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December 12, 2008

The IDB Project | Chapter 4

The IDB Project is a series of posts sharing summaries, snippets, and takeaways from INSIDE DRUCKER’S BRAIN (Jeffrey Krames)


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CHAPTER FOUR
Outside-In

“The executive is within an organization. Every executive … sees the inside—the organization—as close and immediate reality. He sees the outside only through thick and distorting lenses, if at all. What goes on outside is usually not even known firsthand. It is received through an organizational filter of reports, that is, in an already predigested and highly abstract form.”Peter Drucker

Peter Drucker warned businesses about the dangers of developing an insular corporate culture. The business reality is, many executives lose perspective of what matters most and fall victim to fire-fighting inconsequential issues rather than addressing fundamental business issues that impact attracting, retaining, and growing customers.

In MANAGING FOR RESULTS (1964), Drucker outlined eight business realities managers must address to develop a customer-driven outside-in perspective.

1. Only Cost Centers Exist Within a Business
Employees do not create sales. Products do not create sales. Processes do not create sales. Only customers create sales. Every department inside a business is a cost center and not a profit center. Drucker says, “It is always somebody outside who decides whether the efforts of a business become economic results or whether they become so much waste and scrap.”

2. Solving Problems Solves Little
Jeffrey Krames summarizes Drucker’s wisdom by writing, “Solving problems can only return the organization to its prior status quo. To achieve results managers must exploit opportunities.” Constantly fire-fighting problems will never allow a company to grow. It is only by finding and taking advantage of opportunities that causes a company to grow.

3. Effectiveness is Better than Efficiency
Drucker once said, “Efficiency is doing things right; effectiveness is doing the right things.” And, Drucker also said, “Doing the right thing is more important than doing the thing right.” Enough said.

4. A Business that Fails to Lead Will Become Marginalized
Genuine market leaders, according to Drucker, must achieve their leadership results in an area that is meaningful to a customer or market. Such as, leadership in product development (think Apple), leadership in customer service (Container Store), leadership in distribution (Wal-Mart), or leadership in bringing ideas to market faster (Zara).

Achieving a leadership position is imperative for a business to stave off becoming marginalized or commoditized. Drucker argues a business “… may seem to be a leader, may supply a large share of the market, may have the full weight of momentum, history, and tradition behind it. But the marginal is incapable of survival in the long run, let alone of producing profits. It lives on borrowed time. It exists on sufferance and through the inertia of others. Sooner or later, whenever boom conditions abate, it will be squeezed out.”

5. Market Leadership is a Temporary Condition
The reality is simple: a business must not become secure in its leadership position. Customers change and markets change. Businesses that fail to adapt to the ever-evolving marketplace will lose their leadership position. Drucker says its normal for businesses “to drift from leadership to mediocrity.” Given this reality, Drucker urges executives to “reverse the normal drift” by focusing the business ”on opportunity and away from problems, to re-create leadership and counteract the trend toward mediocrity, to replace inertia and its momentum by new energy and new direction.” source

6. Decisions Age Quickly
Drucker once wrote, “Any human decision or action starts to get old the moment it has been made.” So true, and so very applicable to business. The job of a manager, then, is “not to impose yesterday’s normal on a changed today; but to change the business, its behavior, its attitudes, its expectations—as well as its products, its markets, and its distributive channels—to fit the new realities.”

7. Misallocation of Resources is Certain to Happen
Drucker contends too many employees are misallocated and required to work on “yesterday” projects and “yesterday” programs that will not result in helping a company achieve market leadership today. He claims executives, working under ”managerial vanity,” are so desperate to turnaround poor-performing products and programs that they allocate resources to solve problems rather than to find new opportunities.

To combat this misallocation reality, Drucker recommends “constant reappraisal and redirection” of resources to improve the effectiveness of a business.

8. A Business is More Effective When it is More Selective
Businesses try to accomplish far too much. They lose concentration and give in to the temptation of being all things to all people. Drucker asserts, “Economic results require that staff efforts be concentrated on the few activities that are capable of producing significant business results. Managers must minimize the amount of attention devoted to products which produce primarily costs.”


Next, Chapter Five of the The IDB Project.

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