institute they've taken the concept of apps to a loftier level and created Drucker Apps, a simple and easy way to apply Druckerian principles. (Visit www.druckerinstitute.com and go to What's New and scroll down and click on the latest Drucker Apps and you'll see what I mean.) They've taken the writings, thoughts and insights of the late Peter F. Drucker, the great management thinker, and created usable apps that you can apply in your work as well as in your personal life.

For example, this past week the Institute distributed via e-mail and other avenues Drucker Apps on "The Virtues of Volunteering." Each bi-weekly App is designed to be timely and play off something in the recent news.

So if you click on the latest Apps, line you'll see that the Institute designed the new Apps based on President Barack Obama's recent signing of the Serve America Act that shines a spotlight on the importance of service and volunteering to the country.

As the Institute notes, "The bill is designed, among other things, to create 175,000 new service opportunities nationwide and authorizes nearly $6 billion over five years to strengthen the country's commitment to service. In this edition of Drucker Apps, you'll find tools that will help you understand why the social sector is crucial to the health of our communities, why nonprofits should be relentlessly results driven, and how volunteering is of value not only to nonprofits but to the volunteers themselves. These insights - at once timely and timeless - are based on the ideas and ideals of Drucker, the father of modern management."

You will find practical and applicable insights from the master, but you'll also find other thought leaders in management offering their ideas and insights. These apps are delivered online and on audio and video. For example, besides Drucker, you can find insight on the value of volunteering from Alan Khazei, the founder and CEO of Be The Change (and a member of the Drucker Centennial Committee). You can hear Khazei describe how the new national service act is focused on impact. You can also watch Drucker himself on the Institute's very own YouTube channel as he explains the worth of volunteering and makes the case for it being more valuable than monetary investments.

The point is that twice a month you are able to find a multimedia focus on different management topics and the best part is that they are usable. You can also go to the Drucker Apps Archive where you find such timely topics such as "Executive Pay," "Presidential Leadership" or "An Industry in Turmoil," a specific app that examines the current plight of the newspaper business. Again, in addition to Drucker we can read, see and hear other experts' take on the topic. The combination of Drucker's insights and the added insightful perceptions of the other commentators provides users with a one-stop and easy-to-use resource where some of the hottest issues in our society are explored, dissected and analyzed in a succinct and enjoyable way. It's really like an online exchange of ideas.

With the global economy in crisis, and with so many of the major institutions of society under scrutiny, the wisdom of Peter Drucker helps to put things into context with clarity about what is most important and what needs to be done.

Drucker called himself a "social ecologist," someone who studies the condition of major institutions in society much like a natural ecologist studies the health of the physical world. We know the earth is in trouble due to global warming. Recent events remind us that many of the fundamental institutions of society - business, government, nonprofits, the mortgage and automobile industry and others - are in jeopardy as well.

Drucker Apps is a free tool available to all that helps identify the symptoms of some of these problems and supplies some useful suggestions about what we all can do to make things better - in our own organizations and in our personal lives. We have an obligation to leave things better than we found them, and Drucker Apps offers some constructive tips on how we can all be better stewards of the institutions and organizations of which we are a part.

Sure, it's wonderful to have amazing and cool apps that work on your mobile device. They can be fun and also helpful in organizing your life, but you also need to have amazing and cool apps that help you in your work life and provide some answers to some of our most pressing concerns. That's where the Drucker apps are a brilliant application for anyone interested in moving up in the world and making a difference. I would like to see a different kind of app mania sweep the world. That would be the Drucker Apps. Explore them for yourself and you'll see why.

Solving the Health-Care Conundrum

Fri, 15 May 2009 00:00:00 PST

President Barack Obama began this week to push hard on health-care reform. Whether any legislation gets passed will depend, of course, on how well he navigates the treacherous politics of Washington in the months ahead. But whether the medical system actually improves will hinge on something else altogether: how effectively it is managed in the years ahead.

This is something that Peter Drucker understood very well. "Drucker championed the twin principles of management by objective and management by measurement—two driving forces behind the modern quality revolution in health care," the University of Toronto's Neil Seeman and Adalsteinn Brown declared a few years ago in the journal Health Quarterly.

But the revolution has yet to make it past the barricades, at least in the U.S. To begin with, quality is not what it should be. A government report issued earlier this month found that 40% of recommended care is not received by patients. Meanwhile, infections that people acquire during the course of their stay in a health-care facility, such as a nursing home or a hospital, stand among the nation's top 10 causes of death. It's little wonder that Health & Human Services Secretary Kathleen Sebelius has said "the status quo is unsustainable."

At the same time, costs are out of control. The U.S. spends far more per person on medical care than any other country. In 2007, we plunked down $2.2 trillion on medical expenditures, and government analysts predict the figure will climb by more than 6% annually through the next decade. That would boost the share of the gross domestic product going toward health care from 17.6% this year to 20.3% in 2018. All the while, some 45 million Americans remain without medical coverage.

A COMPLEX WEB

That the system is in such rotten shape is not totally surprising. The world of medicine has gotten more and more complicated over time. Drucker, for one, identified the hospital as "the most complex human organization ever devised," with its web of doctors and nurses and technicians. Insurance companies aren't inclined to simplify matters, either, having discovered that opacity and obfuscation can help bring in enormous profits.

So how do we make things better?

The White House believes there are several keys, including beefing up prevention and wellness programs so people don't get so sick in the first place. They're also hoping to spur the revamping of financial incentives for health providers so they're rewarded—rather than penalized—for delivering excellent care.

But much of the Administration's efforts are centered on something straight from the Drucker playbook: measuring results. Peter Orszag, the director of the Office of Management & Budget, is fond of citing a body of research from Dartmouth that shows how health-care spending varies widely between regions of the country, often with little correlation to outcomes.

By zeroing in on these discrepancies, as well as methodically determining which drugs and treatments work best, it should be possible to save oodles of money while enhancing quality. At least that's the theory.

What Drucker knew, however, is that measuring anything is far from a straightforward proposition. For starters, he wrote, "what we measure and how we measure determine what will be considered relevant and, thereby, determine not just what we see, but what we—and others—do." Beyond that, the more we measure, the more we risk flooding the system with data. What's needed, instead, is genuine information: what Drucker defined as "data endowed with relevance and purpose."

"A VIEW OF THE WHOLE"

This is especially difficult to do, he added, in an organization filled with specialists—and no area has more specialists than medicine. "Each specialty," Drucker noted, "has its own knowledge, its own training, its own language."

A big challenge that management faces in such a situation, Drucker explained, is creating "a common vision, a view of the whole." Only when that's established can individuals begin asking the questions that Drucker deemed a matter of professional responsibility: "Who in this organization depends on me for what information? And on whom, in turn, do I depend?"

"Each person's list will always include superiors and subordinates," Drucker wrote in a 1988 piece in Harvard Business Review. "But the most important names on it will be those of colleagues, people with whom one's primary relationship is coordination.

"The relationship of the internist, the surgeon, and the anesthesiologist is one example," he continued. "But the relationship of a biochemist, a pharmacologist, the medical director in charge of clinical testing, and a marketing specialist in a pharmaceutical company is no different."

What is absent today is precisely the common vision and sense of coordination that Drucker called for. As Seeman and Brown pointed out, "health-care leaders have embraced measurement." That's not the problem. What "often goes missing," however, is Drucker's exhortation that "all collected data should be tied to a strategy that serves the patient."

In the end, Obama's team must remember that measuring is only half the battle. They must also make sure that the findings are diligently managed, just as Dr. Drucker ordered.

Brand Velocity's Knowledge-Worker Innovation

Fri, 01 May 2009 00:00:00 PST

Brand Velocity may well be the smartest company you've never heard of.

Jack Bergstrand, who used to oversee information technology at Coca-Cola, launched the consulting firm five years ago with a goal of more than just making money. He wanted to take on what Peter Drucker identified as the single greatest business challenge of our day: enhancing knowledge-worker productivity.

"The most important, and indeed the truly unique, contribution of management in the 20th century was the fiftyfold increase in the productivity of the manual worker in manufacturing," Drucker declared in 1999. "The most important contribution management needs to make in the 21st century is similarly to increase the productivity of knowledge work and the knowledge worker."

But figuring put how to lift the output of those who use their brains more than their brawn—a group that now accounts for at least one-quarter, and perhaps as much as half, of all employees in the U.S. and other developed nations—is no easy feat. Most organizations, even as they engage in knowledge work, continue to rely on processes that come straight out of Frederick Taylor's "scientific management" principles of the early 1900s.

It's an awful fit. "The underlying system that made manual work successful is the very same system that constrains our ability to move forward faster in the Knowledge Age," Bergstrand writes in his newly published book, Reinvent Your Enterprise. (Full disclosure: Bergstrand is donating a portion of book sales to the Drucker Institute, the nonprofit think tank that I run.) In fact, the differences between old-line manufacturing and knowledge work are stark: Manual work is highly visible; knowledge work is largely invisible—it happens between people's ears. Manual work is highly specialized; knowledge work is, as Bergstrand points out, much more "holistic."

Manual work tends to be stable; knowledge work is ever-changing. Manual work focuses on the right answers; knowledge work must zero in on the right questions. Manual work involves a lot of structure with relatively few decisions; knowledge work emphasizes less structure with more decisions.

But this isn't to say there's no structure at a firm like Brand Velocity. Far from it. Bergstrand and his colleagues have taken "a clean sheet of paper," as he describes it, and methodically thought through everything they do: how and where and under what conditions they hold meetings; how they buy equipment, from PCs to paperclips; how they compensate employees; and much more.

Brand Velocity is based in Atlanta, but in some sense that's an illusion. It has no fixed assets. Headquarters is little more than a mailing address and a secure 64-square-foot space it leases to store sensitive documents.

When someone from Brand Velocity gets together with a client—the firm provides counsel on giant IT projects—they rent out a conference room for a couple of hours from Regus, which operates a string of posh business centers around the world. Many of those who are ushered into the appointed meeting place by a receptionist never realize that they're not actually at a Brand Velocity facility. Bergstrand calls this setup "traditionally virtual."

The underlying idea here—and the same holds true for functions such as payroll and legal affairs and data storage, all of which are outsourced—is that rather than own and manage buildings, Brand Velocity is left to concentrate on what it does well. Having no central office also gives knowledge workers the mobility and flexibility they crave. Many at Brand Velocity plug in from home.

Supplies are also handled in an unusual fashion. Every quarter, the 10 Brand Velocity employees are each given $6,000 to buy what they need, from new computers to pens. If they spend more, it comes out of their pocket. If they spend less, they keep the difference as part of their income. (One can't help but wonder whether Merrill Lynch's John Thain would have purchased a $1,400 trash can under such circumstances.) Besides reducing paperwork—at Brand Velocity, you file only four expense reports a year—the point is to give workers exactly the tools they need to do their jobs. You perform best on a PC, but I prefer a Mac? No problem. We each get what we want, and the company doesn't find itself struggling (and paying a fortune) to standardize everything.

Brand Velocity offers employees a base salary. But much of their remuneration is determined by a points system, with points awarded for three—and only three—things: selling great work, delivering great work, and recruiting and developing great talent. Under this arrangement, says Bergstrand, "highly productive knowledge workers don't need to be a partner to be compensated like one. At the same time, the most senior people aren't guaranteed the highest compensation." This is more than a theory. Though he's the CEO, Bergstrand himself often doesn't make the most dough.

If this all seems a little freewheeling, it's not. Bergstrand and his team are rigorous in the way do most everything, including reaching decisions. On any given project, they solicit lots of input throughout the organization but leave no doubt who the final decision-maker is. That person then acts—and acts quickly.

"The pursuit of consensus becomes the Anaconda snake of large enterprises," Bergstrand maintains. "The Anaconda doesn't bite. It kills its prey through suffocation."

The bottom line: Brand Velocity is profitable and growing. It claims that its costs run 20% less than the industry average. And most notably, it says it delivers to clients the same high-quality results they would get from much larger consulting firms—but in half the time and with less than half the manpower, resulting in huge customer savings.

The real question is how big Brand Velocity can get. It's one thing to do this at the firm's current size and quite another to pull this off with a staff of thousands.

Bergstrand says that, having generated about $15 million in business to this point, Brand Velocity is ready now to move beyond the "prototype" stage. He has hired top executives from major corporations—Kimberly-Clark and Ernst & Young, among them—so that as Brand Velocity has tested various knowledge-worker productivity concepts, "we could factor in the need for scalability."

The effort certainly bears watching. If Brand Velocity thrives—and teaches others along the way—the implications could be nothing short of revolutionary.

To see a video of Jack Bergstrand in conversation with Rick Wartzman, click here.

The Old College Buy

Mon, 20 Apr 2009 00:00:00 PST

Hundreds of students rallied at the University of Washington last week in opposition of a proposed tuition increase. Had he been around, you can bet that Peter Drucker would have grabbed a megaphone and joined in.

For decades, Drucker decried the escalating cost of going to college in this country. "The financing of higher education affects everybody's pocketbook," he wrote in Harper's Magazine in 1956. "It is the central problem of American education."

Some 40 years later, Drucker was voicing the very same concern. "Such totally uncontrollable expenditures," he told Forbes in 1997, "means that the system is rapidly becoming untenable. Higher education is in deep crisis."

By all rights, most universities should have priced themselves out of existence long ago. That they haven't points to something else that Drucker recognized and also worried about: the unparalleled clout they wield as "gatekeepers" to people's futures. It is a role that has allowed many a school to get away with the kinds of sins that would sink almost any other organization.

The cost of a college diploma has been soaring at about twice the rate of inflation for years; that's a faster pace than what we're shelling out for medical care. Middle-income families now pay 25% of their earnings to send a kid to a four-year state school, according to the National Center for Public Policy & Higher Education. And that's after taking into account any financial aid the student receives.

EDUCATION QUALITY NOT CLIMBING LIKE TUITION

Meanwhile, it's hard to argue that the customer is getting a lot of additional benefit for the extra dough. There are, to be sure, many wonderful programs and professors out there. But "all in all, it is difficult to say if, in any meaningful sense, the quality of the undergraduate experience has improved all that much" as prices have skyrocketed, economist Richard Vedder asserts in his book Going Broke by Degree. It "certainly has not done so any more than goods and services generally."

Drucker, who started teaching at Sarah Lawrence College in the 1930s and commanded a classroom at Claremont Graduate University as late as 2002, suggested that, if anything, today's colleges were slipping badly by turning out "highly schooled and very poorly educated" young adults.

Toward the end of the 19th century, "when my father graduated…he was as non-technical, non-scientific a person as you could imagine," Drucker recalled. "And yet he and educated people of his generation were expected not to understand the contents of physics, but what physics is, what physics deals with.…It didn't mean being able to do surgery, but it meant being able to understand medicine. It didn't mean to be able to do linguistics, but it meant to be able to understand what linguists are up to. And in the last 100 years we have lost that faculty.

"It isn't only that our kids don't learn to read and write," Drucker added. "It is that our engineers know designing and machine tools, but they don't know anything about the world in which they live in. They don't know anything about the areas of information outside of their own."

INNOVATIVE UNIVERSITY MODEL AWAITS

But despite these huge flaws—break-the-bank pricing and a questionable-at-best value proposition—it's hard to get past two facts: Most universities continue to deliver their product pretty much the same way that they have for centuries, on sprawling campuses with students sitting in lecture halls. And despite all the grumbling about the cost and the real hardships faced by a growing number of families, there is no shortage of people clamoring for what's being sold.

"The old model persists not only because it's time-tested but because there's little relationship between price and demand," says Zach First, my colleague at the Drucker Institute, who is serving as the principal investigator for a study of innovation in higher education funded by the Spencer Foundation.

A handful of entrepreneurial ventures, such as Capella University with its online curriculum, have burst on the scene. But these efforts remain, in the scheme of things, largely at the fringes.

One can imagine, First says, that should a major research university figure out how to "deliver high quality with half the faculty or through some other big breakthrough—so that it can shed costs and reduce tuition—it's going to be in a very strong position." But for now, he explains, there is little incentive to even try. This year, despite the deep recession, school after school will spurn two-thirds or more of their applicants. How many other businesses get to do that?

KNOWLEDGE ECONOMY

The reason for this, of course, is that we're living in the very age that Drucker, beginning in the late 1950s, foresaw and helped define: one built on knowledge. It isn't news that a college degree is absolutely essential now for advancement in the workplace—no matter the failings of the system that produces the sheepskin.

All of this has left our institutions of higher education with what Drucker described as a "social monopoly." "Few organizations in history have been granted the amount of power that today's university has," he wrote in his 1993 book Post-Capitalist Society. "Refusal to admit or grant the diploma is tantamount to debarring a person from access to a career."

As long as this is the case—and I say this as the weary parent of an 11th-grader who has just started looking at colleges—it's tough to see anything changing. We'll keep on complaining and arguing, as we have for 50 years, that the mounting cost of an education is unsustainable. And those of us who are lucky enough to find a way will keep on paying regardless.

Era of 'social' business arises

Sat, 04 Apr 2009 00:00:00 PST

I am continually struck by the late Peter Drucker's prescience. He was someone who didn't claim to be able to predict the future; he simply "looked out the window to see what is visible but not yet seen."

In looking out his window in Claremont, where he wrote and taught for 35 years, Drucker once observed that "every social and global challenge of our day is a business opportunity in disguise." What a profound insight about how to face the multiple and seemingly overwhelming challenges of our day.

We recognize that government needs to lead right now, but it's from the private sector's creativity and innovation that many of the most sustainable solutions to our problems can be derived. In the new and revised edition of his masterwork, "Management," (abridged by Drucker School professor Joe Maciariello), Drucker wrote about the lessons that can be learned from successful nonprofits.

"The best nonprofits," Drucker wrote, "devote a great deal of thought to defining their organization's mission."

He added, "Successful nonprofits also start with the environment, the community, the customers to be; they do not, as American businesses often do, start with the inside - that is, with the organization or with financial returns."

Drucker's insight perfectly dovetails into a new type of venture that is beginning to be seen more and more: the social business. If you've read my column in the past, you know that I greatly admire Muhammad Yunus, the 2006 Nobel Peace Prize winner who founded the Grameen Bank and pioneered the concept of microfinance.

Yunus also co-founded Grameen Danone Foods Ltd., a trail-blazing enterprise launched in partnership with Groupe Danone, the U.S.-based yogurt producer. He called this new structural approach a social business.

What is a social business? It's a hybrid between a for-profit and a nonprofit. And guess what? It starts with a mission. Drucker would have understood why.

In the case of Grameen Danone Foods, the mission was to bring inexpensive and nutritious food to undernourished children in Bangladesh, Yunus' home country. It operates like a regular profit-making business in the sense that it must recover its expenditures from its operations but unlike a for-profit it is driven by its mission, not money.

Investors receive a small - 1 percent - annual dividend but all the other profits are put right back into the business because the main goal is to create social benefits for its customers.

As Yunus says in a pithy statement that could have come from Drucker himself: "While we make money, we can also do good."

The idea of creating a business based on purpose is timely, especially in this time when we see the catastrophic results of operating out of the profit-maximization principle.

The idea of a more humane form of capitalism has been applauded by one of America's greatest capitalists, Bill Gates, the founder of Microsoft. In early 2008 at the World Economic Forum, he called for "creative capitalism."

What we are witnessing now is the manifestation of Drucker's remarkable acumen: Start with the mission and you can create new business structures such as the social business.

We now know that those who pursued profit over mission and who also ignored their environment and their community caused the global financial meltdown.

Drucker would be pleased with this evolution of corporate structure. As someone who saw the tremendous value of the nonprofit venture and also knew the great worth of management, Drucker would welcome the new hybrid archetype that is emerging throughout the world as well as appreciate its timely appearance.

It's been said that we may be witnessing the emergence of a new business species: the creative and humane capitalist who creates the for-benefit enterprise.

Drucker said that one day American businesses would have to learn from nonprofits. Well, that day has come. And none too soon.

Whether it's the Grameen Danone Foods, the Transforms Corp. in North Carolina, Ethos Water founded by Claremont native Peter Thume, New Leaf Paper (whose paper production plants are the only in the world powered by 100percent renewable energy sources and which is starting to transform a gigantic industry that is also one of the most polluting), Rubicon Industries (which employs homeless people and battered women and others with serious disabilities to work in their for-profit bakery, which sells successfully to outfits like Costco and Williams Sonoma), the Rabobank Group in the Netherlands, Upstream 21 in Oregon or Spain's Mondrag n Corporaci n Cooperative, the day of mission-driven companies has arrived, and these new hybrid alternatives to the old for-profits will one day be as pervasive and successful as the traditional types of companies.

As Drucker well knew, we will all be better off when principle trumps profit. (Curiously, that's exactly what Henry Ford had in mind when he founded Ford Motor Co. It wasn't his desire to get rich; it was his dream of helping to create a middle class in America that powered his vision. When he raised the daily wage of his workers to $5 a day, in fact, he was called a communist by other capitalists. Why did he do it? Because he wanted his workers to be able to afford the cars they produced - and he wanted them to have pride in the product that they created on the assembly line. As Ford said so simply and wisely: "Business must be run for a profit, else it will die. But when anyone tries to run a business solely for profit, then also it will die, for it no longer has a reason for existence.").

For Drucker, starting with a mission "focuses the organization on action. It defines the specific strategies needed to attain crucial goals. It creates a disciplined organization."

Isn't this what we all want in our organizations? What's more important in a business than mission focus, strategic goals and organizational discipline? Drucker said the most effective nonprofits "realize that good intentions are no substitute for organization and leadership, for accountability, for performance, and results. Those require management, and that, in turn, begins with the organization's mission."

How Lack of Focus Hurt Detroit

Fri, 03 Apr 2009 00:00:00 PST

Though it is sheer coincidence that Ford Motor (F), the only one of Detroit's Big Three automakers not seeking aid from Uncle Sam, builds a car called the Focus, it's hard not to appreciate the symbolism. Peter Drucker, for one, surely would have gotten a kick out it.

Drucker also wouldn't be surprised that Ford's rivals, Chrysler and General Motors, now find themselves struggling to survive. He had critical things to say about both of these companies over the years. As I've noted before, Drucker believed that since at least the 1940s, when he first studied GM, its top managers have resisted changing long-standing plans and policies—even as the world shifted around them. The upshot: a company that's had tremendous trouble moving forward, like a Chevy stuck in the mud.

President Barack Obama's auto task force zeroed in on that same weakness when it chided GM for being "far too slow" in doing what's needed to turn itself around. But there's another part of the task force's assessment that Drucker would have agreed with as well, for it highlights a principle that he held was essential to good management (yet gets violated time and again): Don't spread yourself too thin. "GM," the White House panel said, "has retained too many unprofitable nameplates that tarnish its brands, distract the focus of its management team, demand increasingly scarce marketing dollars, and are a lingering drag on consumer perception, market share, and margin."

To Drucker, one of the most important things that any organization can do is to adopt what he called a "rifle approach," eschewing "product clutter." "Economic results," he wrote, "require that managers concentrate their efforts on the smallest number of products, product lines, services, customers, markets, distribution channels, end users, and so on which will produce the largest amount of revenue."

ABANDON THOSE PRODUCTS

And yet as fundamental as this seems, Drucker added, many businesses foolishly "pride themselves on being willing and able to supply any specialty, to satisfy any demand for variety, even to stimulate such demands in the first place. And many businesses boast that they never, of their own free will, abandon a product." Thanks to this attitude, plenty of companies "end up with thousands of products in their product line—and all too frequently fewer than 20 really 'sell.'"

Assembling the workforce often gets handled with a similar lack of focus. "We build enormous staffs," Drucker asserted, and yet do not concentrate enough effort in any one area to get very far." Then, during tough times, many companies pare expenses the same, ineffectual way: Rather than "pinpoint" cuts, as Drucker advocated, they resort to across-the-board reductions.

Drucker warned about this in a piece for Harvard Business Review in 1963. But it's just as prevalent a problem these days. John Sullivan, a management professor at San Francisco State University and the former chief talent officer at Agilent Technologies, figures that more than half of all companies cutting back in the current downturn are implementing across-the-board layoffs, pay freezes, and furloughs. The reason, he says: "They don't have the courage" to confront employees individually, and in many cases don't have the proper performance measures to even know where to target.

Drucker's basic message—"focus, focus, focus"—extended beyond the organization as a whole, right down to the individual. The best managers "do first things first and they do one thing at a time," he wrote more than 40 years ago in The Effective Executive. Such single-mindedness, he explained, is dictated by a simple reality: "Most of us find it hard enough to do well even one thing at a time, let alone two.

CONCENTRATION IS KEY

"Mankind," Drucker continued, "is indeed capable of doing an amazingly wide diversity of things; humanity is a 'multipurpose tool.' But the way to apply productively mankind's greatest range is to bring to bear a large number of individual capabilities on one task. It is concentration in which all faculties are focused on one achievement."

Time magazine may have dubbed today's young people "the Multitasking Generation," with their seeming ability to do their homework, chat online. and listen to their iPods—all simultaneously—but Drucker (a man who wrote 39 books, taught, and consulted) assiduously avoided being sidetracked from the main activity at hand.

He even kept a stack of preprinted response cards at the ready, allowing him to politely, but quickly and firmly, decline all manner of potential diversions. "Mr. Peter F. Drucker appreciates your kind interest," the cards read, "but is unable to endorse or to review books, manuscripts or proposals; to appear on radio or television; to join boards or panels of any kind," and so on and so forth.

In fact, the "secret" of people who "do so many things," according to Drucker, is that they knock them off one by one. "We rightly consider keeping many balls in the air a circus stunt," he wrote. "Yet even the juggler does it only for 10 minutes or so. If he were to try doing it longer, he would soon drop all the balls."

Or, perhaps, drive his company to the brink.

eBay's Meg Whitman on Building a Company's Culture

Fri, 27 Mar 2009 00:00:00 PST

In February former eBay CEO and current California gubernatorial candidate Meg Whitman sat down with her former colleague Rajiv Dutta to discuss what they call "the character of the company"—a dialogue about business ethics that is particularly timely in light of the corporate scandals dominating the news today.

Dutta, who previously served as president of eBay Marketplaces, PayPal, and Skype, is currently the distinguished executive-in-residence at the Drucker Institute and the Peter F. Drucker and Masatoshi Ito Graduate School of Management in Claremont, Calif. His on-stage conversation with Whitman—one in a series that Dutta is conducting with leading executives—was part of the Drucker Centennial, a series of events marking the 100th birthday of the father of modern management, Peter F. Drucker. For more on the Drucker Centennial, including an events calendar, please visit www.drucker100.com.

A partial, edited transcript from the Whitman-Dutta event follows. (To see the full video, including questions from the audience, please go to http://www.youtube.com/DruckerInst.)

Rajiv Dutta: There are so many questions I could give you. But I think the question that comes to my mind is just what does "the character of the company" mean?

Meg Whitman: I think it means the set of values and principles by which you run the company that really begin to become part of the DNA of the company. And "the character of the company" came from our good friend, Howard Schultz, who was on the board of eBay for many years. It was at a particularly knotty time in the early stages of eBay, and we were trying to wrestle with a problem, which I think we'll tell you about in a moment. And he said: "Meg, what kind of company do you want to run? What do you want the character of the company to be?" And it became the phrase that encapsulated for us what I think eBay became known for, which was that moral center, that sense of right and wrong, that we ended up I think doing a good job of instilling in 15,000 people in 30 countries around the world. And it's almost the sense that you know what to do. It's not written on a piece of paper, but you know what the right thing to do is.

And one of the things that you took a personal interest in doing was just saying that: "Listen, this is important." What was behind that?

I think it's important because companies form culture very early on and they get imprinted very early on with a sense of right and wrong. And it starts from the top. It started with the CFO, the President, and CEO. And so, I think I had this innate sense that we needed to establish very early on what the code of behavior was going to be, what the code of ethics would be. And it's easier when you have 30 people in a room. I mean, eBay was half the size of this room for the first year that we worked together. And I saw everybody every day. Rajiv saw everybody every day. And so, it's easier to imprint a set of beliefs and values when the company is small.

Every day there are teaching moments. Every day there are opportunities to grapple with issues. That is how organizations learn. And I think one of the early lessons in grappling with issues that we had is—it's hard to remember back to 1998, but the Internet was much more of a Wild West really than it is now. And there was something called the Digital Millennium Copyright Act. And what that said was that certain venues, like eBay, like AOL, were not responsible for the content on your site unless you actually looked for what was on your site. And if you took down items that were not legal for sale, all of a sudden you became responsible.

In a sense, you sort of incurred liability if you tried to do the right thing.

Exactly. Let's say there was something that was illegal on our site. If the owner of that item, whatever—the copyright or whatever—said please take it down, then you could take it down with impunity. But you couldn't proactively take it down without being liable for everything on the site. And so, we were a very young company and after the first six months we said, O.K., well, this is how it's done in the business, and we will do that. And there was a seminal event that the video-game companies—Activision, Atari, Sony—were starting to see bootleg copies of video games on eBay. And so, I went over to a meeting with the CEOs. The CEO of Activision said: "Meg, you know, there was a game that was developed by our engineers that was called Cop Killer. And I stopped the development of that game, but there were almost-finished versions of the game that were in development, and they were leaked out, and those games are now on the Web."

Selling like hotcakes.

Yes. And he said: "You need to be proactive about taking these kinds of items down." And I said: "But the Digital Millennium Copyright Act—we can't do that. We would jeopardize the whole thing." And he looked at me and he said: "What's the right thing to do?" And I came back. We had a board of directors meeting that afternoon, and I said: "I think we have to change our point of view on this." And that afternoon, actually, we began to proactively monitor the site for illegal and infringing items. And I remember saying to the 40 or 50 people that worked at eBay at the time: "Yesterday we had this point of view. We were abiding by the Digital Millennium Copyright Act. And we are completely changing our mind, and we are now going to proactively screen the site because it's the right thing to do. And that's how a culture gets invented. When you come across a very tough dilemma, you make a decision, then you explain to people why it is that you did it. I mean, there were hundreds of examples in our company's life. And it's an accumulation of many, many moments where you make the best decision and the right decision and it becomes part of the culture.

That just brought a memory to me. Many years later, the company had expanded significantly, and we were out looking for additional office space. And I'll never forget one particular company that we walked into that had these slogans hanging from the walls—all of these things that you ought to be doing and the right things. And then, of course, actually that was not the case at this particular company. And Meg and I looked at each other and said: "It's not about what you say. It's about what you do." And we had a couple of strange ones with memorabilia.

Yes. Well, our community of users was very entrepreneurial. I mean, practically anything was for sale on eBay. And we always enforced—if it were legal to sell on eBay, in the country in which we did business, it was legal for sale on eBay. And one of the very first categories where we began to wonder whether or not we needed to exercise some judgment was there began to be a category on eBay called "Murderabilia." And I remember the day when Jeffrey Dahmer's refrigerator showed up on eBay. And it was one of the first times—and we tried to be very restrained about this, but it was one of those times that we made a judgment call saying this is just not appropriate for the kind of company we want to be. And it was a really tough decision, because what might offend you might not offend Rajiv. What might offend Rajiv might not offend me. And so, it was really the CEO and a very small group of us who made some of these decisions that we just didn't want to be in that business. And we would have arguments about it, and we could agree to just disagree. But in the end, I had to make the call or Rajiv and I had to make the call as the CFO. And we didn't do it a lot, but we were very thoughtful about some categories.

One we certainly got questioned on was tobacco, firearms, and alcohol.

Correct. So as it turns out, alcohol, firearms, or tobacco is perfectly legal for sale in the United States and on the Internet. And this was another case where we said, especially in the early days of the Internet, I mean, you have to remember this was nearly 10 years ago, we just didn't know who those firearms were actually going to be sold to. We didn't know whether it would be underage kids who would be buying the alcohol. And frankly, there was a myriad of regulations where it was perfectly legal to sell wine from California to Wisconsin, but not California to Texas. And so, we said, you know, there are so many issues here. This is just one—again, one of those categories that we feel like we don't need to be in this business.

That's very interesting, because this is not necessarily financially a good decision.

No.

Judgment calls. We actually realized that we needed people to just make policy as to what was appropriate, what could be sold, what was legal, and the department was called Trust & Safety, and it was run by Rob Chestnut, the former federal prosecutor.

Now, there was one call that you and I disagreed on. And the issue was: Should we enable Paypal for legal adult and gaming sites?

I said no.

Right, that this was out of character for the company to do. And my comeback was that PayPal is a currency, and we cannot use it in some places and not in others. And so, we had this spirited debate, and you let me do what I wanted to do, which was enable PayPal.

Yes.

Why?

Well, that's a very good question. Why did I do that? No, I'm teasing. Companies are led by collections of individuals. I mean, yes, I was president and CEO of eBay, but you are only as good as the people you surround yourself with. Whether it's a nonprofit institution or a university, you're only as good as the people you surround yourself with. And I think if you want to get the very best people, you need to give them degrees of freedom, you need to give them latitude within a set of defined points of view, rules, if you will. And you need to let them figure it out. And PayPal was a separate division in eBay, which of course is a separate division from Skype. And this was a gray area.

It was a gray area.

And I was persuaded by your logic. And you were head of PayPal, and this was the kind of decision that I thought the division president should actually make.

Tell me a little bit, Meg, as a CEO, about what the risks are when you actually declare a character, a set of ethics for the company? And what I'm thinking about is the slippery slope so it doesn't get away from you and you can't control it.

Yes. Well, I think it also gets incredibly complicated as the company grows. I mean, when I stepped down as the president and CEO of eBay, we had 15,000 individuals operating in 30 countries across four major divisions. And by the way, cultural norms in different countries are very different. What the Korean team felt was appropriate was quite different from what the Chinese team felt; it was quite different from what the American team or the Argentinean team felt. And so, people said to me, well, how do I know what is the right thing to do? And this is something that worked worldwide, and it worked at all levels of the organization from president to administrative assistant. And what we said was, if you are in a room making a decision about an ethical or a moral issue for eBay, the eBay family, and your mother was in the room or your son or daughter was in the room or your husband or wife was in the room and they were watching you make that decision, would you be proud to have them watch? Would you be proud if they knew exactly what you had done? And if the answer to that is yes—

And it translated.

It translated across every culture. And then, the other test we used was, would you be proud to have that discussion almost word for word on the front page of The L.A. Times or the front page of The New York Times or the front page of The Wall Street Journal? And if you can't answer that in the affirmative, then it's probably not the right thing to do.

AIG, and Drucker's Glimpse at a Very Dark Place

Fri, 20 Mar 2009 00:00:00 PST

Soon after I was hired as the director of the Drucker Institute a couple of years ago, one of my board members passed along a short piece that he described as "the keystone" of Peter Drucker's work and told me to pay close attention to what it said.

It was the preface to the 1973 edition of Management: Tasks, Responsibilities, Practices. Drucker entitled the composition "The Alternative to Tyranny."

I read it over a couple of times and then zipped off a note to Bob Buford—a cable-TV pioneer, social entrepreneur, author, and a dear friend of Drucker's—thanking him for having shared the essay with me.

But the truth is, I didn't really appreciate what it was all about—at least not until this week, when the firestorm erupted over AIG.

TRUSTING "LARGE ORGANIZATIONS"

"Our society has become, within an incredibly short 50 years, a society of institutions," Drucker wrote. "It has become a pluralist society in which every major social task has been entrusted to large organizations—from producing economic goods and services to health care, from social security and welfare to education, from the search for new knowledge to the protection of the natural environment.

"To make our institutions perform responsibly, autonomously, and on a high level of achievement is…the only safeguard of freedom and dignity" in a society like ours, Drucker added. "But it is managers and management that make institutions perform. Performing, responsible management is the alternative to tyranny and our only protection against it."

Frankly, this last passage had always struck me as more than a little over-the-top. Sitting in sunny Southern California, the prospect of totalitarianism seemed awfully remote. I couldn't even begin to fathom how we'd ever slip into such a state.

But then AIG, the insurance giant bailed out by Uncle Sam, decided to pay out $165 million in bonuses to many of the same employees who'd wrecked the company's fortunes in the first place and nearly undermined the nation's financial system in the process. Suddenly, Drucker's words made sense.

"APPALLED BY THE GREED"

Let me be clear: I'm not at all suggesting that we're about to fall into the grip of some 21st century strain of Stalinism. Let me be equally clear that what AIG did—making "all kinds of unconscionable bets" on the housing bubble, as Fed Chairman Ben Bernanke has put it, and doling out these outrageous "retention payments"—should not be countenanced in any way.

And I am confident that Drucker would have felt the same. "I am appalled by the greed of today's executive," he declared in 2000, referring to those more interested in generating short-term gains than building sustainable businesses.

Yet Drucker, I think, would not only be disgusted by AIG's conduct; he would also cast a nervous eye at some of the reaction to it.

Indeed, the fact that so many have been clamoring for the government to abrogate unilaterally the contracts covering those AIG bonuses (maddening as they are); that Representative Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, asserted we should "forget about the legal matter here for a second"; that armed guards have been posted at AIG's offices in the face of death threats; that a U.S. senator (Charles Grassey—R-Iowa) has called on AIG executives to "resign or go commit suicide"—it all goes to the heart of what Drucker was getting at. When managers are irresponsible, when major institutions fall apart, we as a society leave ourselves open to unforeseen and sometimes extreme responses.

"CRISIS OF BELIEF"

Drucker's unease grew straight out of his early experiences in Europe, where he watched the Nazis rise to power. His first major book, 1939's The End of Economic Man, explored how "a society built around the market (the major social institution of the 19th century)…had failed, and that this had 'destroyed the belief in capitalism as a social system,'" Drucker's biographer, Jack Beatty, has noted. "The Great War and Depression made this crisis of belief a reality for millions."

Wrote Drucker: "These catastrophes broke through the everyday routine which makes men accept existing forms, institutions and tenets as unalterable laws. They suddenly exposed the vacuum behind the façade of society."

Looking for a miracle, the masses turned toward what Drucker termed the "abracadabra of fascism."

The U.S., as I said, is certainly in no real danger of sliding into dictatorship. But this week, we got the tiniest glimpse of what Drucker was writing about in that preface to Management—and a warning about what could happen if we keep going down the road we're on.

If nothing else, we'd be fools to take for granted that our way of life will always be here, undisturbed. "We are learning very fast," Drucker said in a far-seeing 1996 interview, "that the belief that a free market is all it takes to have a functioning society…is pure delusion."

For me, the AIG debacle has made it plain: As our managers go, as our institutions go, so goes the health of our economy—and maybe our democracy, too.

Closing the confidence gap

Sat, 14 Mar 2009 00:00:00 PST

The late Peter Drucker had his finger on the pulse of management. He understood it, grasped it like second nature and knew how to write about it.

Long before there were such terms as "financial bailout" and "stimulus packages" and talk of trillion-dollar economic losses, Drucker was writing about the basics of professional and ethical responsibility.

Drucker knew that the very first responsibility of managers, business leaders and executives was clearly spelled out almost 2,500 years ago, and it is the simple principle that was embodied in the Hippocratic oath of the Greek physician: Primum non nocere - "above all, not knowingly do harm."

I've written about this before, but it keeps coming to the fore because of the complete lack of ethical responsibility on the part of people we should be able to trust, but only a fool would trust after everything that has happened. Scandal after scandal has worn away any iota of trust and confidence Americans have had in their business leaders. And as the dean of a management school, I can say that this is a bad thing, and that it must be fixed.

In the process the bad apples in business and banking have not only caused a lack of confidence in their behavior but also in business leaders in general. This is unfortunate because there are excellent business leaders working very hard and honestly throughout the corporate community.

But, while there are good and trusted leaders, we still have a confidence gap as far as corporate and financial leaders are concerned. And I'm not sure when that gap will be closed. But one thing that I am sure of is that business leaders need to listen to Drucker and go back to the basics and practice professional and ethical responsibility.

To get an idea of how big this confidence gap is, just take a look at a recent CNN national poll. According to that survey, Americans have more confidence in the White House and Congress when it comes to dealing with the economy than they do with Wall Street, the banks or auto executives.

Only 30 percent of American thinks that Wall Street can fix the economy. And even fewer, 28 percent, think that bankers and financial executives can fix it. At the same time, 53 percent say that they have confidence in Republicans in Congress making the economy better. And 66 percent of all Americans said they have confidence in the Democrats who control Congress and that they will make the right economic decisions. And, by a whopping 75 percent, Americans said they think President Barack Obama will make the correct economic decisions.

We know times have changed when Americans have more confidence in politicians than in business leaders. There was a time when these numbers were the other way around but no more.

The reason this confidence gap has grown so much is simple. It seems that every time we turn on the news, we hear about another business scandal. Whether it's Bernie Madoff and his $50 billion Ponzi scheme or Robert Allen Stanford and his fraud, we keep hearing time and time again about business and financial leaders gone bad. We hear about Swiss banks refusing to allow the IRS to find out where rich Americans are hiding their money. And then, of course, there are the enormous and almost immoral bonuses that Wall Street paid out to its executives even as companies were going under.

Drucker said this about managers who think only of themselves or just their companies without looking at the larger society: "The manager who fails to think through and work for the appropriate solution to an impact of his business knowingly does harm. He or she knowingly abets a cancerous growth. That this is stupid has been said. That this always in the end hurts the business or the industry more than a little temporary `unpleasantness' would have hurt has been said too. But it is also a gross violation of professional ethics."

Again, I repeat what Drucker said: Do no harm.

Out with the Dead Wood for Newspapers

Tue, 10 Mar 2009 00:00:00 PST

Well before he began thinking and writing about management, Peter Drucker learned firsthand the joys of journalism and the perils of economic crisis. In fact, when he was a young reporter in Germany in October 1929, his very first story for the Frankfurter General-Anzeiger was about the New York stock market crash.

Still, it's hard to imagine that even Drucker could have foreseen the astonishingly rapid decline of the newspaper industry itself.

Already under tremendous pressure from readers shifting their eyes to the Internet, one media giant after another these days is finding the recession too much to bear. Tribune Co., publisher of the Chicago Tribune and Los Angeles Times (my old employer), has filed for bankruptcy. So have the owners of The Philadelphia Inquirer and Philadelphia Daily News and Minneapolis' Star Tribune. Denver's Rocky Mountain News has stopped publishing. Hearst Corp. is threatening to take the San Francisco Chronicle off life support, and Gannett may close down the Tucson Citizen.

Nobody has an easy answer. But Drucker surely would have called for something that has, by and large, been missing from the scene: a genuine boldness and decisiveness of action by top management. To stop the red ink, newspapers need to get rid of the ink altogether. It's high time for online-only operations.

"Every decision is like surgery," Drucker wrote in The Effective Executive, his 1967 classic. "It is an intervention into a system and therefore carries with it the risk of shock. One does not make unnecessary decisions any more than a good surgeon does unnecessary surgery." And yet, despite the dangers, Drucker was quick to add that "one has to make a decision when a condition is likely to degenerate if nothing is done."

CHANGE BECOMES OPPORTUNITY

"This also applies with respect to opportunity," Drucker explained. "If the opportunity is important and is likely to vanish unless one acts with dispatch, one acts—and one makes a radical change."

This is precisely what newspapers must recognize: They have to grab the future that's right in front of them—and before it's too late. For long-established businesses, this can be terribly difficult.

"Innovation requires us to systematically identify changes that have already occurred in a business—in demographics, in values, in technology—and then to look at them as opportunities," Drucker asserted in a 1996 interview. "It also requires something that is most difficult for existing companies to do: to abandon rather than defend yesterday."

As a guy who loves to go out and pick up the three newspapers that land on my front lawn every morning, I'm sorry to say it's inescapable: The Web needs to be embraced much more fully than most papers have done. This means no more tentative, halfway initiatives. Dead-tree editions must immediately yield to all-Internet operations. The presses need to stop forever, with the delivery trucks shunted off to the scrapyard.

Some may be moving this way. Hearst's Seattle Post-Intelligencer is evidently contemplating shuttering its print edition and going totally online. Bigger newspapers need to take the leap, too.

HOW IT MIGHT WORK AT THE L.A. TIMES

How realistic is this? To get a sense, I called an old friend and colleague, Russ Stanton, who is now the editor of the Los Angeles Times, and asked him what the paper would look like if it were available strictly on the Web.

After a day or two of playing with the numbers, he came back to me with an interesting picture: Based on its current level of online ad revenue, he says, the L.A. Timescould support a staff of about 275 people at their present salaries, and even offer a slight bump in benefits. This factors in office space, equipment, and all other major costs. And get this: The paper would be a solid moneymaker, boasting a profit margin of about 10%.

Of those 275 folks, Stanton figures, about 150 would work in the newsroom; the rest would sell ads, provide tech support, and handle various administrative duties.

This is far from a perfect solution, of course. Many older readers, in particular, are bound to balk at any arrangement that tries to force them online. What's more, cutting the news-gathering ranks to just 150 would sharply curtail what the Times could do, while causing a great amount of pain to those who've lost their livelihoods. The paper today has about 625 reporters and editors around the world (a stable that's down from the 1,000-plus when I was there just a couple of years ago).

But perfect isn't an option for the newspaper industry anymore. "In turbulent times," Drucker wrote, "the first task of management is to make sure of the institution's capacity for survival." And that's just it: With 150 journalists, a paper such as the L.A. Times could indeed survive—and still provide an indispensable service to the community.

PAPER'S MISSION WOULD SURVIVE ON THE WEB

Stanton and his team would have to make some very hard choices, and he stresses that the Times hasn't actually considered a Web-only model, in large part because it would entail walking away from more than $500 million in print-ad revenue.

But in chatting with him, it became clear that 150 troops could do a decent job of writing about (and videotaping, too) their own backyard. (How exactly you define "backyard" is another matter.) They could cover local sports, area business, and entertainment. Most significant, the paper could indeed maintain at least something of a watchdog function, holding L.A. politicians and institutions accountable.

I have no doubt that legions of customers would applaud this mission. After all, where else are they going to find reporting of such depth and distinction about their own city?

News outside these narrow confines, meanwhile, would have to be accessed by clicking elsewhere, conceivably through partnerships with other news organizations—an example of the "bewildering variety of alliances" that Drucker believed many enterprises would need to rely upon in the 21st century.

"There is a business here," Stanton says. "It's just not the business we're currently in."

What the Times and its peers must finally come to grips with is that they had better get to this new place fast. Or, pretty soon, they won't be in business at all.

Stanford’s Top Talent Hailed From Small Mississippi Town

Sat, 21 Feb 2009 00:00:00 PST

Baldwyn, Mississippi, was perhaps best known for its proximity to Elvis Presley’s home town of Tupelo until this week. Now, it’s becoming famous for a native son and daughter who were top executives in R. Allen Stanford’s company.

James Davis, Stanford Financial Group Co.’s finance chief, and Laura Pendergest-Holt, the Houston-based firm’s chief investment officer, both hail from the town of 3,300 people 123 miles southeast of Memphis. At least four other employees of Stanford companies grew up in Baldwyn, giving it an unlikely role in an international probe by the Securities and Exchange Commission and Federal Bureau of Investigation that stretches from Houston to Antigua.

“Everyone in town is floored,” said Lynda Conlee, Baldwyn’s city clerk, who referred to Davis as “Mr. Jim.” “This has put Baldwyn on the map, that’s for sure.”

The SEC has accused Stanford, 58, Davis, 60, and Pendergest-Holt, 35, of running a “massive, ongoing fraud” that misled investors in about $8 billion in certificates of deposit issued by Antigua-based Stanford International Bank, which the regulator said promised “improbable, if not impossible” returns. The FBI served Stanford Feb. 19 in Virginia with court papers related to the SEC’s civil lawsuit. No criminal charges have been filed against the Texas-born billionaire or his colleagues.

Main Street Money

In Baldwyn, where the water tower is the tallest structure, the talk of the town is the Stanford scandal. Davis, Stanford’s college roommate, owns or helped refurbish several businesses on Main Street, including the Status Thimble, which sells needlepoint supplies, and Kaffa at the Old Post Office, a coffee shop. Stanford’s offshore bank is a shareholder in a golf-supply company that opened a distribution center in Baldwyn last year.

“As a city, we’re taking it one day at a time,” Mayor Danny Horton said in an interview. “I don’t know what’s going on, only what I read and what I hear in the news.”

A profile in the September-October issue of Mississippi Magazine lauded Davis for revitalizing Baldwyn, where the per capita income at the 2000 U.S. Census was $15,430, compared to $21,587 nationwide.

“The community investment aspect of our lives is critical,” Davis was quoted as saying in the article. “It protects our values -- values like commitment to others and to family.”

PGA Tournament

Davis and Pendergest-Holt both had offices up Highway 78 in Memphis, the U.S. headquarters for Stanford Group Co., the wealth-management arm of Stanford’s network of companies. In 2007, Stanford became lead sponsor of a PGA Tour Golf Tournament, theStanford St. Jude Championship, which benefits the St. Jude Children’s Research Hospital in Memphis.

A program Stanford sponsored that paid $1,000 for each eagle, or shot two under par, on the women’s and men’s professional tour raised $4 million in the last two years for the hospital, said Phil Cannon, the tournament director. Davis played in pro-am events with professional golfers, he said.

“Mr. Davis seemed to be a very fine gentleman that had St. Jude’s best interests at heart,” Cannon said.

Davis Holdings LLC, an investment company Davis owns, occupies a 1920s-era building next door to his home-decorating store Patina Décor. Two men and a woman were inside on Feb. 19, packing bankers’ boxes with files. They locked the door when a Bloomberg reporter arrived, and declined to answer questions.

Baldwyn Employees

Zack Davis, Jim Davis’s son, worked at Stanford’s Memphis office. Stanford employees Angie Skelton, David Bishop and Elizabeth Randall are natives of Baldwyn, according to a 2008 story in the Memphis Business Journal. None of these employees were named in the SEC complaint. Bishop and Randall couldn’t be reached for comment.

“I can’t talk to you, all of the analysts are restricted,” Skelton said when reached at her home in Guntown, four miles south of Baldwyn.

Stanford required every employee to wear a lapel pin of an eagle with a shield. The Eagle Shield demonstrated “financial strength, integrity and commitment to our clients,” according to its Web site.

“Well-managed companies tend to be led by people who actually look for dissenting voices,” said Rick Wartzman, who studies management issues as director of the Drucker Institute at Claremont Graduate University in Claremont, California. “It’s a reminder not to surround yourself with friends.”

Loribel

Davis’s gated house is in a neighborhood scattered with prefabricated homes, trailers and ranch houses. Called Loribel, according to a sign on a pillar near the gate, it features a widow’s walk overlooking a pond. No cars were visible from the road when a reporter visited Feb. 19.

“He did not have an air about him as being important,” Horton, the mayor, said.

Stanford’s offices in Memphis and Tupelo were closed yesterday. Davis didn’t return voicemails left at both offices and at his Baldwyn home seeking comment.

Pendergest-Holt, wearing jeans and a cranberry-red turtleneck, greeted a reporter Feb. 19 at the Victorian home on Clayton Road where she grew up. Her husband, Jim Holt, was putting up a cable so a neighbor’s dog could roam safely around the yard. Holt said his wife was preparing to travel to Houston to work with the company’s receiver.

She wouldn’t comment on the case, referring questions to her lawyer, Brent Baker of Parsons Behle & Latimer in Salt Lake City.

‘Intend to Abide’

“We intend to abide by our legal responsibilities,” Baker, a former Securities & Exchange Commission lawyer, said. “We are willing to fulfill anything that is required.”

Pendergest-Holt and Davis met at the First Baptist Church in Baldwyn when she was in her early 20s, Jim Holt said in an interview. Davis was a Sunday school teacher at the church, Holt said. Holt, who said he is a hedge-fund manager, said his wife only oversaw the “investable assets” of the company, and that Pendergest-Holt didn’t manage the company’s “black box” assets.

Pendergest-Holt was a graduate of Baldwyn High School.

Roberta McKay, who was a librarian at the school for more than three decades, said in a March 2006 interview that Pendergest-Holt was a “very good student” and at the top of her class.

Pendergest-Holt’s sister Amy is married to Kenneth Weeden, Stanford Financial Group’s Tupelo-based managing director of investments and research. Weeden, reached by phone at his home in Corinth, Mississippi, said he’s cooperating with the court- appointed receiver which had “occupied” the Tupelo office.

ForeFront Holdings

Stanford International Bank, seized by Antiguan regulators, is a shareholder inForeFront Holdings Inc., a golf-supply company that opened a 200,000 square footdistribution center in Baldwyn last year.

Antigua-based Stanford International Bank held about 80 percent of its common stock, ForeFront said in a statement last year. Forefront also said the bank agreed to invest $12 million into the company. ForeFront lost $3.3 million in the first quarter of 2008, the last quarterly report it filed before asking the SEC in August to cease filing regular financial reports.

ForeFront Chief Executive Officer Stan Harris said the company “is in all essence private right now,” and wouldn’t comment on Stanford’s ownership stake or the decision to open the Baldwyn distribution center. Charlie Sample, who manages the Baldwyn distribution center, declined to comment.

A Marketing Spill on Starbucks' Hands

Fri, 20 Feb 2009 00:00:00 PST

Management writer Thomas Stewart once remarked that Peter Drucker's prose tends to be so pithy, "managers can sip his wisdom with their morning coffee every day."

The question du jour is: How many of them are now doing their coffee drinking at Starbucks, and how many will still be sitting—and sipping—there tomorrow?

Among Drucker's maxims, spelled out in his 1954 book The Practice of Management, was that "any business enterprise has two—and only these two—basic functions: marketing and innovation."

This week, I believe, Drucker couldn't help but question whether Starbucks, by goofing up the former, might wind up undermining the latter.

INSTANT-BREW INNOVATION?

The Seattle-based company has been in the news a lot lately. Among other things, it announced that it would soon introduce discounted pairings of coffee and breakfast food. It also launched a new line of instant Joe. The company has taken some pains to separate the two developments, but it's hard to imagine that one won't affect the other.

In isolation, peddling packets of VIA Ready Brew would be a chancy—but potentially rewarding—move for Starbucks. Marked by what some taste-testers have described as a rich aroma and flavor, the product clearly aims to meet one of Drucker's primary definitions of innovation: "changing the value and satisfaction obtained from resources by the consumer." "We are going to reinvent…the [instant coffee] category," Howard Schultz, Starbucks' chairman and chief executive, told Wall Street analysts.

Innovation, Drucker taught, typically grows out of one of several distinct opportunities, including "the incongruity between perceived and actual customer values and expectations." If Starbucks succeeds with VIA, it could very well shatter the notion that people who are content to drink instant coffee don't really care about quality.

But the company's effort could be tripped up by its other recent goal: Persuading recession-weary consumers that its offerings are, in fact, light on the wallet. One way Starbucks has tried to convey this is through its new $3.95 value meals. Meanwhile, baristas are reportedly being trained to reassure customers that the average price of a Starbucks drink is less than $3. At my own neighborhood store in Los Angeles this week, a big SALE sign was posted in the front window, trumpeting that if you bought six pounds of coffee, you'd get a seventh for free. I had to look twice to make sure I was stepping into a Starbucks, not a Dunkin' Donuts.

Schultz has underscored the low cost of the instant coffee, as well, noting that it goes for less than a dollar per cup. Though VIA was in the works for many years, Schultz said, its unveiling "happens to fortuitously coincide with the downturn of the economy."

"CONFUSING THE BRAND"

But all of this makes for a dissonant message. Rather than spreading a little bit of Starbucks' sparkle into the instant-coffee market, it feels as if the company is simply trying to reposition itself as a place to find a "good deal"—an image that, in many ways, runs directly counter to what made it so special to begin with.

"I think they run the risk of confusing the brand," says Jenny Darroch, a professor of marketing at Claremont Graduate University's Drucker School of Management (and a colleague of mine). "If markets and market boundaries are defined by products that satisfy the same customer need, then Starbucks no longer competes in the coffee connoisseur market. Instead, it competes in the convenience market—a very cluttered and highly competitive space."

The temptation to try to reel in penny-pinching consumers is certainly understandable. Starbucks' sales are off, and it's closing hundreds of stores. In this environment, it only makes sense that people must be looking to save a buck or two at every turn—that cash matters more than cachet. But whenever an executive "tries to impose what he considers rational on an apparent irrationality…he is likely to lose the customer," Drucker cautioned.

This is precisely the danger for Starbucks. While the company may attract some folks with its new approach, it could alienate just as many—or more—who feel as if Starbucks has compromised its character. What Starbucks should do, even in this downbeat economy, is to keep prices where they are and focus instead on retaining its fast-fading luster.

WHERE'S THE AFFORDABLE LUXURY?

Part of what has always defined Starbucks, after all, is that customers could go there and feel like they were indulging—without actually breaking the bank. It gave them a "sense of affordable luxury," as Joseph Michelli put it in his book The Starbucks Experience. Yet by openly reminding them just how affordable it is—and discounting on top of that—Starbucks stands to rob them of this pleasure.

"The aim of marketing is to make selling superfluous," Drucker wrote. "The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself."

Perhaps most puzzling is that Schultz seemed to grasp this not long ago. In February 2007 he issued a memo to senior managers, warning that the company's rapid growth had led to "what some might call the commoditization of the brand." Noting how so many things had changed over the previous decade—from the manner in which Starbucks roasted its coffee to the way it laid out its stores—Schultz expressed concern that its thousands of locations lacked "the soul of the past" and felt "sterile." He then called on his team to "evoke the heritage, the tradition" of Starbucks. Just a year ago, as he reclaimed the post of CEO, Schultz again talked about reigniting "the romance, warmth, and theater" that Starbucks once provided.

Maybe if Schultz won't heed Peter Drucker's words, he should try listening to someone else: himself.

This week: California on the edge

Fri, 20 Feb 2009 00:00:00 PST

The Fortune magazine blog "Postcards," by Patricia Sellers, featured Drucker Institute Board member Doris Drucker in one of its latest posts:

I was in California this past week and I’m happy to report that the Golden State did not fall into the Pacific Ocean.

It seemed it might, as inches of rain drenched Silicon Valley and the state government fought off insolvency. What a disaster California is right now, even after the legislature yesterday approved a plan to close a $42 billion budget deficit and end the “fiscal emergency” that the action-hero governor, Arnold Schwarzenegger, declared last November.

California now boasts the highest sales and income taxes in America, plus red tape galore that drives too many businesses out of the state. Business owners told me that this new budget - which raises taxes, slashes public services, and ushers in big-time borrowing - will enhance the already ripe opportunity for states like Arizona, Colorado and Texas to lure away employers.

The unemployment rate in California is now a whopping 9.3%. This week, a new report showed that employment in Silicon Valley is falling for the first time in years. And as my colleague Jessi Hempel - who has a Fortune cover story about Facebook in the new issue - recently noted, there are no technology breakthroughs, like the microchip or the Internet, to yank the Valley out of its slump this time. While a few giants with mounds of cash - Oracle and Cisco, to name two - are on the trail for acquisitions, some stalwarts are now baring their vulnerabilities. Apple’s computer sales at retail fell in January, for the first time in three years, reports NPD Group. On Wednesday, Hewlett-Packard posted a 13% decline in quarterly profits as sales in its computer and printing divisions tumbled.

I had one unexpected and uplifting encounter on my California visit: On Wednesday evening, I met Doris Drucker, the widow of Peter Drucker, the legendary management guru who died in 2005, one week shy of his 96th birthday. Doris, who was married to Peter for 58 years, is almost 98 years old. She plays tennis twice a week - from 8:30 to 10 a.m., she told me, “though I’m not as fast as I used to be.”

A short and stocky native of Germany, she stands perfectly erect. She doesn’t use a cane. She just renewed her driver’s license. She’d just been to the gym on Wednesday; light weights do her wonders. She has four children scattered about the U.S., but she does just fine living on her own in Claremont, where the graduate school of management is named after her husband. He taught at the school until he was 92. This coming November, he would have turned 100.

Peter Drucker, as you may know, coined the term “knowledge worker” and wrote about the rise of the information society and its implications for companies and workers. Lifelong learning is ever more important, he contended, and his widow is a living testament to this principle. In her long life, she’s been a grad student at the London School of Economics, a law student at the Sorbonne, a masters-degree recipient in physics from Fairleigh Dickinson University, and a scientific inventor. Her memoir, “Invent Radium or I Will Pull Your Hair,” came out when she was 93. Now, she says, she’s writing a book about information overload.

Meeting the remarkable Doris Drucker prompted me to reread a story, “Managing in Chaos,” that my colleague Geoff Colvin wrote in 2006. It’s timely. In the story, Geoff notes that Peter Drucker identified “leading change” as the key management challenge of the 21st century. To lead change, Drucker said, managers must “abandon yesterday.” In other words, get rid of what no longer works.

Now we see leaders - of corporations that he studied like General Motors and Citigroup, of governments, of not-for-profits, and beyond - struggling to abandon yesterday and determine what tomorrow will be. What do you think “the father of modern management,” as Drucker was known, would say if he could see all this tumult and desperation?

What we need is an ethics bailout for the entire nation

Sat, 14 Feb 2009 00:00:00 PST

I closely watched the expressions of the executives from the financial institutions that received a combined $125 billion of taxpayers' dollars from the TARP (Troubled Assets Relief Program) banking bailout as they faced their critics on the House Financial Services Committee in Washington.
The chief executives at the hearing were: Kenneth D. Lewis of Bank of America, Robert P. Kelly of Bank of New York Mellon, Vikram Pandit of Citigroup, Lloyd C. Blankfein of Goldman Sachs, Jamie Dimon of JPMorgan Chase, John J. Mack of Morgan Stanley, Ronald E. Logue of State Street and John G. Stumpf of Wells Fargo.

I saw expressions of embarrassment and shame as well as some fear as they went through a well-deserved public whipping.

Although they all said they were making loans with the taxpayers funds and even one, Pandit, said he would take only a $1-a-year salary until the crisis was over, I had to ask myself: Why do they find themselves at a congressional hearing having to defend themselves?

Partly it's because some of them used the public's money to pay out huge bonuses and partly it's because their collective decisions helped cause the mortgage crisis that, in turn, caused the economic collapse we're all dealing with today.

One former banking executive, former Merrill Lynch CEO John Thain, was at the hearing but not at the table. Merrill Lynch is now part of Bank of America. But let's not forget that Thain is now famed as the CEO who had a trash can in his office that cost $1,450. For some Americans, that's a monthly mortgage payment.

There are two big reasons why these executives, once considered among the best and the brightest, were hauled before Congress: 1) the American public is very angry at them; and 2), they and their counterparts on Wall Street seem to lack an ethical backbone.

As Blankfein of Goldman Sachs said in a real understatement: "It is abundantly clear that we are here amidst broad public anger at our industry. Many people believe - and, in many cases, justifiably so - that Wall Street lost sight of its larger public obligations."

Frankly, Wall Street went blind where ethics is concerned.

Bankers should have been reminded of the Hippocratic Oath that doctors have taken since ancient Greece: Above all, do no harm.

How could they have possibly thought it was right or fair or justifiable to offer "no doc" mortgage loans to poor people who didn't have to prove assets or ability to repay or provide a down payment on a $400,000 home?

Didn't any alarms go off anywhere when these captains of finance were boasting of selling billions of dollars of subprime loans that they labeled "grenade loans" - as the packagers knew that they would soon blow up, but in someone else's face and in someone else's portfolio?

Didn't any of these moguls of Wall Street investment banks see anything wrong when they actually awarded $25billion in bonuses at the end of a year when they lost $25 billion in net income?

We have to ask if during this heyday of financial hubris if there was anyone in the financial world who raised his or her hand and asked, "Are we doing the right thing?" In other words, didn't anyone sitting in one of those sleek high-rise boardrooms ever think about the ethical side of the situation?

Probably not, and that's why we're in this mess.

As an educator, I come into the picture as the dean of the Drucker Graduate School of Management at Claremont Graduate University.

For the record, let me also note that in a prior professional phase, I was a banker. I know that safeguards work not just because I understand that now as a dean but because I practiced it when I was in banking.

That why's the Drucker School is so important, perhaps now more than ever. It teaches practitioners about ethics in business, not as an afterthought but as the basis of all management.

Peter F. Drucker, the namesake of our management school, liked to tell this story about Alfred P. Sloan Jr., the genius at GM who made it what it once was, the biggest and most successful corporation in the world.

Sloan is reported to have said at a meeting of GM top executives: "I take it we are all in complete agreement on the decision here."

When everyone around the table silently agreed, Sloan then threw in this example of true leadership: "Then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about."

For Drucker, the point was that "unless one has considered alternatives, one has a closed mind."

Decision-making for Drucker works best when it's based on the friction of differing views and the resultant dialogue between different points of view, and the choice between different judgments.

The problem today is that few leaders tolerate dissent in their ranks. In fact, those who dissent or differ are often given a pink slip.

We know that greed was at the bottom of the financial crisis, but related to that and a main cause of corruption is the inability to say no when something is blatantly wrong.

No one on Wall Street said no, and now these "leaders" are being call forth to answer for their ethical lapses and enormous consequences of their unthinking and uncaring actions.

The recent inauguration of President Barack Obama marked a new era in American history. The president himself said in his inaugural address that we are entering a new "era of responsibility."

He said that he wants Americans to take responsibility and not shirk from the hard sacrifices that must be made if we are to extricate ourselves from this spiraling crisis of confidence in a time of real economic uncertainty.

I don't know if the bank executives will get the message but I do know that it's a message that resonates with young people.

It's time to propose an ethical bailout of all our leaders whether in finance, business, government, the nonprofit sector or the media. It's time for a change of heart and a change in course.

The new direction is all about doing good.

It's fine if you're also doing well, but the new rule of this new era is to do good when you do well.

A New View of Human Capacity

Thu, 29 Jan 2009 00:00:00 PST

Sir Ken Robinson, a leading thinker on innovation and creativity, recently published The Element, a book exploring the point at which “natural talent meets personal passion.” Click here to watch him discuss his new work, in part through an on-stage chat with Drucker Institute Director Rick Wartzman at the ALOUD Business Forum at the Los Angeles Central Library.

Their conversation was designated a Drucker Centennial event. For more on the Drucker Centennial, please click here. For more on the ALOUD Business Forum, click here.

Making Music with Drucker

Fri, 06 Feb 2009 00:00:00 PST

As rockers, rappers, and country crooners scoop up their Grammy Awards this weekend, you can be certain that they'll thank all kinds of people for helping to make them stars: producers, agents, the fans and, of course, many a mom.

But there's one Grammy winner of years past that feels it owes a debt to a very different sort of influence: management guru Peter Drucker.

Pasadena (Calif.)-based Southwest Chamber Music has long drawn on Drucker's insights to help it manage the enterprise effectively, as well as to tailor its musical selections. By constantly questioning which programs and strategies have become obsolete, Southwest offers some valuable lessons that can help any organization—no matter what kind of business it's in—hit the right notes. "Reading Drucker became this incredible light bulb for me," says Jan Karlin, the executive director of Southwest, which snared Grammys in 2003 and 2004 for the first two volumes of the Complete Chamber Music of Carlos Chavez.

VERDI INFLUENCED DRUCKER

That an outfit such as Southwest would have a strong affinity for Drucker's work is not surprising, really. Drucker, who saw "management as a liberal art," peppered his books and articles with references to music. "The key to greatness" in any organization, Drucker wrote in a 2002 essay for Harvard Business Review, "is to look for people's potential and spend time developing it.…To build a world-class orchestra requires rehearsing the same passage in the symphony again and again until the first clarinet plays it the way the conductor hears it. This principle is also what makes a research director in an industry lab successful."

Notably, Drucker counted Giuseppe Verdi, the 19th-century Italian composer, as having a tremendous impact on him. In the late 1920s, Drucker lived in Hamburg, where he worked as a trainee at a cotton export firm. Every week, he'd escape the drudgery of his job by going to the opera, and it was there that he heard Verdi's Falstaff. "I was totally overwhelmed by it," Drucker recalled.

But what impressed him most was when he later discovered that Verdi's masterpiece—"with its gaiety, its zest for life, and its incredible vitality," as Drucker put it—had been written by a man of 80. "All my life as a musician," Verdi declared, "I have striven for perfection. It has always eluded me. I surely had an obligation to make one more try." Drucker said that these words from Verdi became his "lodestar," helping inspire him to write into his nineties.

DEFINING A NEW MISSION

For Southwest, Drucker's teachings form a basis to examine all kinds of things, including the most fundamental aspects of the organization. Karlin, for instance, says that her grounding in Drucker made it clear that after Southwest had won its Grammys, it needed a new mission statement. The old one—"to energize and renew the standard chamber music repertory by integrating the best of contemporary world and early music in programs and concerts"—had largely been fulfilled.

"We started thinking, what are we going to do next?" says Karlin, displaying an entrepreneurial orientation that demands certain initiatives be abandoned to make way for the future. Southwest's new mission: "to provide the Southern California and international music communities with concert, recording, and educational programming that reflects the vast diversity of art music from around the world."

This fresh approach has led Southwest to focus on the rich cultural diversity in its own backyard—particularly in the Latin and Asian communities—and has opened the door to new adventures abroad.

ASKING THE RIGHT QUESTIONS

Next year, Southwest will take part in a State Dept.-sponsored cultural exchange with Vietnam that will involve both musical performances and workshops on arts management featuring Drucker's principles.

Today, amid a difficult financial environment, Karlin and her husband, Southwest artistic director Jeff von der Schmidt, are asking a Drucker-like question that is meant to help them spot further opportunities, even with all the challenges: "If we were to begin Southwest now, what would it look like?"

"Peter would have encouraged us to rethink the organization—and that's what we're doing," says Karlin, who has produced a balanced budget for each of the 22 years Southwest has existed.

NO ONE IS IMMUNE

For his part, von der Schmidt says Drucker's writings have given him a way to consider the tough artistic choices he must make between embracing new music and sticking with classical compositions. "There really does have to be a balance of continuity and change," says von der Schmidt, pointing to one of Drucker's central themes.

In 2007, Southwest hired Michael Millar, who received his doctorate from Claremont Graduate University, where he studied both musical performance and arts administration. For the latter, his professors included none other than Peter Drucker.

Karlin and von der Schmidt were already familiar with Drucker when Millar arrived, but he has ensured that Drucker's emphasis on mission, customer, results, and plan has been embedded deeper throughout the organization. No one is immune. "It's about making everybody—even the musicians—more effective in what they do," says Millar, Southwest's development director and bass trombone player.

CONNECTING WITH STRENGTHS

Millar invokes Drucker, as well, when he shows young people how to play. The typical way to teach an instrument, he says, is for the instructor to listen and then say, "Here's what you did wrong." Millar flips it around, asking, "Now tell me what you did—and start with what you did right."

"Students are able to connect with their strengths and make their weaknesses irrelevant," he explains. "Everybody needs to understand what they do well."

For Southwest itself, that's been turning Drucker into beautiful music.

Obama's Call to Duty Echoes Drucker On Ethical Organizations

Fri, 23 Jan 2009 00:00:00 PST

When Peter Drucker was asked toward the end of his long life to list his greatest contributions, he pointed to his pioneering insight that management had extended beyond the realm of business to become "the governing organ of all institutions of modern society." He also noted, without embellishment nor false modesty, that "I established the study of management as a discipline in its own right."

And then he added this: "I focused this discipline on people and power; on values, structure and constitution; and above all on responsibilities." For extra emphasis, he typed the last part of the sentence in capital letters.

I thought about Drucker's list this week, as President Barack Obama summoned the R-word in an inaugural address that was by turns soaring and sober. "What is required of us now," he declared, "is a new era of responsibility."

ETHICAL LEADERSHIP

But what are these "duties to ourselves, our nation, and the world" that Obama has asked us to "seize gladly"? What, really, can we be expected to do at a time when as the president himself put it, "our economy is badly weakened…. Homes have been lost, jobs shed, businesses shuttered." How can each of us, in our own way, help provide for the common good?

Part of the answer lies in Obama's call for service and volunteering—a force that Drucker also viewed as "a powerful countercurrent" to the "decay and dissolution of family and community and …loss of values" in America.

But for Drucker, there was something even more fundamental to the notion of responsibility. It begins with the recognition that over the last 150 years we've become a society of big organizations. And when these organizations aren't effectively managed and ethically led, society as a whole stands to suffer.

FORESIGHT MATTERS

Who could doubt that these days? What's good for General Motors may be good for the country, but the corollary is surely true: When things go bad at GM (or Citigroup or Fannie Mae), it's lousy for us all.

"Economic performance is the first responsibility of a business," Drucker wrote. "Indeed, a business that does not show a profit at least equal to its cost of capital is irresponsible; it wastes society's resources. Economic performance is the base without which a business cannot discharge any other responsibilities, cannot be a good employer, a good citizen, a good neighbor. But economic performance is not the only responsibility of a business…. Every organization must assume full responsibility for its impact on employees, the environment, customers, and whomever and whatever it touches. This is its social responsibility."

What's more, it can't do this after the fact. "It is the job of the organization," Drucker explained, "to look ahead and to think through which of its impacts are likely to become social problems. And then it is the duty of the organization to try to prevent these undesirable side results."

WHAT'S SOCIALLY RESPONSIBLE?

And yet organizations must do more than simply keep the negative from happening; to be truly responsible, they must leave a mark on the positive side of society's ledger sheet.

The best way to accomplish this, Drucker advised, is for the organization to convert "into opportunities for its own performance the satisfaction of social needs and wants." This approach, Drucker noted in the late 1960s, another time of intense anxiety for the nation, "may be particularly important in a period of discontinuity."

If there is a danger in satisfying social needs, Drucker recognized, it occurs when organizations fall prey to the temptation to overreach—to try to take on tasks for which they're not properly equipped. "Organizations…do not act 'socially responsible' when they concern themselves with 'social problems' outside of their own sphere of competence and action," he said. "They act 'socially responsible' when they satisfy society's needs through concentration on their own specific job. They act most responsibly when they convert public need into their own achievement."

So what does this come down to for you and me?

Although Drucker wrote about "social responsibility" in the context of the organization, he was quick to remind that "the organization itself, like every collective, is a legal fiction. It is individuals in the organization who make the decisions and take the actions which are then ascribed to the institution, whether it be the 'United States,' the 'General Electric Company,' or 'Misericordia Hospital.'"

MINDFUL MANAGING

It is up to us, then, to be mindful of our impact, no matter what kind of work we're engaged in, to do no harm, and to actively look for ways to solve social ills whenever it makes sound business sense to do so.

Finally, it's up to us to perform. Otherwise, the organizations in Drucker's "society of organizations" will never be healthy and stable.

This holds true for both managers and other workers, especially the knowledge workers whose ranks continue to swell. "The well-being of our entire society," said Drucker, "depends increasingly on the ability of these large numbers of knowledge workers to be effective."

Being responsible not only means doing the right things. It means doing the right things well.

Drucker Centennial Co-Chair Charles Handy provides insights into the financial crisis

Thu, 08 Jan 2009 00:00:00 PST

There are a lot of reasons why our economy is in a sorry state. Among them, said Charles Handy on a recent broadcast of American Public Media's Marketplace, is the way we've done business and how banks have been structured. Click here to listen to Kai Ryssdal's interview with Handy about how we got in this economic mess.

Author and social philosopher Charles Handy is a Drucker Centennial co-chair and was previously a Drucker Scholar-in-Residence at the Drucker School and Drucker Institute.

Ask "For What?" Before "Who?"

Fri, 09 Jan 2009 00:00:00 PST

At Borders, you can buy a hardback version of the essay collection Classic Drucker for $24.95 or grab the paperback for 10 bucks less. Here's hoping that a few folks on the bookstore chain's board of directors had the good sense to pick up a copy and peruse Chapter 5 before selecting their new chief executive.

Had they done so, they would have gleaned a few insights into what may well be the most crucial call that any enterprise makes: hiring key employees.

ASK THE RIGHT QUESTION
In "How to Make People Decisions," first printed in the Harvard Business Review in 1985, Peter Drucker laid out a handful of guidelines for making a good hire. Among them: look at three to five qualified candidates and make sure you perform adequate due diligence by checking out each with several former bosses and colleagues. "One executive's judgment alone is worthless," Drucker wrote. "Because all of us have first impressions, prejudices, likes and dislikes, we need to listen to what other people think."

But in many ways, the hardest principle to follow is Drucker's first: "Think through the assignment." Or, to put it another way, you can't answer "Who?" until you've first figured out, "For what?"

"When the task is to select a new regional sales manager," Drucker explained, "the responsible executive must first know what the heart of the assignment is: to recruit and train new salespeople because, say, the present sales force is nearing retirement age? Or is it to open up...new and growing markets? Or, since the bulk of sales still comes from products that are 25 years old, is it to establish a market presence for the company's new products? Each of these is a different assignment and requires a different kind of person."

BEWARE THE RENAISSANCE MAN
Though most executives would surely agree with this logic, many violate it nonetheless. In their book, Who, Geoff Smart (who studied with Drucker) and Randy Street warn against falling into "one of the most common hiring traps": getting seduced by somebody who seems to be able to do almost everything exceptionally well, thus promising to be a star no matter the situation.

"There is a tendency to gravitate to the best all-around athlete; you know-tremendous skill set, resume that is knock-your-socks-off," the authors quote Nicholas Chabraja, the chief executive officer of General Dynamics, as saying. Chabraja goes on to recall that he once hired someone like that-a man whose broad talents and creativity made him "a splendid business developer." But what the company really needed at that point was an executive with a knack for running operations who could shrink a bulging backlog.

THE RIGHT PERSON FOR THE RIGHT JOB
"I made the mistake of putting in place a guy who went on to put more orders in the backlog," Chabraja says. "Operating margins actually went down. It took me a couple of years to address the mistake. The moral of the story was that I later got a guy whose skill set exactly matched the job at hand. He did gangbusters for us...The other guy went on elsewhere to a splendid career where his role matched his skill set."

Drucker could have easily guessed this would happen. The best business leaders, he wrote in his 1967 classic,The Effective Executive, "never talk of a 'good man' but always about a man who is 'good' for some one task."

Borders, in announcing this week that it had tapped Ron Marshall to be its new CEO, seems to have this very idea in mind. The beleaguered retailer, weighed down by a heavy debt load and trying to stave off bankruptcy, said it must move "more aggressively" to improve its cash flow. Marshall, who most recently served as the head of a private equity firm, has the kind of deep financial background that may well lend itself to the specific challenges Borders now faces. The CEO he replaces, George Jones, came into the job with more of a reputation as an innovator than as a money man.

Not everyone views the who-vs.-what dynamic exactly the same. Jim Collins, in Good to Great, is adamant that building "a superior executive team" should be the first order of business for any company aspiring to be world-class. "Get the right people on the bus...before you figure out where to drive it," he advises.

But Collins also points out that you must get "the right people in the right seats"-a matchmaking exercise that's impossible without assessing, at least on some level, the specific work that needs to get done.

EFFECTIVE SPECIALIZATION
If all of this sounds as if we're saying companies need people who are specialists, Drucker wouldn't disagree. This isn't to suggest that employees shouldn't possess strong general traits: a good work ethic, high standards, and the like. But today's knowledge worker is "usually a specialist," Drucker wrote. "In fact, he can, as a rule, be effective only if has learned to do one thing very well."

Given that, however, Drucker also believed it's essential for the specialist to understand how his or her job fits into the framework of the organization overall.

The goal of this "is not to breed generalists," Drucker said. "It is to enable the specialist to make himself and his specialty effective. This means that he must think through who is to use his output and what the user needs to know and to understand to be able to make productive the fragment the specialist produces."

All of which is to say: It's critical that every "who" grasp the "why," "when" and "how" behind his or her "what."

Drucker Centennial to be quite a big deal

Sat, 10 Jan 2009 00:00:00 PST

The Drucker School along with The Drucker Institute recently announced the launch of the Drucker Centennial, a commemoration and celebration of the life of the late Peter F. Drucker.

The centennial will mark Peter's 100th birthday. He was the father of modern management and the acclaimed author of 39 books on organizational behavior, innovation, economy and society as well as the recipient of the Presidential Medal of Freedom.

The celebration will be crowned by a week of special events at Claremont Graduate University in November and supplemented by activities and events over the course of the centenary period, which will go until fall 2010.

I believe that the timing couldn't be more urgent. Our economy is facing the worst crisis since the Great Depression. I've never seen anything like this in my lifetime. Political institutions around the globe are in turmoil.

This is a topsy-turvy moment in history when Drucker's solid insights on effective management, ethical leadership and social responsibility have never been more essential. This centennial celebration will be a bridge between Drucker's timeless ideas and current transformative world events. Clearly, we need Drucker now more than ever.

As Drucker himself wrote, "None of our institutions exists by itself and is an end in itself. Every one is an organ of society and exists for the sake of society. Business is no exception. Free enterprise cannot be justified as being good for business; it can be justified only as being good for society."

To underscore the importance of the event, the chairpersons of the Drucker Centennial include a who's who of leaders, thinkers and management luminaries:

John Bachmann, senior partner at Edward Jones; chairman of the Drucker School board of visitors; Claremont Graduate University trustee.

Warren Bennis, distinguished professor of business administration at USC.

Bob Buford, author; social entrepreneur; chairman of the Drucker Institute.

John Byrne, executive editor of BusinessWeek.

Jim Collins, author of "Good to Great" and "Built to Last."

Doris Drucker, author; inventor.

Rajiv Dutta, Drucker MBA '82; former president of eBay Marketplaces.

David Gergen, director of Harvard University's Center for Public Leadership; CNN commentator; former White House adviser.

Charles Handy, author of "The Age of Unreason" and "The Elephant and the Flea;" co-founder of the London Business School.

Frances Hesselbein, chairman of the Leader to Leader Institute; former CEO of the Girl Scouts of the USA; winner of the Presidential Medal of Freedom.

Masatoshi Ito, founder and honorary chairman of the Ito-Yokado Group.

Rosabeth Moss Kanter, Ernest L. Arbuckle professor of business administration at Harvard University.

Alan Khazei, CEO of Be The Change Inc.; co-founder of City Year.

Wendy Kopp, founder and CEO of Teach for America.

A.G. Lafley, chairman and CEO of Procter & Gamble Co.

Minglo Shao, founder/chair of Bright China Holding Ltd.; director of the Peter F. Drucker Academy in China.

Rick Warren, author of "The Purpose Driven Life," and pastor of Saddleback Church.

Born in Vienna on Nov. 19, 1909, Drucker had a profound impact on how people around the world organize themselves in the realms of business, government, and civil society.

Jack Welch, the former chairman of General Electric Co., has hailed Drucker as "the greatest management thinker of the last century."

James O'Toole, distinguished professor at the University of Denver's Daniels College of Business, put it like this: "It is frustratingly difficult to cite a significant modern management concept that was not first articulated, if not invented, by Drucker."

Among the activities being planned for the centennial are:

A one-day summit with corporate leaders on "The Drucker CEO of the 21st Century."

A Drucker Centennial public lecture series, to be held in conjunction with the Library Foundation of Los Angeles.

A series of onstage conversations between Dutta and senior executives on "Managing in the 21st Century."

A centennial marketing symposium that will showcase Drucker's pioneering contributions to the field.

The production of a new text, "The Drucker Difference," by Drucker School faculty.

Also planned as part of the centennial are:

The launch of a major community-service project in the Inland Empire by CGU students.

The premiere of the Drucker Institute documentary, "Closing the Responsibility Gap."

A doubling around the world of the number of Drucker Societies, all-volunteer groups that use Drucker's teachings to bring about positive change in their communities.

A major conference devoted to Drucker's concept of "management as a liberal art."

We also anticipate as part of the centennial to bring in Drucker Centennial fellows-in-residence and host a forum featuring two decades of past winners of the Drucker Innovation Awards.

In the process of celebrating the centennial, we are also asking you to help turn the 21st century into the Drucker Century by putting his principles of effective management and ethical leadership to work in your professional life.

And I would welcome your involvement in this great celebration.

For more information, please visit: www.drucker100.com.

A Time for Ethical Self-Assessment

Tue, 23 Dec 2008 00:00:00 PST

This may be the season of giving, but it sure feels like everybody is suddenly on the take.

Siemens, the German engineering giant, agreed this month to pay a record $1.6 billion to U.S. and European authorities to settle charges that it routinely used bribes and kickbacks to secure public works contracts across the globe. Prominent New York attorney Marc Dreier—called by one U.S. prosecutor a "Houdini of impersonation and false documents"—has been accused by the feds of defrauding hedge funds and other investors out of $380 million.

And then, of course, there's financier Bernard L. Madoff, who is said to have confessed to a Ponzi scheme of truly epic proportions: a swindle of $50 billion, an amount roughly equal to the GPD of Luxembourg.

All told, it begs the question that Peter Drucker first raised in a provocative 1981 essay in the journal The Public Interest and that later became the title of a chapter in his book The Ecological Vision: "Can there be "business ethics"?"

Drucker didn't pose this to suggest that business was inherently incapable of demonstrating ethical behavior. Nor was he positing that the workplace should somehow be exempt from moral concerns. Rather, his worry was that to speak of "business ethics" as a distinct concept was to twist it into something that "is not compatible with what ethics always was supposed to be."

What Drucker feared, specifically, was that executives could say they were meeting their social responsibilities as business leaders—protecting jobs and generating wealth—while engaging in practices that were plainly abhorrent. "Ethics for them," Drucker wrote, "is a cost-benefit calculation...and that means that the rulers are exempt from the demands of ethics, if only their behavior can be argued to confer benefits on other people."

It's hard to imagine that a Madoff or a Dreier would even attempt to get away with such tortured logic: an ends-justify-the-means attitude that Drucker labeled "casuistry." But we all know managers who've tried to rationalize an unscrupulous act by claiming that it served some greater good.

THE MIRROR TEST
In his book Resisting Corporate Corruption, Stephen Arbogast notes that when Enron higher-ups sought an exemption from the company's ethics policy so that they could move forward with certain dubious financial dealings, the arrangement was made to "seem a sacrifice for the benefit of Enron." Reinhard Siekaczek, a former Siemens executive, told The New York Times that the company's showering of foreign officials with bribes "was about keeping the business unit alive and not jeopardizing thousands of jobs overnight."

For Drucker, the best way for a business—indeed, for any organization—to create an ethical environment is for its people to partake in what he came to call in a 1999 article ÃƒÂƒÃ‚Â¶the mirror test." In his 1981 piece, Drucker had a fancier name for this idea: He termed it "The Ethics of Prudence." But either way, it boils down to the same thing: When you look in the mirror in the morning, what kind of person do you want to see?

The Ethics of Prudence, Drucker wrote, "does not spell out what "right" behavior is." It assumes, instead, "that what is wrong behavior is clear enough—and if there is any doubt, it is "questionable" and to be avoided." Drucker added that "by following prudence, everyone regardless of status becomes a leader" and remains so by "avoiding any act which would make one the kind of person one does not want to be, does not respect."

Drucker went on: "If you don't want to see a pimp when you look in the shaving mirror in the morning, don't hire call girls the night before to entertain congressmen, customers, or salesmen. On any other basis, hiring call girls may be condemned as vulgar and tasteless, and may be shunned as something fastidious people do not do. It may be frowned upon as uncouth. It may even be illegal. But only in prudence is it ethically relevant. This is what Kierkegaard, the sternest moralist of the 19th century, meant when he said that aesthetics is the true ethics."

TIME TO REFLECT
Drucker cautioned that the Ethics of Prudence "can easily degenerate" into hollow appearances and "the hypocrisy of public relations." Yet despite this danger, Drucker believed that "the Ethics of Prudence is surely appropriate to a society of organizations" in which "an extraordinarily large number of people are in positions of high visibility, if only within one organization. They enjoy this visibility not, like the Christian Prince, by virtue of birth, nor by virtue of wealth—that is, not because they are personages. They are functionaries and important only through their responsibility to take right action. But this is exactly what the Ethics of Prudence is all about."

Now is the time of year when many of us find ourselves sitting in church or in synagogue, or, if we're not religious, simply taking stock of who we are and where we want to be as the calendar turns. But what's even more critical is that we continue this sort of honest self-assessment when we return to our jobs in early 2009.

"I have learned more theology as a practicing management consultant than when I taught religion," Drucker once said. This, he explained, is because "management always deals with the nature of Man and (as all of us with any practical experience have learned), with Good and Evil as well."

So take the mirror test now—and then keep taking it well after the Christmas ornaments have been packed away and the Hanukkah candles have burned down to the nub. In the meantime, happy holidays to all.

The View from Drucker: The New Pragmatism

Sat, 20 Dec 2008 00:00:00 PST

When we look at our nation today it seems that all we see are huge and overwhelming problems.
We can start with the collapse of our financial system but it doesn't end there. There's global warming and the incredible transfer of our wealth - $700 billion every year - to oil-producing countries that are openly hostile to us. Hanging over all this is the terrorist threat. And then there is the very real underlying insecurity about healthcare, education and our overall quality of life.

The question is: how do we even begin to address these problems?

Fortunately for us, there are thinkers out there who are applying their insight, wisdom and experience to the question. One of these is Daniel Yankelovich, a national treasure and a public intellectual of the highest stature.

Last month he came to Claremont for our school's annual Drucker Day and he not only helped us kickoff the Centennial celebrations for Peter Drucker but he also laid out a path toward solving our seemingly intractable problems.

Yankelovich is cut from the same cloth as Peter Drucker. Like Peter, he has spent a lifetime thinking, and a lifetime doing, creating and observing, analyzing and advocating. He's started companies, and introduced new ideas like the New York Times/Yankelovich Poll, now the New York Times/CBS Poll. He's started important non-profits like Public Agenda, which he now chairs. He cuts his teeth in business. He paid his dues in the classroom at NYU, Harvard and UCSD.

He's written about major institutions, and the human condition, and the need for more active citizenship in eleven powerful books, including The Magic of Dialogue and Profit with Honor: The Next Stage of Market Capitalism. Daniel Yankelovich is the father of public opinion research. He's been a steward of great institutions like the Carnegie Foundation, the Kettering Foundation, Brown University, and great companies like CBS and Loral.

Drucker Day took place on a sunny and bright Saturday and Yankelovich brought his well-honed laser clarity to our current social, cultural and economic impasse.

He started by noting that 85 percent of the American people think that we're on the wrong track. He also laid out the enormous problems we face, as I noted earlier. He then made a very interesting point. The U.S. has faced equal or greater threats in the past and we have overcome them: the Crash of 1929, the Great Depression, World War II, McCarthyism, the Cold War, the Cuban Missile Crisis, the assassinations of President Kennedy and Martin Luther King, the Vietnam War, and 9/11.

For Yankelovich, our problems are solvable. As he said, "we have extraordinary resources: human, capital, corporate, technological, and scientific." Yet, as he also noted, while we have the potential to solve all these problems, there is a big BUT: "our nation's problem solving gift seems to have eroded, and eroded badly."

That unique American gift has eroded, he said, due to massive denial, the grasping at straws, ideology over practicality, leadership pandering, polarization instead of cooperation and a deep public mistrust that is corroding our body politic.

Yankelovich also made the point that the real underlying issue is cultural in nature. He said there's a wide gap between experts and the general public, cultural wars over core values, a public demand for voice without taking responsibility, technological hubris, the growth of self-isolating communities and a series of generations unaccustomed to sacrifice. The result, he said, is that when you add all this up, "you are forced to realize that the kinds of solutions that we're most familiar with, and that lie within our comfort zone, won't work on them."

Drawing on Drucker's approach to similar challenges, Yankelovich came to the conclusion that "you have to fight culture with culture." And then in a brilliant stroke, he said, "that means restoring a traditional American philosophy and habit of thought." He elaborated on this: "I believe that revitalizing our problem-solving culture of thought can best be done through what I'm calling `the new pragmatism."'

By restoring this tradition (and also updating it), Yankelovich believes that we can deal with the cultural "obstacles" facing us now.

As Yankelovich said, pragmatism is a distinctive American philosophy that focuses on cooperation. So, what is pragmatism? According to Yankelovich, the popular notion of pragmatism "means being open to compromise, to incremental solutions, to focus on the art of the possible, and to be more concerned with solving concrete problems than with grand visions." But he also said that beyond this popular sense of the idea, we need two other dimensions that allow it to truly help us solve the colossal problems at hand.

"One of them," he said, "is that it's very strongly value-driven, with a major focus on freedom of thought and action." The second dimension is that it's "committed to social experimentation as a fundamental way of knowing. It also presupposes a constantly evolving and changing society rather than a static culture."

So how do we spread the "new pragmatism" into the culture at large?

For Yankelovich, "it's going to occur through entrepreneurship and innovative thinking at all levels of society: individual, commercial, public, non-profit, private, institutional, and all of these in interlocking, interacting ways."

Finally, after walking us through a real-world example, how we might wean ourselves off of our addiction to oil, Yankelovich presented the tool that will help move this idea from the academic realm into a broader public dialogue and he calls that tool the "public's learning curve." The key, he said, is to accelerate that learning curve from the speed that it now travels, which in the case of some issues such as women's rights and slavery can take centuries. It's essential to move it from consciousness-raising to resolution in a much, much faster way. The issues we are facing are "time-gap issues," where the normal learning curve "is simply too slow given the urgency of the problem." Yankelovich and his colleagues are conducting research to accelerate this learning curve so that the move from the public's current position on these issues moves rapidly through all the obstacles we noted earlier.

What they have found so far is that leadership is critical. Explanatory journalism plays a key role. Bottom line: the new pragmatism is the start. Yankelovich believes that "it provides the common ground we need to revitalize our national gift for problem-solving."

I'm glad that we have thinkers like Yankelovich who are working on helping us all find a way to solve our worst collective problems. The new pragmatism is a great start. As the recent election shows, we live in a great democracy. We now have the chance with a new president and a new resolve to make headway with these problems by putting the new pragmatism into practice.

When Cutting Costs is Not the Answer

Fri, 05 Dec 2008 00:00:00 PST

The layoff announcements are mounting by the day: 50,000 at Citigroup, 12,000 at AT&T, 6,000 at Sun Microsystems, 2,500 at DuPont, 1,200 at United Airlines, 850 at Viacom.

In all, major U.S. companies said in November that they were going to whack 181,671 jobs, the outplacement firm Challenger, Gray & Christmas reported this week. That was the most since January 2002 and brought the total number of reductions planned this year to more than 1 million. On Dec. 5 the Labor Dept. said nonfarm payrolls fell by a larger-than-expected 533,000, while the unemployment rate climbed to 6.7%, its highest point since October 1993.

Given the fragile state of the economy, it's not surprising that employers are more likely to hand their workers a pink slip than a turkey this Christmas. But perhaps bloodletting isn't the only answer. Certainly, it isn't the only one that Peter Drucker would prescribe.

Not that Drucker was blind to the need for keeping a lid on costs. Indeed, he taught that enterprises big and small should always be asking themselves not how to make a particular aspect of the business more efficient but whether it should exist at all. "The question should be: 'Would the roof cave in if we stopped doing this work altogether?'" Drucker explained. "And if the answer is 'probably not,' one eliminates the operation. It is always amazing how many of the things we do will never be missed."

What's important, Drucker said, is to make this a routine exercise-not something that happens only during downturns. "Businesses that actually succeed in cutting costs," he said, "don't wait until they have to cut costs."

Investing in Knowledge Workers

In the same way, Drucker believed in investing in productive assets as a regular, everyday function-and there was no doubt as to where he thought investment should be channeled in this day and age. "The most valuable assets of the 20th century company were its production equipment," he wrote. "The most valuable asset of a 21st century institution...will be its knowledge workers."

One person who has acted on these words-with extraordinary results to show for it-is K.H. Moon, the former chief executive of Korean consumer-products maker Yuhan-Kimberly. (Full disclosure: Moon, who is now a member of national Parliament in Seoul, until recently served on the board of the Drucker Institute, which I run.)

It was during the late 1990s, amid the Asian financial contagion, that Moon looked around and was disgusted by what he saw. "At almost all companies," he recalls, "the management just followed the old wisdom-massive layoffs."

Yet Moon felt that simply to slash employment was irresponsible, and he began to persuade his colleagues that there was a better way to go-not just to survive but to grow and prosper. This "was not the time to lose jobs," he says, "but to build our capability, personally and companywide."

To get there, Moon took several bold steps. One was to accelerate a push to a new staffing system, moving from a three-crew, three-shift arrangement to a four-crew, two-shift model. By spreading out the work this way-Moon has likened it to "job sharing in Western countries"-the company figures it has been able to employ 25% more mill workers than it otherwise would have.

Lifelong Learning

Because of this setup, employees work fewer hours overall. But they're encouraged not to be idle. Yuhan-Kimberly pays for them to attend classes so they can improve their technical acumen as well as increase their general knowledge (through Chinese language instruction, for instance). It's all based on a philosophy of lifelong learning-what Yuhan-Kimberly Chairman D.J. Lee calls the company's "true source of competitiveness and sustainable growth."

"It comes down to what Peter Drucker wrote about again and again-to see people not just as cogs in the wheel," says Edward Gordon, author of The 2010 Meltdown: Solving the Impending Jobs Crisis, which commends Yuhan-Kimberly's "counterintuitive approach."

The upshot is that by providing a healthier work-life balance, by giving the rank-and-file the opportunity to enhance their skills continually, and by taking other steps to create a self-directed team culture, Yuhan-Kimberly has seen job satisfaction among its 1,700 employees soar. So has productivity (along with market share and revenue)-so much so that workers' wages have also risen substantially.

Moon, meanwhile, has helped set up a New Paradigm Center, a government-funded organization that is teaching other Korean companies how to be Yuhan-Kimberly-like.

This formula won't work for everyone; implementing it involves real costs and, thus, real risks. What's more, there's no avoiding the fact that layoffs are inevitable during a recession, no matter what is tried. Even Drucker, who so admired Japanese industry for its commitment to lifetime employment, recognized this ideal was bound to crack amid the unrelenting pressures of globalization.

But what Yuhan-Kimberly reminds us is that shedding thousands of positions doesn't necessarily have to be management's automatic response to a bleak economy. When things seem darkest, it's time to innovate, not just eliminate.

Drucker Institute says no to bailing out the automakers

Tue, 02 Dec 2008 00:00:00 PST

Rick Wartzman, director of the Drucker Institute at Claremont Graduate University, said Peter Drucker has "always encouraged organizations to look to the future, not to cling to the past."

An example from Wartzman is when in 1946, after Drucker chronicled the inner-workings of General Motors in his landmark book "Concept of the Corporation."

Drucker told GM to reconsider strategies and policies that were in place for decades. GM's management said no because of their success, Drucker said.

Since there was no incentive for the auto company to innovate, their strategies became obsolete and the company had difficulty trying new techniques. "Drucker thought GM was a little slow-footed," Wartzman said in a release. "Why would a company that hasn't been able to innovate change its way simply because you hand them $25 billion?"

The Drucker Institute, according to the release, "is a think tank and action tank whose purpose is to stimulate effective management and ethical leadership across all sectors of society. It does this, in large part, by advancing the ideas and ideals of Peter F. Drucker, the father of modern management."

Report on U.S. recession is no surprise

Mon, 01 Dec 2008 00:00:00 PST

Monday's news that the U.S. economy has been in a recession since December 2007 comes as no surprise to Ira Jackson, the dean of the Peter F. Drucker and Masatoshi Ito Graduate School of Management at Claremont Graduate University.

"I think all of us have felt this in our gut for three, four or five months now," Jackson said of the recession news. "Any parent, child, student, employee, voter or anyone who went shopping on Black Friday knew we were in a recession, and those of us in the Inland Empire knew we went into it deeper and sooner."

The report was announced by the National Bureau of Economic Research, a private, nonprofit research organization.

By one benchmark, a recession occurs whenever the gross domestic product declines for two consecutive quarters. But the NBER's dating committee uses broader and more precise measures, including employment data.

As far as recovery is concerned, many economists believe the current downturn will last until mid-2009.

That'd be very good news.

At the Inland Empire Economic Forecast Conference last month in San Bernardino, experts estimated things would start looking brighter in 2011 - and that the recovery would be slow and painstaking, not really gaining full speed until 2013.

"God willing, we'll come out of this sooner than the rest of the country, but that's yet to be determined," Jackson said. "We're much stronger than last time we experienced anything of this magnitude (during the Great Depression), but things are also more complicated today."

The Associated Press contributed to this report.

Auto Bailout: What Drucker Would Have Said

Fri, 21 Nov 2008 00:00:00 PST

In the mid-1970s, Peter Drucker stood before a group of executives at New York University and listened to one of them gripe about his struggles in a difficult economy. Drucker offered a bit of advice, but the executive evidently was not persuaded.

"I don't think that will work for me," the man said in an exchange recounted in John Tarrant's book, Drucker: The Man Who Invented the Corporate Society.

"Then you had better go out of business," Drucker replied. "There is no law that says a company must last forever."

I imagine Drucker would have said pretty much the same thing had he been able to spend a few minutes with the CEOs of the Big Three automakers as they trekked to Capitol Hill this week to plead for $25 billion in federal relief.

He wouldn't have done this cavalierly, mind you. For Drucker understood all too well the personal pain and social dislocation that can result when an industry implodes.

Six decades ago, he watched the mechanical cotton picker begin to sweep across the South, obviating the need for labor in the fields. "No doubt," he wrote, "the replacement of the economically most inefficient sharecropper by the efficient machine should eventually result in a higher income for all, including the displaced sharecroppers or their descendants.

LESSONS FROM COTTON
"But where will the 5 or 8 million sharecroppers go, and what will they do?" Drucker went on. "And what about the social and economic fabric of the South of which they have been the warp? Surely a sudden displacement of sharecroppers would be a social and political catastrophe not only for the South but for the whole country."

And yet Drucker also recognized that trying to stand in the way of the machine-in the way of the future-by implementing some sort of industrial policy would "result eventually in even worse catastrophe; with every year, the adjustment will become more difficult, the status quo less tenable."

The analogy between cotton and cars is far from perfect. But the painful conclusion is inescapably the same: Giving a crutch to a group of companies that can't compete on their own will only delay the inevitable and make it tougher to adjust down the road.

Drucker's relationship with the auto industry was long and at times quite strained. His words of warning about the Cotton South, in fact, were penned as part of his 1946 book, Concept of the Corporation, which was first and foremost a study of the most troubled of the automakers today, General Motors.

ADVICE ANATHEMA TO GM BRASS
At the time GM sat atop the world, and Concept of the Corporation was more than respectful. "Most reviewers," Drucker would later remember, "considered the book to be strongly pro-GM." But among the company's senior managers, it became anathema immediately upon publication.

Drucker's work was reviled, he explained, because he'd had the temerity to say that GM might want to review some of its core policies and strategies, especially those that had been in place for 20 years or more. The fact that these approaches had been so successful, he added, made it all the more urgent that they be reevaluated.

"It was not so much my specific suggestions for changes that upset the GM executives, but my suggesting that policies must be considered as temporary and subject to obsolescence," said Drucker. "To the GM executives, policies were 'principles' and were valid forever, or at least for very long periods."

By the 1990s, Drucker took another look at GM and concluded that, on some level, not much had really changed-although now, instead of being highly profitable and widely admired, the company was faltering badly (especially against its Japanese rival, Toyota, which had welcomed many of Drucker's ideas, particularly in the area of human relations). The Detroit giant, as Drucker saw it, was as slow-footed and resistant to fresh thinking as ever.

The reasons for GM's "inability to pull itself out of the mire," Drucker wrote in a new introduction to Concept of the Corporation, "are largely the problems...pointed out 50 years ago."

The question today is: Why would anybody think anything's suddenly going to be different because of a $25 billion infusion?

INVEST IN JOB TRAINING
Still, just saying no to the automakers' bailout bid isn't responsible, either. Behind every Hummer, after all, stand the humans who've built it. So instead of $25 billion in aid for the companies, why not a $25 billion investment in those autoworkers and others who may be displaced as abruptly as the sharecroppers of the old South?

The federal government currently spends about $20 billion on all its various job-training programs combined, according to the Workforce Strategy Center, a New York-based think tank. It's the right time for a big boost in that budget, especially with millions of green jobs expected to be created over the next 30 years.

"Protecting aging industries does not work," Drucker asserted in his 2002 book, Managing in the Next Society. "That is the clear lesson of 70 years of farm subsidies." Whatever is being spent on propping up failing enterprises, he wrote, "should instead go to subsidizing the incomes of older laid-off workers and to retraining and redeploying younger ones."

Money won't solve everything: Many workforce development initiatives are poorly managed and need to be overhauled. But there are some promising models out there, and the general thrust is pure Drucker: providing access to increased knowledge while putting the past in the rearview mirror.

What Would Peter Drucker Think?

Tue, 11 Nov 2008 00:00:00 PST

What would the management guru, who passed away three years ago, have made of the financial meltdown? Ira Jackson, dean of the Claremont B-school named for Drucker, offers some insight in this video interview with BusinessWeek.com Business Schools editor Phil Mintz.

Click here to watch the interview.

What Obama Shouldn't Do

Fri, 07 Nov 2008 00:00:00 PST

Barack Obama has made plenty of promises about what he's going to do: provide tax relief to the middle class, rebuild our crumbling infrastructure, invest in renewable energy, ensure that all children receive a first-rate education, and make health care accessible and affordable for every American-all while taming the nation's monstrous deficit.

But as Peter Drucker made clear, Obama's success may well hinge on what he chooses not to do.

It is absolutely crucial, Drucker wrote in a 1993 piece in which he dispensed a little management advice for the Oval Office, that any new President "not stubbornly do what he wants to do, even if it was the focus of his campaign."

He noted that Harry Truman came into the Presidency convinced, "as were most Americans," that he should begin tackling a string of domestic problems, what with the end of World War II at hand. "What made him an effective President," said Drucker, "was his accepting within a few weeks that international affairs, especially the containment of Stalin's worldwide aggression, had to be given priority whether he liked it or not (and he didn't).

"There seems to be a law of American politics," Drucker continued, "that the world always changes between Election Day and Inauguration Day. To refuse to accept this-as Jimmy Carter tried to do-is not to be 'principled.' It is to deny reality and condemn oneself to being ineffectual."

Of course, in Obama's case, the upending of the world has already happened. Strengthening the economy, and especially bringing some relief to battered homeowners, has to be his No. 1 aim. Should Obama splinter his efforts and concentrate on much more at the outset than fixing the financial system, he is likely, as Drucker put it, to "achieve nothing."

NO "SURE THING"
Another what-not-to-do rule for the President-elect: "Don't ever bet on a sure thing," Drucker wrote. "It always misfires." Drucker recalled that no President has enjoyed more of a popular mandate than did Franklin Roosevelt heading into his second term. Indeed, he had "every reason to believe that his plan to 'pack' the Supreme Court and thereby remove the last obstacle to...New Deal reforms" would be a slam dunk. His move, however, immediately backfired-"so much so," Drucker pointed out, "that he never regained control of Congress."

Obama's gracious victory speech, in which he reached across the aisle and expressed "a measure of humility and determination to heal the divides that have held back our progress," was a good and important first step. As he moves along in the months ahead, he must continue to take that same tack in both words and deeds.

What else shouldn't Obama do? "An effective President," Drucker wrote, "has to say 'no' to the temptation to micromanage." The most promising paradigm, he suggested, might be FDR's cabinet, where "nine of 10 members (all but the Secretary of State) were what we would now call technocrats-competent specialists in one area." "I make the decision," Drucker quoted Roosevelt as saying, "and then turn the job over to a cabinet member and leave him or her alone."

By contrast, Drucker asserted, trying to have a single White House chief-of-staff spearhead an Administration's biggest programs "has never worked" very well. Neither, he said, does the Clintonesque model of bringing into the room "dozens and dozens of deputy secretaries, undersecretaries, assistant secretaries, special assistants, and so on." That merely turns the highest levels of government "into a perpetual mass meeting."

Of all the things for the President not to do, though, Drucker left little doubt: He must never assume that government can-or should even try- to solve every ill.

GOVERNMENT INEFFECTIVENESS
"There is mounting evidence that government is big rather than strong; that it is fat and flabby rather than powerful; that it costs a great deal but does not achieve much," Drucker wrote 40 years ago in The Age of Discontinuity. Three decades later, in an article in The Atlantic, Drucker's frank assessment hadn't changed much: "Government everywhere-in the United States, the United Kingdom, Germany, the former Soviet Union-has proved unable to run community and society."

Drucker didn't just lash out, however. He also offered up his share of prescriptions. Among them: building "the habit of continuous improvement" into all federal departments and introducing "benchmarking," in which the performance of various agencies would be compared annually, "with the best becoming the standard to be met by all the following year."

But, as Drucker saw it, the thing that government needs to do, most of all, is to stop doing. "The purpose of government is to make fundamental decisions and to make them effectively," Drucker declared. "The purpose of government is to focus the political energies of society. It is to dramatize issues. It is to present fundamental choices. The purpose of government, in other words, is to govern.

"This, as we have learned in other institutions, is incompatible with 'doing.' Any attempt to combine government with 'doing' on a large scale paralyzes the decision-making capacity. Any attempt to have decision-making organs actually 'do' also means very poor 'doing.' They are...not equipped for it."

Obama, for his part, seems to have embraced this philosophy. It makes no sense to push for "an era of no government," he told The New York Times Magazine last summer. "What we need to bring about is the end of the era of unresponsive and inefficient government and short-term thinking in government, so that government is laying the groundwork, the framework, the foundation for the market to operate effectively and for every single individual to be able to be connected with that market and to succeed in that market."

In the end, the surest route to "Yes We Can" will be for the President sometimes to say, "No, I'm afraid I can't."

Right Tools for Escaping Poverty

Mon, 03 Nov 2008 00:00:00 PST

At most awards dinners, you learn some interesting ideas and hear some success stories, and it all makes a nice, mild impression. But last week I attended an awards dinner downtown that made me slap my forehead.

The dinner gave awards to non-profit organizations that distinguish themselves through innovation. The winner was KickStart International, which has devised a business model that’s ingeniously simple and wonderfully effective. If more non-profits, and even businesses, followed its lead, I dare say poverty throughout the world could be dramatically and permanently reduced.

KickStart operates in Kenya and other areas of impoverished sub-Saharan Africa. It comes up with simple, sturdy, hand-powered tools designed to immediately transform destitute people into money-making entrepreneurs.

One of its tools is a simple hand press that makes building blocks out of dirt mixed with cement. A smaller hand press squeezes sunflower seeds and the like to create cooking oil. But its big-impact product is a foot-powered water pump. It looks like a low-tech elliptical machine. One operator stands on it and steps rhythmically; the motion powers a little pump that sucks water out of a well or pond or river. A second operator uses a hose to spray water on up to two acres.

Irrigated land, of course, produces higher-value crops and more abundant yields. It lets a new farmer get a second crop during the dry season. As a result, the pump owner’s annual earnings may go from something like $500 to $1,500—enough to vault him into what constitutes the middle class in Kenya.

KickStart says that numerous small entrepreneurs can afford for the first time to send their children to school and even hire employees. It claims that since 1991, its products have spawned more than 70,000 little businesses and more than 330,000 people have been lifted out of poverty.

The genius didn’t stop at coming up with simple, durable tools that are useful in Africa. KickStart also made the decision, fairly unusual for a non-profit, to charge for its wares. Its pump costs about $95—a good deal of money for impoverished villagers. But we humans tend to value what we pay for; when we have skin in the game, we play harder. Also, because the tools are purchased, it allows manufacturers, distributors and retailers of the products to make a profit, thereby creating a little chain of other sustainable businesses.

Many non-profits in Africa see a need and strive to fix it. Good intentions are great, of course, but the problem is that when the non-profit leaves—when the doctors or teachers or food aid workers return home—the villagers may be left with little and may revert back. On the other hand, if the teachers or food aid workers stay, it may merely make the villagers dependents. KickStart’s business model, by contrast, empowers the people. It creates a business class. In fact, if you call up KickStart’s Web site, this astoundingly simple but powerful statement is front and center: “A poor person’s top need is a way to make money.”

Sadly, many non-profits are not focused on helping the poor help themselves.

“The vast majority of programs out there are not making ... sustainable impacts,” said KickStart co-founder Martin Fisher last week after receiving his award at the Los Angeles Music Center.

KickStart won the Drucker Institute’s Peter F. Drucker Award for Nonprofit Innovation. It is appropriate, since Peter Drucker believed in innovation and results. In fact, the program quoted Drucker as saying, “All non-profit organizations must be governed by performance, not merely good intentions.”

We must recommit ourselves to working for the common good

Sun, 02 Nov 2008 00:00:00 PST

We are on the eve of a historic election at a time of great tumult and uncertainty.

Regardless of what happens, one thing is sure - our society has reached the point where we have to take care of the common good. We can no longer be a society of unbridled Wall Street pirates, hedge fund gamblers and greedy executives who watch out only for themselves.

When the Puritans landed on Plymouth Rock, they said they wanted to build a "city upon a hill, a beacon to all mankind." Stewardship - leaving things better for the next generation than we found them for ourselves - is part of who we have always been as a people. Recent events confirm that we have failed this bedrock test of responsible stewardship - of our economy, of our land, of our core institutions, and of our national trust.

It's time to get back to basics. It's time to think of the common good, or we are on our way to the ash heap of history.

Peter Drucker wrote that leaders have two main responsibilities, whether they lead a business, a nonprofit or are in government: 1) They are responsible and accountable for the performance of their institutions and 2) They are also responsible for the community as a whole.

It's this second part that concerns me. He asked a question: Who looks out for the common good?

He answered the query in his masterwork, "Management," when he wrote, "No one, unless the executives of society's institutions take on a second responsibility that looks beyond the borders of their institution to the common good." And he added that they must encourage people to volunteer their time and resources to help solve the problems of society.

As usual, Drucker was ahead of time.

On Sept. 11 of this year, I attended the National Service Summit in New York where a new coalition of 110 organizations dedicated to volunteer service, ServiceNation, helped convene the gathering to bring together thinkers and leaders from all walks of life to solve our most pressing national problems through national service. Both major presidential candidates were also in attendance - and in nearly total agreement about the need to promote community service as a galvanizing way to bring America together, to put America back on track, and to restore a sense of national pride and purpose.

Time magazine has started a tradition of putting out a special issue to coincide with this event. Richard Stengal, Time's managing editor, framed the issue this way: "America is the original DIY culture - Do It Yourself. From the first settlement at Jamestown through today, we have been doing things ourselves. Last year I wrote a cover story called `The Case for National Service.' Now that the argument has been made, this year we're asking, how do we help execute that vision? Well, by doing it yourself - except in this case, we have hundreds of partners."

That's the key. We have to do it ourselves.

Whether it's in the Inland Empire, greater Los Angeles or in all the cities and towns across this great country, we have to roll up our sleeves and get involved.

Thomas Sander, the director of the Saguaro Seminar on Civic Engagement at Harvard's Kennedy School, wrote the following wise words in Time's National Service issue:

Banding together to provide community service builds Army-foxhole-like solidarity. Programs like City Year, in which ex-gang members may serve alongside college students who have deferred admission, prove that small corps can accomplish vital community service. They also implode stereotypes. We learn that what unites us - our musical tastes, the jokes we find funny and, more fundamentally, our belief in healing cities through grime and sweat - dwarfs our divisions. Why is this important? Virtually all forms of social engagement have declined over the past generation, from the time spent visiting neighbors to the number of community projects and close friendships. And these social and civic connections actually lubricate society, helping connected Americans improve their health and happiness and find meaningful work. These connections also strengthen communities. Among the most critical yet hardest-to-build social ties are bonds that cross racial, ethnic and class cleavages, especially as our communities become increasingly diverse. Daily, many of us inadvertently reinforce racial barriers; national service can catalyze our moral obligation to dismantle them.

So as we await the results of this year's election, let's also begin to turn our attention to serving our community, to coming together to build social ties, to strengthen our communities and, as the great Drucker said, "take on civic responsibility" before it's too late.

No Magic Bullet for the Economic Crisis

Fri, 24 Oct 2008 00:00:00 PST

With the economy sputtering and the future unclear, managers everywhere are looking for answers. Or, more precisely, many are bent on finding the answer-the single strategy that will allow them to weather these turbulent times.

Is this the moment to scale back? Or is this an opportunity to swallow up assets on the cheap? Should the organization stay the course? Or should it tack in a new direction? To Peter Drucker, the answer to such questions could always be summed up in three words: It all depends.

That may sound dreadfully wishy-washy, especially during a period when so many are groping for a bit of certainty that they can hang on to. But for Drucker, determining what a business should do next was something that only the business itself could figure out through a continuous, "systematic analysis of all existing products, services, processes, markets, end uses, and distribution channels."

When scrutinizing all these dimensions of the operation, one has to ask, "Are they still viable?" Drucker wrote in his 1973 masterpiece Management: Tasks, Responsibilities, Practices. "Are they likely to remain viable? Do they still give value to the customer? And are they likely to do so tomorrow? Do they still fit the realities of population and markets, of technology and economy? And if not, how can we best abandon them-or at least stop pouring in further resources and efforts?"

THINK CAREFULLY
With things so shaky in the world today, companies should be working methodically through these complex issues. The tendency, however, is to do just the opposite. As Drucker remarked in a 1997 interview, whenever people are "caught in a period of very rapid change...the feeling is that there must be a right answer" that everyone can easily turn to.

This feeling stems in part from peer pressure. "If a fellow CEO on the golf course says, 'We are using this, and we wouldn't do without it,' you have to do it too," Drucker observed.

Drucker hastened to add that it isn't only executives who fall victim to this sort of lazy thinking. "When I was growing up in Vienna, everybody felt the need to be psychoanalyzed," he recalled. "And there was a time when every child older than 4 years had to have his tonsils out. ...The search for the one quick fix is a universal human failing."

In the realm of business, it is a failing that manifests itself in a ceaseless succession of management fads and fashions offered up by a parade of self-styled gurus. "Each evangelist," Drucker asserted, "is quite sure that his own patent medicine cures everything. And it's very hard to get management to ask, 'Is this for us?'"

"BANDWAGON PSYCHOLOGY"
But in truth, there is no panacea. "The stuff that is good for my arthritis," Drucker said, "would not help me at all with a broken leg, even though it's in the same general area."

Notably, it's this "bandwagon psychology," as Drucker called it, which contributed to the crisis in which we're now mired. Rather than diligently tackle the tough questions Drucker suggested-Is what we're doing viable? Does it fit reality?-far too many banking executives were happy to ignore the risks and plunge into the subprime cesspool. The reason for this was obvious: It seemed like a way to get rich fast. And, besides, everybody else was doing it.

Well, not quite everybody. William Taylor, co-author of the book Mavericks at Work, pointed out recently that online banker ING Direct "managed to avoid the march of folly in its industry" by sticking to "plain-vanilla mortgages rather than exotic instruments that sounded too good to be true (and were)." According to Taylor, ING has generated 100,000 mortgages worth $26 billion, while suffering a mere 15 foreclosures.

ING Direct's Chairman and CEO Arkadi Kuhlmann takes pride in being a recusant, building his business on inexpensive, no-frills services and high interest rates. Still, he conceded to Taylor that following the crowd has a definite appeal sometimes. "Every person who tries to do real innovation is going to be tempted by money, greed, acceptance, being in the middle of the action," Kuhlmann said. "But at the core," he explained, "there is one fundamental difference: I know why I'm here. I want to make a difference."

As Taylor sees it-and surely Drucker would have agreed-this is one of the most important and courageous things a manager can do: "resisting an innovation that takes hold in your field when that innovation, no matter how popular with your rivals, is at odds with your long-term point of view."

So what's a manager to do amid such a fragile economy? Take a hard look at your business and, in the context of your mission-and nobody else's-decide what is ripe to pursue and what makes sense to give up. In the end, maybe you'll zig. Maybe you'll zag. Or maybe you'll just stand pat.

"Nine times out of 10," said Drucker, "when you make the diagnosis, you don't operate. You just wait"-and let the bandwagon roll by.

Financial Leadership, the Missing Ingredient

Tue, 14 Oct 2008 00:00:00 PST

As the financial crisis went from bad to worse last week, policymakers and business executives fussed and fretted over the drying up of credit around the world. The bigger problem, though, is a severe shortage of something else entirely: leadership.

Peter Drucker-who began writing on the topic in the 1940s, long before it became fashionable-considered true leaders those who bring accountability, consistency, and a sharp sense of what must be accomplished to all they do. When it comes to the current mess, those in charge on Wall Street and in Washington have failed to deliver on all three fronts.

Most appalling, perhaps, were the performances on Capitol Hill by the former heads of Lehman Brothers and American International Group, who blamed devious short-sellers, unpredictable regulators, and careless colleagues for their firms' woes-just about everybody, that is, but themselves. "Looking back on my time as CEO," Robert Willumstad, AIG's former chief, told a House oversight committee, "I don't believe AIG could have done anything differently."

THE HEIGHT OF PRUDENCE?
Richard Fuld, who presided over the downfall of Lehman, told the panel that all of his decisions "were both prudent and appropriate" given the information he had at the time. Yet if this is true, it indicates that his organization was ill-equipped to get him the information he required-a horrendous management breakdown in and of itself.

"Harry Truman's folksy 'The buck stops here' is still as good a definition as any" of leadership, Drucker wrote in his 1967 classic, The Effective Executive. Willumstad and Fuld made a mockery of the buck-stops-here standard.

Meantime, public officials haven't displayed many exemplary leadership qualities, either. "The leader's first task is to be the trumpet that sounds a clear sound," Drucker wrote. "Effective leadership-and again this is very old wisdom-is not based on being clever; it is based primarily on being consistent."

But clarity and consistency have been largely absent from the government's response to the crisis. At first, the Bush Administration had an awful time explaining why its $700-billion rescue plan wasn't simply a taxpayer-funded bailout for the companies responsible for the disaster. And all along, the Administration's efforts have seemed haphazard and uncertain, as if it isn't exactly sure what notes on the trumpet it should try to play. At one point, for example, Treasury officials belittled the idea of the government taking an ownership stake in the nation's banks. Then they reversed course and announced Tuesday that they'd invest $250 billion in the sector.

Their action helped spur a stock-market rally after shares were completely battered last week. But it remains to be seen whether the government's plan is even focused on the right things. It's quite possible, after all, that it could succeed in shoring up the banking system in the short term while neglecting to ensure that another financial meltdown doesn't materialize down the line.

One of the most serious issues that hasn't been adequately addressed, for instance, is mandating that financial institutions divulge precisely what kinds of risks they face today and going forward.

"There have been lots of halfhearted attempts at improving this over the years, most of them driven by big credit or trading losses, concerns about systemic stability or damage to clients," Merrill Lynch veteran Erik Banks wrote in his disturbingly prescient 2004 book The Failure of Wall Street: "Something bad happens, regulators ask for more risk information, banks produce it for a while, no one finds it particularly useful because it is couched in such oblique terms that nothing is actually conveyed, and then it gets buried in unreadable form in the financial statement footnotes; regulators, clients, and investors forget about it, and it's back to the status quo till the next blowup."

This time, we must do better-but that calls for leaders who have the courage to treat not only the current calamity but also its underlying causes, including a lack of transparency.

EXPANDING THE BOUNDARIES
Indeed, the way Drucker saw it, one of a leader's most important jobs is to frame carefully what he or she hopes to accomplish with every major decision. "What are the objectives the decision has to reach?" Drucker wrote. "What are the minimum goals it has to attain? What are the conditions it has to satisfy?"

Drucker pointed out that in science, these are known as "boundary conditions." And falling short of them can be dire. "A decision that does not satisfy the boundary conditions," Drucker asserted, "is worse than one which wrongly defines the problem."

He recounted that President Roosevelt expanded his own boundary conditions after the "sudden economic collapse" between the summer of 1932 and the spring of 1933. Earlier, Roosevelt had pursued a relatively conservative policy of economic recovery. But when the situation deteriorated, his goal necessarily became not just recovery but comprehensive reform.

It is a path we'd be wise to walk again. The question is, will anyone provide the leadership to take us there?

How Peter Drucker might respond to the economic crisis

Sat, 11 Oct 2008 00:00:00 PST

The economic news seems to darken by the day. As we hit our deadline, the Dow Jones index had fallen below 8,600, taking another loss of some 7percent after a string of significant losses. This happened even though the Federal Reserve Bank in conjunction with Central Banks in Europe lowered interest rates by a half percent, thereby pumping liquidity into the financial system. We may well see a 1percent rate by the end of the year.

The key word in this time of extraordinary crisis and turmoil is volatility.

The stock market keeps falling and losing value. Even with this rate cut and other emergency responses, the economic picture will remain bleak. As Princeton economist Paul Krugman noted on the day of the rate cut, "We're way past the point at which conventional monetary policy has much traction."

September retail sales were down with analysts predicting the holiday sales season will be the worst in 25 years. The Congressional Budget Office just estimated that retirement pensions, such as the 401(k)'s held by many Americans, have lost $2trillion in the last year or so. It isn't just the U.S. that's in trouble now, but the whole global economy. Global credit, the oil that greases commerce, is frozen solid. Without it, we can expect more grief.

We can argue into the night about who and what are really responsible for this dislocation and what mistakes were made that led us into this abyss. Sure, government regulators stopped regulating and people applied for and were given home loans without any collateral or financial history.

Loans were made in haste without any government oversight and as a result the nation's homes have now lost $5trillion in value! Unfettered greed on Wall Street coupled with the creation of highly leveraged financial products such as credit default swaps and derivatives were a big part of the problem. But rather than point fingers, what we need right now is a solution or at least a path toward one.

Fortunately, there are at least some solutions already being set in place such as IndyMac's fast-track loan modification program. Under this program, loans can be renegotiated quickly in order to limit foreclosure. In fact, the federal government's recent massive $700billion rescue package includes an IndyMac-style blueprint for loan renegotiation as one of its main features targeted to the average American.

The rescue package also includes a section (113) that allows the Treasury to buy stakes in banks. This could be helpful.

But, as I ponder this major turning point in American economic history, it seems timely to turn to the perspective of the late Peter Drucker and ask how he might have responded to this unprecedented crisis. He served as a consultant to governments and large corporations. Leaders from all sectors called on him for his advice.

I imagine sitting down with him now and asking one of the wisest men I've ever read to offer some guidance in the midst of this multi-trillion dollar crisis of confidence.

As he wrote in his master tome, "Management" (recently updated by Professor Joseph Maciariello), the first thing you do is promise to cause no harm. That comes from the main tenet of the Hippocratic oath: Primum non nocere - first, do no harm. As he writes, the best that any professional can do is to "promise that he (or she) will not knowingly do harm." Drucker calls this the first rule of professional ethics, and, sadly, it's been missing from the behavior of all of us: the regulators, elected officials, bankers, home buyers, etc. We need to go back and practice this golden rule.

Drucker was fond of medical analogies. The next step for him after promising to do no harm would be to follow the rules set down by surgeons. They have three main rules and the one that applies here says that if the condition is life-threatening you need to do something "fast and radically despite the risk."

Once you know that action must be taken as quickly as possible, you need to gather the best thinkers on the subject and ask each of them to think through the problem. And, according to Drucker, if they disagree, all the better. Finally, once all the alternatives have been considered, it's time to take the best potential solutions, pick one or a combination and act.

You act by asking two key questions: What is the specific action that needs to be taken and who has to take it? This is the critical part, and it requires leadership. For Drucker, this process is what management is all about and it's what managers do.

As he says in "Management," decision-making "is risk-taking and a challenge to judgment. It mobilizes the vision, energies, and resources for effective action. At the end, it is an exercise in courage and responsibility."

So, it seems this crisis is going to come down to the secretary of the Treasury, the chairman of the Federal Reserve and perhaps the top leaders of Congress. I know the current president is in the mix somewhere but he's been missing in action lately. The decisions taken now and in the near term will inevitably involve the new president.

But for the moment, a big risk needs to be taken. The people who make this decision are going to require courage and they're going to have to be responsible and they must knowingly do no harm. In other words, they must act like grown-ups. This is the Drucker way.

There are now various options available for those who will be deciding and taking action on this crisis:

The federal government can nationalize the whole financial sector.

The finance ministers of all the major countries can try to reach a global solution.

Do nothing and let us slip from recession into something much worse.

You decide.

Drucker was famous for saying that the way to predict the future is to create it. Well, that's where we're at right now. The shape of the future is ours for the making. Let's hope we have the leadership with the courage and responsibility to make the right decisions "fast and radically" because we are, after all, getting close to putting our economy on life support.

Lehman, AIG Chiefs Should `Man Up,' Stop `Kissing the Mirror'

Fri, 10 Oct 2008 00:00:00 PST

Executives passing the buck for failures that sank their companies or pushed them to the brink win no sympathy from business leaders and management experts.

``They need to man up and take responsibility,'' said Warren Bennis, founder of the Leadership Institute at the University of Southern California and author of books including ``Leaders'' and ``On Becoming a Leader.'' ``They kept winning, believing in their own omniscience and thinking they can get away with anything.''

Chief executive officers summoned to Capitol Hill this week by the U.S. House Committee on Oversight and Government Reform didn't point fingers at themselves, drawing criticism from fellow chiefs.

``There are three reasons why companies go out of business and individuals go out of business: No. 1 is arrogance, No. 2 is arrogance and No. 3 is arrogance,'' said Harvey Mackay, chairman and CEO of Minneapolis-based MackayMitchell Envelope Co. and author of ``Swim With the Sharks Without Being Eaten Alive'' and ``Beware the Naked Man Who Offers You His Shirt.'' ``They all have chapped lips from kissing the mirror too much.''

Testifying before the panel, Richard Fuld, who worked for Lehman Brothers Holdings Inc. for 39 years and was CEO when it fell apart, said he felt ``horrible about what happened'' and that management did ``everything we could to protect the firm.''

Fuld, whose compensation for his last eight years totaled $484.8 million, said Lehman had to seek bankruptcy protection Sept. 15 because of a ``financial tsunami'' that was ``bigger than any one firm or industry.'' Fuld and Lehman spokeswoman Monique Wise didn't return calls yesterday for comment.

That's the wrong attitude, said Jeffrey Gault, CEO of Los Angeles-based LandCap Partners, which bought $40 million of land and construction loans from Wachovia Corp. in August. ``You're either the boss or you're not the boss. The CEO is the owner of the deal.''

Blaming Accounting Rules

Maurice ``Hank'' Greenberg, who ran American International Group Inc. for 38 years until 2005, blamed successors for getting rid of controls he put in place that would have saved AIG, according to a written statement he gave the committee. The insurer agreed to an emergency rescue Sept. 16, giving the federal government a 79.9 percent stake. Ken Frydman, a spokesman for Greenberg, declined to comment for this article.

For their part, the two men who followed Greenberg at AIG faulted an accounting rule that they said forced the company to book unrealized losses. Martin Sullivan was CEO for three years until June. He earned $4.6 million in salary and bonus in 2007, and was given $47 million in severance and long-term compensation. Robert B. Willumstad was in charge until last month and received about $4 million this year.

Sullivan and Willumstad didn't return calls for comment.

System Failure

``Looking back on my time as CEO, I don't believe AIG could have done anything differently,'' Willumstad said in written testimony. AIG, which had profits of more than $10 billion in 2005 and 2006, lost billions in the mortgage-backed securities market. It was running short of cash when it agreed to the bailout and got an $85 billion loan from the Federal Reserve. The Fed loaned it $37.8 billion more this week.

At no point did the witnesses acknowledge errors in judgment, a management ``travesty,'' said Rick Wartzman, director of the Drucker Institute at Claremont Graduate University in Claremont, California. He is also a former Wall Street Journal reporter, editor and business columnist.

``Being a leader is about being responsible and not passing the blame. True leaders step up,'' Wartzman said. ``To say you're acting on the best information available is a failure of leadership that reflects a failure of the system.''

Representative Henry Waxman, a California Democrat who is chairman of the committee, has scheduled three more hearings as part of an investigation into the events leading up to Congress's approval of a $700 billion rescue package. Waxman said the hearings would start ``holding those responsible to public account and identifying the reforms we need.''

Maximizing Bonuses

In their testimony, the CEOs put up a ``a weak defense'' by saying that outside events were responsible for their companies' unraveling, said William Hopper, chairman of London-based WJ Hopper & Co., an investment bank.

The resistance to accepting blame is linked to a ``decline of the culture'' in business, a shift away from ``old-fashioned executives'' who rose by working in every division of a company and understood ``the craft of management,'' Hopper said.

Many executives now ``come out of Harvard and Yale and start halfway up,'' he said. ``All they're interested in is maximizing their bonuses.''

What makes Boston in a league of its own

Tue, 07 Oct 2008 00:00:00 PST

As I fly to Boston from my new home outside Los Angeles, a chart in the Sunday New York Times shows the large numbers of cities across America that are hurting and losing jobs. One of the few exceptions: Boston.

At a time of contraction and confusion bordering on panic, Boston stands out. While it is not immune to the effects of the financial crisis or declining revenues in government, there's something about Boston that seems to place it in a league of its own.

There's an old saying that the three favorite pastimes in Boston are sports, politics, and revenge - and not necessarily in that order. And with mob trials, successful sports teams, and the flood of political commentary flowing out of Boston, perhaps there is a comparative advantage from being so competitive, passionate, and personal.

Today marks the launch of the Legatum Center for Development and Entrepreneurship, a new institute at MIT devoted to harnessing technology and innovation to curb poverty and to promote entrepreneurship throughout the world. Innovations like this probably do more to explain what makes Boston different - and successful - than all the corruption trials, Super Bowls, and political consultants combined. The real business of the city is ideas.

Think of all its firsts. The first public school. The first college. The first bank. The first public library. The first telephone. The first use of ether. The first subway. The first mutual fund and the first venture capital fund. The first safety razor and the first instant camera. Firsts that transformed the world.

In trying to explain this to a neighbor in California, I said simply, "there must be something in the soil back in Boston." The neighbor asked how the the long winters and frozen ground could possibly provide nutrients for innovation.

Maybe that explains it - perhaps the long, barren winters are the mothers of invention. How could the Pilgrims possibly create their "city on a hill" and become a beacon to all mankind if they didn't quickly apply some Yankee ingenuity to what otherwise was a pretty bleak place, largely devoid of natural resources? Maybe the notion of stewardship and common wealth helped Bostonians to think they needed, more than others, to look out for each other, or that the only way to leave things better for the next generation would be to invent something of enduring value.

Or maybe Boston is best explained as motive combined with opportunity: the need to constantly innovate, invent, and reinvent has long been tied in Boston to resources (both intellectual and financial) and a community that exists largely to nurture and protect that powerful combination.

Peter Drucker, the father of modern management, was the first to understand that we live in a knowledge economy. Drucker might have seen Boston today as the equivalent of a factory of the future, where smart people use their minds, fueled by investors who match ideas with market needs, producing green, clean, and sustainable products for the world.

Drucker also said that "the best way to predict the future is to create it." Boston's been creating the future for four centuries. The Legatum Center at MIT, founded by Iqbal Quadir, a former investment banker turned social entrepreneur, is just the latest version and incarnation of Edwin Land (Polaroid) or Paul Revere (patriot, who also was the first public health commissioner in America) or Alan Khazei (who co-founded City Year). Dreamers and doers, pioneers and inventors, taking risks, sounding the alarm, harnessing technology - and potentially changing the world.

Why Boston? It remains the right place at the right time, and, yes, even with the right soil.

The Financial Crisis: What Drucker Would Have Said

Fri, 26 Sep 2008 00:00:00 PST

Peter Drucker didn't have a whole lot of nice things to say about those on Wall Street, at one point likening them to "Balkan peasants stealing each other's sheep."

Given the magnitude of the latest crisis to grip Fannie Mae, Freddie Mac, American International Group, Lehman Brothers, and their friends, one can only imagine what kind of acid analogy he might have used today.

Or perhaps he would have simply said, "I told you so." After all, so much of the trouble that has befallen these giants of the investment banking, mortgage, and insurance sectors-and that threatens to "undermine the financial security of all," as President George W. Bush put it-comes from a foolish disregard for the kinds of fundamental lessons that Drucker taught about risk, reach, and responsibility.

Some prefer to complicate things. Indeed, there is a temptation, in certain quarters, to fuzzy up what has happened here-to mask the basic management failures that are at the root of this disaster by pointing to the intricacies of credit-default swaps, "naked shorts," and other arcana.

LUCK DOESN'T LAST
But as Drucker knew so well, none of this is really very complex: If you make enough dangerous bets-and amassing your fortune on a foundation of laughably loose lending standards and mountains of debt is nothing if not dangerous-you're eventually going to run out of luck.

"No matter how clever the gambler," Drucker asserted, "the laws of probability guarantee that he will lose all that he has gained, and then a good deal more." He wrote these words in the 1990s, as a different group of once-illustrious institutions-Barings, Bankers Trust, Yamaichi Securities-were felled by their recklessness.

Drucker noted that top management professed to be shocked by some of the activities that had taken place at these firms, and it won't be surprising if we hear similar talk this time around-especially if people wind up going to jail. It was reported that the FBI has opened more than two dozen probes into possible fraud connected to the financial meltdown, including investigations at Fannie Mae, Freddie Mac, AIG, and Lehman.

But Drucker didn't buy that senior executives were blind to their employees' egregious behavior a decade ago, and he wouldn't buy it now. "In the first place," he wrote, "there is a limit to coincidences. Such widespread breakdowns cannot be blamed on 'exceptions.' They denote systems failure."

"TOO BIG TO HIDE"
Besides, Drucker added, "in every single one of these 'scandals,' top management seems to have carefully looked the other way as long as trading produced profits (or at least pretended to produce them). Until the losses had become so big that they could no longer be hidden, the gambling trader was a hero and showered with money."

Of course, the pressure to produce these profits-and, in turn, prop up a company's share price-has become unrelenting. It used to be, veteran financial journalist Bob Reed remarked recently, "the stock price was an important component of something more grand: how well the company was managed, product quality, innovations, customer satisfaction-you know, the business." But over time, those pursuits have become largely overshadowed by just one: maximizing shareholder value.

To Drucker, this mentality was anachronistic. "One thing is clear to anyone with the slightest knowledge of political or economic history: The present-day assertion of 'absolute shareholder sovereignty'...is the last hurrah of 19th century, basically preindustrial capitalism," he wrote in a 1988 article. "It violates many people's sense of justice."

Perhaps even more important, Drucker said, this lack of balance is unsettling in a world in which large institutions have such an enormous effect on so much"on the portfolios of shareholders, yes, but also on the lives of millions of other people, as we're seeing right now.

LONG-TERM THINKING
In this day and age, "modern enterprise, especially large enterprise, can do its economic job-including making profits for the shareholders-only if it is being managed for the long run," Drucker wrote. "Altogether far too much in society-jobs, careers, communities-depends on the economic fortunes of large enterprises to subordinate them completely to the interests of any one group, including shareholders."

All of which leads, in the end, to the biggest thing missing today on Wall Street and in much of Corporate America: an ethic of responsibility.

Drucker believed strongly that every business must contribute to the general health of society. This means doing "good works" where appropriate. But above all, it means ensuring that the business itself is well-managed and built to last.

"The institution's performance of its specific mission is...society's first need and interest," Drucker wrote in his 1973 book Management: Tasks, Responsibilities, Practices. "A bankrupt business is not a desirable employer and is unlikely to be a good neighbor in a community. Nor will it create the capital for tomorrow's jobs and the opportunities for tomorrow's workers."

I often tell people that there are a million reasons to read and reread what Peter Drucker had to say. This week, it's more like 700 billion

Expert: Federal intervention necessary

Fri, 19 Sep 2008 00:00:00 PST

The Bush administration proposed a plan on Friday to purchase half a trillion dollars worth of bad mortgages and debt from unstable banks and other financial companies.
The plan was developed to prevent a financial meltdown, said Ira Jackson, dean of the Peter F. Drucker and Masatoshi Ito Graduate School of Management at Claremont Graduate University.

"Some action is better than no action," Jackson said. "But I think we waited too long to take the steps that were necessary and obvious, so we're paying a very painful price for having been caught like a deer in the headlights."

As drastic as the plan is, it is necessary to prevent the economy from going into a recession or even a depression, he said.

"The threat was that there was not going to be any liquidity in the market place, and without liquidity there would be no business loans, and without business loans a credit crunch would lead to a seizure and a lockdown on the economy," Jackson said.

The Dow has already seen a dramatic rebound from earlier losses.

"This was to be expected," Jackson said. "The (stock) market is reacting favorably, which is good. The government has to act decisively."

Caroline Urso, a broker with Countrywide in Redlands, said she believes the plan is a necessary evil.

"It's a Catch-22 right now," Urso said. "It's frustrating because it's the taxpayers who are going to be paying for all these bailouts. I may not be happy with it because I'm going

to be paying for it in the long run, but hopefully it will get us back on track."
Countrywide has not faced many difficulties since being acquired earlier this year by Bank of America, she said.

"Bank of America is incredibly strong, and with their acquisition they were only going to be stronger as far as lending processes," Urso said. "The most change I've seen is in the general market. We're in an incredibly volatile market where points go up a full point one day and down a full point the next."

John Husing, a Redlands-based regional economist who focuses on the Inland Empire, said the government has no choice but to bail out troubled banks.

"Whether we like it or not, it's a necessity because we don't want this to spread from Wall Street to the rest of the economy," Husing said.

The unemployment rate is up to 7.6 percent in California and up to 9.2 percent in the Inland Empire, he said.

For the I.E., that's about 166,500 people without jobs.

"That's the kind of problem this is designed to help," Husing said.

sandra.emerson@inlandnewspapers.com
(909) 483-8555

The Joneses and the Joads

Tue, 16 Sep 2008 00:00:00 PST

After storms ravaged Iowa last summer, devastation wasn't the only thing that people found amid the flood waters. Scores of out-of-work electricians from Michigan, hard hit by auto industry cutbacks, spied opportunity.

Trekking hundreds of miles from home, where the unemployment rate of 8.5% is the highest in the U.S., they were eager to scoop up jobs rewiring Cedar Rapids -- even if it meant sleeping in a tent for weeks on end.

To some observers, the desperate scene evoked an unmistakable image. "The Joads leaving Oklahoma is exactly what we are seeing coming out of Detroit now," UC Berkeley labor expert Harley Shaiken told reporters.

Nearly 70 years after it was published, John Steinbeck's "The Grapes of Wrath" -- which tells of the dirt-poor Joad family's epic migration from drought-plagued Oklahoma to fruitful (if unfriendly) Central California -- continues to resonate as few novels have. In fact, the book may well be more relevant today than at any time since it first appeared in April 1939.

"The Grapes of Wrath" has always been extraordinarily popular. More than 400,000 copies flew off the shelves its first year in print, making it the nation's No. 1 seller. So powerful was Steinbeck's portrayal of the Joads' plight that people began referring to the fictional clan as if it were real. "Meet the Joad Family," read one newspaper headline. "What's Being Done About the Joads?" asked another. "The Joads on Strike," declared a third.

Before long, thanks in part to Henry Fonda's performance as Tom Joad on the big screen and Woody Guthrie crooning about the Joads in his "Dust Bowl Ballads," Steinbeck's characters had become permanently etched into popular culture. When Bruce Springsteen and Rage Against the Machine sang about "The Ghost of Tom Joad," legions of fans were already tuned in to the generations-old reference.

Indeed, wherever people exhibit tremendous strength amid terrible anguish, the Joads are a potent symbol. "I suspect I met a few Ma Joads and Tom Joads in Kabul," said Afghanistan-born author Khaled Hosseini as he described the process that led him to write "The Kite Runner."

Yet these days, especially, it's more than just the Joads' strength in the face of adversity that makes "The Grapes of Wrath" so pertinent -- and poignant. Steinbeck's story echoes particularly loudly because, just as in 1939, the deficiencies of an unfettered free market are so plainly on display.

Only a fool, of course, would suggest that America is in anywhere near as bad shape now as it was then. The U.S. jobless rate stood above 17% in 1939, and personal income and total economic output were no higher than they had been a decade before, at the start of the Great Depression. Misery was ubiquitous.

Nor is anybody seriously hinting at the kind of radical solution that some of the country's leading intellects were openly advocating in the 1930s: a scuttling of the capitalist system in favor of some form of socialism. "There is little question in my mind that the principle of private ownership as a means of production is not long with us," Steinbeck himself proclaimed -- the kind of thinking that led officials in Kern County (the very place the Joads settled in the novel) to ban "The Grapes of Wrath" from libraries and schools until 1941.

Nonetheless, there are some striking parallels between the Joads' era and ours. Most notably, income inequality today is at its highest level since the late 1920s. Adjusted for inflation, median household income was actually lower last year than in 2000. Hunger is on the rise. Fueling a considerable amount of hardship is the mortgage industry crisis -- an episode that brings to mind Steinbeck's depiction of banks as rapacious monsters.

As in the 1930s, the issue is what to do about all this. In "The Grapes of Wrath," Steinbeck pointed to government intervention as an important piece of the answer; it was in a New Deal labor camp that the Joads found a needed measure of comfort and support.

Much of the New Deal -- both in substance and in spirit -- has long since been dismantled. But the notion that "government is not the solution to our problem; government is the problem," as Ronald Reagan so memorably put it, may also be running its course.

For many, polls show, it's becoming increasingly clear that the public sector has a role -- and a responsibility -- to help lift up those who are being left behind, as well as to more tightly regulate the corporations that, if left unchecked, can inflict so much damage throughout the economy. Even the Bush administration has warmed up to the notion of more vigorous oversight of business.

After he read "The Grapes of Wrath," President Franklin Delano Roosevelt remarked that "there are 500,000 Americans that live in the covers of that book." They may not exactly live there anymore, but millions can surely relate to the uneasy question that lies at the heart of Steinbeck's classic: How come so many are mired in poverty in a country blessed with so much prosperity?

Put a Cap on CEO Pay

Fri, 12 Sep 2008 00:00:00 PST

For a guy whose astute counsel helped to make so many CEOs rich, Peter Drucker had an intense loathing of exorbitant executive salaries.

He hated high CEO pay on every level: what it said about the individual as a leader, how it undermined the smooth functioning of the organization, and the way it tore at the fabric of society as a whole.

Drucker's strong feelings on the subject-he once termed sky-high CEO compensation "a serious disaster"-are well worth revisiting in light of the news that the men who sat atop Fannie Mae and Freddie Mac could be eligible for as much as $24 million in severance and other benefits after being ousted from their positions. Last week the federal government was forced to step in and rescue the faltering mortgage giants in a move that could cost taxpayers billions.

Although it wasn't immediately clear whether the two departing CEOs, Fannie's Daniel Mudd and Freddie's Richard Syron, would actually walk away with all that dough, the prospect of such a windfall has resonated on the Presidential campaign trail and helped to stoke a national debate about executive pay.

Drucker's stance on the issue, articulated consistently over many years, was controversial. But it was rooted in his belief that the best leaders are those who understand that what comes with their authority is the weight of responsibility, not "the mantle of privilege," as writer and editor Thomas Stewart described Drucker's view. It's their job "to do what is right for the enterprise-not for shareholders alone, and certainly not for themselves alone."

Last year, according to a report just issued by the Institute for Policy Studies and United for a Fair Economy, S&P 500 CEOs received pay packages worth, on average, $10.5 million. That was 344 times the earnings of the average American worker.

What Drucker thought was more appropriate was a ratio around 25-to-1 (as he suggested in a 1977 article) or 20-to-1 (as he expressed in a 1984 essay and several times thereafter). Widen the pay gap much beyond that, Drucker asserted, and it makes it difficult to foster the kind of teamwork that most businesses require to succeed.

"I'm not talking about the bitter feelings of the people on the plant floor," Drucker told a reporter in 2004. "They're convinced that their bosses are crooks anyway. It's the midlevel management that is incredibly disillusioned" by CEO compensation that seems to have no bounds.

This is especially true, Drucker explained in an earlier interview, when CEOs pocket huge sums while laying off workers. That kind of action, he said, is "morally unforgivable."

Notably, Drucker wasn't opposed to rewarding some people like kings. "There should, indeed there must, be exceptions," he wrote. "A 'star,' whether the super salesman in the insurance company or the scientist in the lab who comes up with a half-dozen highly profitable research breakthroughs, should be paid without any income limitation."

But the chief executive has a special duty to show that he or she is "just a hired hand," Drucker said, invoking the words of J.P. Morgan. "That's what today's CEOs have forgotten."

Not all of them, of course. Last year, Costco Wholesale CEO Jim Sinegal made $3.2 million, including a $350,000 salary, an $80,000 bonus, and stock grants and options valued at $2.6 million. While hardly chump change, that was far less than what his peers raked in-and far less than what Costco's compensation committee wanted to give him. But the panel said in a regulatory filing that it was willing to respect his "wishes to receive modest compensation, in part because it believes that higher amounts would not change Mr. Sinegal's motivation and performance."

Setting pay for top executives can be tricky, even for those whose instinct is to nip their remuneration. In the mid-1980s, after consulting with Drucker, furniture maker Herman Miller agreed that its CEO's pay would be restricted to 20 times the average of all its employees. "The subtle part of this limit was the message to the CEO: If you want to get more pay, you need to do it by raising the average pay" of everyone at the company, the man who used to hold the post, Dick Ruch, recalled in his book Leaders & Followers.

But in 1997, Herman Miller ditched Drucker's model. "From a competitive standpoint," Ruch said, "we needed to eliminate the cap to attract and retain the right people."

Drucker himself conceded that compensation formulas are inherently difficult to develop. "I would be the last person to claim that a 'fair,' let alone a 'scientific,' system can be devised," he wrote. Yet at the same time, he never gave up on the 20-to-1 rule for CEOs, touting it as the right thing for the good of the organization, as well as for the general health of society.

Allowing an enormous disparity in income to exist "corrodes," Drucker warned. "It destroys mutual trust between groups that have to live together and work together."

And, on occasion, bail each other out.

Drucker spreading the word

Mon, 08 Sep 2008 00:00:00 PST

It's hard to recall a busier and more interesting summer from the stunning pageantry and athleticism of the Beijing Olympics to the drama and importance of the quadrennial Democratic and Republican conventions.

Here at the Peter F. Drucker and Masatoshi Ito Graduate School of Management in Claremont, things have been moving along briskly as well. We, too, are experiencing a period of both renewal and new beginnings. Let me try to capture the range of progress and positive energy here at Drucker.

I'll start by highlighting a couple of alumni who are helping to change the world.

Barry Goldstein (executive MBA 2003) is the project manager at JPL for NASA's Phoenix Mars Mission, which is successfully digging for and exploring new frontiers of knowledge about the building blocks of life on the Red Planet, 35 million miles from Earth.

Shuming Zhao (CGU Ph.D. 1990) is the dean of China's Nanjing Business School, which recently celebrated its 30th anniversary with the opening of a handsome new 20-story building and an international conference on globalization. This conference attracted 400 academic participants from 20 countries. I was proud to address the opening plenary session.

And coming to our campus on Nov. 8 is Drucker Day, which will provide an opportunity for our entire extended family to rekindle old friendships, to make new acquaintances, and to learn new insights.

The highlight of the day will be our distinguished keynote speaker, Daniel Yankelovich, author of 10 books, founder of the pre-eminent research firm Yankelovich, Skelly and Wright, founder of Public Agenda, and one of the world's leading public intellectuals.

In June we hosted here in beautiful Claremont our second annual Drucker Society Global Symposium, with over a dozen groups from eight countries on four continents. These Global Drucker societies apply Peter's wisdom and extend his reach and impact around the world.

In Seoul, CEOs gather regularly in Drucker book clubs to read his teachings and discuss how to introduce his humanistic approach to management in their companies.

In Dallas and in Brazil, Drucker societies will soon be holding workshops based on curricular material provided by the Drucker Institute to help nonprofit and non-government organization leaders run their organizations more effectively.

In Dubai, the former dean of the Maastricht School of Management in the Netherlands, who now lives in the Middle East, is developing a Drucker workshop on entrepreneurship. His target audience: women who feel locked out of society.

In Los Angeles and New York, Drucker Society leaders are well along in developing a curriculum that will bring Drucker into high schools. The idea is to show students that effective management and ethical leadership are how dreams get turned into reality.

Drucker societies are, in short, sparking what appears to be a grass-roots global movement for effective management and ethical leadership.

Speaking of leadership, our new Drucker Institute now has both a superb executive director in Rick Wartzman, former Pulitzer Prize-winning business editor of the L.A. Times, and a fabulous board chairman in social entrepreneur Bob Buford, founder of the Leadership Network and author of four books, including ``Halftime and Finishing Well.''

The Drucker Institute's passionate clarion call for ``Closing the Responsibility Gap'' has now been heard by more than 30 groups in four countries, and this multimedia presentation is beginning to fan the flames for reform and smarter stewardship in organizations ranging from small NGOs to major corporations and even entire nations.

The Drucker Institute and the Drucker School are working to make Peter Drucker's teachings and writings more accessible.

Procter & Gamble's CEO, AG Lafley, recently wrote to The Wall Street Journal in response to a column about Drucker's increasing influence in Asia that Drucker's teachings are very much alive in America, as well ``Guru Drucker still smiles on the U.S.'' As a new generation of leaders comes of age, these activities are all the more important'' writes Lafley.

The list of exciting events seems almost endless: The insights on leadership flow from John Bachmann, senior partner at Edward Jones, a company that has expanded from 200 to more than 10,000 locations. John, who also chairs the school's Board of Visitors, will share his learning and insights in an intensive course this fall titled ``Lessons in Leadership.''

Wendy Kopp, the founder of Teach for America and one of Time Magazine's 100 most influential leaders, will keynote our fall conference in L.A. on Oct. 28 on challenges and innovations in the social sector, capped by the award dinner celebrating the winner of the Peter Drucker Nonprofit Innovation Award.

You probably get the drift by now that while small, we are on to some very big ideas and important initiatives here at Drucker. Peter Drucker once said that the best way to predict the future is to create it.

There are more than 1,000 business schools in America, almost 10,000 around the world, but there is only one named for both a thinker (Peter Drucker) and a doer (Masatoshi Ito), and only one named for a leader from America and Japan.

There is only one inspired by and driven to build upon the work of management's greatest intellectual pioneer, which is why we call ourselves not only a ``B School'' (for business) but also an ``M School'' (for management) and an ``L School'' (for leadership) because we care, as Peter Drucker did, about improving the management and leadership of organizations in all sectors of society in every country in the world.

We consider our mission to be not only significant but also urgent. As we move from good to great here at Drucker, we can feel the flywheel turning, to use author Jim Collins' vivid imagery.

Drucker's management classic is back again, updated

Mon, 01 Sep 2008 00:00:00 PST

In this era of soaring food and gas prices, lost homes and the virtual overnight collapse of once-powerful companies, a return to fundamentals is in order. That's what makes the publication of Peter Drucker'sManagement: Revised Edition so timely. It's a revised and updated edition of his 1973 classic Management: Tasks, Responsibilities, Practices, which is also relevant for non-managers who care about where our institutions are headed and what roles they'll play as their careers inevitably change.

Even though much of the text has appeared in previous books and articles, it's valuable to have it logically and coherently codified in one book under the guidance of Joseph Maciariello. Maciariello - of the Drucker School at Claremont Graduate University, in Claremont, Calif. - has collaborated on the last several Drucker books.

Drucker considered management to be a blend of action and contemplation. The words "think" and "thinking through" appear throughout. Managers must take the time to consider what they are doing and just as important, why they are doing it. He produced a vast body of work, nearly 40 books and countless articles, before he died in 2005 at 95. Many of his classic themes are on display, including:

Management by objectives. Your organization's strategy for the present and future, converted into targets and assignments in such areas as marketing, innovation, human resources, productivity and social responsibility.
The theory of the business. Collectively, it's the assumptions an organization makes about markets, customers, competitors, technology and other factors that make up its reason for being, or as he bluntly puts it, "what a company gets paid for." If your theory is outdated or no longer valid, you're headed for trouble.
Management revolving around people. A manager's job is defined by relationships with colleagues, "upwards, downwards and sideways."
Information responsibility. You must ask yourself what information you need to do your job and where you will find it. Related questions are what information you owe to others and what they owe to you.
Getting out of the office. The key areas affecting your organization will inevitably take place in the outside world. Go out and talk to customers and find out who your non-customers are. Become a volunteer in a non-profit agency, not only for personal growth and helping others, but to work with and learn from people who don't necessarily see things as you do.

Drucker drew super-achievers as followers, such as Jack Welch (retired CEO of General Electric and now a best-selling author), Rick Warren (pastor of Saddleback Church in Lake Forest, Calif., author of The Purpose-Driven Life, one of the best-selling books of all time), and Jim Collins, author of the modern leadership classic Good to Great.

Collins wrote "Peter Drucker's Legacy," the foreword to Management: Revised Edition. He also contributed to The Five Most Important Questions You Will Ever Ask About Your Organization. While you'll want to keep the former (568 pages) on your bookshelf for ready reference, you can keep the latter (at 119 pages) in your briefcase. It may be a slim book, but it's thought-provoking and has the potential for profound impact in your workplace.

It is built around the following self-assessment questions: What is Our Mission? Who Is Our Customer? What Does the Customer Value? What Are Our Results? What is Our Plan?

Drucker's writings about each question are followed by a brief reflection from the likes of Collins, Northwestern University marketing guru Philip Kotler and Leader to Leader Institute Chairman Frances Hesselbein. Drucker's spirit lives on. His compassion and humor are illustrated in one particular passage from Management: Revised Edition. In describing why people may succeed when given a second chance in a job after failing the first time, he warns they should receive "only one second chance. The person who does not perform twice in a row better go to work for your competition!"

Organizations Need Structure and Flexibility

Fri, 29 Aug 2008 00:00:00 PST

There is certainly no shortage of management lessons to be gleaned from Michael Phelps's record-shattering performance at the Beijing Olympics-the importance of setting firm objectives and staying sharply focused perhaps chief among them.

Nevertheless, I suspect that Peter Drucker would have been more intrigued by the blows suffered in the boxing ring than by the gold gathered in the swimming pool. It was there, in the square circle, that the U.S. turned in its worst-ever showing, winning but a single bronze medal and sending disheartened fans scurrying to figure out what went wrong.

Interestingly, the answer appears to have relatively little to do with the fighters' athletic prowess and quite a lot to do with the way the team was run. Those in charge of the nine-man Olympic squad ignored a couple of basic principles that Drucker-though more a student of social science than of the sweet science-pounded home: the need for clear direction and yet, at the same time, a certain degree of organizational flexibility.

TOO MANY COACHES
In large part, the pugilists' problems can be traced to a move made last year: Members of the U.S. team had to leave their homes-and the care of their personal coaches-to live and train for 10 months as part of a new residency program at the U.S. Olympic Committee facility in Colorado. This, in turn, led to several major miscues-the kind that can plague any enterprise, if it's not careful.

The first was that, once in Beijing, at least several U.S. boxers didn't seem to know whom to listen to: the Olympic coach, Dan Campbell, or their longtime personal coaches. The Olympic staff told light flyweight Luis Yanez, for instance, to be aggressive from the opening bell of his big bout. But his hometown coach, to whom he felt tremendous fidelity, counseled patience. "You have the kid caught in between," Campbell told reporters. Yanez lost.

Drucker, for one, wouldn't have been surprised at the outcome. "In any institution, there has to be a final authority," he wrote in his 1999 book, Management Challenges for the 21st Century, "someone who can make the final decisions and who can expect them to be obeyed."

CONFLICT OF LOYALTIES
But unless it's made plain whose role that is, confusion can arise. To be successful, any organization "has to be transparent," Drucker explained. "People have to know and have to understand the...structure they are supposed to work in. This sounds obvious-but it is far too often violated in most institutions (even in the military)."

The toughest situation, he added, is when people feel pulled in two directions, the way the boxers did. "It is a very old principle of human relations that no one should be put into a conflict of loyalties," Drucker asserted, "and having more than one 'master' creates such a conflict."

Yet Drucker recognized that rigidity isn't the right course, either-and it's here that those directing the U.S. boxing team (and surely a great many other managers) could profitably reconsider their approach.

ORGANIZE FLEXIBLY
A common mistake in both management theory and practice, Drucker noted, is that we tend to become fixated on organizing things one way-and one way only. Depending on the era, we make it all about collaboration or all about decentralization or all about command-and-control.

But in truth, "there is no such thing as the one right organization," Drucker wrote. "There are only organizations, each of which has distinct strengths, distinct limitations, and specific applications. It has become clear that organization is not an absolute. It is a tool for making people productive in working together. As such, a given organization structure fits certain tasks in certain conditions and at certain times."

Frequently, it's assumed that "institutions are homogenous and that, therefore, the entire enterprise should be organized the same way," Drucker continued. "But in any one enterprise...there is need for a number of different organization structures coexisting side by side."

TRICKY COORDINATION
For the boxers, this suggests that the best way forward may well be a blend, with weeklong periods of training at the Olympic site combined with personal coaching at home that is designed to reinforce the strategy set by the national team. Making this work would require deft coordination-and constant communication-among the different coaches to ensure that everyone is on the same page, but there's no doubt that it's doable. In fact, the women's gymnastics team operates under just such a model.

Jim Millman, the chairman of USA Boxing, has already indicated that he's interested in making some changes-though just how extensive remains to be seen. If Drucker is any guide, Millman and his colleagues shouldn't hesitate to be bold, especially given how high expectations were for the U.S. boxing team in Beijing. Some observers even thought this group might snare the most medals since 1984, when the U.S. collected 10 golds and two silvers in the ring.

"Unexpected failure...should be taken as seriously as a 60-year-old man's first 'minor' heart attack," Drucker wrote. What's more, good leaders "do not dismiss unexpected failure as the result of a subordinate's incompetence or as an accident but treat it as a symptom of 'systems failure.'"

That's vintage Drucker, never pulling a punch.

Why Manners Matter at Work

Thu, 14 Aug 2008 00:00:00 PST

For those of you who never bothered to pay attention to your mother, perhaps you'll listen to Peter Drucker, the father of modern management, instead.

This cheeky thought has crept into my head a couple of times in the last few weeks as I've noticed a run of stories about etiquette (or lack thereof) in the workplace. Most recently, there was the case study posted on this Web site (BusinessWeek.com, 8/12/08) about a worker who had to deal with a boorish boss.

And just a couple of weeks ago, I saw that officials in Anaheim, Calif.-home to Disneyland-were set to hold classes for cabbies, hotel employees, and other service workers in town to ensure they act as knowledgeable and enthusiastic hosts for tourists, while also minding their p's and q's. The hope is that the lessons they learn-to be professional and gracious-will be noticed not only by visitors but by their colleagues, too. "We teach them that they're part of a team, and that what they do rubs off on the team," says Mickey Schaefer, president of Mickey Schaefer & Associates, the Tucson, Ariz., firm overseeing the training. "We've become such an informal society that we all tend to slip. We want to get back to the basics.... Your attitude, your cleanliness, your friendliness all matter."

Drucker, who recalled watching his grandmother confront a young thug on a Vienna streetcar in the early 1930s and lecture him about the virtue of good manners, would certainly agree. "Manners are the lubricating oil of an organization," Drucker wrote. "It is a law of nature that two moving bodies in contact with each other create friction. This is as true for human beings as it is for inanimate objects. Manners-simple things like saying 'please' and 'thank you' and knowing a person's name or asking after her family-enable two people to work together whether they like each other or not."

DAY IN AND DAY OUT
As the last part of his comment makes clear, Drucker was never particularly sentimental about all this. He wasn't interested in fostering friendships; he was, as usual, trying to enhance performance.

"Warm feelings and pleasant words are meaningless, are indeed a false front for wretched attitudes, if there is no achievement in what is, after all, a work-focused and task-focused relationship," Drucker cautioned in The Effective Executive, his 1967 classic. "On the other hand, an occasional rough word will not disturb a relationship that produces results and accomplishments for all concerned."

Yet Drucker knew that, day in and day out, maintaining a sense of decorum is an important ingredient in any well-managed enterprise. "Bad manners," he said, "rub people raw; they do leave permanent scars."

Maybe even literally. Last month, the Joint Commission, an accreditation body for the U.S. health-care industry, ordered 15,000 hospitals, nursing homes, laboratories, and other facilities to implement standards that spell out what is considered "acceptable and unacceptable" personal conduct and to establish "a formal process" to manage things when the rules get broken.

"Health-care leaders and caregivers have known for years that intimidating and disruptive behaviors are a serious problem," the commission said. "Verbal outbursts, condescending attitudes, refusing to take part in assigned duties, and physical threats all create breakdowns in the teamwork, communication, and collaboration necessary to deliver patient care."

CIVILITY IS CRUCIAL
It isn't just medical personnel that could stand a reminder of this. A study released last year, based on a survey of more than 54,000 employees from 179 organizations across Australia and New Zealand, found that one in five employees experiences an incident of bad manners at work once a month.

People who exclude co-workers from situations, interrupt them when they're speaking, make derogatory remarks, withhold information, and disparage others' ideas, can have "a large impact on employee engagement," Barbara Griffin, an organizational psychologist from the University of Western Sydney and the co-author of the study, said at the time it was released. In fact, she noted, this kind of atmosphere may well determine "whether you stay in an organization, speak positively about your job, or go that extra mile. It can also cause psychological distress and poor physical health."

As commonsensical as this may seem, many managers fail to grasp just how crucial civility is. "Bright people, especially young bright people, often do not understand this," Drucker wrote. "If analysis shows that someone's brilliant work fails again and again as soon as cooperation from others is required, it probably indicates a lack of courtesy-that is, a lack of manners."

PEOPLE SKILLS TRUMP TALENT
This, of course, undermines not only the organization but the individual. In his acclaimed book What Got You Here Won't Get You There: How Successful People Become Even More Successful, executive coach (and fellow BusinessWeek.com columnist) Marshall Goldsmith points out that "people skills," more than smarts or technical talents, frequently "make the difference in how high you go" in your career.

Among the challenges in interpersonal behavior (BusinessWeek.com, 5/6/08) Goldsmith says many of us must strive to overcome: speaking when angry, being overly negative, making excuses, claiming undeserved credit, not listening well, and "failing to express gratitude-the most basic form of bad manners."

And with that, there is but one thing left to say: Thank you for reading.

Some seeds for the recovery

Mon, 04 Aug 2008 00:00:00 PST

The storm clouds over the economy have gathered full force and it's getting dark and gloomy out there - from the Inland Empire to the Empire State, from Detroit to Miami, from Pittsburgh to Phoenix.

Oil shocks, housing meltdowns, exploding budget deficits, plunging stock markets, failed banks, record foreclosures, growing government deficits, ballooning household debt, rising claims for unemployment, a deteriorating credit crisis.

Some say that things haven't been this bad since the Great Depression. No wonder that the vast majority of Americans think our country is on the wrong track, and consumer confidence has plummeted even further and faster than the Dow.

Now, at long last, and finally, along comes Uncle Sam to the rescue.

The lifeboat Congress crafted and President Bush has embraced is so laden with goodies and future IOUs that no one can put a credible price tag on the bailout of Fannie Mae and Freddie Mac.

Having basically privatized profits and socialized losses for the big mortgage insurers after having already bailed out some shaky Wall Street investment banks, the Treasury and the Fed have entered uncharted waters. They are increasing the "moral hazard" of other companies in other industries that are taking risks so imprudent that they, too, might be determined to be "too big to fail," too important not to bail out with taxpayer subsidies, guarantees and even partial public ownership.

How did things get this bad this fast? What's the likely outlook for the future? Can we recover?
Here are a few thoughts that might help guide us through this perilous patch of economic trauma and point to a recovery:

The Chinese have it right: A crisis presents opportunities as well as dangers. Even amidst the foreclosures and layoffs, the bank failures and the bailouts, there are rumblings of the recovery.

In fact, there are seeds of recovery being planted right now, representing future harvests and rewards for those with great insight and courage. Some are taking advantage of the cheaper dollar; others are starting to manufacture products here at home that rising transportation costs have made uneconomic as imports from abroad.

The morning after is the right time to reassess what precautions should have been taken.

We're still too close to the wreckage to know precisely what caused the collision. We have plenty of evidence that investors got too greedy; that rating agencies got too complacent; that mortgage brokers got too loose with standards and down payments and income verification; that regulators got overwhelmed or too caught up in the euphoria; that common sense was the first victim of the carnage that followed.

Let's not try to remedy every problem right away, because the dangers of unintended consequences can yet be worse than the problems themselves.

Deregulation went way too far and it's time for a correction.

One thing does seem clear even before the dust settles: Our long national love affair with deregulation has largely run its course. The pendulum swung too far and too wide, as things tend to do in a democracy.

We didn't like the suffocating bureaucracy of the '70s, so we got religion on deregulation in the '80s. But in our haste we forgot that markets only work if rules are established and fairly and rigorously enforced. Now, it's time for smart regulation.

Peter Drucker, the father of modern management, was no fan of big government, but he said we needed a smart government that was competent at doing what only government can and must do.

Which genius thought we could borrow our way to paradise? When exactly did we all agree that it was OK to become a debtor nation? Or to run 0 billion deficits? Or to have a negative national savings rate? Or to use our homes as ATMs or run up a trillion dollars in credit card debt?

These aren't the lessons our parents taught us; they are not what "the Greatest Generation" that survived the Great Depression and World War II practiced. We simply can't borrow our way to paradise, and we know that by selling our debt to the Russians and Chinese and oil sheikdoms in the Middle East, we're increasingly leaving ourselves vulnerable to national blackmail and increasing economic insecurity.

And whoever said it was responsible to leave our kids to pay off not just the first but also the second mortgage?

Nine trillion dollars in national debts (and the bailout bill ups our national debt ceiling to .6 trillion, just in case things get worse), looming Social Security and Medicare insolvency, a decaying infrastructure and more.

There's no free lunch in the global economy.

No, the Chinese and the Indians can't bail us out. We can't import our recovery. Or borrow for all our sins and debts. We're all in this together, and the only way we recover is the old-fashioned way: by earning our way, investing our way, innovating our way, saving our way out of the hole we're in.

It's back to the basics, stupid.

That means literally the basics of education. The basics of sound infrastructure. The basics of regulation.

The rest of the world is catching up fast, and in some respects is already overtaking us. The rules of competition are like the laws of physics. In a knowledge economy, our kids need to be the best trained and the best educated, or they will be stuck with second-rate jobs and a declining standard of living.

The rest of the world is investing in state-of-the-art infrastructure, and it's time we woke up and played catch-up before it's too late.

Ingenuity - just as an earlier generation landed a man on the moon, we need to create a responsible society again.

Our sense of obligation and moderation seemingly went out the window. We know that we need to act responsibly, again. To balance profits with principles, to pay our way and not mortgage our kids' future, to educate and invest and save.

We have been given so many rights as citizens that we seem to have forgotten our obligations. As we recover from this economic meltdown, let's take the time to rebuild with purpose, and build a responsible society.