The Drucker Difference

A Company Is More Than Its CEO


It's hard to read recent issues of The Atlantic and Harvard Business Review and not see one as a counterpoise to the other: "Do CEOs Matter?" asks a headline in the former. "What Only the CEO Can Do" trumpets a headline in the latter.

At a glance, there appears little question as to which of the two essays Peter Drucker would have found most persuasive. The piece in May's HBR was authored by none other than A.G. Lafley, the chief executive of Procter & Gamble (PG) and a Drucker disciple. Indeed, many of Lafley's insights are based on what he learned from Drucker.

But it's doubtful that Drucker would have dismissed the June Atlantic article out of hand. Written by Harris Collingwood, it asserts that "the American obsession with who sits at the top of the organizational chart has gone much too far."

We should be skeptical, Collingwood suggests, that the CEO possesses "supreme importance" and are right to challenge "the indispensability" of any single executive—even one as lionized as Warren Buffett or Steve Jobs.

What we've adopted as a culture "is Carlyle's Great Man theory of history, painted on a corporate canvas," Collingwood writes—and it's often used to try to justify inordinately "big pay packages."

Too Much for One Person

On all of this, Drucker surely would have agreed. At the very heart of his philosophy, after all, lies the notion that the magic of management is to "make people capable of joint performance." Running any enterprise is, inherently, a team sport. No one person, no matter how capable, can handle it alone. For one thing, there's simply too much to do. "An unlimited supply of universal geniuses could not save the one-man chief executive concept unless they could also bid the sun stand still in the heavens," Drucker wrote in his 1954 classic The Practice of Management.

Beyond that, nobody—not even the CEO—is good at everything. "Strong people," Drucker pointed out, "always have strong weaknesses, too." In the end, then, having "chief executive" embossed on your business card is "not about being less or more important," Drucker wrote in his book Managing in the Next Society, "but differently important."

Which takes us back to the pages of The Atlantic and, in turn, HBR. For his part, Collingwood cites several academic studies that have concluded "external forces influence corporate performance far more than CEOs do." Yet for Drucker (and, by extension, Lafley), this is precisely the point: The first task of the CEO is to size up those external forces and decide how best to react to them.

"The CEO is the link between the Inside, i.e., 'the organization,' and the Outside—society, the economy, technology, markets, customers, the media, public opinion," Drucker declared in 2004. "Inside, there are only costs. Results are only on the outside."

Recalling these very words, Lafley says they helped him determine "which external constituency mattered most" for P&G, namely, the customer. While this may seem obvious, Lafley notes, P&G had started "losing touch with consumers" before he took the helm in 2000. At headquarters in Cincinnati, "employees were glued to their computers" and "mired in internal meetings with other P&Gers.… Too often we were working on initiatives consumers did not want and incurring costs that consumers should not have to pay for."

Now, Lafley explains, "everywhere I go, I try to hammer home the simple message that the consumer is boss. We must win the consumer value equation every day at two critical moments of truth: First, when the consumer chooses a P&G product over all the others in the store; and second, when she or a family member uses the product and it delivers a delightful and memorable experience—or not."

Information from "Outside"

To help maximize the chance for success, says Lafley, "almost every trip I take includes in-home or in-store consumer visits. Virtually every P&G office and innovation center has consumers working inside with employees. Our employees spend days living with lower-income consumers and working in neighborhood stores." Such activities capture beautifully what Drucker described as the second specific task of the CEO: "to think through what information regarding the Outside is meaningful and needed for the organization, and then to work on getting it in usable form."

Many businesses mistakenly view this exercise in parochial terms. "Toy makers tend to define the Outside as their toy-maker competitors," Drucker wrote. "But the most meaningful competitors for the toy maker are not other toy makers but other claimants on potential customers' disposable dollars.… Customer research, in other words, may be more important than market research."

It is only after the CEO has adequately assessed the Outside, according to Drucker, that he or she is poised to tackle the other aspects of the job: answering the fundamental questions, "What is our business? What should it be? What should it not be?"; judging which results are most relevant for the institution; deciding between "short-term yields and deferred expectations"; picking priorities—and resisting the incessant pressure "to do a little bit of everything"; and placing the right people into key positions.

So, go ahead and read Lafley's article to understand what being a CEO is all about. But just in case you find yourself intoxicated by the title, keep The Atlantic handy, too. It'll sober you right back up.

Rick Wartzman is the executive director of the Drucker Institute at Claremont Graduate University.

Wartzman
Rick Wartzman is the executive director of the Drucker Institute at Claremont Graduate University.

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