Updated: Jul 6
In mid-June Statistics NZ announced that the country’s GDP was down 1.6 percent in the March quarter. Business owners are right to be wondering how best their business can withstand this downturn and come strongly out the other side.
At such times it can be helpful to cast back in search of advice from the great business thinkers of the late 20th century. Peter Drucker (1909 – 2005) was one such thinker and writer from this period who had plenty of insights. An excellent book for getting to the essence of Drucker’s thinking is Inside Drucker’s Brain, by Jeffrey A. Krames. This book, published in 2008 and based largely on an interview the author did with Drucker in late 2003, is a real gem and I highly recommend it. Here are five highlights that I thought were especially useful.
1. Business is all about action
Action, in Drucker’s view, is the chief determinant of business success. Action should be centred on the business objectives, which are linked to the business strategy. Drucker also helpfully notes several factors that can stifle action. These include things like the lack of a clear strategy or excessive bureaucracy.
If you get the feeling you arrive at the end of a day or a week without a clear sense that you’ve taken action toward your business’s clear objectives, perhaps now’s a good time to re-focus on those objectives. Write them out again and list the actions that need to be taken tomorrow or next week.
2. Growing a business means deciding what to abandon
This sounds rather paradoxical at first, but the idea is that a business needs to get rid of the obsolete and the unproductive. This could mean no longer offering certain products or services that have low profit margins or it could mean abandoning certain business processes that are obsolete.
Drucker’s idea is that the flipside of abandoning the unproductive and obsolete is it allows a business to focus on the productive and innovative. Is there a service or product line in your business that’s not really performing? Could you cull this altogether and sell a more innovative service or product that has the potential to be a lot more profitable?
Jeffrey Krames in Inside Drucker’s Brain cites Toyota as an early exemplar of this constant abandonment and innovation model. One of the founding ideas of Toyota, written in 1935, was that workers “should be ahead of the times, through endless creativity, inquisitiveness, and pursuit of improvement.”
85 years on this still sounds like a pretty good business mantra.
3. Micro-decisions mean a lot
There are some business decisions that Drucker refers to as “Life and Death” decisions for a business. These include decisions around hiring, firing and promoting and these in Drucker’s view should only be made by owners or executive management.
More insightful I thought were Drucker’s observations about the multitude of seemingly smaller decisions made by junior employees and how they can affect a business. For example, an employee might tweak a product which results in an innovation; or decide how rapidly or thoroughly to respond to a potential client. He notes that few people grasp the significant and irreversible impact of these micro-decisions.
It’s worth wondering, when the staff in your business are making these micro-decisions each day, are they guided by any principles or values? A sound set of business principles and values can help you and your staff make the right micro-decisions that put the business on a path to growth.
4. Leadership is a foul-weather job
Drucker believes the most important task of a leader is to anticipate crisis and be ready to innovate and renew throughout crisis. An organisation that is battle-ready, with high morale and trust amongst staff is best placed for this. Ironically though, a period of success for a business can erode this ‘battle-readiness’. In one worthy quote, Drucker states, “Success creates its own euphoria. You outrun your resources and you retire on the job.”
It’s probably fair to say that nobody truly anticipated the current crisis we’ve found ourselves in and our businesses aren’t as ‘battle-ready’ as we would have liked them to be. Nevertheless, there are things business leaders can do to help get through, such as taking responsibility for the situation, insisting on a standard of excellence, and steadily taking action after action in the right direction.
5. There is a wider purpose to business success
Born in pre-war Austria, Drucker experienced the terrifying rise of European fascism. During this period he was widely interested in politics, science, law and economics. His first book, called The End of Economic Man: A study of the New Totalitarianism, was published in 1939. Drucker drew a link between poor business and government management and the rise of destructive social forces such as fascism or communism. He observed that without economic opportunity and the ‘economic engines’ provided by well-managed businesses, individuals felt isolated and became destructive.
Though ‘saving society from destructive social forces’ is probably a bit over the top as a business objective, it’s worth bearing in mind just how vital thriving businesses are to the country. Thought of in this way, your business success is not just for your own financial reward, it has real spinoff benefits for the rest of us. So next time you’re feeling a bit flat, imagine that everyone in the country is backing you and your business success.