Once defined, other considerations and strategies could be more readily determined
Photo: **Wikipedia Jan 23
Drucker placed an enormous emphasis on what he called the fundamental business decision. He wrote that deciding what business you were in was the fundamental decision and it was followed by concentrating on the practice of this decision. Neither is an easy task.
Limited Resources and Time Demand Focus
Demands for any business’s resources and time of its members are particularly important. Part of a manager’s job is determining whether an innovation, new idea, invention, or other attraction is an important opportunity or a business distraction that will require an investment in time, resources, effort, and money or can damage the business’s future. Of course, any activity may be a worthy cause and may publicize, promote, and help the business or be a social responsibility which should be adopted. However, all activities outside the fundamental purpose must be examined closely for both positive and negative business impacts before they are implemented.
Management experts are fond of pointing out what can go amiss. One example explains that while railroads once dominated transportation in the U.S., they missed an important opportunity because they failed to define their businesses more broadly, as transportation companies rather than as railroad companies. As airplane technology developed it assumed operations which formerly were performed only by locomotives because of advantages such as speed. Had airplanes been incorporated as a transport vehicle along with locomotives, this might have resulted in transportation companies incorporating both vehicles and become much larger than existing railroad companies, many of which disappeared as airplane technology developed and offered advantages which locomotives could not duplicate.
The Wrong Solution
A company needs also to be careful of a solution to a problem which will damage the organization. One company which developed and manufactured helmets for military aviators faced periodic losses due to the U.S. Government’s purchasing policies which were based on annual approval of funding. When the work was completed, the company waited for the next contract to be approved. Even foreign sales were affected because the Government acted as agent for sales of the product to allied countries. As a result, the workload was a continuous cycle of peaks and valleys in sales and the company always had too many workers during the periods it was inactive while machinery and workers sat idle awaiting contract approval.
It decided that a possible solution was to fill consumer needs for a product line that would substitute for the lack of government sales while awaiting contract approval and the machinery, workers, and raw materials available for manufacture of future government aviator helmets sat idle.
Helmets for motorcyclists appeared to be a solution. Aviator’s protective helmets could also protect motorcyclists and these helmets could be made with the same machinery and by the same workers. However, the two markets were different. For example, the government bought aviator helmets once a year in large quantities. Cyclists bought a single helmet which not only required different standards of protection, but a different product, associated with different marketing, pricing, substantial advertising to both the potential buyer and to retail sellers, and since users themselves, and not the government paid for the product, distribution systems with which the company was unfamiliar. It was not just a question of packaging and giving the helmets a different name. Moreover, protective requirements, because of different types of accident impact, and the need for microphone communication in helmets used by military aviators required design changes in those helmets intended for cyclists.
As a result, differences in product design, manufacturing, and additional investments, were necessary. These necessitated many modifications and unexpected costs in the helmets sold individually to motorcyclists as opposed to aviators with helmets paid for in large quantity by the government.
In addition, what was considered value to the cyclist was different from that of military fliers. The motorcyclist sought similar values such as protection, lightweight and comfort, but these were different from those in helmets providing aviator protection. Even, the price the consumer could afford differed from government products as did advertising, and distributing to reach and sell to individual cyclists most efficiently.
In the end, the company invested several million dollars and produced a much heavier, more protective, but higher-priced motorcycle helmet that few users wanted or could afford to purchase, and the company not only lost money in manufacturing and marketing, but almost went bankrupt in trying to introduce and sell this much more expensive product to the different group of users buying in a totally different sales and user environment.
Information not to be Taken Lightly
Determining what business you are in is the most important factor in creating an organization’s operational strategy, and Drucker knew and taught that knowing this was the responsibility of every business manager. Once defined, other considerations and strategies could be more readily determined. Accurately defining the business and its fundamental purpose will save time, money, and other resources on aspects which add value to the business. At the same time, it will assist in focusing on those opportunities and possibilities that are important to building the business for the future. Until you recognize what business you are in, your organization will commit errors, no matter how effective operations are in other ways. The fundamental decision is related to a constant theme in management and leadership, and since resources of all types are limited, selecting, and concentrating these limited resources and how they will be most effective and provide the most benefit is critical and can only be accomplished after the answer to this fundamental question is determined. Without this important information members of the company may be working on activities that are counterproductive and may harm rather than help the business perform profitably. Time, money, and resources will be wasted and lead to wrong actions.
Nowadays, we may speak of what business we are as a “mission statement.” Drucker had a favorite mission statement. His favorite mission statement was from a very old business. But this mission statement, though not recent and very short, was his favorite for a very important reason. It changed Sears Roebuck from a struggling mail order house which was sometimes close to bankruptcy to the world’s leading retailer within ten years. Simply stated, it was to be the informed and responsible buyer, first for the American farmer and frontiersman, and later for the American family, although of course the statement was modified appropriately over the years.
Everyone Needs to Be Heard
One major reason for hearing from all participants is to gain commitment. Another reason is that many have good ideas and may know something that others do not. By hearing from all, you not only gain commitment to the final business definition, but you can also avoid missing opportunities and escape threats. Drucker noted that for the purpose of deciding on your business, even dissent can be beneficial.
How to Answer the Question: “What is Our Business?”
In consulting employees, you want more than just opinions. You must see the business from the customer’s point of view and as Drucker noted: “in reality it is the customer who defines your business.” So, it’s a good idea to include questioning customers as well to determine:
– Who is the customer?
– Where is the customer located?
– What does the customer buy?
– What does the customer consider to be value?
– Who and what does the customer consult in making the buy decision?
When Should You Ask These Questions?
Most executives don’t consider when to ask questions at all, or if they do it is usually only when they get into trouble or need to initiate an action and then maybe it is too late. A smart executive will ask this question when the business is formed and then periodically afterwards and not wait until he is forced to act.
The Fundamental Decision as to the Business of the Organization Requires General Input:
– It is the primary responsibility of the leader
– The leader shouldn’t make this decision alone but should consult other relevant organizational leaders and customers
– To analyze and get the right answer to the question “What is our business” you must define your customer as did Sears Roebuck.
Arriving at the correct fundamental decision can make the difference between success and failure and will benefit employees, workers, managers, and customers, too.
*Syndicated Internationally
** In the illustration : The Last Spike, by Thomas Hill (1881). The painting depicts the ceremony of the driving of the "Last Spike" at Promontory Summit, UT, on May 10, 1869, joining the rails of the Central Pacific Railroad and the Union Pacific Railroad.
*הכותב ד"ר ביל כהן הנו מומחה בתורת המנהיגות. ד"ר כהן הינו מייג’ור גנרל בדימוס בחיל האויר האמריקאי, בעל תואר דוקטור בניהול מאוניברסיטת קלרמונט. כתב למעלה מ- 50 ספרים שתורגמו ל- 22 שפות בנושאי ניהול ומנהיגות. ביל כהן שימש כיועץ בעמדות בכירות וכמרצה באוניברסיטאות הטובות בארה”ב בינהן ביה”ס לניהול באוניברסיטת קלרמונט וב-UCLA. בנוסף, הוא מעביר הרצאות וסמינרים בנושא מנהיגות בכל זרועות הצבא האמריקאי ובאקדמיה הצבאית וזכה בפרסים על הרצאותיו בעולם. מעבר להיותו גנרל בצבא ארה”ב, ד”ר כהן הנו בעל דרגת רב סרן בחיל האויר הישראלי והשתתף בקרבות אוויר במלחמת יום כיפור. שימש בתפקידי ניהול בכירים במספר חברות וכיהן כנשיא של שתי אוניברסיטאות פרטיות. ביל כהן היה חבר דירקטוריון במספר מועצות מנהלים ומועצות סחר עירונית, ממשלתיות ושל תאגידים שונים.ביל כהן היה תלמידו הישיר לדוקטוראט של פיטר דרוקר אבי תורת הניהול המודרנית שאמר עליו בין היתר כי ” ביל כהן היה סטודנט אשר אני והקולגות שלי למדנו ממנו לפחות כפי שיכולנו ללמד אותו”.
ד"ר ביל כהן הוא נשיא המכון לאמנות המנהיגות, מייסד ונשיא לשעבר של המכון ללימודי ניהול מתקדם בקליפורניה CIAM וחבר בצוות המומחים של קבוצת ד"ר עדנה פשר שות'
קבוצת ד"ר עדנה פשר ושות' היא הנציגה הבלעדית של תוכנית CIAM בישראל
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