Lecture by Drucker at IEDC in 1996
All management books, including those I have written, focus on managing other people. But you cannot manage other people unless you manage yourself first.
The most crucial and vital resource you have as an executive and as a manager is yourself; and your organization is not going to do better than you do yourself. So, the first thing to say about the development of a country like yours or companies like those represented in this room today is: development. That is a very general term. Development is, foremost, dependent on how much you get out of the one resource that is truly under your own command and control, namely: yourself.
When I look at all the organizations I have worked with over a long life, there is a difference between the successful ones and the great majority who are, at best, mediocre. The difference is that the people who are running the successful ones manage themselves. They know their strengths - and it is amazing how few people really know what they are good at. You do not know it unless you work at finding out what you are good at.
Most of the people I know who have done an outstanding job, and the number is not very large, have systematically organized finding out what they are really good at. You do it, by the way, by using a very old method which has nothing to do with modern management and which goes back thousands of years.
Whenever you do something of significance, whenever you are making an important decision, and especially whenever you are making a decision about people (that is your most important decision), usually you write down what you expect the results will be and nine months later or a year later, you look at it. And then you will see very very soon what you are good at.
You will see very very soon where you need to learn, where you need to improve; and you can also see very, very soon where you are simply not gifted.
There are no universal geniuses, but a person can be very good - I have seen people who can just look at a market and they understand it. They do not need any tools or research. But, they are very often hopeless when it comes to managing people, so find out what you are really good at and then make sure you place yourself where your strengths can produce results. Yes, one has to work at overcoming weaknesses. But even if you work very hard and you manage to become reasonably competent in an area in which you really are not gifted, you are not going to be a top producer. You are a top producer if you put yourself where your strengths are and if you work on developing your strengths.
The second thing is to pay a great deal of attention to how and where you place other people. Again, place people where their strengths can produce results. When you look at an organization, everybody has access to the same money. Money is totally impersonal, everybody has access to the same materials. What differentiates a successful organization from most others is the way they place their people. It is not only that they keep on developing their people, but first place them where the strengths of the people can produce results and where their weaknesses are irrelevant. And those are the first things to say that make the difference between being an outstanding performer and being mediocre or worse.
And one part, a very important part, and one cannot stress it enough in a country like yours which is trying to catch up and does not have too much time - you have maybe ten years - is to realize that the people at the top set the example. Your company may be very small, quite unimportant, but within that small company you, the executive, are exceedingly visible. Most management is by example and whenever you look at truly outstanding organizations there is one, very rarely more than one, maybe two, maybe even three, but I have yet to see one that has more people who set an example. And that also is tremendously convincing. Here is an executive who performs and then people know they can do it, too. Perhaps that is the most important area, especially in a new and small and growing organization, and in a country like yours which has to do so many things at the same time because you have to catch up with most of the history of this century.
This most important area may be the area of personal behavior, the quality area of ethics. I am always asked what I mean by that. The answer is a very, very old one; it goes back to the ancient Greeks. I call it the mirror test. Every morning when you look in the mirror, when you shave yourself or when you put on your lipstick: is the person you see in the mirror the person you want to see? Do you want to be the kind of the person you see? Maybe "ashamed" is too strong: are you uneasy because you cut corners, because you break your promises, because you bribe, because you do something for immediate short-term benefits? Are you that kind of a person? Do you want to see, in the mirror, what you actually see? That is the mirror test and it is vital, simply because you may be able to fool people outside your organization, but you cannot fool people inside your organization, and, as you behave, they will too. Well, perhaps not emulate you, but if you give the wrong example, you send the wrong signals. You will corrupt the whole organization. So management does not begin with the environment, and it does not begin with the company's so-called competencies; it begins with managing yourself for performance and setting an example and that, perhaps, is the most important thing one can say.
The second thing to remember is spend enough time and effort on the outside of your business. A great danger in an organization, and not only a big one, is that you disappear in it, it absorbs you, that you spend all your time, energy and ability on internal problems.
Not all the results of an organization and especially of the business are on the outside. And not only where the customers are, also where the non-customers are. Even if you are the dominant business in your field, you very rarely have more than 1/3 of the market, which means that 2/3 of potential customers do not buy from you. You may know a great deal about your customers and pay a great deal of attention to them; and maybe you are in a business in which there is only a handful of customers for that special machine you make, and so you know your customers and you are in touch with them. One of the advantages of medium-sized or small businesses is that you can say you know your customers. In a big business you do not. You have no reports. And yet 2/3 of the market does not buy from you and you should make sure that you have enough time to look at these noncustomers.
Why do they not buy from us? What are their values, what are their expectations?
That is not the reason. The main reason is that change practically always starts with the non-customers.
What I mean is this: in the last 30 years major industry has got into trouble and I do not have to tell you that the major industries of the
1950s and 1960s are universally in trouble: the automobile industry, the commercial banks and the big steel companies. Almost all of the industries that dominated the industrial landscape in the developed countries in the 1950s and 1960s are today on the defensive, and in every single case the change started on the outside amongst the noncustomers and they are in trouble to a large extent. Department stores, not yet in Europe, but present in the US and Japan, are in terrible trouble whereas forty years ago they dominated retail distribution. The change started with the non-customers, with the couple. When the woman, an educated woman, also went to work, she did not have any more time to shop at the department store. The basic theory of the department store is to enable the housewife who has no job (the husband is at work, the children are at school) to spend a lot of time there. Department stores are very time consuming - to get a feeling that she is doing something for the family, for herself. Suddenly, the same women, first in the US and now increasingly all over the developed world, also have a job and they do not have the time. But they were never department store customers and so the department stores, which of all our businesses probably have, by far, the best statistics on their customers, did not even realize that the next generation of customers did not shop in department stores until they suddenly lost the market and most American department stores actually went through bankruptcy.
So the first thing to do is make sure you are close enough to the outside that you do not have to depend on reports. The best example I know: many years ago a man built one of the world's major businesses, the first business that really took advantage of the great change in medicine when the practice of medicine shifted from the individual practitioner to the hospital (that happened after the Second World War in the developed countries). This man saw this first and built a very big and successful business on it. There is a simple rule: every executive in that company from its beginnings, when it was very small to its being a huge big multinational, every executive spent four weeks - two times two - outside the company.
Whenever a salesman went on vacation, an executive took his or her place for two weeks, twice a year, and called on customers and sold to customers and introduced new products into the hospital market.
As a result, that company understood the rapidly changing market.
It is not because it had reports (everybody had the same reports), but because it spent some time with the hospital administrator who actually made the buying decisions. And so: make sure you know the market.
The third thing to say is: we need to understand what we now call the core competencies of your organization. What are we really good at? What do our customers pay us for? Why do they buy from us?
In a competitive, non-monopolistic market, and that is what the world has become, there is absolutely no reason why a customer should buy from you rather than from your competitor. None. He pays you because you give him something that is of value to him. What is it that we get paid for? You may think this is a simple question. It is not.
I have now been working with some of the world's biggest manufacturers, producers and distributors of packaged consumer goods. All of you use their products, even in Slovenia. I have been asking that question now for a year. We have two kinds of customers: one, of course, is the retailer and, if that soap or that detergent or that mayonnaise is not on the retailer's shelves, the housewife won't buy it. And so the customer, of course, is the housewife.
What do they pay us for? I do not know how many people in the world make soap, but there are a great many. And I can't tell the difference between one kind of soap or the other. And why does the buyer have a preference, and a strong one, by the way? What does it do for her?
Why is she willing to buy from us when on the same shelves in the US or in Japan or in Germany there are soaps from five other soap manufacturers? She usually does not even look at them. She reaches out for that soap. Why? What does she see? What does she want? Try to work on this.
Incidentally, the best way to find out is to ask customers, not by questionnaires but by, again, sitting down with them and finding out.
The most successful retailer I know in the world is not one of the big retail chains. It is somebody in Ireland, a small country about the size of Slovenia. This particular company is next door to Great Britain with its very powerful supermarkets and all of them are also in Ireland; and yet this little company has maybe 60% of the sandwich market. What do they do? Well, the answer is that the boss spends two days each week in one of his stores serving customers, from the meat counter to the check-out counter, to being the one who puts stuff into bags and carries it out to the shoppers' automobiles. And he knows what the customers pay for.
But let me go back to the beginning: the place to start managing is not in the plant and it is not in the office. You start with managing yourself by finding out your own strengths, by placing yourself where your strengths can produce results and making sure that you set the right example (which is basically what ethics is all about), and by placing your people where their strengths can produce results.