Peter Drucker's Way to the Top

by William Cohen

  In initiating a deeper analysis in the situation, Lever Brothers also discovered that Crisco had weaknesses. Although women generally liked Crisco, there were some things that they definitely didn’t like. If refrigerated, Crisco became hard and difficult to use. The alternative was to leave it unrefrigerated. Unfortunately for P&G and housewives, it then turned rancid rapidly. The color was not consistent, and while housewives were OK with a pure white coloration, Crisco was more a shade of dirty white. This was unappetizing for a food product. Moreover, the packaging was not uniform in the cans in which it was sold. That wasn’t popular with housewives either.

  ARRIVING AT A STRATEGY WHEN AN OPPORTUNITY WAS SPOTTED

  Looking at principles of strategy, we can see how some were integrated with the situational variables noted to this point. Lever Brothers seized the initiative and committed to a definite objective. It planned to concentrate resources at the strategic position of vegetable shortening. P&G thought its product, Crisco, was pretty much invulnerable. This thinking is always dangerous when you are employing a strategy that involves competitors or potential competitors. It seemed apparent that P&G had paid little attention to these issues and did no further research with the consumer after the product had been introduced. If that were not enough, P&G had also allowed quality control in manufacture and packaging to get out of hand. P&G thought that competitors, even a major one like Lever Brothers, would not even attempt to introduce a product to compete with Crisco. To P&G it was unthinkable that Crisco was vulnerable in any way. Lever Brothers capitalized on this mistaken notion and introduced its own product, Spry, which took advantage of Crisco’s deficiencies. The introduction of Spry was a complete surprise.7

  LEVER BROTHERS HAD THE RESOURCES AVAILABLE AND USED THEM

  Lever Brothers decided which of the situational variables could be taken advantage of and did. Unilever had made major technological advances in Europe in the manufacture of soap, and the technology was directly transferable to the production of vegetable shortening. The problems with Crisco noted by consumers were easy for Lever Brothers to overcome. Some simply had to do with a stricter quality control. Financial resources and know-how were on Lever Brothers’ side, but it even had one additional major advantage.

  LEVER BROTHERS EVEN HAD A SECRET WEAPON IN ITS LEADER

  Francis Conway had become president of Lever Brothers in 1913 when sales were but $1 million. By the late 1920s, sales were over $40 million largely due to his personal leadership. Conway was a competent leader and had met every challenge thrown at him. Moreover, he had the confidence of the parent company leadership back in the United Kingdom. Unilever invested the money to build the manufacturing plants to make the product. By the early 1930s, Lever Brothers was geared up and ready to proceed.

  ENTER THE UNEXPECTED

  The Depression began in October of 1929 and pre-empted Lever Brothers’ product launch. By mid-1930 it was clear this was not an economic condition that would change anytime soon. Lever Brothers had planned on introducing the product by then. There was tremendous pressure from within the company and the parent corporation to do so. The company had sunk a lot of money in Spry up to this point. They wanted to get on with it. However, Conway knew his strategy and the importance of timing. He made the decision to wait. Meanwhile he noted that the sales of Crisco did not slow as the Depression deepened, so vegetable shortening was still a winner as demand remained constant. While Spry was shelved, fine-tuning went on and research into the best promotional approach was initiated.

  THE PRODUCT LAUNCH

  In late 1935, lard and butter prices rose. This created a situation whereby the higher-priced shortening would be more price-competitive. Lever Brothers did not intend to compete with P&G on price, which would be a direct approach. Instead, although it was competing with essentially an identical product, the approach was indirect in the sense that problems with Crisco, recognized by consumers but not by the manufacturer, were all corrected in the new product, Spry. The day it first appeared on the market, therefore, Spry was already free of the problems that Crisco still presented to the consumer.

  Conway economized elsewhere to concentrate and initiate a massive promotional campaign. Until this time, conventional wisdom was to introduce advertising for a new product and let it be assimilated gradually by the consumer. Conway avoided this approach and gave it everything he had from day one. This included door-to-door salesmen distributing sample cans and free Spry cookbooks. Discount coupons and advertising were even put in small-town newspapers. Conway also launched a mobile cooking school that went around the country doing two-hour demonstrations. P&G was stunned, and though it improved its product and manufacturing, it never recaptured the market share it had lost. Conway and Lever Brothers integrated the relevant variables with the principles, and using the resources available, developed and initiated a plan which made Spry a success despite the seemingly overwhelming advantages enjoyed by P&G.

  As Drucker maintained, planning is never easy; however, even seemingly impossible goals that have been well planned can be achieved with the right strategy. Drucker thought through the direction of his own career to use planning and the right strategy to reach the top. No formulae, he simply thought it through.

  1. Follett, Mary Parker. “The Giving of Orders”. Scientific Foundations of Business Administration (1926): 29-37.

  2. Cohen, William A. The Art of the Strategist: 10 Essential Principles for Leading Your Company to Victory (New York: AMACOM, 2004).

  3. Schlender, Brent. “All You Need Is Love, $50 Billion, and Killer Software Code-Named Longhorn: An Up-Close Look at Why Bill Gates Still Holds the Key to Microsoft’s Future”. Fortune, 8 July 2002, https://for.tn/2vt2KfM.

  4. Mathews, Joe and Doug Smith. “Role Reversal: ‘Predator’s’ Prey Stalks Statehouse”. Los Angeles Times, 7 August 2003, A24, https://lat.ms/2vqutOl.

  5. Hansson, Tom, Jürgen Ringbeck, and Markus Franke. “Flight for Survival: A New Operating Model for Airlines”. Strategy+Business, 6 December 2002, https://bit.ly/2M3GwuD.

  6. Inc. Staff. “Instant Gratification: Timing Is the Key when Handing out Motivational Dollars for Morale and Motivation”. Inc. Magazine, January 1989, https://bit.ly/2AQUCLe.

  7. Robert F. Harley, Marketing Successes, 2nd ed. (New York: John Wiley & Sons, Inc., 1990) pp.68-78.

  CHAPTER 15

  BECOME A CHANGE LEADER AND INNOVATE

  Innovation means to create change.

  – Peter F. Drucker

  Drucker wrote that there were only two elements driving any business: innovation and marketing. These two essential ingredients are also essential in self-development and personal success. You will need to do both to reach the top. We look at innovation in this chapter, and personal marketing in the next. Both will help boost you to the top in any environment.

  Drucker maintained that any organization that continued to do what made it successful in the past would eventually fail. The solution for survival and success is to become a change leader and to innovate. He demonstrated that this must be done by individuals as well as organizations. A perusal of Drucker’s many career changes, his drastic shifts in emphasis of his research and conclusions in his analysis demonstrates this. He looked at leadership in the 1950s and concluded that leadership could not be learned or taught. He changed this strong statement drastically to reflect a new belief 40 years later to write the opposite that leadership not only could be learned but must be taught.

  One could also see in his career brief flirtations with small business and entrepreneurship to a major shift from management of large corporations to a brand-new stress on the management of non-profits which lasted to the end of his long career.

  WHAT HAPPENS WHEN ORGANIZATIONS FAIL TO PRODUCE CHANGE LEADERS?

  It is easy to find examples of organizations whose heads failed to become change leaders and the resulting disasters that followed. The parade of once highly successful organizations that have disappeared is almost endless. Ra
ilway companies, once the king of people transportation in the USA, failed, and were largely replaced by the airlines. Their presidents saw their businesses as companies totally synonymous with the instrument they used and not companies producing a need output, transportation. In even more recent memory, companies like Blockbuster Video, Borders Books, Circuit City, Pan American Airways, and Toys “R” Us have all disappeared by failing to adapt and change through innovation.

  In the US, there was failure by a government agency that at one time held all financial resources and was the largest and possibly the most important government agency and the Federal Reserve Board of its day. It was even more powerful in some ways. This was the United States National Bank. The bank was chartered by Congress for 20 years and was needed because of growing inflation due to a major war debt from the War of 1812 and the increasing bank notes issued by state banks. It was a very efficient agency and not only of vast importance when the country was growing but was well managed and popular. In a survey prior to the bank’s demise 20 years later, 126,000 people signed papers supporting the bank’s rechartering versus only 17,000 opposing it. Its existence was most popular among the wealthiest segments of the country.

  The problem was in its organizational structure. When the bank was first chartered, like any ordinary bank its management was answerable to a board, not the President of the USA or Congress. Congress itself favoured rechartering the bank in 1832 and the US electorate generally supported it. However, President Andrew Jackson vetoed the rechartering bill from Congress and withdrew all US funds, which he had the authority to do although theoretically it was the Board which controlled the bank. Almost immediately the once powerful, successful, and well-run National Bank of the United States failed and disappeared from the American scene forever.

  PERSONAL INNOVATION IS EQUALLY IMPORTANT

  Personal innovation is at least as important, as Drucker demonstrated by his own activities. This is not only true for organizations, but as we will see, on much closer related, personal levels, as well.

  THE BRIGHT IDEA

  There is a great danger that we as individuals will be stopped in our advancement without innovation, and if we head an organization, it will not succeed if we don’t innovate, even if we have done well in the past, by any measure are efficient, good managers, and are even liked by our customers, associates, and supervisors. What can we do? Can we call everyone together and have one of those brainstorming sessions that psychologists and others sometimes recommend? Or maybe you, or someone else in the organization, has a sudden bright-sounding idea that can be adopted and that almost everyone in the organization will support without the time wasted on meetings or a more thorough analysis?

  WHY BRIGHT IDEAS FREQUENTLY FAIL

  Drucker thought that the idea of analysing the issue together with others was a possible tactic. However, he cautioned us that there would always be more clever ideas than time, money, and employees available to develop them. At the same time, I learned about his belief that there was always a built-in danger of what he called ‘the bright idea’. The bright idea was his term for an innovation that was not thoroughly evaluated and frequently consisted of ‘blue-sky’ statements that were accepted for development without much real thought or analysis. He did not disagree that one could hit a home run with a single bright idea and he was happy to give us examples of bright ideas that had gone on to make millions of dollars for their originators. But he said that these were exceptions and should be ignored.

  “The problem is,” Drucker said, “that bright ideas are the riskiest and least successful source of innovative opportunities.” He estimated that probably only one in 500 made any money above their investment costs and suggested that relying on the bright idea for innovation was akin to gambling at Las Vegas and was almost certain to lead to comparable results. The correct solution, he maintained, was systematic analysis using seven precise sources of innovative ideas. This, he declared, was purposeful innovation, the kind that all of us must pursue regardless of our speciality, discipline, or functional area. He recommended that we avoid the bright idea.1 And he did so himself. What did he recommend? He championed these seven sources.

  THE FIRST SOURCE: THE UNEXPECTED

  Drucker said that the unexpected was the richest source of opportunity for successful innovation, though this was not only neglected, but frequently actively avoided and rejected, by individuals and managers of all disciplines in many organizations. Unexpected innovation can be adopted to great benefit. During World War II, rubber was in high demand. The enemy controlled the primary sources of rubber and the US was desperate. Synthetic rubber existed but was expensive. In 1943, a GE engineer combined boric acid and silicone oil. The raw goo that resulted couldn’t be hardened and thus it failed as a synthetic rubber substitute. However, the material had strange and unexpected properties. It would bounce when dropped, it could stretch to a rather amazing size without tearing and when pressed against printed images on a newspaper, it would transfer that image. The engineer showed his manager. He wasn’t impressed and told him to discard the material.

  The war ended, and over several years, word of mouth carried the unexpected invention along as a party toy. Then one day an advertising man by the name of Peter Hodgson who was seeking an innovative toy for a client found the product. He invested $147 and packaged the ‘liquid solid’ into one-ounce balls. He gave the product a new name. ‘Silly Putty’ went on to become one of the most successful toys in history and achieved worldwide fame. It made millions and millions of dollars for Hodgson and his backers. Even with toys, innovation is the key to success.

  Or consider Eastman Kodak Company’s engineer, Harry Coover, Jr. He asked a lab associate to try a cyanoacrylate as a heat-resistant polymer for jet plane canopies. The associate accidently destroyed an expensive instrument when he brought two prisms in contact while taking a reading. He thought he would be fired, but instead Coover tried sticking everything together using the polymer. Not only did it work, but the bond was amazingly strong. He realized that through these unexpected results they had stumbled on an extraordinarily strong adhesive. In 1958, Eastman Kodak began marketing the powerful bonding agent now known worldwide as Super Glue.2

  THE SECOND SOURCE: THE INCONGRUITIES

  Incongruities may be unexpected too, but in a different and unique way. You expect a certain result, but instead the opposite occurs. The opposite is the key word. It needn’t be a product; frequently, it has to do with economic results. In the 1950s someone found that companies that dominated markets were more profitable. This led to portfolio management and the well-known Boston Consulting Group’s matrix (the BCG matrix) in which relative high market share was considered desirable and became either a ‘cash cow’ or a ‘shooting star’. So, if you could acquire a large share of the market, success and high profits were yours. The only problem was that the matrix wasn’t working. A small firm with 96 employees called ICS, Inc. looked at this incongruity and uncovered the problem. It depended on how you defined the market and focused on the customer. If a larger company selected too broad a definition, a smaller company could beat a larger one in the market place. So, at a time when mighty IBM dominated large computers, ICS, Inc. concentrated on smaller computers for the educational market and dominated this niche from which IBM then withdrew. That too was a innovation: niche marketing.

  In more recent times, famous coffeemaker Starbucks fell into the trap by concentrating on expansion instead of its customer. Afterwards, CEO Howard Schultz said in an interview with news interviewer Katie Couric, “We made expansion a strategy instead of an outcome of service.”3 The expansion led to great losses until Schultz spotted the problem and turned things around.

  When my West Point classmate Fred Malek was an administrator in the Nixon Administration, he co-conspired with then army major Colin Powell to use the desire for expansion among his fellow politicians that held positions in the Administration to his advantage. Fred had a problem. Appoint
ed to the prominent position of Deputy Director of the Office of Manpower and Budget (OMB), Malek was frustrated. Malek couldn’t get things done quickly because of layers of career bureaucrats who occupied key positions. Early on he spotted then White House Fellow and army major Colin Powell. Malek made Powell his Executive Assistant.4

  I’ll let General Powell pick up the story. “Fred went about gaining control of the government in a way that opened the eyes of this fledgling student of power. … Fred started planting his own people in the key ‘assistant secretary for administration’ slots in major federal agencies. Let the cabinet officials make the speeches, cut the ribbons, and appear on Meet the Press. Anonymous assistant secretaries, loyal to Malek, would run operations day to day, and to the Nixon administration’s liking. … I learned much in Professor Malek’s graduate seminar.”5

  However, bureaucrats already occupied many positions in OMB, and the budget couldn’t be increased for more positions for the young Harvard, Stanford, and Wharton graduates Malek wanted to bring in. So, he thought out of the box again.

  “Thereafter, I started phoning agency officials, explaining that I was calling on behalf of Mr. Malek with good news. Their power was about to be broadened. A function currently being handled by OMB was going to be transferred to their agency … music to any bureaucrat’s ear.”6