What you will learn from reading The Essential Drucker:
– Why management and entrepreneurship are equally important.
– The two key elements of any enterprise.
– Principles of Innovation.
The Essential Drucker Book Summary:
Why read the essential druker?
Well, not only was Pete Drucker named the founder of ‘modern management’ but he is also an of the most influential business thinkers. From this book summary you will learn how innovation takes place, the roles of marketing in a business and entrepreneurial strategies.
So here is the key ideas from this brilliant book:
The role of Managers:
Managers should do 5 things:
- Set objectives
- Organise
- Motivate and communicate
- Measure results
- Develops people including himself
Managing people is becoming more of a marketing job, looking at context and finding out what the person wants etc…
Be careful with what you are measuring, this sets the incentives:
The measures had to measure what really matter. This is contextual for each and every business. E.g. if you told policeman they have to do certain amount of arrests they may arrest on easier crimes and neglect more potent harder crimes.
Drucker said “ making money for a company is like oxygen for a person; if you don’t have enough of it you’re out of the game.” Other words is a performance requirement for all businesses, but it is not a purpose.
Chaos and Order:
Not innovating is far more risky than making tomorrow.
Management and entrepreneurship both needed at the same time.
The question is who is left accountable?
Enterprise:
Due to shareholders management prefers short term gain. Long term gain via strategy and purposeful movement should take priority.
Enterprises and management must set clear, public and re-affirmed, and have simple objectives.
Enterprise should be seen as a learning and teaching institution.
Entreprise must be built on communication and individual responsibilities.
Entreprise shouldn’t just focus on bottom line and quantity of output but also market standing and many other metrics which show growth and survival.
Most important thing is that results are on the outside with the customer, everything inside is a cost.
MANAGEMENT:
Are businesses main objective really to make profit?
Drucker argues that the valid definition of business purpose is to create a customer.
Therefore the business has two functions: Innovation and marketing [[Jay Abraham]]
Marketing:
Marketing has turned into rhetoric rather than reality in too many businesses. Consumerism is the “shame of marketing”.
When managers speak of marketing, they usually mean the organised performance of all selling functions. True marketing asks What does the customer want to buy?
Elementary axiom of marketing: Businesses are not paid to reform customers. They are paid to satisfy customers. Aim of marketing is to make selling superfluous.
Innovation:
Most productive innovation is a different product or service creating a new potential of satisfaction, rather than improvement.
Economically innovation can happen through selling a product to a new market.
Innovation can be defined as the task of endowing human and material resources with a new and greater wealth producing capacity.
Fundamental Questions for any Business:
What is our business? First responsibility of management.
Need for unity of direction and common vision + understanding.
Who is the customer? is the first and most crucial question to ask when defining the business purpose and business mission.
What does the customer buy?
The consumer = the ultimate user of the product or service.
Most businesses have at least two customers.
Anticipating Changes:
What should our business be? What will our business be?
Don’t be afraid to scrap the old when it no longer makes a superior contribution.
Systematic analysis of all existing functions and operations should take place relatively often to spot defects and identify opportunities and drawbacks.
Business Objectives:
Objectives represent the fundamental strategy of a business.
Objectives must be operational.
Objectives must be selective and focused.
Businesses require multiple objectives.
Objectives needed in all areas on which the survival of the business depends.
Objectives should be set in 8 key ares:
- Marketing
- Innovation
- Human resources
- Financial resources
- Physical resources
- Productivity
- Social responsibility
- Profit requirements
Any change is immediately fed back and new objectives and schedule is made.
2 Key marketing objectives:
1. Concentration
2. Market standing
Concentration – is the area business leverage. It converts what the business is into meaningful operational commitment.
Market standing – Is the way you are going to place yourself in the market, and monitoring whether too dominant or marginal. Aim for optimum not maximum.
Principles of innovation:
Innovation is both conceptual and perceptual.
An innovation to be effective and has to be simple and focused.
Effective innovation starts small. They are not grandiose. Revolutionary ideas don’t work, start small and evolve.
Leadership is key for innovation.
Successful innovators are conservative. They have to be. They are not risk-focused but opportunity focused. Assymertical risk and reward.
3 types of Innovation:
Product innovation, social innovation, managerial innovation.
The 4 ways to innovate existing products to create new customers/ new demand.
- Creating utility.
- Pricing.
- Adaption to customers social and economic reality.
- True value delivery to customer.
Organisational Structure:
There isn’t a perfect organisation structure only a organisation structure that fits the task.
The goal is to make productive the strengths and knowledge of the worker.
Productivity objectives – degree to which resources are utilised and their yield.
Business has to be operational, it has to embrace entire process! It has to be focused on results and performance across the entire economic chain.
Managements function is to organise resources of the organisation for results outside the organisation.
Entrepreneurs:
Entrepreneurial management in the new venture has 4 requirements:
Focus on the market.
Financial foresight and planning for cash flow and capital needs in advance.
Top management team long before it can afford one.
Founder decision needs to definite role.
One cannot do market research for something genuinely new. Therefore if a different market takes product/ idea better then decided market then that could be your answer.
Entrepreneurship demands financial management.
Entrepreneurial Strategies:
Entrepreneurial judo strategy:
Using underused or rejected new technology in new and improved ways. “Hit them where they ain’t”
Toll-gate strategy.
Hitting a niche and making something compulsory to a process and holding a mini monopoly. “ecological niche”.
Speciality skill strategy.
Entrepreneur surveys and identifies a opportunity where they can become a specialist and create a unique controlling position.
A new market or major trend leads to opportunity to systematically find a speciality skill which would be of economic value.
It requires a skill which is both unique and different. – Rarely get threatened as skill is perceived as alien in skill and temperament.
Entrepreneur must constantly working on their skill.
Drawbacks:
– Tunnel vision
– You become component
– Speciality becomes universal
Niche in biology don’t adapt well to external change.
However, in a rapidly expanding technologically advancing economy it can be most advantageous strategy.
New Ventures:
Profit is wrong focus for a new venture. Cash flow, capital and controls should be emphasised in early stages.
Growth has to be fed. Meaning financial resources should be added rather than taking them out.
Rapid profit growth should flash red lights.
The healthiest it is the faster it grows and fast financial resources are needed.
New ventures under cash pressure when opportunities are greatest.
Growth of 40-50% seems to be factor when restructuring is necessary.
Prices, Quality and Profits:
‘Creaming’ a market means going for high profits and neglecting lower profit margin customers. Detrimental brand imaging and long term profit defects.
‘Quality’ is defined by customers use and value of the product.
Premium prices open the door for entrepreneurial judo.
Optimisation should be prioritised over maximisation.
True value delivery is really interesting. Are people buying a shaver or the shave?
Using the logic are people buying lubricant for the machines or to make sure the machines keep working saving time wasted when machines aren’t operational. This is a different perception and should be applied to taken for granted products and business models. Are they truly delivery the ‘value’ that their customers want?
All pricing should be based on what the customers reality would suffice to pay for the value delivered.
Anyone who is willing to use marketing as the basis for strategy is likely to acquire leadership in an industry or a market fast and almost without risk.
The Individual
Little correlation between mans intelligence and effectiveness. Is execution effective?
The greatest wisdom not applied to action and behaviour is meaningless behaviour.
Effectiveness is a habit.
The focus on contribution is key to effectiveness.
If employees take responsibility and accountability for business as whole = top management.
The man who focuses on effort and stresses his downward authority is always a subordinate.
“What can I contribute” should be question ringing through mind otherwise will end up aiming at wrong things.