The Third Important Thing: What are the Strengths of Your Company?
The third thing to say is: we need to understand what we now call the core competencies of your organization.
What are we really good at? That also requires something you shouldn’t do. You probably, by now, all have beautiful methods of capital allocation. Before you make a decision to invest, you make thirty studies and you may be advanced enough to use all four ways we know to analyze a capital investment. When I started in business almost 70 years ago, we used these methods which were in every book, but we could not apply them because it would have required hundreds of clerks. Now, using even the simplest of personal computers, PCs, it takes five minutes, so you use all the methods. And one thing you never do – you do not write out what we expect when we spend this amount of money on building a new plant, on building a new service organization or work on a new product or service.
What do we expect? You do not build in the feedback three years later or five years later, to see what you do; the result is that you do not know what you are good at, and you work on the things you are not good at rather than use your strengths. What do our customers pay us for? Why do they buy from us? In a competitive, non-monopolistic market, and that is what the world has become, there is absolutely no reason why a customer should buy from you rather than from your competitor. None. He pays you because you give him something that is of value to him. What is it that we get paid for? You may think this is a simple question. It is not.
I have now been working with some of the world’s biggest manufacturers, producers and distributors of packaged consumer goods. All of you use their products, even in Slovenia. I have been asking that question now for a year. We have two kinds of customers: one, of course, is the retailer and, if that soap or that detergent or that mayonnaise is not on the retailer’s shelves, the housewife won’t buy it. And so the customer, of course, is the housewife. What do they pay us for? I do not know how many people in the world make soap, but there are a great many. And I can’t tell the difference between one kind of soap or the other. And why does the buyer have a preference, and a strong one, by the way? What does it do for her?
Why is she willing to buy from us when on the same shelves in the US or in Japan or in Germany there are soaps from five other soap manufacturers? She usually does not even look at them. She reaches out for that soap. Why? What does she see? What does she want? Try to work on this. Incidentally, the best way to find out is to ask customers, not by questionnaires but by, again, sitting down with them and finding out. The most successful retailer I know in the world is not one of the big retail chains. It is somebody in Ireland, a small country about the size of Slovenia.
This particular company is next door to Great Britain with its very powerful supermarkets and all of them are also in Ireland; and yet this little company has maybe 60% of the sandwich market. What do they do? Well, the answer is that the boss spends two days each week in one of his stores serving customers, from the meat counter to the check-out counter, to being the one who puts stuff into bags and carries it out to the shoppers’ automobiles. And he knows what the customers pay for. Let me say this may all sound very simple to you. It is not. It is infinitely more important than any other management tool.
Cost Accounting is Obsolete
Yes, within the next 10 to 15 years we are going to change our basic information systems and fundamental changes will come to accounting which is, now, more than 700 years old, and totally obsolete.
We are developing very new accounting concepts, and our accounting in 15 years hence will look very different. In the 70 years I have been working, it hasn’t changed at all or very little, but in the next 15 it will improve. And we are totally changing manufacturing and going towards lean-manufacturing or whatever you want to call it. It is going to view manufacturing very differently not as a way of moving material but as a way of organizing, building around the flow of the process; really building around information. I am up to my ears in working with medium-sized companies, mostly on this, and it is amazing work.
Although we already know how to move, I am not saying we are through; but we are getting there. Take a big market, the world market for locomotives, and take a very big market like China or India. They have to rebuild the railways and we, in the US, also have to rebuild them. Only 10 years ago there were very few locomotive manufacturers in the world – mainly four big ones. The one that was the smartest 10 years ago is now by far the biggest, and makes as many locomotives as the other three put together by change in the manufacturing process, not automation.
That’s almost unimportant, yes – there are thoughts required on automation, but fundamentally they saw through what a locomotive is and organized the process around the end product. And now they have one-half of the world market. It took them 15 years. I have been working with them for 15 years and they have worked very hard but they have changed a lot.
All these are very important things. But let me go back to the beginning: the place to start managing is not in the plant and it is not in the office. You start with managing yourself by finding out your own strengths, by placing yourself where your strengths can produce results and making sure that you set the right example (which is basically what ethics is all about), and by placing your people where their strengths can produce results.
[LECTURE BY PETER DRUCKER ON THE OCCASION OF THE 10TH ANNIVERSARY OF THE IEDC]