LET’S TALK ABOUT: Reality – Testing Your Business Theory

Peter first touched on the concept of “the theory of the business” in a 1962 article in Harper’s Magazine, and 30 years later, he spoke exclusively to the topic in a 1994 Harvard Business Review article. “The Theory of the Business” is the passion of the company. It is the fundamental assumptions of purpose and rationale – why the business exists, what the business contributes, and why it will continue to exist. In today’s world testing the veracity and living these assumptions constantly is critical. This need has been made more challenging with our rapidly altering 21st century landscape that can quickly turn assumptions into irrelevant “givens.”

“There are indeed quite a few CEOs who have successfully changed their theory of the business…But for everyone of these apparent miracle workers, there are scores of equally capable CEOs whose organizations stumble.”

Peter F Drucker
HBR Sept -Oct 1994, “The Theory of the Business”

Expert Thought

“To me, there’s a bigger idea – The purpose of a company must be understood by the people. It must be worthy of followership. I have believed for a long time that most people only give to an employer enough of themselves to not lose their job. The percentage of a mere mortal’s human capacity that is delivered to an average employer is very low. We should be shocked, absolutely shocked, by the number of people that work this way – employees, suppliers, …The concept and purpose of a business if aligned with the leadership can directly elevate the motivation of everyone who is involved. Peer group satisfaction – this is where the horsepower is. My entire concept of leadership revolves around that which will elevate and sustain motivation. Inspiration, aspiration and perspiration. This creates the emotional fuel within a company that determines its level of success.”

Richard Block, retired CEO of AGI, COACH and board member of Getting Out and Staying Out (A re-entry program for the population of Rikers Island)

How are the following kinds of business theory reality &ndash testing a routine and constant part of your work as CEO?

  1. “Preventative” testing
    1. Periodic challenging/abandonment of the status quo &ndash If you were not in it already (with “it” covering everything from end product, service, policy, distribution channel), would you do it today?
    2. Robust study of non-customer &ndash typically, they are the first group where signs of fundamental change shows up
  2. “Early diagnostic” to uncover critical warning signs
    1. Objectives have been met &ndash it’s time for new thinking
    2. Rapid growth &ndash existing business theory is likely now outgrown
    3. Unexpected successes
    4. Unexpected failures



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