Peter Drucker’s Lessons for Performance Management[i]

Focus on your noncustomers

Which of your noncustomers should you be doing business with? (Desirable potential customers). Only Drucker could coin a phrase, “non customers”, yet it gets right to the heart of the fundamental issue. Every private sector government and not-for-profit organisation is missing customers it should be servicing. This is particularly relevant in the government and not-for-profit sectors where members of the public, who should receive a service, are either unaware or too proud to ask for help. By constantly focusing on non-customers, an executive team can find these customers and look after their needs.

Action: Monitor weekly progress on selling to the top five non customers you have identified.

Recruitment is a life and death decision

Drucker was adamant about the significance of recruiting the right staff.

Drucker talked about recruitment being a life and death decision. In other words, better to spend forty hours over a recruitment or promotion decision rather than spending four hundred hours sorting out the problem at the bottom of the cliff.

Drucker was very specific about rules over recruitment. You must know the job; you need to be well acquainted with the candidates in order to be familiar with their strengths and values. It is essential the potential new recruit’s values are a good fit with the organisation. You can train as much as you like but you will never be able to change values as they are part of a person’s DNA.

Recently I met an owner of a private hospital. He had placed a person into the CEO position knowing he had a track record of buying deals. Within a short space of time fictitious employees were on the payroll, and it cost one million to prosecute the case. The CEO was able to extend the case, so no conclusion was reached. That recruitment cost much more than 400 hours!

One aspect of recruitment Drucker strongly advocated is that it is imperative to perform detailed reference checks to really ascertain the candidate’s values. Obviously, this means tracking back to previous companies rather than rely on the referees listed on the curriculum vitae.

Drucker liked things in threes. He recommended short listing three candidates to ensure you have choice. He would strongly advise this selection process to avoid making a decision where there was only one satisfactory candidate.

Drucker was adamant that you never worried about weaknesses. He pointed out that many famous leaders had appointed staff with known weaknesses because their strengths fitted the job so well.

Action: Whenever you are recruiting realise that this is one of the most important things you ever do and thus allow other fires to burn themselves out and concentrate on a well-orchestrated interview process.

Generate three protégés for each senior position

Drucker was firm in his belief that a leader’s role was largely to prepare the organisation for life without them. He thought it was a failure if the next CEO had to be sourced from outside. Drucker pointed out the advantages of continuity, culture and acceptance. Naturally, the two in-house candidates who were not successful were expected to move to CEO positions elsewhere as they were primed for this role. The creation of CEOs has been a feature of good to great companies in Jim Collin’s book[ii] and can be seen in companies such as Toyota and GEC.

Action: Status of succession planning for all key positions should be monitored on a quarterly basis. Following Drucker, any shortage from the three protégés for each senior position should be reported as an exception once a month.

Have an outside-in focus to your business

See the operation from your key customers’ and non-customers’ perspective.

Throughout his writings Drucker emphasised the importance of the outside/in perspective. Recently a television reality programme has replicated this concept with the “CEO undercover” series. Drucker pointed out the importance of the CEO being the outside-in champion. One great CEO I have met takes the executive team for a one-week exercise per year where the existing staff show them the ropes. His executive teams have run the “Happy Road” employment centre, a betting agency, an income support centre and a tourist information centre.  The importance of seeing the processes is akin to Toyota’s “use visual controls so no problems are hidden”.

The executive team, who are duty bound to undertake mundane tasks, ask the staff, “Why am I having to copy this out three times?”, “Why have I got to have a hard copy when I have an electronic copy?”, “Why do I have to enter so much detail in the database?” The staff replied, “These are the procedures that you approved!”

On returning from this week the executive team are refreshed, are a tighter knit group whose priorities have changed completely.  Now they focus on initiatives that are more focused on the customer, ones that will help the staff at the workface service their clients better.

Action: Plan for a week ‘outside-in’ visit to a branch accompanied by all your senior management team. Yes, I did say all!

Collaborate with other organisations, even your competitors

“Your back room is someone’s front room.” In other words, if others can do a job better than you can, contract out to them.

Drucker saw the importance of knowing what you were best at. Focusing as Jim Collins would say on your Hedgehog.  The area of your business which  you are truly passionate about; you can be the world’s best and there is an economic engine that will reward you.

He saw business as a “Lego” construction, where you could bolt together services provided either in-house or externally.  He was referring to the fact that it was now easier than ever before to amalgamate different services from different entities and market it seamlessly to the customer as one entity. Businesses should be full of activities (pieces of the business) performed by third parties.

He stated that there was not competition but just better solutions. Drucker saw collaboration as the key to operating in this world, even with an organisation that you previously saw as a competitor.  Jack Welch turned General Electric (GE) into a powerhouse by striving to focus on what GE was good at, subcontracting to competitors rather than diverting energy to be good at everything, a task that is impossible to achieve.

In the government and not for profit agencies, collaboration has the same barriers as in the private sector. Egos and past institutional memories seem to prohibit staff from striking effective alliances with other organisations that can perform the service better and cheaper. As Drucker put it “Your back room is somebody’s front room”. He even went on to say that an organisation could achieve almost all functions from collaboration. Drucker saw only marketing and innovation that have been sacrosanct in-house activities.

Action: Set out at least three alliances that have been mooted where activities can be done by a third party for the business and monitor progress on a weekly basis until alliances are functioning.

Management versus Leadership

Management is ensuring that staff are doing things right and leadership is ensuring that staff are doing the right thing.

Moving leadership to orchestration

Again, Drucker cut through the difference between what is management and what is leadership.

Drucker compared the role as a leader to the role of a conductor in an orchestra. A conductor guided the professional orchestra, with minimal direction, leaving the professional players as masters of their own domain.

He was very directive in what he considered leaders should do. Drucker said staff had a right to:

  • be respected every day
  • have their assignments clearly identified and understood
  • be equipped so they could carry out their tasks

Action: Look to your mentor and seek guidance on areas where your leadership style can be improved.

Outstanding performance is inconsistent with a fear for failure

Without the will to take risks, to venture into the unknown and let go of the familiar past, an organisation cannot thrive in the twenty-first century.

Drucker knew that significant leaders failed often. However, he indicated that their successes were far greater and more frequent. Successful leaders recognised failure earlier than their peers and were faster to press the abandonment “button”. So much is talked about by famous entrepreneurs such as Sir Richard Branson, yet, in many organisations the fear of failure pervades all thinking. This fear of failure is no more evident than in government and not –for-profit agencies.

It is important to recognise early  on if a decision was wrong  and make corrective action or abandon the initiative. Those who make decisions and have more winners than unsuccessful initiatives should be championed as more valuable than the managers who only back a few winners.

Action: Monitor those projects that have failed and promote them as good learning experiences. Promote the notion that a decision made, even if wrong, is better than no decision.

Develop and nurture a safe haven

Drucker emphasized the importance for leaders to have balance, to have interests outside the work environment that help them maintain a balanced perspective.

In preaching self-renewal Drucker was saying to all of us you need to have balance, other interests, passions, hobbies outside work as well as a hunger for new management concepts.

You will be a better, more balanced leader if you lead a full life. Drucker told a story about a well-respected CEO who was, unknown to the organisation, a recognised international Egyptologist.  In fact, the CEO had kept his other passion so separate that it was only at the funeral that his work colleagues discovered this other side to him.

Drucker realised the importance of balance. Leaders functioned better, were more positive and easier to work with if they had another passion outside work.

Action: Nurture and grow your safe haven now.

Do not give new staff new assignments

When an organisation wants a new system implemented it is very tempting to hire someone who has expertise, as a consultant or as a permanent appointment. Drucker pointed out that they do not stand a chance, as staff who are concerned about the change will do their utmost to de-stabilize the project. He referred to these jobs as widow makers, jobs where the incumbent did not have a chance to succeed.  Instead, you need to appoint an in-house person best suited for the role–someone who is well respected in the organisation, who has a pile of IOUs which they can use when favours are required. Staff will support the new initiative more readily when it is led by such an appointee.

The scarce resource in an organisation is performing people

Drucker highlighted that these scarce resources need to be specifically monitored and not taken for granted. Their goals should be challenging enough to stretch them and keep them interested.

Know what information you need to do your job and from whom you need it, When and how?

By answering these basic questions, we can streamline much of the reporting formats, dispensing with those reports that add no value.

Have three test sites

Drucker pointed out that to do one pilot was never enough to test a process.  The test site will be considered to be too big or too small by the doubters.

Place people according to their strengths

Drucker was adamant that you focus on what people can do rather than focus on what they cannot do well.

Peter Drucker’s Lessons on Innovation

I have split Drucker’s work on innovation into Embracing abandonment, Finding your blue ocean, The processes used to become an innovative organisation.

Embracing abandonment

I consider abandonment as one of the most important gifts bestowed on us by Peter Drucker. It is unusual that such a profound concept should have been left unnourished by so many writers who followed in his footsteps. Amongst the overgrown and chaotic jumble within an organisation Drucker saw a clear pathway to freedom, innovation and productivity through the adoption of regular and systematic abandonment.  Drucker knew more than anyone, that human beings never like to admit a mistake or own up to failure. To avoid facing the truth we hope circumstances will somehow conspire to make a ‘silk purse out of a sow’s ear’.

Drucker said: “The first step in a growth policy is not to decide where and how to grow. It is to decide what to abandon. In order to grow, a business must have a systematic policy to get rid of the outgrown, the obsolete, and the unproductive.”

He also said: “Don’t tell me what you’re doing, tell me what you’ve stopped doing.”

He saw abandonment as fundamental as breathing, a natural passing of old to new. Examples of abandonment he talked about included

  • Cash cows of the past (which were no longer generating the income to justify their continued existence)
  • Rectifying recruitment mistakes (no matter how good your recruitment process is, you will make mistakes and these staff need to be told they need to move on)
  • Unsuccessful projects
  • Systems that are not delivering
  • Processes that we have maintained only because we did it last month, last quarter, last year.

 

Action: Establish an abandonment day, every month, yes every month and get all teams involved Measuring the extent of innovation and abandonment will help focus management’s attention on these two important areas.

Innovation often means giving up the very skills you are proudest of

Searching for the potential of opportunity in an organisation’s vulnerability is likely to be resented by its most accomplished people as a direct attack on their position, pride and power.  E.g.  Kodak invented the digital camera and gave the invention away that would eventually kill the organisation.

Look for opportunities as if your life depended on it. Drucker realised the importance of innovation.  He was aware of the many barriers put in front of staff that would inhibit innovation and performance.  He was a great advocate of change, management going with ideas when not all the detail was known, being prepared to make mistakes rather than establish a feeling of paralysis.

He loved everything Japanese; in fact it was a passion, a safe haven for him. The rise in the importance of the Japanese business methodologies would have brought a smile to his face. One of the most important Japanese principles is Kaizen. The introduction to staff that every day they should look to perform something better, to innovate, to eliminate unnecessary steps, to question the past and to assume everything can be improved. You just have to find the way. Toyota is famous for their commitment to Kaizen.

Drucker believed that management should invest the necessary mental horse power to find better solutions. The solutions would be relentlessly discussed with all teams affected “that every brain in the game” was used. Once a solution was found it should be implemented in three pilots (as I said Drucker loved doing things in threes) to ensure the benefits would meet expectations.

Action: Celebrate innovation every week. Highlight the champions as this will encourage others.

Today’s advanced knowledge is tomorrow’s ignorance

Drucker saw it as very important to harness knowledge in every aspect of the organisation.

Drucker’s seven sources for innovation

  1. The unexpected- the unexpected success, the unexpected failures, unexpected outside event. These are signs that the future is happening now.
  2. The incongruity- the incompatibility between reality as it actually is and reality as it is assumed to be. Look for differences between what customers want and what the market thinks they want.
  3. Innovation based on process need- where everyone in the organisation knows that there is a missing link that needs fixing.
  4. Changes in industry or market structure. Where a small new player comes into the market and starts changing it with an ever-increasing market share.
  5. Changes in demographics- Drucker points out that changing demographics is both a highly productive and dependable innovational opportunity. E.g. the aging population.
  6. Changes in perception, mood and meaning by customers- this often leads to unexpected success or failure.
  7. New knowledge, both scientific and non-scientific- is not the most reliable or predictable source of successful innovations because there is a large time lag.

Take advantage of unexpected and unseen markets

When a new venture does succeed, it is in a market other than the one it was originally intended to serve. Aligned with unexpected products or services, bought in large part by customers who we didn’t know existed, and used for a host of purposed besides the originally intended intentions.

Look for the future that has already happened

 Look for a major trend, a break in the pattern rather than just a variation and anticipate its impact on consumers. Once you have seen the future, then what could or should be done is not too difficult to discover.

Predicting the future can only get you in trouble

 Prediction of future events is futile. The task is to manage what is there and work to create what could and should be.

Four entrepreneurial strategies aimed at market leadership

  1. “First with the most” – Offers potentially the highest reward but also the riskiest one
  2. “Hitting them where they ain’t” – This is creative imitation targeting areas where the market leaders have overlooked.
  3. “Ecological niche” – Where you create a virtual monopoly in a small niche market
  4. Changing the economic characteristics of a product, a market, or an industry – This is where the innovation is a strategy itself. e.g. Yahoo giving email addresses for free to create a customer-base for advertisers.

 

Jim Collins’s Lessons for Performance Management[iii]

Getting the right people on, and wrong people off, the bus

Collins emphasized the need for organisations to place more emphasis on recruiting.

Collins is very consistent with Drucker. Move staff on if they are a poor fit with the organisation’s values.

 

For more see Working Guide Wisdom from the great management thinkers.

 

Incorporating the ideas of the great paradigm thinker’s checklist

For electronic version of this checklist buy the Working Guide Wisdom from the great management thinkers.

Covered?
Customers  
Focus on your noncustomers. o Yes   o No
Have an outside-in focus to your business. o Yes   o No
A focus on quality. o Yes   o No
Benefits of a well-handled problem o Yes   o No
Compute the ten -year value of customers a sales team is supporting. o Yes   o No
Prepare for those important customer meetings. o Yes   o No
The call centre gold mine. o Yes   o No
Customer satisfaction guidelines. o Yes   o No
 
Recruiting
Recruitment is a life and death decision. o Yes   o No
Generate three protégés for each senior position. o Yes   o No
Getting the right people on the bus o Yes   o No
Getting the wrong people off the bus o Yes   o No
 
Collaboration  
Collaborate with other organisations, even your competitors. o Yes   o No
Leadership  
Moving leadership to orchestration o Yes   o No
Outstanding performance is inconsistent with a fear for failure o Yes   o No
Do not give new staff new assignments o Yes   o No
The scarce resource in an organisation is performing people. o Yes   o No
Place people according to their strengths. r o Yes   o No
Embrace candor o Yes   o No
Jack Welch’s 20/70/10 “differentiation” rule o Yes   o No
Raise the profile of human resources in your organisation o Yes   o No
Recognition and celebration o Yes   o No
Embrace the crisis o Yes   o No
New management order o Yes   o No
Six or seven measures is enough o Yes   o No
Always use tried and tested technologies o Yes   o No
Personal development  
Develop and nurture a safe haven o Yes   o No
The “hedgehog” concept for your career. o Yes   o No
Have a cluster of mentors o Yes   o No
Read, read, read. o Yes   o No
Use flying time wisely o Yes   o No
 
Innovation
Embracing abandonment o Yes   o No
Innovation often means giving up the very skills you are most proud. o Yes   o No
Look for opportunities as if your life depended on it. o Yes   o No
Today’s advanced knowledge is tomorrow’s ignorance o Yes   o No
Drucker’s seven sources for innovation o Yes   o No
Take advantage of unexpected and unseen markets. o Yes   o No
Look for the future that has already happened. o Yes   o No
Predicting the future can only get you in trouble o Yes   o No
Try a lot of stuff and keep what works o Yes   o No
Have innovation boot camps where decisions are made o Yes   o No
Aggregate collective wisdom o Yes   o No
Avoid creative apartheid o Yes   o No
You need many innovative ideas o Yes   o No
Successful innovators are not risk focused they are opportunity focused o Yes   o No
Aim for ten new differentiators with your products / services each 90 days o Yes   o No
Benefits of starting small o Yes   o No
Peters eight step model for innovation o Yes   o No
Use every brain in the game when developing a new product o Yes   o No
Strategy
Four entrepreneurial strategies aimed at market leadership o Yes   o No
The “hedgehog” concept for companies o Yes   o No
Big Hairy Audacious Goals (BHAGs). o Yes   o No
Is the risk above or below the waterline? o Yes   o No
Externally sourced CEOs are often a sign of an organisation grasping for salvation o Yes   o No
Be number one or two in the game o Yes   o No
Beware of a TOM o Yes   o No
Mission matters. o Yes   o No
Characteristics of successful firms. o Yes   o No
Marketing spend should be on market creation. o Yes   o No
To get the right corporate structure do it In-house o Yes   o No
 
Project management o Yes   o No
Have three test sites. o Yes   o No
Opt-in commitment o Yes   o No
Culture
Hubris – the silent creep of impending doom. o Yes   o No
Too much hierarchy, too little community. o Yes   o No
Bottom-up focus. o Yes   o No
Have a maximum of seven layers of management o Yes   o No
Change the role of middle management o Yes   o No
Celebrate constructive defiance o Yes   o No
 
Performance bonuses
Avoid setting annual measures unless you can see into the future o Yes   o No
Avoid linking performance pay to the share price o Yes   o No
Avoid using share options as incentives o Yes   o No
Make bonuses team-based rather than individual based. o Yes   o No

 

 

 

[i] Elizabeth Haas Edersheim   The Definitive Drucker: Challenges for Tomorrow’s Executives—Final Advice from the Father of Modern Management (New York: McGraw-Hill, 2006).

[ii] Jim Collins, Good to Great: Why Some Companies Make the Leap and Others, (New York: HarperBusiness, 2001).

[iii] Jim Collins and Jerry Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperBusiness, 1994). Jim Collins, Good to Great: Why Some Companies Make the Leap and Others, (New York: HarperBusiness, 2001). How the Mighty Fall: And Why Some Companies Never Give In (New York: HarperCollins, 2009).