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The Definitive Drucker The Final Word from the Father of Modern Management By Elizabeth Haas Edersheim Published by McGraw-Hill, 2006 ISBN 0071472339 Introduction Soon after Elizabeth Haas Edersheim published a biography of her mentor Marvin Bower, the archi- tect of McKinsey & Company, the phone rang at her home on a Friday night. “Hello.” The caller paused and then added, “This is Peter Drucker.” It took her a while to grasp who was on the other end of
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  The Definitive Drucker The Final Word from the Father of Modern Management By Elizabeth Haas Edersheim Published by McGraw-Hill, 2006ISBN 0071472339 Introduction Soon after Elizabeth Haas Edersheim published abiography of her mentor Marvin Bower, the archi-tect of McKinsey & Company, the phone rang ather home on a Friday night. “Hello.” The callerpaused and then added, “This is Peter Drucker.”It took her a while to grasp who was on theother end of the phone, with the Viennese accentthat sounded like her father’s. Peter Drucker? Theman credited with inventing the discipline ofmanagement? The man who wrote 39 books thathave been translated into countless languages?The man who had a formative influence on everycompany Jim Collins and Jerry Porras profiled intheir book, Built To Last  — legendary organiza-tions like Hewlett Packard, Johnson & Johnson,Merck and Motorola?In Drucker’s no-nonsense way, he compli-mented her on her Marvin Bower book and askedif she might be interested in interviewing him.Drucker jokingly raised the idea of her writing abook about him, looking at how he’d created theconcept of management.She was tempted, not to mention flattered,but commitments over the next few months rico-cheted through her head. Eventually she flew toDrucker’s home in Claremont, Calif., where, usinga walker, he met with her. Over conversationsstrictly limited to two hours by his wife Doris,given his age — and with the doughnuts Eder-sheim started to bring eventually banned — he re-layed his philosophy to her, which she combinedwith her own experience. The Customer: Joined at the Hip The silent revolution of technology and demogra-phy we have been experiencing in recent years hasgiven each consumer his or her own handy remotecontrol. Everything has changed about your cus-tomers and your relationships. You’ve never had asmany people around the globe to reach. And theyreach you too, one by one, not as a homogeneousgroup. Customers aren’t just in the driver’s seatthese days — they’re also gassing up the vehicle,doing some of the service, and controlling a fairamount of traffic on the road.Peter Drucker’s conviction that the customer isat the center of it all shaped his thought from thevery start. As a young journalist in the 1930s, hecredited Time-Life’s success to Henry Luce’s un-derstanding of the customer rather than his journal-istic savvy. In Drucker’s first management book, Concept of the Corporation , he attributed GeneralMotors’ success to Chief Executive Alfred Sloan’sunique understanding of the customer, not Sloan’sscientific approach.When Drucker talked about the customer, hecame back to four classic themes over and over Buy the Full Book! www.amazon.com www.bn.com www.chapters.cawww.execubooks.com © 2007 execuBooks inc. execu  B ooks wisdom. wherever. Subscribe to execubooks.com: e-summaries of books for business people  again. These themes ran through 70 years of his work.He asked every one of his clients:ã Who is your customer  ?ã What does your customer consider value ? After long discussions answering those two ques-tions, he would then ask:ã What are your  results with customers?ã Does your customer  strategy  work well with yourbusiness strategy? Virtually every one of Drucker’s clients that Eder-sheim spoke with had a story about the tremendousimpact of those questions. Rethinking the answers withDrucker changed how they thought about the businessthey were in. Southern Pipe, a regional plumbing company, re-defined its customer — instead of serving contractorsalone, its branches began serving local communitiesand homeowners as well as contractors. HermanMiller, the design-centered furniture company,changed its customer focus from Midwesterners withan eye for a striking look to large-city dwellers andlovers of modern art.When Drucker asked Ted Jones, the managingpartner of the financial services firm Edward Jones,how they decided where to put their offices, Ted said,“Well, we do it like the baseball player, Wee Willie Keel-er. We hit ‘em where they ain’t.” Ted explained that theytargeted cities where there were no competitors andEdward Jones was the only stockbroker in town.Drucker, pushing him, asked, “Why would you dothat?” Ted responded, “Because we do better.” Drucker asked how much better and suggestedthey look at the facts. That led them to learn that in factEdward Jones did 25% better where there were com-petitors. Ted had seen the market geographically andhad defined the customer as the rural American with noalternative access to the stock market. In fact, theircustomers were people who wanted personal serviceand relatively low-risk investments. Drucker’s questionsfundamentally changed their understanding of theircustomer and their value proposition.The question “Who is your customer?” seems aw-fully simple. Mission statements and quarterly reportssuggest that most companies and non-profit organiza-tions know the customer as intimately as a favoriteneighbor. Don’t be deceived. In this complex, ever-changing, Lego-like world for organizations, identifyingthe customer isn’t the straightforward task many as-sume it to be. Indeed, there’s an entire team behindevery customer. The user, the buyer and the influencerare linked together as never before, and they swayother buyers. We need to do more than understandthem — we need to engage them, alone and in groups,and understand how they want to be engaged.Drucker helped organizations to drill down on theprime question of “Who is your customer?” by askingthe following questions:ã Who should be included in your definition of thecustomer?a) The end consumer?b) The buyer or decision maker?c) Critical influencers such as communities andsources of information?ã Who in the interlocking world of alliances andpartnerships should you view as customers versuscompetitors?ã Who is not your customer?ã Which of your current “non-customers” shouldyou be doing business with? Innovation and Abandonment Drucker wrote about innovation for decades — longbefore anyone had heard of iPods and Starbucks, oreven the Internet. It fascinated him. By the VietnamWar years he was predicting that technology wouldchange everything about the way we do business. He liked to discuss the delicate balance betweeninnovation and change on the one hand, and preserva-tion of the status quo on the other. He first describedthis fundamental tension between the old and new 70years ago, shortly before World War II. During one of The Definitive Drucker By Elizabeth Haas Edersheim www.execubooks.com2  A new feature topic every week  Leading thinking by thought leaders. Join in at www.execuBooksBlog.com  his last conversations with Edersheim before his death,he told her that finding this balance was still critical tobusiness survival. “You can’t throw everything out oryou’ll have anarchy,” he said. “You can’t hold ontoeverything or you’ll die.”He had four basic questions about innovation:ã What do you have to  abandon to create room forinnovation?ã Do you systematically seek opportunities ?ã Do you use a disciplined  process for convertingideas into practical solutions?ã Does your innovation  strategy  work well with yourbusiness strategy?In many organizations, innovation is stymied by ex-cessive loyalty to the old products and the old ways ofdoing things. Drucker put it this way: most companieshang on to the business they have and are hugely re-luctant to loosen their grip. This prevents them from in-novating and determining their own destiny.Jack Welch, the former CEO of GE, says by far themost important lesson he learned from Drucker was toaddress the issue of abandonment, through threeprovocative Drucker questions:ã If you weren’t in this business today, would youinvest the resources to enter it?ã What unconscious assumptions might constrainyour business practices and limit your innovativethinking?ã Are your highest-achieving people assigned to in-novative opportunities? Or are they merely working onyesterday’s problems and yesterday’s products?Those questions led him to issue an edict early inhis tenure as CEO: each of GE’s businesses had to benumber one or number two in its market, or the manag-er would have to sell or close it. Welch feels that Druck-er’s questions raised the bar for every business unit inGE and freed up resources, thereby greatly strengthen-ing the whole company.GE is one of the best-known examples of Drucker’sprinciple of abandonment in action. Another is Kimber-ly-Clark, the giant paper company. For 100 years, itwas mainly a coated-paper manufacturer with mills inthe United States, Canada and overseas. In 1972, Dar-win Smith took over as CEO. Despite the company’slarge historical investment in paper mills, he believedthat making paper was a mediocre business, and hedecided to sell most of Kimberly-Clark’s mills and putits muscle behind two brands, Kleenex and Huggies.Both product lines had shown promise but lacked cor-porate support. Smith took an enormous risk by abandoning every-thing Kimberly-Clark had done successfully until then,and instead focusing on what had essentially been af-terthoughts, going head-to-head with the globally rec-ognized leader, Procter & Gamble, and Scott Papers, astrong American rival. One board member describedSmith’s decision as “the gutsiest move I’ve ever seen aCEO make.” And it paid off. By 2006, Kimberly-Clarkowned Scott Paper and was outselling Procter & Gam-ble in six of its eight categories. Companies that want to innovate should heed whatDrucker called  systematic abandonment  , the deliberateprocess of letting go of familiar products in favor of thenew or as yet unknown. Drucker went further than al-most anyone: “Even when a product is being launched,its target abandonment date should be set.” As part of routine operations, you need to evaluateconstantly which of your existing businesses should be jettisoned, and revisit those decisions annually, quar-terly or even monthly. Drucker went so far as to advo-cate regular abandonment meetings.“There’s an old medical proverb,” he once ex-plained. “There’s [probably] nothing more expensive,nothing more difficult, than to keep a corpse fromstinking!” Most corporations waste time, energy andprecious resources on keeping their corpses — theirold products — from stinking. Because these old prod-ucts are still generating large revenues, most execu-tives don’t even recognize that they have stinkingcorpses. And so the bosses assign smart people to The Definitive Drucker By Elizabeth Haas Edersheim www.execubooks.com3 simple smart aheadspace.com Share a headspace with the best minds in businessSee page 4 for details  tackle serious problems in old businesses. That’s amisallocation of precious resources.Peter Drucker viewed innovation as a discipline, askill that can be learned and practiced like playing thepiano. To innovate, you must devise a systematicmethod of identifying opportunities that provide newvalue for your company. Many people think the discov-ery of new ideas is random and unpredictable. Far fromit — such discoveries come from scouring the land-scape and translating sightings into what we don’tknow that might matter. Decision-Making: The Crucial Chassis It takes smart decisions and execution to traverse thenew landscape that business faces, even with a strate-gy or map. When Drucker spoke with Edersheim, theyreferred to the organization’s ability to make well-in-formed decisions about what needs to be done and re-solve what needs to be done as the chassis .Whether it has to do with customers, employees,corporate organization or something else, decision-making is uniquely and distinctly a management re-sponsibility. Only management has the broad contextneeded to take into consideration factors inside thecompany and beyond, such as market conditions andenergy costs. However, as Drucker liked to say, seniorexecutives shouldn’t spend the bulk of their time mak-ing decisions — on the contrary, they should spendvery little time doing so. Their emphasis should be onmaking sure they have the time, information and con-centration to make the right decisions about the rela-tively few things that demand senior-level decision-making, and then make sure that the words aretranslated into action.Four Drucker questions help to bring clarity, guid-ance and focus to the amorphous issues executivesmust oversee:ã Have you built in time to focus on the critical de-cisions?ã Do your culture and organization support makingthe right decision, with ready contingency plans?ã Is your organization willing to commit to the deci-sion once it’s made?ã As decisions are made, are resources allocatedto convert the decisions into action? Conclusion Drucker’s last words in his conversations with Eder-sheim were: “Okay. I’m getting tired, and that’s onething I’m not allowed to do. Come back. I’ll be here. I’mnot going anywhere.” He has left our physical world,but kept his promise to “be there” — his influence isembedded in our management past, our managementpresent, and our management future.  e  A BOUTTHE   A UTHOR : Elizabeth Haas Edersheim is a strategic consultant who works with Fortune 500 com- panies and with private equity investors. Related Reading The Effective Executive: The Definitive Guide to Gettingthe Right Things Done , by Peter F. Drucker, Harper-Collins, revised 2006, ISBN 0060833459. Managing in the Next Society  , by Peter F. Drucker, St.Martin’s Press, 2002, ISBN 0312289774. The Daily Drucker: 366 Days of Insight and Motivationfor Getting the Right Things Done , by Peter F. Druckerwith Joseph Maciariello, HarperCollins, 2004, ISBN0060742445. Need a Competitive Edge? Share a headspace with the best minds in business —visit aheadspace.com. Now you can learn, teach and in- spire your people with a complete collection of re- sources and tools. These simple, smart, enterprise-wide learning solutions enable 100% of an organization’s em- ployees to quickly learn and apply the world’s best busi- ness concepts at an unbeatable return on investment.The resources include two of execuGo Media’s most  popular product lines — execuBooks business book  summaries and execuKits turnkey workshop toolkits — plus innovative inspirational tools called execuClips. They enable all employees to build competitive advantage by equipping each other with a world-class business edu-cation easily and effectively right where they work. To learn more, visit www.aheadspace.com or contact us at clientcare@execugo.com or 1-866-888-1161. The Definitive Drucker By Elizabeth Haas Edersheim www.execubooks.com4

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