'The Purpose of a Business is to Create a Customer' - Peter Drucker Centenary

This month marks the centenary of Management guru Peter Drucker's birth, and the Harvard Business Review - the Vogue magazine of management fashions - has a terrific section devoted to his legacy and ideas this month. (The paper version is a keeper).
Written by Oliver Marks, Contributor

This month marks the centenary of Management guru Peter Drucker's birth, and the Harvard Business Review - the Vogue magazine of management fashions - has a terrific section devoted to his legacy and ideas this month. (The paper version is a keeper).

Drucker's tremendous body of work has been distilled into the usual bumper sticker phrases and 'ten things' lists over the years, but the longer form books - 'The Practice of Management' for example - somehow seem to get you thinking in the same way as Drucker, which may partly explain how foundational he is to business thinking.

Packed full of common sense and combined with a strong sense of business's responsibility to society, two of my favorite Drucker bumper sticker quotes are 'Knowledge has to be improved, challenged, and increased constantly, or it vanishes' and 'There is an enormous number of managers who have retired on the job', which somehow seem to fit together very well.

An interesting comparison to the Drucker celebrations are the follow up industry verticals report to 'The 2009 Shift Index', the 'Industry metrics and perspectives' by John Hagel III, John Seely Brown, and Lang Davison and their associates at the Deloitte Center for the Edge.

The 200 page report systematically examines trends across 14 industries, to further explore by industry why return on assets (ROA) for U.S. public companies has declined by 75 percent since 1965. John Hagel has fleshed out on his blog a summary of the key perspectives emerging from their industry analysis under the following headings:

* Deterioration in performance is widespread * Advances in labor productivity fail to improve return on assets * Innovation, at least as traditionally defined, does not appear to offer a solution * Traditional measures of competitive intensity understate the challenge * Worker passion is at very low levels across all industries

It's well worth reading this short blog post as an overview of the long form report to get context.

From the 'The 2009 Shift Index: Industry metrics and perspectives' report:

...Knowledge flows—which occur in any social, fluid environment where learning and collaboration can take place—are quickly becoming one of the most crucial sources of value creation. Facebook, Twitter, LinkedIn, and other social media foster them. Virtual communities and online discussion forums do, too. So do companies situated near one another, working on similar problems. Twentieth-century institutions built and protected knowledge stocks—proprietary resources that no one else could access.

The more the business environment changes, however, the faster the value of what you know at any point in time diminishes. (my italics) In this world, success hinges on the ability to participate in a growing array of knowledge flows in order to rapidly refresh knowledge stocks. For instance, when an organization tries to improve cycle times in a manufacturing process, it finds far more value in problem solving shaped by the diverse experiences, perspectives, and learning of a tightly knit team (shared through knowledge flows) than in a training manual (knowledge stocks) alone.

Knowledge flows can help companies gain competitive advantage in an age of near-constant disruption...

From the Big Shift team HBR blog post 'The Case for Institutional Innovation':

...With knowledge flows becoming more and more important as a source of value creation relative to knowledge stocks, we suggest that another form of innovation – institutional innovation – may be much more helpful in turning the performance trends around..

Another famous Drucker quote: 'Management by objective works - if you know the objectives. Ninety percent of the time you don't'.

Within well-designed, loosely coupled business units there’s a lot more room for experimentation than between and within rigid ones: Hagel's 'institutional innovation' centers around bringing 'the force of attraction to bear on tens or even hundreds of thousands of participants around a common platform'.

...We are no longer talking about flexibility in configuring modules with given performance levels.  Now we are talking about flexibility to configure modules that are rapidly improving their own performance.  This combination of flexibility plus accelerating performance improvement is what drives the real power of loosely coupled systems.

Drucker's 'Managers who have retired on the job' are notorious for inflexibly driving to illogical objectives which baffle staff and destroy their enthusiasm: modern 2.0 technologies enabling participation and collaboration around common platforms have come of age, but management thinking is mostly not yet aware of their potential.

Silos of 'knowledge stocks' are often being transferred into newer more powerful 'collaboration silos' - modern technologies used in an old fashioned way. Drucker's 'Knowledge has to be improved, challenged, and increased constantly, or it vanishes' was prescient about 2.0 technologies. The Knowledge Management movement around top down elearning (corporate universities etc) ten years ago effectively failed due to a lack of agility - libraries of stale learning materials were effectively replaced by agile wiki use.

As I discussed in my previous post the challenges of designing for collaborative scale are challenging but eminently doable. Greg Lloyd of Traction Software wrote an excellent and highly entertaining post last week on the 'Strict Druckerian' vs ''Strict Proletarian'  in the Enterprise 2.0 'religious' debate, or schism as he dubs it. Lloyd is a 'strict Druckerian' and declares: No, it is not "all about the people".

It's a tongue in cheek post but there's an element of truth to it - a scalable common collaboration platform is unlikely to grow from grass roots adoption by groups of users without careful guidance and design. The rapid 'creative destruction' of modern business through rapid innovation of new products and services has to be larger scale and more broadly aware than smaller self formed but introverted cellular collaboration groupings to thrive.

Drucker's 'Management by Objectives' -  participative goal setting, choosing the course of actions and decision making - works well for larger scale collaboration and is arguably more valid today than it was when he wrote about it in 1954.

Editorial standards