Full disclosure: I am a Drucker fan. This is an early work, written mostly for a mature business, with several products. Of course there is a lot more in the book than what I cover here. Go and read it. Some of the wisdom he has to dispense:
Results are obtained by exploiting opportunities, not by solving problems. Resources, to produce results, must be allocated to opportunities, rather than to problems. Effectiveness rather than efficiency is essential in business.
He believes in the Pareto principle: most of the work is a waste, and 20% of it lead to 80% of the results.
Concentration is the key to economic results. Economic results require that staff efforts be concentrated on the few activities that are capable of producing significant business results. The crux of a program of action is the allocation of resources, and especially the staffing decisions.
No matter how well ordered a business, there is always a great deal more to be done then there are resources available to do it. The opportunities are always more plentiful than the means to realize them. There have to be priority decisions, or nothing will get done. Priority decisions bespeak the level of a management's vision and seriousness. They decide basic behavior and strategy. Nobody seems to have much difficulty in setting priorities. What people find difficult is to decide on "posteriorities"; that is, on what should not be done.
All proposals for new ventures, capital investment, or new products and services (...) should be presented together rather than piecemeal. (...) Only in this way is it possible to find out whether these proposals seek the best utilization of the company's resources. A proposal for any new venture must spell out what resources, especially what human resources, will be needed and where they are to come from. A proposal for a major new effort therefore should always spell out what old effort will be abandoned. Ask yourself: "If this product, activity or unit were not here today, would we start it?" If the answer is "No," then the question should be asked: "Should we continue, and why?"
I can tell you from working in a company where these tough decisions on priorities were never really taken: he is dead on. If you do not do it, you end up with all kinds of irrelevant, mismanaged, understaffed, hapless pet projects, and nothing of big impact seems to come out of it.
How to decide where to put your resources? Only the customer defines value. Quality is what he gets out of a product, not what the company puts in, or what is hard or technologically challenging to make -- that is just vanity and incompetence. You have to guess right what the customer wants, and put your efforts there.
So all you need is find out, what the customer will want, right? Which are the products you should focus on? Drucker comes up with categories similar to the ones later made popular by the Boston Consulting Group matrix of cash cow, star, dog, question mark: Some products make large revenue contributions, they are "today's breadwinners", but are mature without much hope for growth and they will eventually die off -- so maintain them, but with less effort than the revenue would indicate and average people. What you save you put into bets for new product development and for growing promising new products -- put money and your best people on it:
The one absolute rule in maximizing resources is that one never entrusts an opportunity to a non-resource, that is to mediocrity. It cannot turn that opportunity into advantage. But to every opportunity corresponds a risk; mediocrity is therefore bound to do harm if entrusted with opportunity. If a company is to obtain the needed contributions, it must reward those who make them. The spirit of a company is made, in the last analysis, by the people it chooses for senior positions.Here again, focus on the critical few most promising endeavors:
The main rule for also-rans is that they must not absorb resources at the expense of high opportunity areas. What are we afraid of, what do we see as a threat to this business -- and how can we use it as an opportunity? What everybody in business "knows" can never happen should be examined carefully. Is "what can never happen" actually a major opportunity for the company to make something happen? Is it perhaps already happening? It is more profitable to take advantage of a new trend than it is to fight it.
After all, to quote Alan Kay, the best way to predict the future is to invent it. But be careful not to become so engrossed in new, exiting markets and research, that you forget to put enough resources on last years graduates that entered the market as vulnerable young products:
Typical areas of imbalance with disproportionately large productive resources incapable of producing adequate results within the existing business are marketing and research and development.
As soon as the new products get out there, into the rough wilderness that is the market, you will know if they fly. If you are lucky and one does, it may be still small but have potential to grow into "tomorrow's breadwinner". Put even more good people on it.
Other new products turn out to be outright failures, so obviously, do not put further effort into them and kill them off. That is the most effective way of cost-cutting.
We have the today's breadwinners, failures and tomorrow's breadwinners ... we're done, right?
Well, there is one more class, a dangerous, insidious one: "investments in managerial ego". These are failures that never took off, or old products that are dying, but management refuses to accept this truth. Crazy as it sounds, I have seen it happen. How can that be? How can management blatantly ignore the feedback they get from their customers?
Part of the the trap is that you regularly hear stories where persistence paid off and someone, against all odds, believed in his vision, and in the end vanquished all naysayers. Take iPod, after so many MP3 players that failed. So if things do not work at first, how do you know if you have such a "repair case" or a failure? My take is, for each iPod, you have dozens of failures. That's not the odds you want to take. Or if you want to take them, it should be as a start-up, which has to pay for its way, or die, instead of leeching of the sap of a healthy company. You may give it one try for fixing. After that, kill it off. In the words of W.C. Fields:
If at first you don’t succeed, try, try again. Then quit. No use being a damn fool about it.
Part two of the trap is that managers have over-sized egos. To have the guts and go manage something, to make do-or-die decisions in the face of way too little information, you almost need an over-sized ego in the first place. So that does not make matters easier.
So there you have it: too often righteous managers believe that their concept is fundamentally sound and is destined to ultimate success, that customers just do not "get it" and need to be "educated", that sales people do not know how to sell it. Any evidence to the contrary just makes them dig in their heels deeper. I have heard people say "We must do now what the customer will need in five years, and doesn't understand himself yet". This may be true for some things, but it's a looong shot. Most of the time, you'll be better off just making what the customer needs now, or maybe in the coming year.
As an antidote to such behavior, Drucker recommends to write down the expectations for a project before it is undertaken, and then judge it on its performance against those. Curiosity is the name of the game, or maybe humility. In any case look out for unexpected behavior of customers. For when your expectations were wrong, there may be something going on, and you should find out, what. It may be the basis for a great business idea.
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