Soon after I published a biography of my mentor Marvin Bower, the architect of McKinsey & Company, the phone rang at my home on a Friday night. “Hello.” The caller paused and then added, “This is Peter Drucker.” It took me a moment to grasp who it was on the other end of the phone, with his Viennese accent that sounded like my father’s. I walked out of the kitchen, away from my family, to clear my head and be alone with this strangely familiar voice.
Peter Drucker? The man credited with inventing the discipline of management? The man who wrote 39 books which have been translated into countless languages? The man who single-handedly counseled the chairmen of GM and Ford, who advised the president of the World Bank and the CEO of GE, who reportedly told Margaret Thatcher to privatize the entire British mining industry? The man who had a formative influence on every company Jim Collins and Jerry Porras profiled in their book, Built to Last—legendary organizations like Hewlett Packard, Johnson & Johnson, Merck, and Motorola?1
In what I soon learned was Peter’s usual no-nonsense way, he complimented me on my recent Marvin Bower book and asked if I might be interested in interviewing him. Drucker jokingly raised the idea of my writing a book about him, a book looking at how he had created the modern concept of management.
I was tempted, not to mention flattered, but commitments ricocheted through my head: In the next few weeks, I had to fly to Brussels for a global meeting at Avon Products, ride in a Starbucks delivery truck through downtown Manhattan at dawn observing the stores from a logistical perspective, and meet with senior pharmaceutical executives in New Jersey to discuss a new packaging format that could help patients remember to complete prescriptions. But this was Peter Drucker, and he was 94. It might be the last book he worked on. I told him I needed to think about it.
At the time, several ideas were coalescing in my mind about how management can best step up to the scary and exhilarating challenges of the twenty-first century. As a consultant, I work with clients in businesses ranging from chocolates to athletic gear, from diesel engines to computer chips. Much of what I do professionally is based on Drucker’s take-home pointers about focusing on results and how to be effective. I am also the mother of two teenagers, and even in that realm his books offer good advice. My kids shrug their shoulders whenever I trot out my favorite expression, which comes right from Drucker: “Don’t confuse motion with progress.”
I have been working with managers in a dozen industries for over 25 years and have recently seen their struggles intensify as the traditions of the business world are being upended. Changing customers, changing technology, and changing ways of doing and even defining business are jolting these companies to the core—and often challenging their very survival.
When I started as a consultant at McKinsey & Company in the late 1970s, I worked with midwestern companies whose survival was being challenged by Japanese competitors with their lower-cost cars, televisions, and machine tools. By the mid-1980s, my clients were consumer goods companies that were struggling to meet the demanding requirements of an enterprise that my friends in New York had barely heard of—an Arkansas company by the name of Wal-Mart.
In the late 1980s, I started my own consulting firm and worked primarily with leveraged buyout companies (LBOs) that had paid too much for acquisitions and needed to drastically improve the economics of the companies in their portfolios. It was here I learned the expression, “The sins of omission are greater than the sins of commission.” At my firm, we continually tried ideas to test their viability rather than be paralyzed by fear of failure. As I later learned, this was very much a Drucker thing to do. In the early 1990s, almost overnight my client list became crowded with electronics companies and medical equipment companies. They were losing out to Asian and other competitors that churned out cheaper and cheaper knockoffs.
Throughout all those years we didn’t know how lucky we were. We could look inside a company, study the customers, and reinvent the business. We could often simply research other industries and top-flight companies to get ideas. For example, with Sealy Mattress, an overpriced LBO, we could pull $50 million out of cost and guarantee next-day delivery to retailers, fundamentally changing the retailers’ need for inventory. With Motorola, we could connect with police stations and work with UPS to repair police mobile radios and return them within 24 hours.
But then the world got a lot more complicated. I began advising one company after another that it had to completely rethink its style and its core practices or else it would become uncompetitive and destroy tremendous shareholder value. There were no natural solutions or approaches to follow. Management had to take risks. Huge risks. Doing nothing was an even bigger risk.
At the time of Drucker’s call, I was working with three clients, and all three needed a dose of Drucker. The first, a New England university hospital, was struggling with the decision to install a wireless network that would enable interns to swap patients’ medical records on their laptop computers, speeding up the bureaucratic process and eliminating paper shuffling. The system had another benefit: It would qualify the university for more Medicare and Medicaid payments. But it contradicted everything hospital administrators held sacred about centralized information and patients’ rights to privacy. Like many hospitals, this one was so bent on doing things the old way that it was heading toward bankruptcy.
My second client, a paper company mired in long-standing traditions, had taken a bold step by acquiring a dozen independent packaging companies. The companies served many diverse industries, from media to health care, and were based in many far-flung nations, including Brazil, the United States, Russia, and Europe. Senior managers wanted to seize the opportunity to help their clients use new packaging designs to grab customers’ attention, but they used a painstakingly deliberate engineering approach to making decisions. The company had been through a slew of management consultants, from McKinsey to the Boston Consulting Group to Deloitte & Touche, and even management guru Ram Charan, a University of Michigan professor. I was working with the head of the packaging group to create a design center for customers, identifying potential partners in China and India. But after three critical years, executives were no closer to uniting their various acquisitions to provide designs for clients than when they had begun.
My third client was a cosmetic company with a household name that had too many ideas and way too little discipline. At the same time, it was uniquely positioned to touch customers around the world, but, like many consumer-goods companies, it was being slowly asphyxiated by the complexity of its offerings. The sales reps were so overwhelmed that they had become more like clerks processing orders than salespeople proactively describing a product. Manufacturing facilities produced one item, then the next, and the next, unable to capture economies of scale and often discarding unused inventory. This company was an ace at customizing orders and delivering them quickly to all reaches of the globe, yet it was missing great opportunities.
And it wasn’t just my clients that were being overwhelmed. Something has gone wrong with business in the twenty-first century. Consider this: Since 2000, the management at 18 different public companies—18 companies!—has each destroyed more than $50 billion in shareholder value. That’s more than Enron did, 18 times over. Why? Because, in most cases, the CEOs, boards of directors, and other well-paid managers held on to yesterday—to doing business the way they always had—and didn’t know how to free their organizations to embrace tomorrow.
Management in the twenty-first century faces fundamental changes in the size and scope of opportunities. Businesses have historically defined “opportunity” as a chance to capture market share and rake in higher profits through greater productivity, a new and improved product or service, the acquisition of a competitor, or expansion into a new territory. But increasingly, opportunity is all about seeing, or even creating, white space—uncharted markets that can be identified only by looking hard at both the external environment and the numerous unsatisfied demands of increasingly informed customers. What is fascinating is that often the customers aren’t even conscious of what they want until someone comes up with a product and a marketing campaign that makes people say, “I need that cell phone that shows the Comedy Channel.” In a very real sense, truly innovative products and services create their own markets.
As I traveled to Brussels and bumped around the streets of New York in a Starbucks truck, I couldn’t get Drucker out of my mind. All these companies—all the CEOs, all the CFOs, all the COOs, all the Chief-You-Name-Its I was dealing with—were trying to cope with this bewildering 24/7 world of outsourcing, changing demographics, sharpened competition, and new customer requirements. They were dealing with the very challenges Drucker had anticipated for decades, before anyone truly understood what he was talking about.
As I began to reread Drucker’s writings, several things quickly became clear. No one has understood the implications of social trends and transformed them into opportunities the way Drucker has (see sidebar on page 17). No one has done a better job of helping organizations capitalize on opportunities. Despite the vast numbers of business books, no book clearly and powerfully explains the implications of the transitions that are underway and how to effectively manage in this new world. Something told me that this man, who had been the first to emphasize the human element of management, had some of the answers. I promised Peter I’d think about doing a book and would visit him on my next trip west.
Three months later I flew to Claremont, California, to see the man who had defined the field in which I’d spent a quarter-century of my life. Peter was a sagacious nonagenarian with thick glasses, an even thicker Austrian accent, an ineffective hearing aid, but a surprisingly warm smile and hearty handshake.
We went to a dimly lit Italian restaurant where everyone knew him. They knew the wine he wanted, and no one had to tell them to bring him his double espresso after lunch. He was a fastidious eater, with an insatiable appetite for discussions of art, music, and world affairs. We talked about Vienna and Claremont College, where he was still advising the dean on the management of the Drucker business school. We discussed Trollope, the great English novelist. He talked about Doris, his wife for almost 70 years.
He helped me think through how to move the university hospital management beyond its traditional mindset. Peter was fascinated by the way information technology was changing everything about medicine, from costs to privacy concerns. He spent some time discussing the extent of technology’s impact on health care, and he proudly discussed his nephew’s scanning and diagnostics business.
Peter suggested that I focus on how much revenue the university hospital was losing by doing things the old way. Were there, he asked me, instances where patient health was jeopardized by doing things the old way? What was important to hospital administrators, and how could we help them understand the need to adopt the alternative ways of operating that we were suggesting? Drucker also happened to have information from two California hospitals facing the same quandary as the university hospital.
As we made our way back to my rental car, I watched Peter take large strides with his walker, his frailty dwarfed by his determination. And I thought: this is going to be fun. In that first visit, Peter was very clear about his aims. He didn’t want me to write a traditional biography, nor did he want an authorized biography so he could dictate what would be included. “Do not hide things,” he insisted. “Do not be biased. This is your book. I want to see it. I am happy to discuss the ideas with you. This is your interpretation.”
In interpreting Peter, I stayed focused on today. This is a crazy time. Opportunities are significant and often more difficult to identify than they were in the past, the time frame for capitalizing on them is much shorter than it ever was, and the cost of mistakes is much greater. Nobody knew how to capitalize on the past and make way for the future like Peter Drucker. His writings are all about business as an innovative agent of change; he provided solid, practical advice on how to succeed with start-ups as well as with established companies. Should a business stick to what it knows best, or should it take a risk and make a foray into a different area? More than seven decades as an observer and adviser to businesses gave Drucker a unique perspective on finding a healthy balance between preservation and change. The amazing thing is that this man, who was born in pre-World War I Vienna, had the vision to come up with theories that are still revolutionizing management in the age of the Internet, changing demographics, and the knowledge worker (a term Peter coined).
I began testing Drucker’s ideas with my clients. For example, Starbucks was pushing a paper-goods distributor to find a way to distribute cups and napkins to urban stores with limited storage space and little time for receiving packages daily, in order to save money. Rather than simply minimize cost, we asked a Drucker question: What would be of greatest value to the customer? Using Peter’s question, we came up with some very different answers. The solution was to make everything easy for the Starbucks store so managers and associates could focus on their customers—providing everything from automatic replenishment to cup dispensers with presleeved cups. And, for some rural stores, the answer was to use the same distribution channel for both the cups and the coffee.
My colleagues couldn’t believe I had the good fortune to make Drucker my personal mentor. Michael Hammer, a classmate of mine from MIT’s Sloan School of Management and author of an insightful business book, Reengineering the Corporation, said that Drucker was one of his heroes: “It is with some trepidation that I open his early books, because I am afraid that I will discover that he has anticipated my latest ideas by a matter of several decades. It is all there.” Michael reminded me of what I was coming to know firsthand: that Drucker is the original outside-the-box thinker.
So, three months after we first met, I told Peter that he was right not to want a conventional biography as the “father of modern management.” I didn’t want to write about his favorite childhood board games or his testy relationship with his autocratic father. I wanted to use Drucker’s life and ideas to help companies navigate the treacherous waters of the twenty-first century. I wanted to distill his ideas into a practical book about how to help organizations thrive as their traditional ways of doing business are overturned. It seemed like the best way to honor someone who has guided scores, if not hundreds, of careers in corporations and nonprofits. Peter immediately agreed. He said, “We need a new theory of management. The assumptions built into business today are not accurate.” And with that, this book and an unlikely partnership began.
Peter Drucker taught me more than I learned in MIT’s doctoral program in operations research. We talked while driving around in rental cars. We talked in his den, surrounded by his collection of simple Japanese paintings with his pool glistening beyond glass doors. We talked as we sat in the Drucker archives at Claremont University. We talked on the phone late at night but never before 12 noon California time—I don’t think he liked mornings. Whenever I sent him a fax, I would receive a scribbled response the next morning.
His wife Doris was very protective. She rebuked me for bringing him doughnuts one day; that was the end of that ritual. I had to limit my visits to two hours. Invariably, at the end of those two hours Doris would come over to where we were sitting; she carefully watched Peter’s time and energy. Peter would say, “Just a couple more minutes.” I would want to listen to Peter for those couple more minutes but knew that if I didn’t start packing up my tape recorder, it would upset Doris. It went on like this for 16 magical months. After Peter died in November 2005, I continued to touch base with Doris, who was a repository for even more of his great stories culled from a whirlwind life of changing the world of business.
During that time, I read and reread Drucker. There were plenty of moments when my head was spinning. I interviewed and visited more than 50 of his clients and students, and a dozen of his academic colleagues, as well as senior executives who had never met Drucker but who were influenced by his work. While interviewing former students and clients, I noticed a pattern. Virtually everyone I interviewed said, at some time in the interview, one version or another of essentially the same thing: “Peter liberated me. He elevated my expectations.” I never really understood the power of liberation until I started hearing stories about it from so many people.
Peter’s ideas were the catalyst that freed people to pursue opportunities they had never expected to have. He liberated people by asking them questions and eliciting a vision that just felt right. He liberated people by getting them to challenge their own assumptions. He liberated people by raising their awareness of, and their faith in, things they knew intuitively. He liberated people by forcing them to think. He liberated people by talking to them. He liberated people by getting them to ask the right questions.
When I played this theme back to Warren Bennis, a longtime friend of Peter’s and one of today’s leading thinkers on organizational effectiveness, he responded, “Yes, I had never thought of it that way, but Peter Drucker does liberate.” Warren sat back in his living room chair and smiled. When I checked it with Richard Cavanagh, president of the Conference Board, he smiled and said, “Yes, I’ve seen him do that a lot. I’ve even seen him liberate whole audiences as he spoke.”
A particularly poignant moment came when I was interviewing Tony Bonaparte, special assistant to the president at St. John’s University in New York. With tears in his eyes, he looked at me and told me how Drucker had changed his career and his life. Bonaparte had always wanted to teach at a community college. He had a chance to attend the Executive MBA program at NYU. There he met Drucker, who was a professor and teaching an evening class. Drucker took an interest in him, and Peter and Doris started taking him out to dinner every few weeks. Drucker would ask questions and implore Bonaparte to push, push, push—to liberate himself. “He made sure I always was stretching just a little further, liberating me from my constraints,” Bonaparte remembered. “Each time I went back, my expectations of myself were higher. He would not let me do anything but succeed. And if it weren’t for him I wouldn’t be where I am today. He looks at things as they are with a very realistic sense of how they could be and helped me do the same. It changed my life.”
Drucker worked with great leaders for over 75 years and liberated them, too. Churchill went so far as to say that the amazing thing about Peter F. Drucker was his ability to start our minds along a stimulating line of thought. Mexican President Vicente Fox commented that Peter’s insights on societies were second to none. Peter F. Drucker so increased the credibility of the concept of “management” that the U.S. Bureau of the Budget was renamed the Office of Management and Budget in 1970. And, of course, Drucker liberated and inspired great corporate leaders, among them Akio Morita, founder of Sony; Andy Grove, one of the founders of Intel; Bill Gates of Microsoft; and Jack Welch, former chairman and chief executive of General Electric.
As I began to write about Peter’s ideas and share my own perspectives on them, he opened up. I would pick one topic from my list of Drucker ideas and discuss with him how it applied to the challenges of this century. He generally liked me to send him my questions in advance of my visit. I would write down his responses and study them, reread something he wrote, call a client or two, and test the thinking.
For example, when we were discussing the knowledge worker, Peter said, “Today the corporation needs them more than they need the corporation. That balance has shifted.” I called my friend Alan Kantrow, head of the knowledge effort at Monitor, the Boston-based consulting firm. Without missing a beat, Alan said, “We are constantly asking ourselves—what are we providing to the knowledge worker to keep him or her here, rather than go off and be an independent contractor. We believe it is the opportunities they get and the people they have a chance to work with that keeps them here. It is not the money.” I then called David Thurm, VP & CIO of the New York Times. In this era of job-hopping executives, David is as much of a company lifer as I know. I asked him why he worked for the Times, rather than as an independent contractor. He replied, “I’m proud to be associated with such a great institution.”
Drucker had told me that there is no such thing as unquestioning loyalty: An organization has to earn the loyalty of its employees every day. David agreed and said that the Times was still earning it. I called three other high-level executives and asked them what keeps them at their corporations. They said they stayed on because of job security. I guess asking this Druckerian question prodded them to think. Since then, two have left their corporations.
While I continued consulting with companies large and small, I kept on thinking about how management could navigate this difficult new landscape and what lessons from Drucker’s 70 years of observations could help them. I questioned executives whom I admired, added my own ideas, and shared the results with Peter as we discussed the book.
On a warm August day in 2004, during an intense conversation about what makes a good leader, Peter looked at me and said, “The most important thing anybody in a leadership position can do is ask what needs to be done. And make sure that what needs to be done is understood.” At the time, the newspapers were full of headlines about once-thriving businesses that were faltering badly and about scandals at Tyco, Enron, Adelphi, and WorldCom. He continued, “You ask me why do so many people in leadership fail. There are two reasons. One is that they go by what they want, rather than what needs to be done. And the second is the enormous amount of time and effort to make oneself understood—to communicate.” I asked how leaders can be certain they know what needs to be done. He emphasized two things: asking and listening.
Drucker was known for his Socratic style—asking questions and asking the right ones. I once asked Dan Lufkin, a founder of Donaldson, Lufkin & Jenrette, to describe working with Drucker back when the firm was starting in the 1960s. First, he said, Drucker made sure everyone was focused on the questions that needed to be asked. “I can’t tell you how important he was to the development of the firm. He forced three young and ambitious guys doing well to step back and think, and on occasion make decisions.”
I have used Drucker’s most insightful questions to structure every chapter in this book. As Peter often said, the right questions don’t change as often as the answers do. As you read, think how you might answer the key questions in each chapter if you were asked them by your CEO or your customer.
The book also reflects Drucker’s passion for making organizations and management work well in the present and to create tomorrow. The importance of and need for great management are reflected in virtually all his writings. Peter’s passion was the direct outgrowth of having witnessed Europe’s economic free fall in 1930. The failures and collapse that he wrote about in the 1930s were, to his mind, directly connected to poor business and government management. He was convinced that the lack of a viable economic engine in Europe is what brought Hitler to power.
The rise of Fascism and Communism only confirmed Drucker’s view of the critical need for vibrant businesses in any society. Without economic opportunity, he wrote in 1933, “The European masses realized for the first time that existence in this society is governed not by what is rational and sensible, but by blind, irrational, and demonic forces.” He then went on to say that the lack of an economic engine isolates individuals and they become destructive.2
Drucker’s understanding of the fragility and interdependency of our economic systems and the enormous human cost of failure is even more relevant in our global economy. And, as Drucker emphasized, we all must step up to the responsibility to manage our way to an optimal tomorrow. “Human values, capabilities, and tenacity comprise the engine that keeps the world going. In short, we are all charged with influencing and managing the changes that will define our future.”
Peter and I saw this as a book for a wide assortment of people: A CEO leading an organization, a recent recipient of an MBA or a graduate of an executive education program who wants to think about the challenges and possible solutions that academics don’t dwell on, a midlevel manager worried about declining sales, a vice president who is dealing with dilemmas of outsourcing, a CFO who is keeping a wary eye on competition from a company in another country, probably another continent. These people have some common traits: They want the best for their businesses. They are leery of short-term profit making at the expense of long-term growth. And they want their careers to make a mark.
The book begins—as Peter and I agreed it should—looking outside. Chapter 1 describes the revolutionary changes that have created the business environment of the twenty-first century and the challenges of this new world.
The remaining chapters reflect a logic Peter used often. I call it his vehicle for creating tomorrow and charting a course for the future.
The windshield is what enables you to see where you’re going (with the help of mirrors that reflect where you’ve been). The first step in creating tomorrow is to build a picture that reflects your understanding of the environment. I call it Peter’s Marauder’s Map; it keeps changing and being updated. As things, situations, and people move, the map reflects those changes. Chapter 1 covers this part of the vehicle; it outlines the role of management and strategy in this new business world, where strategy is more important than ownership.
Vehicle for Creating Tomorrow and Charting a Course for the Future
Chapter 2 deals with the customer—the steering wheel on the vehicle. A close connection with the customer helps the enterprise look at the world from the outside in—from the external world, where customer needs develop and business results are achieved, inside to the organization, which must mobilize to identify and meet the needs and to achieve the results.
Chapters 3 through 5 deal with the fundamentals needed on the journey—the wheels on the vehicle, if you will: Innovation and abandonment, collaboration, people, and knowledge. Chapter 6 addresses the decision mechanisms, discipline, and values that connect the fundamentals—the chassis of the vehicle.
The last chapter of the book is about the role of the CEO. It is a chapter that recognizes that each of us is his or her own CEO, as Drucker liked to say. We can, and must, be passionate about creating our tomorrow.
Peter Drucker’s insights, as incisive as ever, have much to offer the twenty-first century organization seeking to liberate itself in our fast-moving, borderless world—to create tomorrow. That is what this book is about. As you read it, I hope some of the Drucker magic rubs off, helping you to free yourself of constraints, to think creatively, and to act. I think that is the legacy he would want.
Drucker’s declarations have withstood the test of time. He objected to being characterized as a visionary or a seer. Yet he painted uncannily accurate pictures of the future thanks to his ability to anticipate the consequence of things that had already happened. Consider a few examples from among many:
• In 1927, while attending the Editorial Conference of the Central European Economic and Social Weekly, when asked what he feared the most, Peter Drucker responded, “I am afraid of Hitler.” Others laughed at him, because Hitler had just suffered a resounding defeat.
• In 1942, Drucker wrote that institutions (not nations, states, or other geographically defined entities) were the most important communities and that market stakeholders would become as critical as nation stakeholders.3 (Today, market stakeholders may have even superseded nation stakeholders. Of the hundred largest economic entities in the world, as measured by GDP and revenue, 44 are countries and 56 are companies.4)
• In 1947, Drucker wrote, “Management is leadership.”5 For the past 15 years, no single topic has received more attention in the management world than leadership. Frances Hesselbein is a frequent speaker in her role as chairperson of the Board of Governors of the Leader to Leader Institute. “I always include a quote from Peter Drucker,” she notes. “Inevitably, that is the high point of my speech. When I leave, it is the Drucker quote that people remember.”6
• In 1954, Peter told his publisher, “Management needs strategy.” His publisher responded that “strategy” was a term for war, not business—and it would repel readers. By 1975, the topic of strategy dominated the top management writings in journals and books.7
• In 1985, Peter told Walter Wriston, chairman of Citigroup, that the Berlin Wall would fall. Wriston said that he would have dismissed the prediction if it came from anyone but Peter Drucker. In 1989, when the Berlin Wall came down, Drucker smiled and said, “I didn’t know it would happen so soon.”8
• In a conversation in 1986, Drucker said that the Soviet Union would collapse. Henry Kissinger responded, “You are wrong.” When Gorbachev delivered the speech dissolving the Soviet Union in 1991, Drucker was once more prescient when he warned, “Now we have to be concerned about their resources and economics.”9
• In 1990, when most of business was still figuring out the implications of that Berlin Wall crumbling, Drucker wrote that communities of companies would be critical to business survival in the transnational world.10 We are now clearly, and sometimes painfully, in a globally networked world.
• In 1992, Drucker wrote, there is no longer a “Western” history or a “Western” civilization. There is only world history and world civilization.11
• In 1999, Drucker commented on the Internet boom, “It is not the access to information that is important. It is how organizations, business, and every horizon will change as a consequence that will matter.”12
