Understanding What the Customer Buys

What does the customer consider value?

The final question needed in order to come to grips with business purpose and business mission is: “What is value to the customer?” It may be the most important question. Yet it is the one least often asked. One reason is that managers are quite sure that they know the answer. Value is what they, in their business, define as quality. But this is almost always the wrong definition. The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.

Defining Business Purpose and Mission: The Customer

Who is the customer?

Who is the customer?” is the first and the crucial question in defining business purpose and business mission. It is not an easy, let alone an obvious question. How it is being answered determines, in large measure, how the business defines itself. The consumer—that is, the ultimate user of a product or a service—is always a customer.

Most businesses have at least two customers. Both have to buy if there is to be a sale. The manufacturers of branded consumer goods always have two customers at the very least: the housewife and the grocer. It does not do much good to have the housewife eager to buy if the grocer does not stock the brand. Conversely, it does not do much good to have the grocer display merchandise advantageously and give it shelf space if the housewife does not buy. To satisfy only one of these customers without satisfying the other means that there is no performance.

Action point: Take one product or service that you are responsible for and determine how many kinds of customers you have for it. Then figure out if you are satisfying all of your different kinds of customers, or if you are ignoring some category(ies) of customers.

Management: Tasks, Responsibilities, Practices

Peter Drucker

Defining Business Purpose and Mission

What is our business?

Nothing may seem simpler or more obvious than to know what a company’s business is. A steel mill makes steel; a railroad runs trains to carry freight and passengers; an insurance company underwrites fire risks; a bank lends money. Actually, “What is our business?” is almost always a difficult question and the right answer is usually anything but obvious.

Balance Continuity and Change

Precisely because change is a constant, the foundations have to be extra strong.

The more an institution is organized to be a change leader, the more it will need to establish continuity internally and externally, the more it will need to balance rapid change and continuity.

Reinvent Yourself

Knowledge people must take responsibility for their own development and placement.

In today’s society and organizations, people work increasingly with knowledge, rather than with skill. Knowledge and skill differ in a fundamental characteristic—skills change very, very slowly. Knowledge, however,changes itself. It makes itself obsolete, and very rapidly. A knowledge worker becomes obsolescent [nerver use] if he or she does not go back to school every three or four years.

This not only means that the equipment of learning, of knowledge, of skill, of experience that one acquires early is not sufficient for our present life time and working time. People change over such a long time span. They become different persons with different needs, different abilities, different perspectives, and, therefore, with a need to “reinvent themselves.” I quite intentionally use a stronger word than “revitalize.” If you talk of fifty years of working life—and this, I think, is going to be increasingly the norm—you have to reinvent yourself. You have to make something different out of yourself, rather than just find a new supply of energy.

Action point: Ask those ahead of you in age how they went about “repotting themselves.” What steps should you take now?

Drucker on Asia

Peter Drucker

Feedback: Key to Continuous Learning

To know one’s strengths, to know how to improve them, and to know what one cannot do—are the keys to continuous learning.

Whenever a Jesuit priest or a Calvinist pastor does anything of significance (for instance, making a key decision), he is expected to write down what results he anticipates. Nine months later, he then feeds back from the actual results to these anticipations. This very soon shows him what he did well and what his strengths are. It also shows him what he has to learn and what habits he has to change. Finally it shows him what he is not gifted for and cannot do well. I have followed this method myself, now for fifty years. It brings out what one’s strengths are—and this is the most important thing an individual can know about himself or herself. It brings out where improvement is needed and what kind of improvement is needed. Finally, it brings out what an individual cannot do and therefore should not even try to do. To know one’s strengths, to know how to improve them, and to know what one cannot do—they are the keys to continuous learning.

Action point: List your strengths and the steps you are taking to improve them. Who knows you well enough to help identify your strengths?

Drucker on Asia

Peter Drucker

The Managerial Attitude

The demands for a “managerial attitude” on the part of even the lowliest worker is an innovation.

No part of the productive resources of industry operates at a lower efficiency than the human resources. The few enterprises that have been able to tap this unused reservoir of human ability and attitude have achieved spectacular increases in productivity and output. In the better use of human resources lies the major opportunity for increasing productivity in the great majority of enterprises—so that the management of people should be the first and foremost concern of operating managements, rather than the management of things and techniques, on which attention has

been focused so far.

Are You Involved in Every Decision at Your Company?

By JOSH PATRICK

Does every problem still come across your desk? Are you spending too much time in the weeds and not enough thinking about the big picture? Are you feeling burned out? For many business owners I know, the answers to these questions are a resounding “yes.”

One of the best ways I know to create value in a business is for the owner to become operationally irrelevant. That doesn’t mean leaving the business. It means changing your relationship to your business. Instead of being involved in every decision, you build a team and find a way to trust your senior employees to take care of their individual areas of responsibility.

Management: The Central Social Function

Noneconomic institutions need a yardstick that does for them what profitability does for business.

Nonbusiness institutions flock in increasing numbers to business management to learn from it how to manage themselves. The hospital,the armed service, the Catholic diocese, the civil service—all want to go to school for business management.

The Function of Management Is to Produce Results

Above all management is responsible for producing results.

Management has to give direction to the institution it manages. It has to think through the institution’s mission, has to set its objectives, and has to organize resources for the results the institution has to contribute. Management is, indeed, J. B. Say’s “entrepreneur” and responsible for directing vision and resources toward greatest results and contributions.

The Spirit of an Organization

It’s the abilities, not the disabilities, that count.

Two sayings sum up the “spirit of an organization.” One is the inscription on Andrew Carnegie’s tombstone:

Here lies a man

Who knew how to enlist

In his service

Better men than himself

The other is the slogan of the drive to find jobs for the physically handicapped: “It’s the abilities, not the disabilities, that count.” A good example was President Franklin D. Roosevelt’s confidential adviser in World War II, Harry Hopkins. A dying, almost a dead man for whom every step was torment, he could work only a few hours every other day or so. This forced him to cut out everything but truly vital matters. He did not lose effectiveness thereby; on the contrary, he became as Churchill called him once, “Lord Heart of the Matter” and accomplished more than anyone else in wartime Washington. Roosevelt broke every rule in the book to enable the dying Harry Hopkins to make his unique contribution.

Action point: Figure out what each of your employees’ or colleagues’ strengths are and develop these strengths to help people perform better.

The Practice of Management

The Effective Executive

Peter Drucker

inscription: ~write

tombstone: feathering

handicapped: disable

confidential adviser: secret adviser

Practice Comes First

Decision makers need to factor into their present decisions the “future that has already happened.”

Decision makers—in government, in the universities, in business, in the labor unions, in churches—need to factor into their present decisions the future that has already happened. For this they need to know what events have already occurred that do not fit into their present-day assumptions, and thereby create new realities.

Intellectuals and scholars tend to believe that ideas come first, which then lead to new political, social, economic, psychological realities. This does happen, but it is the exception. As a rule, theory does not precede practice. Its role is to structure and codify already proven practice. Its role is to convert the isolated and “atypical” from exception to “rule” and “system,” and therefore into something that can be learned and taught and, above all, into something that can be generally applied.

Action point: Are the premises that you base your decisions on obsolete? Do you need a new intellectual framework to win in the market, as it exists today?

The New Realities

Peter Drucker

codify: make rules

premise: factor

The New Corporation’s Persona

In the Next Society’s corporation, top management will be the company. Everything else can be outsourced.

Increasingly, in the Next Society’s corporation, top management will, infact, be the company. This top management’s responsibilities will cover the entire organization’s direction, planning, strategy, values, and principles; its structure and relationships between its various members; its alliances, partnerships, and joint ventures; and its research, design, and innovation.

Knowledge Workers: Asset Not Cost

Management’s duty is to preserve the assets of the institution in its care.

Knowledge workers own the means of production. It is the knowledge between their ears. And it is a totally portable and enormous capital asset. Because knowledge workers own their means of production, they are mobile. Manual workers need the job much more than the job needs them. It may still not be true for all knowledge workers that the organization needs them more than they need the organization. But for most of them it is a symbiotic relationship in which the two need each other in

equal measure.

Autonomy in Knowledge Work

Knowledge work requires both autonomy and accountability.

Demanding of knowledge workers that they define their own task and its results is necessary because knowledge workers must be autonomous. As knowledge varies among different people, even in the same field, each knowledge worker carries his or her own unique set of knowledge. With this specialized, unique knowledge, each worker should know more about his or her specific area than anyone else in the organization. Indeed, knowledge workers must know more about their areas than anyone else; they are paid to be knowledgeable in their fields. What this means is that once each knowledge worker has defined his or her own task and once the work has been appropriately restructured, each worker should be expected to work out his or her own course and to take responsibility for it. Knowledge workers should be asked to think through their own work plans and then to submit them. What am I going to focus on? What results can be expected for which I should be held accountable? By what deadline? Knowledge work requires both autonomy and accountability.

Action point: Write a work plan that includes your focus, desired results, and deadline. Submit it to your boss.

Management Challenges for the 21st Century

Knowledge Worker Productivity (Corpedia Online Program)

Peter Drucker

autonomy: flexible(free) to control

accountability: responsibility, mission, duty

Management Is Indispensable

Whoever makes two blades of grass grow where only one grew before deserves better of mankind than any speculative philosopher or metaphysical system builder.

Management will remain a basic and dominant institution perhaps as long as Western civilization itself survives. For management is not only grounded in the nature of the modern industrial system and in the needs of modern business enterprise, to which an industrial system must entrust its productive resources, both human and material. Management also expresses the basic beliefs of modern Western society. It expresses the belief in the possibility of controlling man’s livelihood through the systematic organization of economic resources. It expresses the belief that economic change can be made into the most powerful engine for human betterment and social justice -- that, as Jonathan Swift first overstated it three hundred years ago, whoever makes two blades of grass grow where only one grew before deserves better of mankind than any speculative philosopher or metaphysical system builder.

Management—which is the organ of society specifically charged with making resources productive, that is, with the responsibility for organized economic advance—therefore reflects the basic spirit of the modern age. It is, in fact, indispensable, and this explains why, once begotten, it grew so fast and with so little opposition.

Action point: Come up with a few examples of why management, its competence, its integrity, and its performance, is so decisive to the free world.

The Practice of Management

Peter Drucker

survive (v): outlive

Identifying the Future

The important thing is to identify the “future that has already happened.”

Futurists always measure their batting average by counting how many things they have predicted that have come true. They never count how many important things come true that they did not predict. Everything a forecaster predicts may come to pass. Yet, he may not have seen the most meaningful of the emergent realities or, worse still, may not have paid attention to them. There is no way to avoid this irrelevancy in forecasting, for the important and distinctive are always the result of changes in values, perception, and goals, that is, in things that one can divine but not forecast.

Integrity in Leadership

The spirit of an organization is created from the top.

The proof of the sincerity and seriousness of a management is uncompromising emphasis on integrity of character. This, above all, has to be symbolized in management’s “people” decisions. For it is character through which leadership is exercised; it is character that sets the example and is imitated. Character is not something one can fool people about. The people with whom a person works, and especially subordinates, know in a few weeks whether he or she has integrity or not. They may forgive a person for a great deal: incompetence, ignorance, insecurity, or bad manners. But they will not forgive a lack of integrity in that person. Nor will they forgive higher management for choosing him.

This is particularly true of the people at the head of an enterprise. For the spirit of an organization is created from the top. If an organization is great in spirit, it is because the spirit of its top people is great. If it decays, it does so because the top rots; as the proverb has it, “Trees die from the top.” No one should ever be appointed to a senior position unless top management is willing to have his or her character serve as the model for subordinates.

Action point: Evaluate the character of the CEO and top management when considering a job offer. Align yourself with people who have integrity.

Management: Tasks, Responsibilities, Practices

Peter Drucker

source : The daily Drucker