Leading in a Time of Change

by Peter F Drucker

  2. Incongruity. Examine the disparity between your assumptions about what to expect and what actually occurs. Symptoms of change may present themselves in several areas. For instance:

  a. In a process used by customers or in customer behavior: Remove the difficulties of using the product, service, or process or invent an easier way.

  b. In financial results: Profit should rise with demand. If it doesn't, a competitor may be doing something more innovative.

  c. In customer values and expectations: Understanding what customers want is key to success in any market.

  3. Process need. The need to improve processes may exist within a business, industry, or service. Look for areas in which customers say, "If only there were a way to-" The solution must fit the way people want to work. You can replace a weak link, supply a missing link, redesign the process with new technology, or create a new process.

  4. Changes in industry or market structure. Changes can be exploited inside and outside an industry. Indicators of such changes include

  a. Rapid growth (faster than the economy or population). The structure of the industry then will change. Existing practices will become obsolete.

  b. Convergence of technologies that were seen as separate (for example, links between computers and telephone or cable networks).

  c. Changes in the way business is done. Doing habitual things leaves markets open to innovators. Rapid growth in one area may mask opportunities in others. Keep innovations simple and specific.

  The next three sources to monitor for innovative opportunity are changes outside the industry or service area:

  5. Demographics (population changes). This includes changes in population size, age, composition, education, occupation, employment, and income. It also includes trends, needs, and desires related to age, income, ethnicity, or lifestyle. Identify the largest or fastest-growing segment of the population and its changing needs.

  6. Changes in perception, mood, and meaning. Many such changes are based on demographics. They create opportunities for new products, information, and services. Timing is important. Discriminate between trends and fads, and start small and very specific.

  7. New knowledge, both scientific and nonscientific. Opportunities in this arena are often the result of convergence of fields of knowledge (making application to other fields possible). Timing is critical. Usually, there is a spate of activity, then the window of opportunity closes (often because of a shift in knowledge or perceptions). The requirements for innovation from new knowledge are

  a. Careful analysis of all necessary factors (technical, social, economic, and perceptual). What is needed? What is available?

  b. A clear focus on the strategic position. To succeed, one needs a complete system, a market focus to create a demand, and a strategic position or key function (invent an industry, not just a product).

  c. Entrepreneurial management. This involves a market focus, financial foresight, a top-management team in place from day one, and clarity about the leader's role.

  None of these sources is more important than any of the others; major innovation is as likely to come from an analysis of symptoms of change as from application of new knowledge.

  Peter Drucker says that once you have identified an area of change, you should ask: "Would this be an opportunity for us?" If the answer is yes, put a few good people to work exploring it.

  SEEING CHANGE AS AN OPPORTUNITY

  Welcoming and Exploiting Unexpected

  Opportunities

  Peter Drucker and Peter Senge agree that a leader has to be ready for unexpected opportunities. They emphasize that a lot of the most important developments are unexpected; it's how you recognize and deal with surprise that matters. Not every surprise is necessarily an opportunity, but every surprise should be taken seriously. It's a very different mind-set to appreciate and enjoy the unexpected. You have to ask, "In what way might this be relevant?" and "Is it an opportunity?"

  Developing this mind-set is crucial because, in the next twenty years, there will be many surprises.

  Peter Drucker describes three traps to avoid in dealing with possible opportunities:

  1. Considering an innovative opportunity that is not in tune with strategic realities such as these:

  • The declining birthrate in the developed world. Some implications of this are that there will be fewer customers in the "youth" market and fewer young people available in the employment pool.

  • Shifts in the distribution of disposable income, both by country and within classes in countries.

  • The changing definition of "performance" by stakeholders in the organization, especially shareholders.

  • Global competitiveness-a strategic goal for most large organizations.

  • The growing incongruity between the global economy and political splintering (the birth of smaller nations, as well as rapidly changing governments in some areas of the world).

  • Differences in business practices and consumer preferences in different countries.

  2. Confusing novelty with innovation. Novelty creates amusement; innovation creates value.

  3. Confusing motion with progress. For example, many so-called reorganizations create motion but do not further the progress of the organization.

  The best way to introduce a new product, process, service, or whatever is to run a small-scale pilot test, so that you can discover its potential effects while limiting harm. Such tests reduce the risks of introducing change and are relatively inexpensive.

  If an organization is going to lead change, it must budget for the future. Around 80 percent to 90 percent of the organization's total budget may be allocated to the present business, while at least 10 percent should be allocated to exploiting opportunities and developing the future. It is important not to reduce this future budget in slow times; if all an organization's resources are devoted to bolstering an ailing product or service, there may well be no future.

  IDENTIFYING OPPORTUNITIES AND RISKS

  Linking Opportunities to People

  and Other Resources

  Peter Drucker and Peter Senge agree that one of the basic lessons for leaders is to find "where the energy wants to go" and learn how to work with it. This means encouraging innovation and change with the best performers, rather than trying to move a mass of workers in lockstep. When you encourage the people who want to excel, their energy and motivation will serve as models and catalysts, and the rest will follow.

  LINKING OPPORTUNITIES TO

  PEOPLE AND RESOURCES

  Preserving Trust: Continuity Within Change

  Peter Drucker and Peter Senge point out that people are not stressed because there's too much change in organizations but because of the way in which change is made. Organizations are upsetting people because they do not emphasize values, continuity, relationships, and mutual responsibilities, especially in times of change.

  In nature, what works well is preserved in times of change. In organizations, the most important thing to preserve is trust, and that means some predictability.

  How change is introduced is very important in maintaining continuity and trust. People need to know the values and practices of the organization, the definitions of performance and results, where they stand, and what they can expect. They need communication about what is happening and what the results are. Although things are done differently in different organizations and markets, these fundamental needs remain the same. Meeting these needs creates a climate of trust. With that basis, people can successfully navigate rapid change.

  One way to help people feel more comfortable about change is to create "change partnerships" with employees, suppliers, distributors, outside contractors, and even customer groups. Such partnerships help the organization plan and implement change through an open exchange of information. When things are happening, everyone should ask, "Who else needs to be informed of this?" This is especially pertinent if the people involved in the change are in different locations. The fewer
surprises, the greater the trust.

  PRESERVING TRUST IN ORGANIZATIONS:

  ORGANIZATIONAL VALUES IN THE MIDST OF CHANGE

  Motivating and Retaining Top Performers:

  Attitudes About People in Organizations

  During a time of rapid change, how people feel about their work and their jobs is critical to the health and survival of the organization.

  Peter Senge points out that in a traditional organization, people generally produce results because management wants the results-whereas in a volunteer organization people produce results because they want the results. This is a key to attracting, motivating, and retaining top performers. In any organization, if people believe in and are enjoying their work, they'll innovate, take risks, and trust one another because they are committed to what they're doing. He calls such organizations "communities of commitment." In such organizations, fragmentation, competition, and reactiveness are replaced by systemic thinking, cooperation, and innovation.

  Peter Drucker cautions that most organizations need to learn to respect and enjoy individuality and uniqueness. He says that we talk a lot about diversity today, but by this we mean groups, not individuals. We need to recognize that each individual in an organization has more to contribute than job skills; each has unique experiences and knowledge, insights, creativity, the capacity to encourage others, the capacity to share, and so on.

  Much research has been done about motivating manual workers, but less is known about motivating the rapidly growing population of knowledge workers. In his writing and speaking, Peter Drucker identifies several factors that influence job satisfaction for the knowledge worker. First is clarity about the task and how it should be done. If workers believe that their primary task is research, for instance, they will be frustrated by having to do what they see as administrative busywork. It is wise to delegate such tasks to others, if possible. Second is responsibility and autonomy. Knowledge workers know more about their job than the boss does. Also key is the encouragement of continual learning. As Peter Senge points out, this includes teaching others-learning benefits the organization when it is shared. Drucker also writes about the need to view quality as being as important as quantity. And managers must truly regard the individual as an asset rather than as a cost. People are not owned by the organization. They must want to work for you, or they will go elsewhere.

  ATTITUDES ABOUT PEOPLE

  Conclusion

  You may have noticed two overall themes in the conversation between Peter Drucker and Peter Senge:

  1. A leader's attitudes about change-whether it is welcomed as an opportunity and exploited

  2. A leader's attitudes about people-whether the people in the organization are valued as individuals and encouraged to embrace change, innovate, and be committed to their work

  When we accept the inevitability of change, we know that an organization's core values and accountabilities must be preserved; everything else must be questioned. Our focus then turns from resisting or reacting to change toward anticipating, welcoming, and exploiting change. As Peter Senge says, we learn to find where the energy wants to go and we facilitate the flow. Here are some ways to do this:

  • Practice planned abandonment. Shed the mental models, products, services, strategies, and policies that are no longer, productive so that the organization can devote its energies to new opportunities.

  • Practice organized improvement. Teach people within the organization to look for innovative opportunities from a variety of sources.

  • Match opportunities to people and invest resources in exploiting change, rather than in solving problems.

  • Preserve and communicate organizational values and understanding so as to create the trust necessary to carry people through times of change.

  • Recognize the value of the individual and encourage innovation and responsibility so as to retain top-performing workers.

  To be successful, individuals and organizations must learn to seek, recognize, and exploit innovative opportunities. They must implement changes effectively. The leaders of change are the ones that will succeed.

  UPDATING ATTITUDES ABOUT CHANGE

  VIDEO HIGHLIGHTS

  THE FOLLOWING ARE HIGHLIGHTS of the videotaped conversation between Peter Drucker and Peter Senge.

  Peter Senge: The next ten or twenty years will bring more change than the last ten or twenty years. We live in a really epic time of change. These are fundamental changes, and it's not so much predicting specifics but trying to understand the forces that are at play.

  Peter Drucker: Most people think the last few years have been years of very great change, but this was only because the preceding thirty years were so continuous. Historically, in any major transition, after forty or fifty years there's a total change, and we are just at that transition point. We have been through two big transitions in the last five hundred years in the West-fine starting with Gutenberg and one starting with the steam engine. One implication is that every organization will have to become a change leader. You can't manage change. You can only be ahead of it. You can only meet it.

  We know that the information revolution is just beginning to have an impact. Ecommerce is a fundamental change-and nobody predicted it, which is very typical. E-commerce will make the multinational obsolete, as we know it today. And we can say with 90 percent probability that the new industries will have nothing to do with information. I predict that the most important new industry of the next thirty years is going to be fish farming-biotechnology. We are moving from being hunters and gatherers on the oceans to being aquaculturalists. There are a few others in the wings and they have nothing to do with information technology, but a lot to do with the new mind-set.

  In all probability, the single dominant factor in all developed and emerging countries will be population changes. Historically, the population group that is both the biggest and growing the fastest determines the mind-set and the mood. Since 1950, in all developed countries, these have been young people. Now only the English-speaking world has a birthrate barely adequate to maintain the population and that is only because of the high rates of immigration. The English-speaking world accepts immigration; nobody else does. In the rest of the developed world, there are fewer young people. Italy's birthrate is down to about one-third of the replacement rate. In Japan it's half the replacement rate, and even in countries in which there are still young people, such as the United States, the fastest-growing age group is fifty-five plus. That's unprecedented. Nobody has any experience with it; we don't know what it means. Does it mean that young people will become more precious and more powerful? Or will the pendulum swing to a much older-over sixty-age group? Nobody quite knows yet what it's going to be, because we've never had that. We may switch from the extreme youth culture of the last forty years that was based on demographics. I think that in ten years, except in the English-speaking countries, the youth market will be over.

  Y ou can't manage change. You can only be ahead of it. You can only meet it.

  Frances Hesselbein: If this is the landscape of the future, as Drucker and Senge envision it, how do an organization and its leaders deal with a world in the vortex of rapid change?

  Peter Drucker: I'd say two things to the question, "How does an organization deal with rapid change?" The first is to accept that they have to deal with it and not believe this is something you do on Friday afternoon after 3 P.M. The second is to create the receptivity. And there is only one way to do it: that is to build "organized abandonment" into your system.

  You know, that great sage of eighteenth-century Britain [Samuel Johnson] said there is nothing that so concentrates a man's mind as to know that he will be hung in the morning. There's nothing that so concentrates a manager's mind as to know that the present product is going to be abandoned in two years. Otherwise he won't innovate; he'll postpone. Innovation is very hard work. In the meantime, that fellow is being compensated on this year's results, and he's going to put more money into the ol
d product and the old service. He's putting all the money and, above all, his human resources into patching.

  You must systematically abandon. Every three years, every organization-not just business-should sit down and look at every product and every service and every policy and say, "If we didn't do this already, knowing what we now do, would we go and do it?" And if the answer is no, don't make another study.

  Peter Senge: It raises the obvious question, "Why is this so-hard for us?" You just can't keep adding in new things. After a while, the weight of everything that's there holds you back. A lot of people in the creative arts have a very good feeling for this because you create something and you move on. But once we get into organizations and institutions, somehow the dynamics change completely, and it becomes extraordinarily difficult for us to even talk about abandonment. As you said, it's one thing to say the business is dead and we're losing money like mad. But often the right time to abandon is much earlier than that because of the way it's soaking up your creative possibilities by trying to maintain the product or service.

  Somewhere behind the scenes of abandonment is the question of assumptions and mental models. We do things the way we do because we haven't thought of other ways to do it, and we're very familiar with these. And it is extremely difficult in many organizations to challenge these kinds of assumptions. It's a careerthreatening act for individuals to raise their hands and say, "Wait a second; we have real questions about what we're doing here."

  Peter Drucker: It's difficult to start. Once you've started and gotten over the first couple of years, it becomes self-supporting, but the start is very difficult. And the main reason is that here is a fellow who, when he was twenty-two, invented something and made his career on it, and now he's at the top. And some young whippersnapper comes and designs something that abandons it. He has spent much more time with this product than he spent with his wife and his children. This is his child; this is his life-the emotional attachment.