A simple Drucker technique for making better business decisions

Management consultant Peter F. Drucker advised some of the greatest business leaders of the last century but he never told them what to do. So how can you apply his insights to your work? William Cohen on a simple Drucker technique you can use to make better business decisions.

There’s no question but that Peter Drucker was a genius, and he left behind thousands of genius-like gems in his writings, speeches, and recordings to show us what to do to achieve success and avoid failure as we labor on the firing line. One would think is that all we have to do is mine these gems from their written or recorded sources. That is, to read listen, or watch them, write them down, and then act. But that’s not true.

Make better business decisions using this simple technique

At his best, Drucker told us what to do. He never seemed to get around to telling us how to do the what that he had told us. Unless we can apply and act on the wisdom he imparted, interesting, shrewd, or amazing as they may be, they are "academic" and useless to us as managers.

The problem is that putting these genius gems to work is not necessarily obvious and can be much more difficult than simply reading, agreeing, and being amazed at the obvious truth Drucker has unmasked and we why we never thought of it ourselves previously.

The challenge of "mining the master"

Drucker’s former clients frequently report something like this: "Drucker never told us how to solve our problems or build our sales. All he did was to ask questions. This was more than a little disconcerting at first. However, his questions did make us think, and our thinking sometimes led to the solution of the issue we had been struggling with."

For even individuals insisting on help, Drucker resisted in responding with explicit "how to" instructions. Questioned by a manager faced with grave challenges to his business, Drucker answered with a question. The manager tried a second time to get specific guidance how to save his business. Drucker responded with another question. The manager refused to give up and again pressed the issue. Finally, Drucker lost his patience. "Okay, so you are in trouble." Drucker responded. "What are you going to do about it? I always found this Drucker response of particular interest since it not only placed responsibility for outcome clearly, but also demonstrated his usual modus operandi.

Consider one of the most well-known of Drucker’s interrogatory questions of a client which eventually led to well-documented success. Drucker’s client in this case was none other than Jack Welch, former CEO of General Electric, and perhaps the most successful CEO of the last 100 years. In fact, Fortune Magazine named Welch "Manager of the Century." During Welch’s tenure at GE the company’s value rose an eye-popping 4000%.

According to Welch much of this increase began when Drucker asked him two important questions when Welch assumed the top position at GE. GE was and is involved in numerous businesses all over the world. Asked for recommendations, Drucker asked Welch: "What businesses would you rather not be in?" After Welch named several businesses which he felt less desirable, Drucker asked a second question: "What are you going to do about it?"

Welch decided that, regardless of profitability or other factors, if GE could not be the number one or number two in an industry, or could not achieve this position within a reasonable amount of time, the business would be sold or closed. What this did was allowed Welch to concentrate any organization’s always limited resources in capital and people where it would have the most effect. In other words, Welch got "more bang for GE’s buck than previously." This simple strategy helped to make GE the most valuable company in the world by 2004 and other companies followed Welch strategy.


Was Drucker impractical?

My latest book is entitled, The Practical Drucker (AMACOM, 2013). This title prompted one interviewer to ask: Do you mean that Drucker was impractical? I didn’t mean that at all.

Drucker wrote well and he explained his ideas thoroughly and with examples. But that’s part of the problem. Sometimes he was not well understood because he wrote and proclaimed what to do, not how to do it. In person, he then proceeded to ask his clients questions, something he could not readily apply to specific instances which were not explained to clients in person.

But Drucker is no longer here to ask questions

Unfortunately, Drucker is no longer around to even ask his questions face to face. What can we do to remedy this situation short of a hiring a psychic medium? Fortunately, there is another solution. Why not channel Drucker by asking the questions ourselves? This is easier to do than it might first appear. Let’s look at an example.

Let’s say that you have a new product or service of superior quality offered at a lower price than competitors, but prospects simply aren’t buying it. They continue to purchase inferior quality products at a higher price. "Customers just aren’t rational" you may proclaim. Drucker, however, said that there is no such thing as an irrational customer. Drucker compared the notion of a manager calling a customer irrational for failing to act as predicted by the manager to a physician calling a disease irrational when it failed to cure a patient after the patient took a medicine this doctor had prescribed.

Drucker stated simply that if something fails to respond in the manner predicted, it is not a demonstration of irrationality. Rather, something is wrong with an assumption. That immediately solves your problem, right? Of course it doesn’t.

The erroneous assumption needs to be uncovered and corrected. In the case of GE the erroneous assumption was simply that if a business were profitable, it was worthy of being in GE’s portfolio. Little else was considered. In the situation of a medicine not working, it could be a misdiagnosis and therefore the wrong medicine, the amount of medicine taken might be insufficient, the medicine might be taken in the wrong manner or its effectiveness lost through expiration, it might be interacting with other medications, etc.

So, you need to ask questions just like Drucker. Why might a prospect prefer what you know to be an inferior product offered by a competitor at a higher price over your "better" product? In some cases this is not difficult to see. It is fairly easy to explain why customers insist on paying more for a product when lower priced products of equal or better quality are available.

But this is the opposite situation. The explanation might be that there is limited information available about the new product or that it is previously untested and potential customers have no experience with it. Maybe the product is so new that performance claims are not believed or not trusted, or prospects cannot imagine performance or quality improvement.

No less an entity than the United States Army refused to give the Wright Brothers a contract to build prototype flying machines for the Army for test until 1907 after the Wright Brothers already made the first flight four years earlier in 1903. The Army contacting officers were not irrational. They simply didn’t understand that a machine that could fly a few feet off the ground for a maximum of 59 seconds had any use on the battlefield. Therefore, experimenting with prototypes was a waste of time.

It is also perfectly rational to assume that the most expensive product is of the highest quality whether this is actually true or not. What do you do if you are at the store and are faced with several alternatives and you want to make certain the product performs adequately and not risk failure? Most of us would purchase the most expensive alternative of course unless the price differential was prohibitively high.

Questions to help you simulate Drucker’s technique

Here are a few questions that you might ask yourself about a superior quality, lower price quality product failing against competitors’ products:

  • How does the customer know that your product is superior? In other words, are you getting the word out through the correct advertising and promotion channels, and with the right approach to convince prospects?
  • Is your definition of product quality the same as the customers? Your product may work quicker than any competitive product, but if speed is not considered important by a customer, you’re wasting money and resources.
  • Is your product occupying the right niche? You may have a superior chocolate bar to Hershey, but as Trout and Ries showed us several years ago in their book, Positioning, prospects are not likely to believe you. Hershey got there first!

Of course the number and kinds of questions to ask yourself is limited only by your imagination. However, the last question must always be: "What are you going to do about it?"