The Peter F. Drucker Methodology for Leading Change - Part I
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Editor’s Note:
Truths spoken by Peter F. Drucker, noted Harvard's Ted Levitt, was God's gift to those willing to listen to his wisdom & prescriptions related to surviving and thriving regardless of social, cultural & economic circumstances.
An organization succeeds through thick and thin by operating according to simple principles and practices that can be comprehended and sustained under the pressures, push and new realities unfolding daily.
Executives who don't make the effort, who don't learn, who don't get comfortable with what needs to be learned to prepare for increasingly probable nightmare scenarios (e.g., EMP attacks on America's electric grid, galloping inflation, unprecedented civil unrest) will surely constrain their careers and hurt their companies.
To the point: Drucker's writings on leading change are without equal.
They provide executives with specific corporate renewal practices that can be constantly practiced.
This article provides you with a broad overview of Drucker's four step approach to leading change.
Part I discusses the first two steps - namely: (1) systematic abandonment of the unproductive and obsolete and; (2) continuous productivity improvement.
Part II of this article discusses the third and fourth steps: (3) exploiting seen (& unseen successes) and; (4) making successful innovation happen.
We are currently preparing four mini e-books to provide more in-depth coverage of each of Drucker's four steps of leading change.
These - for CLN members only - mini e-books will contain interviews in various formats with executives from leading companies worldwide on how they have successfully put into action Drucker's approach to leading change.
Leading Change vs. Managing Change
Said Drucker...
"One cannot manage change... one can only be ahead of it... In a period of upheavals, such as the one we are living in, change is the norm, but unless it is seen as the task of the organization to lead change, the organization - a business, a university and a hospital and so on - will not survive...
... It is therefore a central challenge, for management that its organization become a change leader. A change leader sees change as an opportunity..."
Drucker's ACE-I Methodology for Leading Change
Drucker outlined four distinct (but highly related) tasks for making effective change happen.
For those that like acronyms, we took the liberty of naming his approach/methodology ACE-I.
Drucker's four ACE-I tasks are Abandonment, Continuous productivity improvement, Exploiting successes and Innovation.
Task 1: Abandonment of the outworn, obsolete and outgrown.
Every organization has to systematically abandon the things that no longer work, never worked and the things that have outlived their usefulness and their capacity to contribute to performance and results.
The best therapy for any organization is to purge itself of marginal mediocrities. Think of it this way: shrink to grow.
Take-home Message: Systematic sloughing off of yesterday frees energies and resources.
It makes available the people and funds required for doing new things and different things (innovation)... and for exploiting already proven successes.
Said Drucker: Feed the opportunities and starve the problems." Abandonment can be likened to starving hte problems.
Building on Strength: The Starting Point For Determining What to Abandon
Every organization needs to know how it performs. The most important thing is to find out what the organization does exceedingly well so it can do more of it.
Said Drucker:
"Do not start out with what should be abandoned. Start out by thinking through what should be strengthened and built… Do not start out by trying to save money… Start out by trying to build performance…"
Equally important, every organization must identify what it does not do well so it can stop doing it, and, thereby, make room for building on/exploiting demonstrated strengths.
'Abadonment is a Solution, However, Inconvenient'
If new opportunities for growth abound, sometimes the only solution is abadonment.
Failure to abaondon is itself a failure of management - management has not seen or understood the facts/realities that face it and typically pretend they are evaluating the situation.
According to Drucker and Ted Levitt: Postponement of the abadonment decision translates into the equivalent of abandoning the abandonment decision.
Can you name one executive in your organization who refuses to abandon a long-term money loser? Worse, do they have product/market segments that are really working and should be strengthened?
The Principle of Concentration
It must be mentioned - indeed, emphasized - concentration and abandonment are opposite sides of the same coin.
When you abandon nonproductive activities/programs, you have more time to concentrate on the things that work... the things that produce results... the things that improve the organization's ability to create new customers and keep existing ones.
Task 2: Continuous Productivity Improvement. It is the job of the executive/manager to make all resources more productive in areas for which he/she is responsible for.
There are many ways to do this including:
- internal benchmarking which disseminates, in an organized way, best internal practices...
- Constant re-skilling and up-skilling to equip employees with the thinking, the knowledge and the skills required to use rapid advances in technology.
- Lean Six Sigma approaches for making the organization more effective and efficient…
- Convert from command and control organizational structures to one better suited for a talent-based organization (e.g., responsibility-based structures)
- Redesign/reengineer work processes to enable workers of all kinds to work smarter not harder… and dozens of other ways including the effective usage of groundbreaking new technologies that can increase the productivity of all assets.
Setting Annual Improvement Goals
Measurements are required to judge, or at least appraise, if improvement is occuring; measurements define what is meant by performance; measurements determine what work efforts should be spent.
Without the appropriate measurements, there is no accountability for performance; without measurements, prompt feedback on actual versus planned results is near-impossible.
A Simple Quality Management Example
To say we are going to improve manufacturing quality is a good intention. A quality improvement plan must include the specific measurements that must be improved.
These measurements include costs associated with scrap, rework, inspection, re-inspection, field service costs, warranties and the like.
Before the improvement program begins, it's a relatively simple matter to determine what these costs have been over the past few years.
The next step would be to set new targets of quality management performance.
For example, if scrap rate (i.e. total number parts scrapped/total number of parts produced) averaged 10% per year, then setting a quantifiable goal of the reducing scrap rate to 5% in one year amounts to a measurable improvement target.
Lack of Measurement: A Government Example
Many government agencies confuse statements of broad policies (which are just good intentions) with measurable targets.
Government budgets (and many internal service organizations) tell how much money they intend to spend and where.
But these budgets rarely tell what results are expected.
In other words, many government budgets are spending plans which make vague promises, but they omit mention of the specific quantifiable outcomes expected to result from government action.
In short, many politicians express manufactured enthusiasm for the importance of passing a given budget.
But, in the final analysis, without relevant measurement, chances are it will be difficult if not impossible to measure whether a given program has succeeded.
Said Drucker: "It is not possible to be effective unless one first decides what one wants to accomplish... It is not possible to manage, in other words, unless one first has quantifiable goals...
... It is not even possible to design the structure of an organization needed to mobilize for action, unless one knows what it is supposed to be doing and how to measure whether it is doing it..."
Recently, we heard a great deal about the congressional debate as to whether or not the proposed new infrastructure bill will pass and how much it will cost.
Unfortunately, we heard very little about what's int he bill and the specific outcomes expected, let alone the specific strategies and tactics that will be employed ot achieve those outcomes.
Being accountable for achievig specific quantitative measurements is hard work - especially in organizations that do not have a bottom-line.
A Drucker Example of Setting Annual Improvement Goals
According to Drucker: "Continuous improvement is considered a Japanese invention - the Japanese call it Kaizen. But in fact it was first used in the United States more than 120 years ago...
... From the first World War until the early '80s, when it was dissolved, the Bell Telephone System applied "continuous improvement" to every one of its activities and processes, whether it was installing a telephone in a home or manufacturing switch gear...
...For every one of these activities, Bell defined results, performance, quality and cost...
... And for everyone, it set an annual improvement goal. Bell managers weren't rewarded for reaching these goals, but those who did not reach them were out of the running and rarely given a second chance."
Every year Bell compared the performarnce of an operation or a division with the performance of all others, with the best becoming the standard to be met by all the following year.
What was the Basis of the Comparisons?
Bell pioneered the use of measurement as a way of spreading best practices.
In other words, Bell used a scorecard of relevant measurements to identify top-performing units and, then, studied the work processes used to obtain superior results - and, if necessary, created short courses to teach under-performing units what the successful were doing to get results.
Now organizations of all kinds and sizes routinely benchmark themselves... and compare the performance (through measurement) of different divisions to ensure that the wors performers learn from the best.
Knowledge gained in one part of the company is increasingly being used to gain productivity improvements in another.
The Productivity of Capital
According to Drucker, when Jack Welsh took command of General Electric back in the 70s, GE and Westinghouse were close rivals.
Welsh set out to systematically improve the productivity of all its assets including products & services, production processes, technologies, people and above all the productivity of capital (which can be defined as the sum total of all relevant productivities).
The productivity of capital sounds sophisticated. But it's not. Think of it this way. If you invest in a stock, you look at the return of your invested capital.
If the return is inadequate or if you can get a higher return by selling your stock and investing it elsewhere, you are attempting to increase the productivity of your capital.
Jack Welsh's Implementation of Drucker's Consulting Advice
In relatively short order, GE through a rigorous continuous productivity improvement process, managed to greatly improve its productivity of capital.
Indeed, GE managed to get about twice as much work out of a dollar as Westinghouse did – and catapulted GE into a leadership position far ahead of Westinghouse.
What makes one company stand out or lead in any one industry, is that it (typically) operates at about twice the average productivity of its industry.
This assertion has been empirically tested. Organizations with the highest productivity in an industry, are usually the market leader and significantly more profitable than competitors.
Drucker's key point: "GE did not owe its eventual leadership position to just technological advancement. But rather to organized, continuous productivity improvement."
Continuous Productivity Improvement Activities Require Setting Annual/Measurable Goals
Said Drucker: When improving systematically and continuously products and services, processes, marketing, technology, training & development of people, using analytics to achieve a competitive advantage, an annual improvement rate in defined performance, quality of output, and cost... a three to five percent improvement rate is realistic and achievable...
... Continuous improvements (that are measurable) in any area eventually transforms the operation... they lead to product innovation... they lead to service innovation... they lead to new process... they lead to new businesses..."
More From Drucker...
..."To fulfill {successful continuous productivity improvement goals two things must happen}...
... The first is to double the productivity of money in the business - the productivity of capital - within eight to 10 years, at an annual rate of productivity increase of about 7 1/2%...
... The second is to aim at being able to produce 50% more within the next eight to 10 years without increasing the number of people employed, this means raising the productivity of people at an annual rate of four to five%...
Simply put, Drucker observed, competent efforts spent on continuous improvements in multiple areas lead to fundamental change.
An Interesting Side Note About the Productivity of Capital Involving Karl Marx
Karl Marx was credited by Drucker with being the first economist to recognize the disastrous impact on an economy when corporate capital ceases to be productive.
Marx predicted inevitable demise for the capitalist system because he (mistakenly) assumed that capitalism was incapable of continuously improving the productivity of its resources.
Simple stated, Marx believed that the only way to increase productivity of resources was to work longer and harder.
He did not foresee the development of Frederick W. Taylor's "work smarter" methodology for increasing worker productivity to unprecedented levels.
Nor did he foresee Drucker's incredible body of works that made management into a professional discipline that could be taught, learned and practiced; a discipline that enabled better allocation of resources to results, continuous and purposeful innovation and the rise of internal and external entrepreneurship.
Nor did Marx account for what might be termed the technological revolution which continuously produces ways to produce quantum leaps in organizational and individual productivity.
Stated differently, Karl Marx provided a useful frame of reference for analyzing the welath producing vitality of a corporation.
But he did not understand or know of these happenings (most occured after his passing).
The point? Today the majority of organizations know how to avoide the disease of economic anemia and corporate stagnation; today's successful managers recognize that no company survive if the productivity of its capital goes down.
Related Reading: X Marks the Spot Part II
In Conclusion
Abandonment and continuous productivity improvement are the first steps in equipping executives with the thought process to allocate resources to where they should or must be making bets.
In summary, abandoning ongoing efforts to make room for exploiting successes and for doing new and different things (innovation) is a must do requirement managing under today's extreme conditions of uncertainty.
Continuous productivity improvement of all assets requires real work.
It doesn't get done with rhetoric, wishfulness, or shortcuts. It requires discipline and "know how." Most importantly, it requires determining what to measure and how to measure it.
To think through the appropriate measurements define what is meant by performance.
With the right measurements in place, continuous productivity improvements\ produce fundamental change.
Properly viewed, continuous productivity improvement endows existing assets with new wealth-producing capacity.
