It is a harsh winter this year, one that presents us with opportunity unprecedented in recent memory.

In the agrarian age, harsh winters broke the ground and enabled farmers to shift crops, enrich the soil, and change the routine; it killed the mold and mosquitoes.  Even today, winters are about reflection and rebalancing.  The harsh winter of 2009 can be an opportunity for us to rebalance and realign ourselves and our priorities, to prepare ourselves to thrive in a world that has changed and will not be the same again.

The financial and credit crisis was inevitable. Its magnitude was not.  I’m in the camp that believes a significant part of the problem was the confident over-reliance on a complex mathematical model and the consequent suspension of good business judgment. Senior Finance managers thought that they did not need to fully understand what was actually in their portfolios because they had a single magic number, the Value at Risk (VaR), which “measured” the overall risk to the bank and was supported by global regulators.  The VaR measures the risk over short durations, assuming normal markets; 99% of the time it is a measure of the downside for the next 24 hours.  Developed in the 1990s at J.P. Morgan, the VaR quickly became the industry standard metric for risk. The history is well described in the Sunday New York Times of January 4, 2009) But as Taleb writes in The Black Swan, the greatest risks are never the ones you can measure, they are the ones outside the range of normal probability.  It is worth noting that in December 2007, the executives at Goldman noticed that for 10 days in a row, their mortgage business lost more money than the VaR would have suggested; management judgment took over and they reduced their exposure.  And as we know, many other institutions missed the warnings.


This is just one example of how we had gradually been lured—with affluence, with technology—into a world where insight and judgment seem to have evaporated; we got smarter and smarter about less and less.  As home-owners we did not know to whom we were paying our mortgages (most of us still don’t).  And the financial institutions betting on us did not know who was at the other end of their bet.  As executives, we were paid and incented to focus on the current quarter, almost to the exclusion of the ongoing business and market environment. The 2009 strategy for a company in South Carolina, which was presented to their board,  did not even mention competition or long-term positioning.  The excuse – “The board is primarily interested in quarterly results.”


When such crises occur, leaders are jolted out of complacency, and societies are willing to try new things.  New opportunity arises, and societies can take radical turns, for better or worse.  Peter Drucker maintained, for example, that it was the Great Depression and the resulting economic dislocation that facilitated Hitler’s rise to power.  Naomi Klein writes about this phenomenon globally in her book The Shock Doctrine.  She argues that taking advantage of those moments of crisis and shock in countries and communities was at the heart of Milton Friedman’s philosophy.  For example, after Katrina and the flooding in New Orleans, Friedman began writing about the need to throw out, not fix, the public school system.  His prescription of vouchers was followed.  Friedman believed that without the shock, vouchers never would have happened in New Orleans.


Despite the tremendous dislocations it has caused, the current crisis came at the right moment..  The basic model for economic entities—from sovereign governments to private enterprises, and everything in between—is changing. So much has changed in the past two decades, and we need this winter of discontent to reflect, to set our priorities straight and move forward through what will understandably be a challenging year.


What Is Different:  Our Interconnectedness And Access 

On Sunday evening in Rio de Janeiro, it is the middle of the night in Johannesburg, and, in both places, people are sitting on their computers trading stocks on diamonds, discussing the U.S. automotive crisis, and moving equity; these actions will affect financial markets tomorrow morning in London, Shanghai, and New York.  The global flow of information, money, and ideas has made national and cultural boundaries so permeable as to threaten their very existence at every level:

Enterprise.  More than simply communication, instant information has made possible a Lego world in which entities (businesses, not-for-profits, government, and academia) can join together to apply their different strengths to a business opportunity or social objective and decouple when it’s time to move on.  So, manufacturers enter logistical partnerships with retailers, competitors team up to build a powerhouse approach to a single account, and Pro Mujer (a Latin American microfinance operation) works with Microsoft to provide PC training to its borrowers.


Commerce.  Perhaps no business has changed as radically as retail.  With my Google phone, I scan the UPC code of a camera I am looking at in Best Buy.  In 20 seconds my phone identifies a store about 3 miles away where I can buy the same camera for $40 less and a website that offers it for $47 less.


In all of our daily lives.  Electronic payment modes now enable us to breeze past a tollbooth and to pay for almost anything with a quick swipe of a card.  The results of this electronic streamlining are not necessarily to our liking.  In Chicago, video cams mounted in key intersections record every car that runs a red light and electronically generate and mail citations; last year hundreds of thousands of unsuspecting motorists received $100 tickets in the mail!


New impacts of our increased interconnectedness crop up every day, some of them surprising in nature.  For example, truthfulness and integrity are increasingly seen as essential not for reasons of rectitude but because in this era of instant information, duplicity is difficult to conceal, and covering up a lie is so much work that, as McKinsey’s Marvin Bower used to say, telling the truth is the easy thing as well as the right thing to do.  Trust is equivalent to time in the new world.


We have access to and can learn from the best solutions found anyplace in the world.  We have broken generational poverty for millions of people around the world, with micro loans in Bangladesh, expanding businesses in India, a charter school in Harlem, and so on.  We also have a new leader in the U.S. who seems not only open-minded but anxious to change the way we work.  It is a great moment in our history.


How This Affects Our Lives: Motivating And Enabling A New Modes Of Collaboration

As we face the current economic crisis, we have unprecedented access to knowledge and information of every possible variety, and an increasing worldwide awareness of the global nature of our society, problems, and resources.  We are part of a bigger globe and can collectively do something about it.


From the Lego world to the science lab to the telecommuting knowledge worker, our global interconnectedness enables unprecedented collaboration—e.g.,  healthcare, energy and resource management.  New forms of collaboration are fundamentally changing scientific and medical research, which has long been not only solitary but highly competitive, with findings closely guarded to protect the discovery credit.  Increasingly, however, research is moving beyond this competitive mindset into new realms of collaboration, with powerful results.  For example, in 2003 the Allen Institute for Brain Science began to map an atlas of gene expressions in the mouse brain, which it completed in just 3 years and posted on the internet, making the atlas available to anybody for free.  It took a while for people to trust the information, but it is now being used to research Alzheimer’s disease, bipolar disorders, Down syndrome, and Parkinson’s disease, among others.  The institute’s efforts to post brain and spinal cord atlases have democratized the scientific landscape; more people are entering the conversations, and the result is a massive saving in research time.  New incentive models are being tested.  Open collaboration and data-sharing will speed up the process of understanding many of the diseases being investigated and devising treatments.  And the Allen Institute is not an isolated instance.  The power of collaboration is nothing short of mind-boggling.


T.J. Rodgers, CEO of Cypress Semiconductor Corp., recently unveiled Envirosystems, a smart thermostat application, and commented, “We need 10,000 other ideas like this to collaboratively solve the energy crisis,” adding that semiconductor technologies are now, more than ever, enabling new power-wise products, portable medical devices, battery-management devices for electric cars, solar panels, etc.


Our Opportunity And Challenge:  Fostering collaboration worldwide and contributing to it

We have the access and interconnectedness required, but we still need to learn to be collaborative– not only to reap the best of collective thought and action but to be the most economically efficient in a financially-constrained world.  It is a mindset, not a philosophy.  For example, at P&G they assume that every problem has been solved already and seek to find who has solved it rather than try to solve it themselves.


At this point, many of us are independent members of collaborative teams trapped inside corporations still very focused on getting a bigger piece of the pie than anyone else, or inside departments vying for a larger slice of the corporate budget.  Competition is a healthy social force and an intrinsic human instinct, but we can’t afford to let it eclipse collaboration.  We need to change our mindset and rebalance our incentives so that collaboration can happen at every level—individuals, businesses and not-for-profits, and whole nations and cultures.  We need to tap everyone’s ability—to focus on results with a broader view of what we are trying to accomplish and an honest appraisal of the ongoing impacts of our actions.  Where to start?


For the individual:  To step up to the challenge of collaboration, think of yourself as your own enterprise.  Understand your strengths.  Invest in yourself.  Elevate your expectations of yourself and help others do the same.  Find something you care about and then find out where and how you can join a collaboration of like-minded people.  Do not hold back, thinking you need to come to the table knowing all the answers. Do not be afraid of being creative, of experimenting.  One of my favorite role models in this regard is Sue Lehmann, who is passionate about educating all youth.  She is collaborating with many like-minded institutions—New Visions, TeachforAmerica, YouthNoise, Harlem Children’s Zone.  She continually brings in other collaborators, elevates the thinking, and contributes in a thousand ways.  Or, as Malcom Gladwell might say, she is a maven, a connector, and a salesman for something she is passionate about.


For the enterprise:  The challenge is to build a for-profit or a not-for-profit enterprise that works, to be a force for innovation, satisfaction, and progress.  Shift your mindset and identity from being a product and/or service provider to serving as a marketplace that attracts ideas and people to create a mass that matters.  Rebalance your mission to emphasize the non-financial, to refocus your people on what they’re accomplishing rather than what they’re getting.  Be more open to new ideas, new resources, and new ways than you’ve ever been.  Old habits are being repudiated, and it’s a great time to push new ideas.  The Grameen Bank’s work with Groupe Danone is a great example of collaboration.  As Frank Riboud, Chairman and CEO of Groupe Danone, explained to Muhammad Yunus, “We don’t want to sell our products only to the well-off people in developing countries.  We would like to find ways to help feed the poor.”  They are now collaborating on a journey toward that goal.  In the new world we inhabit, the most open enterprises will be the most attractive and the most fun.  We’ve all had our hats handed to us this past year, and leaders need to figure out ways for everybody to win.


For governments:  Collaboration happens within your communities as well as globally.  For example, the Yeong Deung-po ward was given a creativity award in Korea for developing a solution that enabled the community to manage construction sites collaboratively after a department store collapsed.  The government had a history of being lackadaisical on public construction with tight budgets.  The solution relied on remote cameras, rotating 360 degrees, to survey every construction site, with graphs and quality management to follow progress.  Experts and the public have access to the cameras, and many third parties add useful comments.  The community is able to watch the construction and feel certain that quality and safety standards are being met.  Construction is faster, with higher standards and zero tolerance for faults.  Delegations are coming over from Japan, Sweden, and Australia to benchmark the solution.


Despite decades of calls for greater international cooperation, we have barely tapped into the potential for collaboration among countries  As Peter Drucker said to me in 2005, the biggest challenge for the United States in the years to come will be learning to be a player of influence, not the big gorilla.  One highly productive way for us to do so is to be the force that brings the world together to address the challenges we face as a species and a planet.  The world is open to dream, to embrace challenge.  We will create our future collaboratively.


P.S.  My New Year’s Resolution:  Post at least one blog a month. Collaboration will continue to be the focus of my blog in 2009 – next month I hope to bring you some concrete examples at the individual, enterprise, and government levels that marry collaboration and economic efficiency.

Elizabeth Edersheim
Notes from January’s Blog
Some of the feedback and examples of 21st century collaboration, I have learned about are included in the following:

Neocollect — Contributed by John SallayDescription: 

  • A new website for collectors of fine and decorative arts, antiques, and other high-value collectibles.
  • The password-controlled gate was just pulled down, so the public can now view collections.

Benchmark Characteristics:

  • Lets collectors display their items – it is almost like contributing to a museum.
  • Creates a community of collectors and facilitates shared collections and expertise.
  • Easy to use.

Website: www.neocollect.com


First International Robiotics Corporation — Contributed by Stephen N. Oesterle, M.D., SVP , Medtronic


  • Established to inspire kids to learn robotics, engineering, CAD, and business.
  • Envisioned by NASA, MIT, and inventor Dean Kamen (inventor of the Segway, among other things).

Benchmark Characteristics:

  • A great example of public/private collaboration.
  • 3 years ago there were 2 teams, and this year over 1,400 high schools from around the world participated.
  • Competitors

    Medtronic and Boston Scientific co-sponsor events.

Website: www.usfirst.com


Negotiating the Tokyo Round of Multinational Trade Negotiations — Contributed by Al McDonald, Chairman & CEO Avenir


  • Was quite a contrast with regular non-collaborative negotiations.
  • In 1978, the trade negotiations were quite a contrast with historic negotiations.  The economy was stressed and, rather than protect interests, countries collaborated for the whole.  It was a remarkable meeting and resulting collaboration. Some sense of what went on at that meeting is reflected on the Japanese website.

Website: www.mofa.go.jp/policy/other/bluebook/1978/1978-3-2.htm.com


The new buzzword in management is sustainability.

Sustainability is vital to the 60-year-old founder of a company that has grown to $200 million whose board members are continually asking her, “What would happen if you were hit by a bus?”  It is equally important to the principal of a Bronx school for gifted children who is continually raising money and worried about losing a major donor.  Likewise, it is important to the Newsday reporter who is experiencing the third ownership change in 8 months.  Sustainability is a company’s ability to adapt and thrive over time.  It is a new, sometimes painful reality in a world that has been for far too long over-focused on quarterly numbers.

The average life of a corporation on the Fortune 500 list is just 4 years.  Only slightly more than 50 percent of CEOs last more than 3 years.  Less than half of the CFOs stay in their jobs for 3 years.  The lifespan of players, companies, and even industry sectors has changed in the linked world.  And, according to a recent McKinsey survey, the American public has less faith in management today than at any time in the last 50 years. Less faith than post-Watergate.

The linked world transmits errors and successes instantaneously and makes cost structures much more transparent.  The time period from when an industry is born of an innovative market idea until the landscape becomes one of cost-competitive commoditization with multiple players chasing a once “proprietary” market has shrunk, by a factor of 10, according to the Gartner Group.

Sustainability is a big challenge that cuts across all types of enterprises – not-for-profits, businesses, and governments.  The enterprises that appear set to sustain themselves seem to share three characteristics, which are in and of themselves challenging: (1) being disciplined and innovative; (2) targeting results that both contribute socially and run with sound financial underpinnings; and (3) focusing on long-term and short-term financial results simultaneously.

This blog will discuss the first of these three challenging characteristics.  Let’s start with two stories.

Corning Inc. has always been an innovative organization with a history of successful investment in new technologies that take advantage of the company’s deep knowledge of glass, glass ceramics, and inorganic materials.  For example, it developed a process for producing colored and unbreakable railroad signal lenses that made railroad crossings safe.  In the 1970s, it invented the core of the catalytic converter, the basis for most automotive pollution control systems.  More recently, Corning pioneered the development of optical fiber capable of effective transmission of digitized data.

Despite its history of transformative innovations, between 2000 and 2002 Corning began to fail because of a lack of discipline, as well as over-investment in the telecommunications industry.  Management fought to recover by bringing in discipline and “protecting” innovation.

The senior team’s focus has been on creating discipline that nurtures innovation around keystone components.  The discipline includes a new strategy and strategic planning process focused on innovation and made real by a willingness to invest huge amounts of money to take advantage of an opportunity.  The process routinely taps into knowledge and experience of outsiders (academics, industry experts, advisers, consultants).  In other words, the company no longer relies on occasional feedback from customers for inspiration.  There is also a disciplined tracking process that facilitates course-correction when new ideas are missing targets.  Corning management has taken this mindset beyond planning.  It modified the company’s reward system to encourage risk taking.

There is a new training program for project leaders that focuses on simultaneous discipline and intuition.  At a recent session, Wendell Weeks, the chairman, commented that, “information transparency lets the leaders make more mistakes, because they can correct faster and hence be more innovative.” He continued, “You can’t really know how something works until you know why it doesn’t work.  And I expect you to learn how a lot of things don’t work.” The group meets for a week every quarter to collaborate on being innovative and disciplined.

The second story is about how Muhammad Yunus, the Nobel Peace Prize winner and the founder of the Grameen Bank in Bangladesh, pioneered micro credit, a program that provides poor people with small loans to launch a business.  He tried to get traditional banks to lend to the poor.  He found that, “the idea of lending to such people flew in the face of every rule the bankers lived by.”

“Conventional” bankers’ discipline and risk-aversion would not let them try it.  Muhammad intuitively knew this was an opportunity – knocking down institutional barriers that treat the poor as nonentities, but doing so with discipline.  In 1983, he began building the Grameen Bank to have the discipline and innovation to be self-sustaining.  Over time, what began as simply banking expanded to include training, exporting, and the provision of Internet, energy, and health care services.  The system never collapsed.  In 2006 and 2007, the bank paid $20 million in dividends to its owners, in this case the borrowers, while showing a strong sustainability profile.

We have all seen other enterprises struggle with this balance over the last few years.  For example, at Bear Stearns, Ace Greenberg was both intuitive and disciplined.  His handpicked successor, Jim Cane, ran a well-disciplined organization but appeared to lose the intuitive touch with the market.  In 2008, the Fed and JP Morgan had to step in and rescue a failing enterprise.  Steve Jobs was fired when discipline was required at Apple only to be replaced by John Scully who brought in discipline without innovation.  That failed.  Apple had time to adjust, and Steve Jobs returned as a more disciplined, seasoned executive.  These are but a few examples of today’s reality – namely, sustainability of the enterprise needs both discipline and innovation.

Greg Brown, the new CEO of Motorola, is constantly reminded that neither of his two predecessors lasted 5 years – and, like Brown, every executive needs to build sustainability into his/her thinking and decisions.  Sustainability is continually building tomorrow while solidly managing today. It is using discipline as a system of freedom and responsibility within a framework of innovation, intuition, and judgment.

The next blog will focus on the second characteristic shared by enterprises that are well positioned for sustainability – namely, targeting results that both contribute socially and run with sound financial underpinnings.

Elizabeth Edersheim

You as a leader

Brendan Calder, chairman of Coventree Inc and Adjunct Professor of Strategic Management at the Rotman School of Management,  recently invited me to talk to a group of 26 students at the Rotman School.  The topic was: Is Peter F. Drucker relevant?

In answering that question, I chose to create a dialogue around sections of a letter Peter wrote in 1974.  By the end of my talk, virtually everyone in the room said, “yes.  Peter F. Drucker is relevant to me today.

Let me share with you the excerpts drawn from Peter’s 1974 letter. First, a bit of background. Peter was asked if he thought Robert McNamara would make a good president of the World Bank. Robert McNamara had been one of the wiz kids serving in the combat analysis group during WWII, went on to become President of The Ford Motor Company, and then Secretary of Defense for President Kennedy. As you read Peter’s excerpts on his sense of McNamara’s personal and leadership strengths and weaknesses,  think about yourself as a leader, how you might score on the characteristics discussed, and the reasons for your score.

Peter wrote:

“To me, the greatest strength of McNamara as a person is that he inspired admiration.”

But Peter continued:

“… his greatest weakness is that he did not inspire trust.”

Do you inspire admiration from your colleagues and others in and beyond your organization?   Do you inspire trust? Why or why not?

Peter F. Drucker wrote:

“The greatest strength of McNamara as an administrator was his ability and willingness to pick the very strongest people as members of his team. McNamara’s greatest weakness as an administrator was that he had not the faintest idea how to make use of the strengths of his team, or even how to make a team out of them.”

Do you pick truly strong people to join your team, even when their strengths may exceed your own? Do you encourage and fully leverage team work? Do you and your team members help make one another and hence, the collective team stronger (i.e., leverage each other’s strengths while making each other’s weaknesses irrelevant)?

Peter continued:

“McNamara’s greatest strength as a manager was his realization of the need to think through strategy. His greatest weakness was that he always got caught up then in the minor points and the strategy became secondary to the way in which this or that specific “urgency” of the moment was being done.

McNamara lost one objective after the other by dictating how something should be done instead of saying ‘this is what we are going to do, you work out how to get there.”

Do you value strategy? Can you communicate strategy effectively and in an engaging manner to your organization and other stakeholders?  Are you able to stay true to your strategic objectives versus the flavor of the month?  Are you an effective delegator, leaving the job of translating strategy into action and tactical to others?   Do you track your results against strategic objectives?

Peter went on to say:

“McNamara’s great strength as a leader was his realization that he had a role to play.  His great, and I think ultimately self-destructive weakness was that he confused leadership with morality. Anyone who did not agree was an “enemy”, and clearly had to be damaged, destroyed, or at least humiliated – and McNamara’s willingness to humiliate people was, and is, I think, his one great character weakness and a very serious one.

He never learned to use disagreement as a source of understanding and conflict as a management tool. And this is the reason why, in the last result, I believe, he was a failure as Secretary of Defense, just as I think he is a failure now as head of the World Bank.”

Can you easily and clearly articulate your role as a leader in your organization? Do you view your role as meaningful to and well-understood by your organization and other stakeholders?  Are you a good listener?  Do you encourage or discourage dissenting views and do you view conflict situations as an opportunity to learn?  When was the last time that you publicly dressed someone down?

Fundamental to much of this letter is what I consider to be Peter F. Drucker’s most valuable contribution to management thinking – namely that the critical role of a leader is to ask the right questions, make sure the organization understands why the questions are important and what the honest answers are, respect people and manage for results.  The letter Peter F. Drucker wrote in 1974 is relevant to every leader today.


The editorial in the Times

I just read an editorial in the Times, “The Geography of Hate.” The editorial explained that the increase in Noose incidents since the Jena La event, were the result of a new social reality – “a renewed march toward racial and social justice, but a surprisingly broad and deep white backlash against the gains of black America.” The article also documented the level of crimes in the United States as more than 190,000 incidents per year.

After reading Drucker, it is clear that there is another explanation for the rising hate crimes noted. In Peter Drucker’s first book, The End of The Economic Man (1937), he linked an increase in hate activity to a decline in economic opportunity and a concomitant diminished respect for the individual. Extreme income inequality during the Weimar Republic, Drucker argued, fueled Hitler’s rise to power. Elsewhere he noted the increase in hate crimes in America during the Great Depression. For Drucker, economic stability and opportunity were always requirements for sustaining a democracy.

Could the spike in hate crimes be linked to the record pessimism Americans feeling about the economy? Has the polarization of incomes over the last 10 years led Americans to question the viability of their opportunities? Drucker felt this polarization was dangerous to the fabric of our society, and a responsibility of corporate executives. Let’s hope both for more sensible corporate leadership and federal policies, so that Americans in all economic strata can regain optimism.


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



Cecilia Regueira – Instituto Hartmann Regueira

Cecilia Regueira – Instituto Hartmann Regueira

The Drucker Institute recently hosted a global symposium. A number of leaders at the symposium noted the way their own relationships with Drucker influence their business decisions and strategies. Really, they were talking about so much more – an organization’s need to educate and care, and its people’s need to learn and commit.

I thought I would share one of those stories with you in this blog.

Cecilia Regueira – Instituto  Hartmann Regueira

A family therapist, Cecilia lived for over 20 years in Weston, Connecticut.  In 1990, she and her husband decided to return to Brazil, where she had been born. Cecilia was not licensed to practice in Brazil. When she arrived, she was invited by the secretary of education to help deal with the pervasive problem of violence in the schools.

The homeless and hopeless children she saw shocked her.  She learned that in Rio de Janeiro alone 50 children drop out of school every week and join the streets. That is more than the number of Americans who die in Iraq every week. In effect, that is a death sentence because many do not survive. She decided that she needed to somehow volunteer and reach these kids in the streets rather than spend her time in schools from which many of them already had fled.

On visits to the streets, however, she quickly realized that she’d chosen an inefficient and even dangerous way to solve the problem.  Over the next 15 years Cecilia built an organization, with a staff of 25, to reach out to kids on the edge. She convinced a telephone company to donate a mobile unit to each of these kids so that she can send them messages. If she knows there is a job at a shoe factory and she knows that a child is interested, she messages that she has set up an appointment.  On certain days, she lets kids know that there is a free movie.

As Cecilia was building this organization, she needed to convince people that transforming people brought results.   She realized that she had no management skills, so she went back to school and read Drucker over and over again. Cecilia is convinced that understanding Drucker helped her put fire in the belly of everyone in her organization and make the whole work.  As she told me repeatedly, “We need values, we need accountability – we need a different kind of work.”

Her organization is seen as a pioneer in Brazil – an NGO with explicit management practices partnering with the government.  Now she is looking to help transform her own society.   As such, she has set up an organization to strengthen the third structure and train other NGOs in the Drucker philosophy.  Her tools include Drucker’s seven modules for self assessment:

  • Commitments and accountability,
  • Financial management,
  • Network and partnerships,
  • Monitoring and evaluation,
  • Human capital,
  • General management, and Governance.

Cecilia holds workshops with the NGOs 12 times a year. She then visits the NGOs to help them apply all the learning in the seven modules, and  her organization monitors the impact on the NGO – in 2 years, 3 years, and then in 5 years. (See www. institutohr.org.br). In short, Cecilia is just starting.

*                                            *                                            *

One of the action steps from the global symposium is the creation of a website for a global conversation around social responsibility. This site is targeted for launch in early September. If you would like to be alerted when the site is running, please register here.


Drucker vs. GM: Management Science vs. Management Practice

Peter Drucker, the father of management, and Alfred Sloan, the inventor of the modern corporation, had a 25-year running disagreement. We can resolve that disagreement today.

Sloan was the visionary behind General Motors, who believed that management was a science. He saw General Motors’ success as a result of the company’s ability to optimize its distinctive economies of scale, manage the flow of money and investments, and provide an expansive dealer network that encouraged trade-ins while selling new cars.

Peter Drucker, meanwhile, always believed that management was a practice, like medicine or law. The practitioner’s job was to continually challenge the theory and bounds to redefine the “what,” not the “how”. Peter Drucker believed that General Motors’ success was due to its management practices, in particular its people-centric ethos.

At the time of Sloan’s death, in 1964, it wasn’t clear who was right. By the time of Drucker’s death, in late 2005, we had come to see that in business and not incidentally in public policy and politics – practice trumps science. Or as Drucker wrote, the “what” supersedes the “how”. The most powerful management skill in the 21st century is the ability to step back and rapidly assess and modify “what” your enterprise is doing.

By failing to reassess its “what,” GM is just a sickly shadow of the robust corporation that Sloan built and that thrived for 70 years. In the post-Sloan period, GM continued to adapt strategy to his “science,” without the support of Sloan’s innate people and management skills.

The “what” of General Motors is not just a car. The “what” Sloan defined was built on customers from different income levels being loyal to different GM brands, and the prestige of a new car. GM built itself around servicing this market – from factories to dealers. Their market share in the US exceeded 55 percent through 1960. Today it is less than half of that. In 1980, GM was still the most sought after company to work for by college engineers, according to MIT’s placement office. Today it is not even in the top 10.

What happened? Customer’s values changed to reflect major shifts in society, taste, and culture. Americans adopted convenience, safety, fuel efficiency, and commuting comfort. Rather than listening and connecting with these customers, GM invested in quicker patches, solutions built from their old way of doing business, while the company continued to lose marketshare.

Meanwhile, Toyota quietly used the Peter Drucker approach, continuously redefining their approach to “what.” That includes being part of the local community. Who would have foreseen a Japanese auto running in NASCAR? Toyota entered last year. Also last year, Toyota passed GM last year as the number one automobile company in the world; it’s expected to become number one in the US market this year.

Why is getting the “what” right so critical today? In the global information age, managers are inundated with a nonstop flow of real-time information. This information flow brings about change at a breakneck speed unlike anything businesses have experienced before. To move deftly amid so much change, a company needs to keep questioning. What does the customer considers value? How can that value be enhanced? The company must challenge the “what.” Opportunities come from redefining “what” the company should be doing.

The best companies are doing just that. Google’s breakthrough didn’t come from the science of the algorithms, but from the fundamental concept that users wanted a search engine – the “what.&rdquo Management quickly stepped back and asked, given this access to millions of searchers across the world, what other value can be provided? Google’s “what” continues to change both in terms of additional services, and accessing the network of connections.

It is time for Google to challenge the “what” and ask what would make its search function more user-friendly? One that doesn’t provide 10,000 access points, but rather logically helps pinpoint the best one or two sources through a series of menus. Google’s agility at keeping ahead of the competition at re-inventing the business will be the ultimate test of whether it becomes just another General Motors.

Many companies have failed to challenge the “what” of their business, by shying away from asking their customers about what they value. In our conversations, Peter Drucker indicated that this failure is probably the single greatest cause of corporate death. It is what killed Polaroid. It is what killed Wang Laboratories who in the early 1980’s had cornered the market for word processing and completely missed the PC boat. It is what almost killed AT&T. This week, Circuit City announced that the “what” of its business has changed. It is no longer competing with other retailers. Its competition is Apple, Dell and HP. It’s too early to tell if Circuit City can reconfigure and survive.

We are seeing all sorts of companies challenge their “what.” Nintendo challenge the definition of “what” a game is when they introduced WII. Cognizant changed their “what” from a small in-house technology facility for Dun & Bradstreet to one of the most successful global outsourcing companies. When Jeffrey Immelt announced that GE would focus on alternative energies, he changed the “what” of a corporate giant. Rubert Murdoch is challenging the definition of a news company. In our conversations, Peter Drucker suggested that Sony needed to get out of the film business. He indicated that the company’s strength comes from the delivery mechanisms and consumer interface, not from making thrillers and sitcoms.

From the 1940s into the 21st century, Peter Drucker advised management to consistently seek the answers to these forward-looking questions:

1. What is different in the world around us and what of my business still fits with realities?

2. What are our opportunities and what boundaries should we be challenging to create/leverage those opportunities?

3 What results should we expect in 6 months?

4. What competencies do we need to act on these opportunities? Are we building and properly investing in these competencies?

Failure to do so is not a sustainable alternative.


2 thoughts on “Drucker vs. GM: Management Science vs. Management Practice

  1. I like your summary and new applications of Peter Drucker’s work. In our little town, volunteers have formed the Josephy Center for Arts and Culture (Joseph,OR). It is less than a year old and has one paid executive. It is having growing pains over roles and boundaries. I’m writing a general management guide around a not-for-profit workshop I started giving more than 30 years ago. After all that time, I am trying to locate my original sources, I have adapted 7 Key Effectiveness Areas from Drucker’s writings that, I think, came out of his consultation with General Motors or General Electric. I have been searching the Internet for that specific title out of his prolific writings, without success. Can anyone remind me where I found those 7 areas listed?

    • Peter has 7 areas in his book on Innovation. The book he wrote at General Motors is called The Concept of the Corporation.

Drucker in the 21st Century

When I mention Peter Drucker, I get two very different responses – often from the same person.

First, comes respect. Drucker, of course, was the management guru of the 20th century. And then comes the doubt: “What makes Drucker relevant today?”

In a 21st century business environment where constraints of time and distance are gone and change comes as fast as the blink of an eye, Drucker’s “take” is absolutely essential to managers.

1. His ideas are practical observations about what works in management. They aren’t theoretical. They are as important in the 21st century as they were in the last. For example, “Management is about human beings.” That very much is at the center of much of Google’s success. It is really the ultimate Druckerian company because they follow his playbook.

2. His ideas force us to think. Drucker challenges his readers, clients, and students to act today for tomorrow. He asks us to abandon outdated assumptions. Doug Ducey, chairman of Cold Stone creamery, commented that until he had read Drucker, the chain was going to be 70 stores. After studying Drucker, he could dream of the 2,000 plus they are today. Or, on the other side, consider the plight of Detroit’s auto companies and you’ll know why this is relevant.

3. His approach lets managers see what is visible and often not seen. He helps us create context so that patterns and changes are more readily identifiable. He believed that the most important measure of a company is its ability to anticipate and invest in tomorrow’s opportunities. For example, by looking at unexpected results – both successes and failures – one often finds opportunities. The ability to use his tools and take a fair amount of uncertainty out of the future by proactively creating tomorrow is of enduring relevance. Seeing shifts in demographics helped the Marriot chain diversify from the standard motel. As Tony Bonaparte said to me, “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.”

4. He holds management accountable – accountable for human fulfillment. No wonder, then, that Drucker puts such great emphasis on the character of managers and on the immense responsibilities they bear and of a healthy society. Management success is measured by results that sustain the whole organization in a manner that values employees, customers, collaborators, and larger society. Wal*Mart still has the opportunity to do the right thing as opposed to its current PR campaign justifying the low wages and benefits as necessary to deliver the lowest cost goods to their customers. Other retailers – The Container Store, Wegmans Food Market, and Whole Foods, were selected as 3 of the best places to work this year.

Drucker believes, that the human freedom most genuinely cherished – fulfillment – depends to a great extent on organizations. They provide the main stage for achievement of personal freedom and a healthy society.

I’d like to hear your stories.

© ElizabethEdersheim