Companies & Industries

No Magic Bullet for the Economic Crisis


Managers look for one simple strategy to handle these uncertain times, but Drucker was clear that a single answer is never the answer

With the economy sputtering and the future unclear, managers everywhere are looking for answers. Or, more precisely, many are bent on finding the answer—the single strategy that will allow them to weather these turbulent times.

Is this the moment to scale back? Or is this an opportunity to swallow up assets on the cheap? Should the organization stay the course? Or should it tack in a new direction? To Peter Drucker, the answer to such questions could always be summed up in three words: It all depends.

That may sound dreadfully wishy-washy, especially during a period when so many are groping for a bit of certainty that they can hang on to. But for Drucker, determining what a business should do next was something that only the business itself could figure out through a continuous, "systematic analysis of all existing products, services, processes, markets, end uses, and distribution channels."

When scrutinizing all these dimensions of the operation, one has to ask, "Are they still viable?" Drucker wrote in his 1973 masterpiece Management: Tasks, Responsibilities, Practices. "Are they likely to remain viable? Do they still give value to the customer? And are they likely to do so tomorrow? Do they still fit the realities of population and markets, of technology and economy? And if not, how can we best abandon them—or at least stop pouring in further resources and efforts?"

Think Carefully

With things so shaky in the world today, companies should be working methodically through these complex issues. The tendency, however, is to do just the opposite. As Drucker remarked in a 1997 interview, whenever people are "caught in a period of very rapid change…the feeling is that there must be a right answer" that everyone can easily turn to.

This feeling stems in part from peer pressure. "If a fellow CEO on the golf course says, 'We are using this, and we wouldn't do without it,' you have to do it too," Drucker observed.

Drucker hastened to add that it isn't only executives who fall victim to this sort of lazy thinking. "When I was growing up in Vienna, everybody felt the need to be psychoanalyzed," he recalled. "And there was a time when every child older than 4 years had to have his tonsils out. …The search for the one quick fix is a universal human failing."

In the realm of business, it is a failing that manifests itself in a ceaseless succession of management fads and fashions offered up by a parade of self-styled gurus. "Each evangelist," Drucker asserted, "is quite sure that his own patent medicine cures everything. And it's very hard to get management to ask, 'Is this for us?'"

"bandwagon psychology"

But in truth, there is no panacea. "The stuff that is good for my arthritis," Drucker said, "would not help me at all with a broken leg, even though it's in the same general area."

Notably, it's this "bandwagon psychology," as Drucker called it, which contributed to the crisis in which we're now mired. Rather than diligently tackle the tough questions Drucker suggested—Is what we're doing viable? Does it fit reality?—far too many banking executives were happy to ignore the risks and plunge into the subprime cesspool. The reason for this was obvious: It seemed like a way to get rich fast. And, besides, everybody else was doing it.

Well, not quite everybody. William Taylor, co-author of the book Mavericks at Work, pointed out recently that online banker ING Direct "managed to avoid the march of folly in its industry" by sticking to "plain-vanilla mortgages rather than exotic instruments that sounded too good to be true (and were)." According to Taylor, ING has generated 100,000 mortgages worth $26 billion, while suffering a mere 15 foreclosures.

ING Direct's Chairman and CEO Arkadi Kuhlmann takes pride in being a recusant, building his business on inexpensive, no-frills services and high interest rates. Still, he conceded to Taylor that following the crowd has a definite appeal sometimes. "Every person who tries to do real innovation is going to be tempted by money, greed, acceptance, being in the middle of the action," Kuhlmann said. "But at the core," he explained, "there is one fundamental difference: I know why I'm here. I want to make a difference."

As Taylor sees it—and surely Drucker would have agreed—this is one of the most important and courageous things a manager can do: "resisting an innovation that takes hold in your field when that innovation, no matter how popular with your rivals, is at odds with your long-term point of view."

So what's a manager to do amid such a fragile economy? Take a hard look at your business and, in the context of your mission—and nobody else's—decide what is ripe to pursue and what makes sense to give up. In the end, maybe you'll zig. Maybe you'll zag. Or maybe you'll just stand pat.

"Nine times out of 10," said Drucker, "when you make the diagnosis, you don't operate. You just wait"—and let the bandwagon roll by.

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

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