PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Peter Drucker: 15 Insights on Entrepreneurship, Innovation and Management

By at 25 October, 2018, 8:34 pm

Small Business Insider – Business Success Strategies

by Raymond J. Keating-

During the ten years that I taught MBA students, I turned to Peter Drucker as a go-to source for business wisdom and insights. That’s not unique. After all, Drucker, who died in 2005 at the age of 95, had once been called by BusinessWeek as “the man who invented management.”

From the 1930s to the early 21st century, Drucker provided sound analysis in a variety of areas, including the role of the CEO, teams in the workplace, costs, profits, pricing, hiring and firing, business turnarounds, demographics, and seemingly countless additional subjects related to managing people and organizations.

That included Drucker’s valuable thinking on entrepreneurship and innovation. Without doing justice to a lifetime of work, I’ve picked out 15 perceptive quotes that require reflection by entrepreneurs, while perhaps pointing the way to delve further into the wisdom of Peter Drucker.

1.) On what entrepreneurs do: “This defines entrepreneur and entrepreneurship – the entrepreneur always searches for change, responds to it, and exploits it as an opportunity.” – from Peter F. Drucker’s book Innovation and Entrepreneurship: Practice and Principles

2.) On managing and innovating: “Management and entrepreneurship are only two different dimensions of the same task. An entrepreneur who does not learn how to manage will not last long. A management that does not learn to innovate will not last long.” – Peter F. Drucker, as quoted at www.azquotes.com

3.) An example of entrepreneurship: “McDonald’s … was entrepreneurship. It did not invent anything, to be sure. Its final product was what any decent American restaurant had produced years ago. But by applying management concepts and management techniques (asking, What is ‘value’ to the customer?), standardizing the ‘product,’ designing process and tools, and by basing training on the analysis of the work to be done and then setting the standards it required, McDonald’s both drastically upgraded the yield from resources, and created a new market and a new customer. This is entrepreneurship.” – from Peter F. Drucker’s book Innovation and Entrepreneurship: Practice and Principles

4.) On pricing: “The worship of premium pricing always creates a market for the competitor. And high profit margins do not equal maximum profits. Total profit is profit margin multiplied by turnover. Maximum profit is thus obtained by the profit margin that yields the largest total profit flow, and that is usually the profit margin that produces optimum market standing.” – from “Drucker on Management: The Five Deadly Business Sins” by Peter F. Drucker, The Wall Street Journal, originally published Oct. 21, 1993 and updated November 18, 2009

5.) More on pricing: “[M]ispricing a new product by charging ‘what the market will bear.’ This, too, creates risk-free opportunity for the competition. It is the wrong policy even if the product has patent protection. Given enough incentive, a potential competitor will find a way around the strongest patent.” – from “Drucker on Management: The Five Deadly Business Sins” by Peter F. Drucker, The Wall Street Journal, originally published Oct. 21, 1993 and updated November 18, 2009

6.) On making people decisions:The CEO places people into key positions. This, in the last analysis, determines the performance capacity of the institution. Every organization says, ‘We have better people.’ But this is, of course, impossible. Once an organization grows beyond a handful of people, it is subject to statistics’ most ruthless law: the law of the great number, which dictates that there is only ‘normal distribution.’ What differentiates organizations is whether they can make common people perform uncommon things — and that depends primarily on whether people are being placed where their strengths can perform or whether, as is only too common, they are being placed for the absence of weakness. And nothing requires as much hard work as ‘people decisions.’ The only thing that requires even more time (and even more work) than putting people into a job is unmaking a wrong people decision. And again, critical people decisions only the CEO can make.” – from “The American CEO” by Peter F. Drucker, The Wall Street Journal, updated December 30, 2004

7.) Innovation is systematic: “What all the successful entrepreneurs I have met have in common is not a certain kind of personality but a commitment to the systematic practice of innovation. Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.” – from “The Discipline of Innovation” by Peter F. Drucker, Harvard Business Review, August 2002

8.) Big guys losing to innovators: “Established companies, concentrating on defending what they already have, tend not to counterattack when a newcomer challenges them. Indeed, when market or industry structures change, traditional industry leaders again and again neglect the fastest growing market segments. New opportunities rarely fit the way the industry has always approached the market, defined it, or organized to serve it. Innovators therefore have a good chance of being left alone for a long time.” – from “The Discipline of Innovation” by Peter F. Drucker, Harvard Business Review, August 2002

9.) Opportunities due to demographic changes: “Indeed, the innovation opportunities made possible by changes in the numbers of people— and in their age distribution, education, occupations, and geographic location—are among the most rewarding and least risky of entrepreneurial pursuits.” – from “The Discipline of Innovation” by Peter F. Drucker, Harvard Business Review, August 2002

10.) It’s ultimately about hard work: “In innovation, as in any other endeavor, there is talent, there is ingenuity, and there is knowledge. But when all is said and done, what innovation requires is hard, focused, purposeful work. If diligence, persistence, and commitment are lacking, talent, ingenuity, and knowledge are of no avail.” – from “The Discipline of Innovation” by Peter F. Drucker, Harvard Business Review, August 2002

11.) Opportunity must be the primary focus: “Focus on opportunities, not problems. In most companies, the first page of the monthly management report lists key problems. It’s far wiser to list opportunities on the first page and leave problems for the second page. Unless there is a true catastrophe, problems are not discussed in management meetings until opportunities have been analyzed and properly dealt with.” – from “The Rules of the Executive Class” by Peter F. Drucker, The Wall Street Journal, updated June 1, 2004

12.) Decisions on hiring: “Take responsibility for decisions. This is particularly important when it comes to hiring or promoting people. If after promoting a person, the decision has not had the desired results, executives don’t conclude that the person has not performed. They conclude, instead, that they themselves made a mistake. In a well-managed enterprise, it is understood that people who fail in a new job, especially after a promotion, may not be the ones to blame.” – from “The Rules of the Executive Class” by Peter F. Drucker, The Wall Street Journal, updated June 1, 2004

13.) Action or a prisoner? “Develop action plans. The action plan is a statement of intentions rather than a commitment. It should be revised often, because every success creates new opportunities. So does every failure. Napoleon allegedly said that no successful battle ever followed its plan. Yet Napoleon also planned every one of his battles, far more meticulously than any earlier general had done. Without an action plan, the executive becomes a prisoner of events.” – from “The Rules of the Executive Class” by Peter F. Drucker, The Wall Street Journal, updated June 1, 2004

14.) No family favoritism in the family business: “Family members working in the business must be at least as able and hard-working as any unrelated employee. In a family-managed company, relatives are always ‘top management,’ whatever their official job or title. On Saturday evenings they sit at the boss’s dinner table and call him ‘Dad’ or ‘Uncle.’ Mediocre or lazy family members are therefore — rightly — resented by non-family co-workers, and respect for top management and the business as a whole rapidly erodes. Capable non-family people will simply not stay, and the ones who do soon become courtiers and toadies. It is much cheaper to pay a lazy nephew not to come to work than to keep him on the payroll.” – from “Drucker on Management: How to Save the Family Business” by Peter F. Drucker, The Wall Street Journal, updated November 19, 2009

15.) Why not actually teach about most businesses, i.e., family businesses? “Management books and courses deal almost entirely with the publicly owned and professionally managed company. Yet the majority of businesses everywhere — including the U.S. — are owned and run by family members. They even include some of the world’s largest companies.” – from “Drucker on Management: How to Save the Family Business” by Peter F. Drucker, The Wall Street Journal, updated November 19, 2009

Peter Drucker ranks as one of the leading thinkers when it comes to business and management, and for good reason. Entrepreneurs and managers should tap the rich resources left behind by “the man who invented management.”

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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