The Classics

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As I culled through Drucker's prolific writings, a few timeless themes emerged. The primary function of business management isn't making a profit; it's making human strength productive and human weakness irrelevant. "The rhetoric of profit maximization and profit motive are not only antisocial," he writes. "They are immoral." Channel your energies into building on strength, not into remedying weaknesses. Give people freedom and responsibility within the context of well-defined objectives; "enable your people to work!" Authority must be grounded in competence, not in position or status. An organization must have built-in mechanisms for self-induced change, or else it rots. A business enterprise is not strictly a private institution; it is a social institution that must exercise social responsibility in exchange for its freedom from societal control. Yet social consciousness does not excuse poor performance or incompetence; the foundation for doing good is doing well.

Picking one classic from Drucker's many writings is like trying to select one classic from all of Beethoven's compositions. I could pick any one of half a dozen books that could legitimately stand as timeless classics. I finally settled on his first pure management book, The Practice of Management. Here you will find the roots of all his ideas and influence. The book had a profound effect on the thinking of many company builders, such as David Packard, who quoted it like the Bible and used it as the blueprint for the management architecture of Hewlett-Packard.

Competing in your best industry

Competitive Strategy
BY MICHAEL PORTER (1980)

I'm not a huge fan of the traditional strategy school of management. Companies don't attain long-term success primarily by strategic planning; it's achieved mainly because of such factors as people, culture, organization, innovation, persistence, adaptability, and vision. The founding and growth of companies that become great stem surprisingly little from well-formulated corporate strategy.

That said, Michael Porter's books make a significant contribution. His work focuses not on planning but on thinking and understanding. His most powerful and useful contribution is a set of conceptual frameworks for understanding the realities and forces of the external environment. It's like mountain climbing: you can have a great team of gifted climbers, but it makes no sense to launch blindly up the side of a cliff without considering the realities of the mountain. Where are the natural lines of ascent? Where are the objective hazards, like rockfall? What are the weather patterns? What other climbing teams do we need to worry about? What type of rock will we encounter? Sure, if you ignore the external environment, you might get lucky and succeed anyway, but then again, you might end up dead.

Some of Porter's key concepts best apply to entrepreneurs. Most large companies already have significant investments in a given industry, and if it is an unattractive industry, too bad. But an entrepreneur can make great use of Porter's industry-analysis tools when they are most powerful--when he or she is deciding which industry to enter in the first place. Porter's famous "Five Forces" tool for analyzing the attractiveness of industries is of particular value to prospective entrepreneurs who aim to start or buy a company. Entrepreneurial imagination and energy can overcome massive odds, but it doesn't hurt to apply that energy and imagination in a field where the fundamental forces and external realities help rather than hinder.

Simply put, some industries are inherently more profitable than others. It's best to build a great company in an attractive industry. Competitive Strategy won't help much with building a great company, but it will certainly help with picking the right industry.

Doing better today than you did yesterday

Out of the Crisis
BY W. EDWARDS DEMING (1982)

Deming, the man, probably had greater influence than his book. Most people gained exposure to his ideas by reading about his work or by hearing him talk, not by reading his work directly. That's unfortunate because Out of the Crisis is one of the two key texts of the quality movement (the other being J.M. Juran's Juran on Planning for Quality, 1988) and is also an eminently readable book full of vivid examples that bring powerful ideas to life.

Deming's entire approach stands in stark contrast to faddishness, and I'm distressed by the number of companies that have adopted techniques and tools of the quality movement without embracing the philosophy of continuous improvement. For Deming, continuous improvement was not a bag of tricks but a way of life--a Zenlike discipline to be practiced day in and day out. It requires an unwavering commitment to facing every day with the question, What can we do better today than we did yesterday? There is no finish line, no "we've arrived." In Deming's world, you never arrive. You can always do better, and you should never stop the process of improvement.

Although the techniques of statistical quality control originated in the West, Deming's perspective reflects a more Eastern habit of mind. In the Western world, we seek to affix blame and reward to individuals. Deming teaches that we must reject that lens and look instead at the system in which individuals operate. To improve quality, fix the system, where 95% of the problems lie.

Deming's perspective requires another non-Western lens: accept randomness and reject the idea of complete control. Random events cannot be eliminated, and any attempt to prevent or correct for specific random events without addressing the entire system will likely produce unintended and often worse consequences than the original event. The question, of course, is, How do you distinguish between a random event and a systemic problem? How, for example, would you determine if a sharp rise in bus accidents came about by chance or from a systemic cause, like poor brake installation? The wisdom to ask and the ability to answer that question is the essence of Deming's teachings and should be in every manager's tool kit.

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