Why Peter Drucker’s approach to strategy has never been more valid

I have read recent comments to the effect that though Peter Drucker’s approach to strategy has been highly effective in the past, because of the pandemic, it is time to develop something new. Drucker was considered the father of modern management, but Drucker did not believe that management was a science. Instead, he insisted that management be described as a practice. This is important in any approach to strategy. In fact, one would be amiss not to look at the strategy as a doctor practices medicine. Science plays an important part in medicine, but doctors consider the individual situation as he or she practices medicine. Note the difference.

While a medical scientist seeks and develops medicines which cure ailments in many situations, as a practitioner the doctor realizes that medicines, no matter how powerful, will not work in every case. He recognizes that every person is different and analyzes every illness, with its unique characteristics, to find a treatment that works best for the individual patient. In addition, the medical practitioner has an oath to which strategy must conform: “Above all, do no harm.” Too bad that the business practitioner does not take a similar vow. In effect, Drucker did take care to do no harm and followed no single strategy or “system” for all situations.

Why Drucker avoided cookie-cutter management styles

When I was Drucker’s PhD student, I learned from him that because management is not a science, using mathematics alone is not the only analysis that must be done and Drucker, to avoid doing harm, used no fixed system.

For example, one widely used system in those days was portfolio analysis developed by Bruce Henderson at the Boston Consulting Group. That is the one with cash cows, dogs, shooting stars, problem children, etc. The problem, Drucker said, was not that this was a bad system, but if applied to all situations it would sometimes fail because the main factor in success was business growth.

A business could be successful and profitable, however, while remaining small and, if an organization grew primarily by acquisition, it was successful only if the acquiring organization had something to contribute to what was acquired. A review of companies which had used BCG’s analysis proved his point. Many had failed because after acquiring a company, the acquiring organization had little to contribute, and growth alone did not necessarily result in success.

The BCG method was later modified by the work of GE, McKinsey and others. However, the danger of using a cookie-cutter approach in all situations persists because even basic assumptions can be wrong.

“Quantitative analysis for business decisions” is frequently the basic tool guiding strategy because a resulting high number identifies the greatest potential profit. But is it? Drucker showed us examples that while mathematically a high price frequently indicated highest profits it also attracted competitors who enjoyed an advantage. Such competitor could achieve profitability even if it had neither invented nor taken the original product to market. 

The transistor radio was one example he cited. Many think it was Sony, a Japanese company, that first developed and sold the millions of transistor radios profitably and that American companies were never able to compete successfully. The reality was that the transistor radio was invented in the U.S. and sold first by AT&T which calculated that a significantly higher price could be charged, and even additional money attained by licensing other companies to manufacture and sell this product. Sony, with lower labor costs, saw the opportunity and bought such a license from AT&T. With the lower labor cost in Japan and some product improvements, Sony dominated the market in the U.S. and forced AT&T out of the business.

Even computers and a program developed based on the success of other organizations has shown to be unreliable. A single condition in a previous marketing campaign might be unknown and not duplicated. For example, the impact of the quality of leadership available in an organization is always important. Yet, it is usually not incorporated into the computer model and in any case, leadership is difficult to quantify.

Good tactical implementation cannot overcome poor strategy

The word strategy comes from a Greek word meaning “the art of the general.” As a part of this art, generals separate military strategy into three divisions of action. Tactics are performed at the lowest level. It is the strategy employed by those involved in execution at the fighting level. The next highest level is the strategy employed by more senior generals and is concerned with the strategy of the battle. At the highest level is grand strategy employed by politicians and senior generals at the highest levels in positioning their forces geographically and timing with overall objectives defining what they are trying to do, what battles they are going to fight and when, and considering political and many other situational factors as well as the stages of the overall operation.

Tactics vs. higher level strategy

I once read that good tactical implementation could overcome a bad strategy initiated at a higher level. Drucker pointed out that good tactical implementation of a bad higher level strategy can even make the situation worse, not better. Good tactical execution at the “fighting level” may succeed, but in some scenarios, it might be better if it had failed. He gave the example of expert salespeople succeeding though they had a product not much desired by potential customers. Their sales talents might result in more acceptable results, but clear failure might have forced the company to drop the product and replace it with a more desirable one. Tactical implementation offering something more desired by potential customers is also a lot easier on the salespeople who can sell more of a needed product to potential customers with less effort, while the wrong product even sold profitably by good salespeople can cause the company to overlook and misidentify the real need of the customer while a competitor may find and sell a better product to greater advantage.

Transformational leadership is essential to success

One management author wrote, “forget leadership, strategy is all that matters.” Drucker’s research estimated that 50 percent of the success of any strategy in implementation is due to leadership and the other 50 percent is due to everything else.

Ignoring the importance of leadership in strategy execution is a major mistake. Good plans are made and implemented under the guidance and direction of good leaders at all levels. A successful leader does not look at his or her planners for instructions. A successful leader looks at his or her planners and explains what he or she wants to do. Once the planners examine the feasibility, they develop options, alternatives and recommendations to the leader, but the leader makes the final decisions and then returns it to the planners for the details of implementation.

We know that good planners can also be good leaders and top executives. Dwight Eisenhower was an unknown Army lieutenant colonel who had made a name for himself through his planning abilities though he had never commanded troops in actual combat. In 1940 General George C. Marshall, then Army Chief of Staff plucked Eisenhower from obscurity because of his planning abilities and made him a brigadier general, later selecting him for top allied commander in Europe. Eisenhower never held the rank of colonel, the rank between lieutenant colonel and brigadier general. He had never led troops in combat at any level. Eisenhower, however, was a gifted leader.

As Supreme Allied Commander in Europe during World War II, he led the largest sea-borne invasion in history and developed, and executed the overall strategy that was triumphant. He did all this while leading troops of many different countries, speaking different languages, with different priorities and politics as well as controlling great field commanders such as Patton and Montgomery.

What history can teach us about strategy

We do not intentionally take human life in business nor set out to destroy a competitor’s physical resources during competitive engagements. While business, no matter how challenging, is not war, many of the general principles of strategy are the same.

The work of the thinkers and doers of strategy over the millennia from across all cultures, have resulted in these principles. These are general principles which are the same no matter where we apply them. Strategy lessons from all fields are worth examining not only by specialists who develop strategies for a particular situation, but by leaders at every level who must think through proposed strategies for their organizations, make the overall decisions and finally see them implemented under their direction.

References:

• The Art of the Strategist by William A. Cohen (AMACOM, 2004)                  
• The Art of the Strategist (audio version) by William A. Cohen (Harper Collins, forthcoming, 2023)