The Peter F. Drucker Methodology for Leading Change

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Editor’s Note:

Dr. Bernie Siegel is a writer and retired pediatric and general surgeon who writes and teaches about mind-body medicine and the relationship between the patient and the healing process.

He is internationally known for his best-selling book, Love, Medicine and Miracles. The following is a relevant (to this article) excerpt from that book:

… "A man with a deadly disease is told by his primary physician he will be dead in an hour… He runs to the window, looks up at the sky, and says, ‘God, save me.'…

…Out of the blue comes that wonderful melodious voice, saying, 'Don't worry, my son… I will save you'… The man climbs back into bed, feeling reassured …

… In walks a surgeon sent by the primary physician who says to the man: 'if I operate in an hour, I can save you.'…'No, thanks, says the man, God will save me.' Then, an oncologist, a radiation therapist and a nutritional therapist visit and tell him, 'We can save you.'...

… ‘I don't need you...God will save me,' was his reply to all of them… In an hour the man dies… When he gets to heaven, he walks up to God and says,' what happened? You said you'd save me, and here I am, dead.'

…' You dumbbell, I sent you a surgeon, an oncologist, a radiation therapist, and a nutritional therapist.’”{Anyone of them could have saved you}.

In the final analysis, every organization has to save itself. Front-line managers must learn how to lead change given today's rapidly arriving, disruptive future.

This brief article outlines Peter F. Drucker's approach to leading change.

Truths spoken by Drucker, noted Harvard's Ted Levitt, was God's gift to those willing to listen to his wisdom & prescriptions related to surviving and thriving regardless of social, cultural & economic circumstances.

If you like this article, please check out our Drucker Master Class Day (March 30, 2021).

Celebrated Drucker Management expert, Dr. Bernard Jaworski, Professor at the Peter F. Drucker & Masatoshi Ito Graduate School of Management will laterally extend many of the concepts touched upon in this article.

Introduction

Learning is no more than thinking with other people's ideas.

Effectiveness means doing the right things; efficiency means doing things right. Efficiency must be based on a foundation of effectiveness.

Thinking with the ideas of Peter F. Drucker enables executives to become more effective and efficient.

Leading Change vs. Managing Change

Said Drucker…

"One cannot manage change… One can only be ahead of it… In a period of upheavals, such as the one we are living in, change is the norm, but unless it is seen as the task of the organization to lead change, the organization – a business, a university, and a hospital and so on – will not survive...

It is therefore a central challenge, for management that its organization become a change leader. A change leader sees change as an opportunity…"

The Experts Have Hoisted the Warning Signals…

 … And L&D executives had better read them correctly. Because the management/leadership development programs you offer today, could make or break your organization tomorrow.

There will be enormous changes to cope with. For example, an unprecedented amount of stimulus funding worldwide will lead to the printing of more money and raising both corporate and individual taxes to pay for ever-mounting federal deficits.

Printing money is always a potential inflationary solution to financing ever-increasing deficits. Raising taxes (already being touted as a certainty) could dampen consumer spending and business investment.

There will be many other social, economic, and cultural changes that must be addressed – fast and successfully.

Managing in turbulent environments requires new (to today's manager) leadership skills to help navigate an ever-changing landscape.

Take-home message: To survive & thrive in today's new world requires your organization to become a change leader & effectively produce and manage successful innovation.

Drucker's ACE-I Methodology for Leading Change – Abandonment, Continuous Improvement, Exploiting Success & Innovation

Drucker outlined four distinct (but highly related) tasks for making effective change happen.

These tasks are namely:

Task 1: Abandonment of the outworn, obsolete and outgrown. Every organization has to systematically find and abandon the things that no longer work, never worked, and the things that have outlived their usefulness and their capacity to contribute to performance and results.

The best therapy for any organization – from the point of your performance – is to purge itself of marginal mediocrities.

Systematic sloughing off of yesterday frees energies and resources. It makes available the people and funds required for doing new things.

Building on Strength

Every organization needs to know how it performs. The most important thing is to find out what the organization does exceedingly well so it can do more of it.

Said Peter Drucker:

"Do not start out with what should be abandoned. Start out by thinking through what should be strengthened and built… Do not start out by trying to save money… Start out by trying to build performance…"

Equally important, every organization must identify what it does not do well so it could stop doing it, and make room for building on strength and simultaneously converting into operational reality innovative ideas that will make the future.

If a candidate for abandonment is a mission-critical support activity, a viable option is to outsource that activity to an outside contractor. If it's not mission-critical, the suggested option is abandonment.

The Principle of Concentration

It must be mentioned – indeed, emphasized – concentration and abandonment are opposite sides of the same coin.

When you abandon nonproductive activities/programs, you have more time to concentrate on the things that work, the things that produce results, the things that improve the organization's ability to create new customers and keep existing ones.

Task 2: Continuous Productivity Improvement. It is the job of the executive/manager to make all resources more productive in areas for which he/she is responsible for.

There are many ways to do this including internal benchmarking which disseminates best internal practices… constant retraining… using Lean Six Sigma approaches for making the organization more effective and efficient… redesigning/reengineering processes to enable workers of all kinds to work smarter not harder… and dozens of other ways that can increase the productivity of all assets.

The Productivity of Capital

According to Drucker, when Jack Welsh took command of General Electric back in the 70s, GE and Westinghouse were close rivals.

Welsh set out to systematically improve the productivity of all its assets including products & services, production processes, technologies, people and above all the productivity of capital (which can be defined as the sum total of all relevant productivities).

The productivity of capital sounds sophisticated. But it's not. Think of it this way. If you invest in a stock, you look at the return on your invested capital.

If the return is inadequate or if you can get a higher return by selling your stock and investing it elsewhere, you are attempting to increase the productivity of your capital.

What Did Jack Welsh Do?

In relatively short order, GE through a rigorous continuous productivity improvement process, managed to greatly improve its productivity of capital.

Indeed, GE managed to get about twice as much work out of a dollar as Westinghouse did – and catapulted GE into a leadership position far ahead of Westinghouse.

What makes one company stand out or lead in any one industry, is that it (typically) operates at about twice the average productivity of its industry.

This assertion has been empirically tested. Organizations with the highest productivity in an industry, are usually the market leader and significantly more profitable than competitors.

The key point: GE did not owe its eventual leadership position to just (and perhaps or) technological advancement. But rather to organized, continuous productivity improvement.

Continuous Improvement Involves Everything an Organization Does Internally & Externally

Whatever an organization does internally and externally needs to be systematically and continuously improved – products & services, capital allocation, organizational designs, processes of all kinds, adaptation of today's groundbreaking technologies, training & development and more.

The productivity of all resources (i.e., capital) can be substantially improved in most institutions, and in relatively short time.

By now we know quite a bit about increasing productivity. We know that it is, in part, achieved by innovation, the shift of resources from old and declining employments to new and more productive ones.

In part, productivity is increased through the continuous improvement of the productivity of the resources in existing employments. Much of this can be done through training and retraining.

For example, improving warehouse performance (for which there are well-known scorecards of measurements) can be improved by learning/using new processes, new methods and new technologies.

Similarly, in areas such as maintenance/facilities management, social media marketing, plant management and the like there are already known measurements of performance.

In other areas, the right measurements must be created.

A Useful Digression

Organized Improvement requires rigorous operational definitions. What constitutes "performance" in a given area?

This requires creating the appropriate measurements to determine whether one is succeeding or not. Performance feedback systems require quantifiable measurements.

For example, many government agencies confuse statements of broad policies (which are just good intentions) with measurable targets with specific timetables and clear assignments of accountability.

Government budgets (and many internal service organizations) tell how much money they intend to spend and where.

But these budgets rarely tell what results are expected.

In other words, many government budgets are spending plans which make vague promises, but they omit mention of the specific outcomes that are expected to result from government action.

Quantifiable measurements are required to determine whether or not a project or activity is succeeding.

Continuous Productivity Improvement Activities Require Setting Annual Measurable Goals

Said Drucker:

When improving systematically and continuously product and services, processes, marketing, technology, training & development of people, using analytics to achieve competitive advantage, an annual improvement rate of three percent to 5 percent is realistic and achievable...

Continuous improvements (that are measurable) in any area eventually transforms the operation… they lead to product innovation... they lead to service innovation… they lead to new process… they lead to new businesses…"

Simply put, Drucker observed, eventually continuous improvements in multiple areas lead to fundamental change.

Task 3: Exploiting Successes. Drucker believed that the first – usually the best and least risky – opportunity for profitable new growth is to exploit one's own successes and to build on them.

In short, do more of what's truly successful and abandon what's only marginal or not working.

It should be simple to discover what's working. But reality tells us this is not usually the case. There are many ways to identify successes that should be exploited – many of which require specific methodologies for doing so.

In this section we are going to discuss two examples of identifying successes. The first example is called by Drucker "the unexpected success."

Exploiting Unexpected/Hidden Successes

The unexpected success is usually treated as a nuisance. Nobody is looking for it; nobody wants to be bothered by it; nobody is assigned to seriously look at the possibilities of exploiting the unexpected success.

A simple (but true) example explains better than any theoretical discussion how organizations of all kinds and sizes fail to recognize the potential of an unexpected success.

This example involves a colleague of ours. During the summer months, he purchases food at a seasonal market that specializes in a variety of pre-prepared meals. Their soups are truly unique, and extremely nutritious.

For the past 15 years, he purchased about 75 soups at the season's end to last through the fall/winter months. He freezes the soups in his basement freezer.

The owners of the market were happy. But found the special soup order a little inconvenient but profitable.

Truth be known, their mindset was "they were just keeping a good customer happy and satisfied."

Good-Natured Fun vs. a Profitable New Opportunity?

It was a standing joke – whenever he shopped at the market, he was identified as the fellow who purchased all those soups for the winter.

He was usually introduced to customers/friends of the market owners as "This is the guy we were telling you about… The one who buys all those soups and freezes them for the winter…"

This was usually greeted with typical eye rolls indicating disbelief or being in the presence of insanity…and usually followed with a manufactured Ha, Ha.

Then, the son of the owner of the market graduated from a top business school and entered the business. He was versed in the teachings of Drucker.

It should be mentioned – indeed, emphasized – he was knowledgeable about Drucker's principles and practices not because he learned about them in school, but rather because our colleague gave him several Drucker books as a Christmas gift when he was 16 years old.

He remembered "look for opportunity in the unexpected success" statements of Drucker.

So, what did he do after his first year working at the market? You guessed it!

He began promoting/labeling soups and many other items as freezable for winter.

Now, the market does a box office business in selling frozen soups and other food items. Sales are reported to have dramatically increased – the major factor being sales to existing customers purchasing freezable Items.

Simple? Yes! But not easy to do. Why? Because, typically, there is no formal system for identifying the unexpected success and no mechanism for assigning required resources for capitalizing upon it.

Are you "sweeping your unexpected successes under the rug?" Are you systematically attempting to identify unexpected successes and purposely exploiting them?

Lessons Learned?

Management must look at every unexpected success with the questions: (1) What would it mean to us if we exploited it? (2) Where could it lead us? (3) What would we have to do to convert it into an opportunity? (4) How do we go about it?

This means, first, management needs to set aside specific time in which to discuss unexpected successes; and secondly, an individual or team should always be assigned to analyze an unexpected successes and to think through how they could be exploited.

An Unforgettable Drucker Example of Exploiting an Unexpected/Unseen Success

A constant background theme in much of Drucker's business writings was the importance of detecting and exploiting an unexpected success via disaggregating, that is, sub-grouping customer data.

A good example of an unexpected success discovered through data analysis is Cadillac back in the 1930s.

During the Great Depression, Cadillac could not sell its high-priced cars. Indeed it was about to be liquidated. Yes, liquidated.

The only question, according to Drucker, in his Adventures of a Bystander, was whether it would be abandoned altogether or whether the nameplate should be kept alive.

Most of GM's senior executives wanted to cut their losses and abandon/eliminate Cadillac from their product line.

Nicholas Dreystadt – a virtually unknown middle manager for Cadillac – intensely analyzed (disaggregated) Cadillac's sales figures.

He analyzed who was buying Cadillacs and why (or for what reasons) they were bought.

"It was then that Nicholas Dreystadt – whom none of the members had ever met – gate crashed the meeting of the executive committee, pleaded to be given 10 minutes, and presented a (marketing) plan for making Cadillac profitable again within 18 months."

Dreystadt wanted to "position" Cadillac against other status items rather than against other automobiles. Mink coats, jewelry, skiing vacations and other prestigious items were Cadillac's real competition, said Drucker.

More importantly, by disaggregating customer data, Dreystadt discovered a "neglected" market segment/niche – namely: wealthy blacks.

Dreystad's numbers astonishingly revealed Black entertainers, Black lawyers, Black realtors, Black doctors and the like were buying Cadillacs.

According to Drucker, "It was company policy not to sell Cadillacs to Blacks… The Cadillac salesmen aimed at the "White prestige market"….

"But the wealthy Black wanted a Cadillac so badly that he/she paid a substantial premium to a White man to front for him in buying one…

… Dreystadt investigated this unexpected phenomenon and found a Cadillac was the only success symbol the affluent Black could buy in the 1930s; he/she had no access to good housing, to luxury resorts or to any other of the outward signs of worldly success."

… “And so Dreystadt, in the depths of the Great Depression, aggressively pursued and developed this neglected market segment – and soon enough sold enough cards to break-even and then eventually made Cadillac into a big moneymaker."

At our Drucker Master Class Day, Dr. Bernard Jaworski of the Drucker School discusses in more detail the implications of this story and how to develop a formalized system for discovering unexpected successes that could be exploited.

Task 4: Innovation. Purposeful innovation is the key to sustained success. An organization must identify where it needs new innovations and must understand what must be done to produce and manage successful innovation.

Innovation is not a eureka moment. It is an acquired management skill. Peter Drucker's body of work in identifying and converting into operational reality needed innovations is without equal.

Many people still believe (unthinkingly) innovation refers to invention, spinoffs from science, engineering and technology. Not so. Innovation in the broadest sense can be simply defined as "new value."

Innovation, when defined as adding "more bells and whistles" to an already existing product or product line, is more likely to produce "miracles of technology" but disappointing or no new value to customers.

The key question or the starting question about every statement about a needed or new innovation should be: "Will this make a difference that's considered valuable to existing customers or non-customers (people that should be customers but are not)?

To start out with an unfulfilled customer need is the best way to find innovative opportunities. It is possible new science, new knowledge, new technology, new processes are required to make the innovation happen.

There are many kinds of innovations including process innovations, product and service innovation, business model innovation, new operating methods innovation, distributive channel innovation, and, of course, creating new businesses within the existing business innovation.

Warning: The Existing Business Tends To Squash Newness of Any Kind

An organization exists to get today's job done. Rules, procedures and standards define what is to be done, and how. Allegiance to the daily task remains the predominant and inevitable focus.

The point? The organization that exists to get today's job done cannot also do tomorrow's job very well. Tomorrow's job – in the appropriate situations – needs a new autonomous, structural entity of its own.

Said Drucker: "Organizations have to adopt policies that create, throughout the entire organization, the desire to innovate and the habits of entrepreneurship and innovation."

How to successfully innovate can be taught, learned and practiced. Why? Because Peter F. Drucker made innovation into a discipline.

Only when a subject is converted into a discipline can individuals develop the capacity to perform well beyond that of the ablest practitioner of yesteryear.

Leading change requires executives truly understand how to achieve outcome-driven innovation.

 

Come to our Drucker Master Class Day (March 30, 2021) and learn from Dr. Bernard Jaworski, one of the foremost Drucker experts in the world & Professor at the Peter F. Drucker & Masatoshi Ito Graduate School of Management how to systematically and purposefully create effective innovations within your organization.

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