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 the phone, with the Viennese accent
that sounded like her fathers. Peter Drucker? The
man credited with inventing the discipline of
management? The man who wrote 39 books that
have been translated into countless languages?
The man who had a formative influence on every
company Jim Collins and Jerry Porras profiled in
their book, Built To Last legendary organiza-
tions like Hewlett Packard, Johnson & Johnson,
Merck and Motorola?
In Druckers no-nonsense way, he compli-
mented her on her Marvin Bower book and asked
if she might be interested in interviewing him.
Drucker jokingly raised the idea of her writing a
book about him, looking at how hed created the
concept of management.
She was tempted, not to mention flattered,
but commitments over the next few months rico-
cheted through her head. Eventually she flew to
Druckers home in Claremont, Calif., where, using
a walker, he met with her. Over conversations
strictly 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 combined
with her own experience.
The Customer: Joined at the Hip
The silent revolution of technology and demogra-
phy we have been experiencing in recent years has
given each consumer his or her own handy remote
control. Everything has changed about your cus-
tomers and your relationships. Youve never had as
many people around the globe to reach. And they
reach you too, one by one, not as a homogeneous
group. Customers arent just in the drivers seat
these days theyre also gassing up the vehicle,
doing some of the service, and controlling a fair
amount of traffic on the road.
Peter Druckers conviction that the customer is
at the center of it all shaped his thought from the
very start. As a young journalist in the 1930s, he
credited Time-Lifes success to Henry Luces un-
derstanding of the customer rather than his journal-
istic savvy. In Druckers first management book,
Concept of the Corporation, he attributed General
Motors success to Chief Executive Alfred Sloans
unique understanding of the customer, not Sloans
scientific approach.
When Drucker talked about the customer, he
came back to four classic themes over and over
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again. These themes ran through 70 years of his work.
He asked every one of his clients:
Who is your customer?
What does your customer consider value?
After long discussions answering those two ques-
tions, he would then ask:
What are your results with customers?
Does your customer strategy work well with your
business strategy?
Virtually every one of Druckers clients that Eder-
sheim spoke with had a story about the tremendous
impact of those questions. Rethinking the answers with
Drucker changed how they thought about the business
they were in.
Southern Pipe, a regional plumbing company, re-
defined its customer instead of serving contractors
alone, its branches began serving local communities
and homeowners as well as contractors. Herman
Mi l l er, the desi gn-centered fur ni ture company,
changed its customer focus from Midwesterners with
an eye for a striking look to large-city dwellers and
lovers of modern art.
When Drucker asked Ted Jones, the managing
partner 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 aint. Ted explained that they
targeted cities where there were no competitors and
Edward Jones was the only stockbroker in town.
Drucker, pushing him, asked, Why would you do
that? Ted responded, Because we do better.
Drucker asked how much better and suggested
they look at the facts. That led them to learn that in fact
Edward Jones did 25% better where there were com-
petitors. Ted had seen the market geographically and
had defined the customer as the rural American with no
alternative access to the stock market. In fact, their
customers were people who wanted personal service
and relatively low-risk investments. Druckers questions
fundamentally changed their understanding of their
customer and their value proposition.
The question Who is your customer? seems aw-
fully simple. Mission statements and quarterly reports
suggest that most companies and non-profit organiza-
tions know the customer as intimately as a favorite
neighbor. Dont be deceived. In this complex, ever-
changing, Lego-like world for organizations, identifying
the customer isnt the straightforward task many as-
sume it to be. Indeed, theres an entire team behind
every customer. The user, the buyer and the influencer
are linked together as never before, and they sway
other buyers. We need to do more than understand
them we need to engage them, alone and in groups,
and understand how they want to be engaged.
Drucker helped organizations to drill down on the
prime question of Who is your customer? by asking
the following questions:
Who should be included in your definition of the
customer?
a) The end consumer?
b) The buyer or decision maker?
c) Critical influencers such as communities and
sources of information?
Who in the interlocking world of alliances and
partnerships should you view as customers versus
competitors?
Who is not your customer?
Which of your current non-customers should
you be doing business with?
Innovation and Abandonment
Drucker wrote about innovation for decades long
before anyone had heard of iPods and Starbucks, or
even the Internet. It fascinated him. By the Vietnam
War years he was predicting that technology would
change everything about the way we do business.
He liked to discuss the delicate balance between
innovation and change on the one hand, and preserva-
tion of the status quo on the other. He first described
this fundamental tension between the old and new 70
years ago, shortly before World War II. During one of
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his last conversations with Edersheim before his death,
he told her that finding this balance was still critical to
business survival. You cant throw everything out or
youll have anarchy, he said. You cant hold onto
everything or youll die.
He had four basic questions about innovation:
What do you have to abandon to create room for
innovation?
Do you systematically seek opportunities?
Do you use a disciplined process for converting
ideas into practical solutions?
Does your innovation strategy work well with your
business strategy?
In many organizations, innovation is stymied by ex-
cessive loyalty to the old products and the old ways of
doing things. Drucker put it this way: most companies
hang 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 the
most important lesson he learned from Drucker was to
address the issue of abandonment, through three
provocative Drucker questions:
If you werent in this business today, would you
invest the resources to enter it?
What unconscious assumptions might constrain
your business practices and limit your innovative
thinking?
Are your highest-achieving people assigned to in-
novative opportunities? Or are they merely working on
yesterdays problems and yesterdays products?
Those questions led him to issue an edict early in
his tenure as CEO: each of GEs businesses had to be
number one or number two in its market, or the manag-
er would have to sell or close it. Welch feels that Druck-
ers questions raised the bar for every business unit in
GE and freed up resources, thereby greatly strengthen-
ing the whole company.
GE is one of the best-known examples of Druckers
principle of abandonment in action. Another is Kimber-
ly-Clark, the giant paper company. For 100 years, it
was mainly a coated-paper manufacturer with mills in
the United States, Canada and overseas. In 1972, Dar-
win Smith took over as CEO. Despite the companys
large historical investment in paper mills, he believed
that making paper was a mediocre business, and he
decided to sell most of Kimberly-Clarks mills and put
its 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, a
strong American rival. One board member described
Smiths decision as the gutsiest move Ive ever seen a
CEO make. And it paid off. By 2006, Kimberly-Clark
owned Scott Paper and was outselling Procter & Gam-
ble in six of its eight categories.
Companies that want to innovate should heed what
Drucker called systematic abandonment, the deliberate
process of letting go of familiar products in favor of the
new 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 evaluate
constantly 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.
Theres an old medical proverb, he once ex-
plained. Theres [probably] nothing more expensive,
nothing more difficult, than to keep a corpse from
stinking! Most corporations waste time, energy and
precious resources on keeping their corpses their
old products from stinking. Because these old prod-
ucts are still generating large revenues, most execu-
tives dont even recognize that they have stinking
corpses. And so the bosses assign smart people to
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tackle serious problems in old businesses. Thats a
misallocation of precious resources.
Peter Drucker viewed innovation as a discipline, a
skill that can be learned and practiced like playing the
piano. To innovate, you must devise a systematic
method of identifying opportunities that provide new
value for your company. Many people think the discov-
ery of new ideas is random and unpredictable. Far from
it such discoveries come from scouring the land-
scape and translating sightings into what we dont
know that might matter.
Decision-Making: The Crucial Chassis
It takes smart decisions and execution to traverse the
new landscape that business faces, even with a strate-
gy or map. When Drucker spoke with Edersheim, they
referred to the organizations 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 context
needed to take into consideration factors inside the
company and beyond, such as market conditions and
energy costs. However, as Drucker liked to say, senior
executives shouldnt spend the bulk of their time mak-
ing decisions on the contrary, they should spend
very little time doing so. Their emphasis should be on
making 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-
maki ng, and then make sure that the words are
translated into action.
Four Drucker questions help to bring clarity, guid-
ance and focus to the amorphous issues executives
must oversee:
Have you built in time to focus on the critical de-
cisions?
Do your culture and organization support making
the right decision, with ready contingency plans?
Is your organization willing to commit to the deci-
sion once its made?
As decisions are made, are resources allocated
to convert the decisions into action?
Conclusion
Druckers last words in his conversations with Eder-
sheim were: Okay. Im getting tired, and thats one
thing Im not allowed to do. Come back. Ill be here. Im
not going anywhere. He has left our physical world,
but kept his promise to be there his influence is
embedded in our management past, our management
present, and our management future. e
ABOUT THE AUTHOR: 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 Getting
the Right Things Done, by Peter F. Drucker, Harper-
Collins, revised 2006, ISBN 0060833459.
Managing in the Next Society, by Peter F. Drucker, St.
Martins Press, 2002, ISBN 0312289774.
The Daily Drucker: 366 Days of Insight and Motivation
for Getting the Right Things Done, by Peter F. Drucker
with Joseph Maciariello, HarperCollins, 2004, ISBN
0060742445.
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