Words from Peter Drucker still valid after all these years

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What Would Drucker Do Now?

By Rick Wartzman

(McGraw-Hill, 273 pages, $29.95)

When Toyota Motor Corp. hit production troubles that started to undercut its brand, Peter Drucker had advice for the company. When Steve Jobs stepped down as CEO of Apple, Mr. Drucker again had wise words. And after the U.S. housing boom led to financial collapse, Mr. Drucker's words were sage.

Mr. Drucker, known as the father of modern management, died in 2005 at the age of 95, before all those events. But his wisdom lives on in a timely manner through Rick Wartzman, executive director of the Claremont, Calif.-based Drucker Institute.

Mr. Wartzman writes an online column for Bloomberg Businessweek in which he tackles modern issues by bringing to bear words from the prolific Mr. Drucker's 39 books and many influential articles dating back to the 1930s. Those columns have now been compiled into a book, What Would Drucker Do Now?

Mr. Wartzman says the so-called Toyota Way might have more aptly been called the Drucker Way, since Toyota embraced many of the principles he laid out in the 1940s and 1950s. These included moving away from a command-and-control structure and having workers take responsibility for the quality of what they produce. But as Toyota became hell-bent on making its name as the top-selling car company in the world, its leaders missed some other messages from Mr. Drucker.

In a 1973 book, he noted that growth at a high rate and for an extended period is "anything but healthy," making the company "exceedingly vulnerable," and all but impossible to manage properly. He added: "The idea that growth is by itself a goal is altogether a delusion. There is no virtue in a company getting bigger. The right goal is to become better. Growth, to be sound, should be the result of doing the right things. By itself, growth is vanity and little else."

One of Mr. Drucker's earliest books, in 1946, Concept of the Corporation, was about the auto company Toyota was trying to supplant as No. 1, General Motors. Although the book was thought by many outside the company to lionize GM and its leader, Alfred Sloan, the CEO reportedly wouldn't let anyone mention it in his presence. That was because the outsider dared to suggest that GM might want to review some of its core policies and strategies, especially those that had been in place for 20 years or more.

"It was not so much my specific suggestions for change that upset the GM executives, but my suggesting that policies must be considered as temporary and subject to obsolescence. To the GM executives, policies were 'principles' and were valid forever, or at least for very long periods," Mr. Drucker once noted. In the 1990s, he took another look at GM, and caustically observed that the reasons for its "inability to pull itself out of the mire are largely the problems … pointed out 50 years ago."

As for the bailout GM received from the U.S. and Canadian governments a few years ago, Mr. Drucker would have advised against it. "Protecting aging industries does not work. That is the clear lesson of 70 years of farm subsidies," he wrote in Managing the Next Society.

Mr. Drucker summed up the success of the late Mr. Jobs when he wrote: "Markets are not created by God, nature or economic force, but by executives." Customers may not realize they want something, or the want (like food in famine) may dominate the person's life, but in each situation it remains "a potential want until the action of businessmen converted it into effective demand. Only then is there a customer and a market." As for Apple's future post-Jobs, it will depend on whether he followed Mr. Drucker's advice: "At its inception, a company is often the lengthened shadow of one man. But it will not grow and survive unless the one-man top is converted into a team."

With regard to the tumult on Wall Street, Mr. Drucker once observed: "The average duration of a soap bubble is known – it's about 26 seconds. Then the surface tension becomes too great and it begins to burst. For speculative crazes, it's about 18 months." He also warned that high profits don't necessarily mean you're producing anything of genuine value, which proved true of the high-flying financiers and their low-flying derivatives. "Securities analysts believe that companies make money," he said. "Companies make shoes."

He also was an unsparing critic of the gargantuan pay packages of top CEOs, preferring remuneration be kept to 20 times, or at most 25 times, the average employee's wage. He believed that out-of-sight remuneration was "encouragement to loot the corporation" and that few top executives can even imagine the hatred and fury their pay causes. He noted that the impact was less on the folks on the plant floor, who are "convinced that their bosses are crooks anyway," but rather in the disillusionment caused to middle management.

Thanks to Mr. Wartzman, Mr. Drucker's words live on, and are getting new life, through this engaging, easy-to-read book.

POSTSCRIPT

In What Would Drucker Do Now? Rick Wartzman shares the little-known story of how Peter Drucker ended up advising Peter Bavasi, president of the Cleveland Indians, after the disastrous 1985 season in which the team lost 102 games.

Mr. Bavasi eagerly drew up a 450-page strategic plan, based on Mr. Drucker's philosophy of management by objectives. But he was warned to temper the plan, to make the objectives more qualitative and less quantitative as he moved from areas such as ticket sales to the ball club itself, because demanding an exact number of wins would create too much pressure on everybody.

Mr. Bavasi also followed Mr. Drucker's advice to bring in a Spanish-speaking coach who could relate better to his young Latino players, and to have one avuncular coach the players could lean on, and another one who would kick butt. In the following year, the squad won 84 games, compared with 60 in the previous year, and attendance soared from 655,000 to 1.5 million.

Special to The Globe and Mail