Effective management versus efficient management

Are you efficient or are you effective? If you don’t know the difference, then you have not imbibed one of the basic lessons taught by Peter Drucker - by all odds the wisest and most widely followed management thinker of his day. That’s a long day indeed. Now in his 90s, Drucker reckons to have spent 65 years as a consultant, teaching managers, not how to do things right (efficiency), but how to do the right things(effectiveness).

The distinction governs his marvellously lucid writing as well. His powers of analysis and understanding are essentially pragmatic, directing his readers towards behaviours that will make a significant difference to their own work and their organisations. For example, which personality type makes the best chief executive? Should you go for an extrovert or a near-recluse? For an easy-going practitioner of laissez-faire management or a control freak? For a generous person or one who is parsimonious?

Most people would plump for an easy-going, generous extrovert, but with reservations: successful CEOs include not a few reclusive, penny-pinching misers who seek to control everything and everybody. The reservations, according to Drucker, are right. Writing in the Harvard Business Review (June 2004), he says that the best CEOs he encountered in those 65 years were ‘all over the map in terms of their personalities, attitudes, values, strengths and weaknesses’. They were, however, remarkably similar in their behaviours. The key to effectiveness lies in eight of the latter. The winning CEOs…

• asked ‘what needs to be done?’
• asked ‘what is right for the enterprise?’
• developed action plans
• took responsibility for decisions
• took responsibility for communicating
• focused on opportunities rather than problems
• ran productive meetings
• thought and said ‘we’ rather than ‘I’

HOW DO YOU RATE?

How does your own boss (if any) match up to the Eight Elements of Effectiveness? For that matter, how do you? The ineffective manager at any level doesn’t draw up action plans to achieve identified needs; avoids making decisions as long as possible (which may be forever); doesn’t communicate; is beset with (and besets others with) problems; wastes the long time spent in meetings; and uses ‘I’ far more often than ‘we’. That’s hardly surprising, given that their concern for what’s right for the enterprise is subjugated to the more immediate question, ‘what’s right for me?’.

Asking the wrong question is virtually certain to generate the wrong answer - and the wrong behaviour. That word is heard much less often than ‘culture’. But you need to ask why any organisation actually requires to change or reform its culture. The answer is surely to get improved behaviour. Creating a culture that favours entrepreneurial innovation is not an end in itself. But getting people to behave like entrepreneurs and innovators will of itself change the culture in the desired way.

I recently visited three companies, all highly innovative and entrepreneurial, but with wholly different cultures. One retained the characteristics of its relatively recent birth as a high-tech start-up; the culture was permeated through and through by its dependence on winning and retaining customers through more and more advanced technological solutions to their problems and needs. The behaviours that created this culture had been perpetuated by this clear, essential and forceful purpose.

PURPOSE, NOT MISSION

I prefer that word ‘purpose’ to ‘mission’ and ‘vision’ because it enshrines the same positive pragmatism that Drucker preaches. His first element of effectiveness, as noted, is to ask ‘what needs to be done?’ At another of my three recent visits, much the same enquiry was phrased differently by the directors: ‘what is this company for?’ Either way, you end up with a purpose - a clear statement of what has to be done and why. In the case of this second company, advanced technological progress was again indispensable, but this time as a guarantee of economic production of brands capable of bearing a premium price.

The culture therefore hinged on behaviours that persuaded consumers to support this strategy. That need applied across the board - from manufacture to marketing, from finance to retail premises. Behaviour is conditioned by the products, the consumer experience and the retail heartland. Like the high-tech company, this one is customer-focused because there is no sensible alternative - and, in any event, this focus on the consumer was built into the company at its foundation more than a century ago, and had been maintained by its traditions.

These include private family ownership, which excludes certain behaviours - like worrying about the analysts who pontificate on a company’s performance and its share price, for example. Nor can the top managers seek to maximise their personal wealth by maximising the share price. Both these factors are highly pernicious, and are no answer to Drucker’s second question: ‘what is right for the enterprise?’

He stresses that effective executives do not ‘ask if it’s right for the owners, the stock price, the employees, or the executives...they also know that a decision that isn’t right for the enterprise will ultimately not be right for any of the stakeholders’. In the third of the three firms that I visited, the sovereignty of the enterprise is especially evident, since the business is a creature of the British state, managed at arm’s length, and in the process of designing its own destiny.

The entire workforce, from the top to the bottom, is dedicated, not so much to changing its culture, more to building one - much of it from scratch. There’s a foundation in the scientific purpose for which the firm was setup. But the management is in the rare position of being able to develop behaviours without any significant influences from the past. On my observation, Drucker’s eight simple elements are being faithfully followed, which explains and perpetuates an evident and enjoyable addiction to purposeful change.

TWO TASKS AT A TIME

There is, of course, more to the Eight Elements than the basic principles. Thus, ‘what needs to be done’, observes Drucker, ‘almost always contains more than one urgent task’. Human beings, so psychologists say, cannot cope mentally with more than seven things at once.

But in his vast experience, Peter Drucker has ‘never encountered an executive who remains effective while tackling more than two tasks at a time’. The effective approach is therefore to prioritise - only moving on to the next urgent task when the most urgent is completed. This is one aspect of Drucker’s article that needs some qualification. Certain tasks are continuous and never go away - recruitment and promotion, for supreme example. This function should be a constant preoccupation of executives with hire-and-fire power.

If you don’t have the right people in the right slots, other priorities, no matter how urgent, are likely to be mismanaged. Of course, replacing people and filling new roles can sometimes be urgent. But that’s often because the management has failed to give this vital function timely attention.

As it happens, the Eight Elements are very useful in this context. Use the eight as a checklist when taking references (which is never to be neglected), or when rating the qualities of internal candidates. Normally both activities are random and highly subjective. The referee, for instance, chats to you about the person concerned and answers your general questions about their personality and performance. But any negative reply to specific questions on someone’s application of the Eight is an obvious No-No. Would you want to employ a senior person who didn’t take responsibility for decisions or couldn’t run a meeting properly?

Drucker pays particular attention to meetings, on the very reasonable grounds that, according to survey after survey, executives (even junior managers and professionals) spend more than half of every day with others - and he rightly regards a one-on-one talk as ameeting. But there are meetings and meetings. If you want yours to be effective, always ask yourself what kind of meeting is proposed. Is its task…

• to prepare a statement, an announcement or a press release?
• to make an announcement (Drucker lists as example an organisational change)?
• to consider a report by one person?
• to consider reports by several or all of those present?
• to inform the executive who called the meeting?
• to stage a get-together with the leader?

MEETING WITH PURPOSE

You fit the meeting to the purpose. So for the first type, you make sure that somebody drafts the statement before the meeting: and after discussion has finalised the text, somebody must take charge of circulating the agreed words. But what you never do, whatever the nature of the meeting, is to allow inconclusive and rambling debate. Stick to the point of the meeting, and call time when the purpose has been accomplished. Model yourself on Drucker’s favourite executive (‘the most effective...I have ever known’): Alfred Sloan, the true founder of General Motors, and the father of the modern ‘concept of the corporation’.

That’s the title of the book which spread the message of modern management and made Drucker’s reputation. Sloan, who had given the author unprecedented access to GM, disliked the book and was stimulated to write his own My Years with General Motors as a kind of rebuttal. But Drucker’s esteem for Sloan is plainly undimmed. He recounts how Sloan spent three days a week ‘in formal meetings with a set membership’ and another three days in informal meetings with individual executives or small groups.

Sloan started by stating the purpose (that word again) of the meeting. Like John D. Rockefeller I (who would listen lying on a couch with his eyes shut), Sloan ‘rarely spoke except to clarify a confusing point’ and never took notes. Both giants, however, listened intently and remembered what they heard - as proved by their pithy follow-up memos. One from Sloan, sent to all present, would summarise the discussion and its conclusions and record any work decided on, with deadline and name of the executive assigned to it.

THE NINTH ELEMENT

Sloan thus exemplifies the Ninth Element of the effective executive, added by Drucker as a ‘bonus’, but so important that he elevates it to a sovereign rule: LISTEN FIRST, SPEAK LAST. This bonus is slightly puzzling. If it is so valuable, why did this behaviour not make the list in the first place? For that matter, why did picking people (one of Sloan’s supreme skills, as it happens) not figure in the Elements of Effectiveness?

Great executives finally prove their effectiveness by the quality of the businesses and managements that they leave behind. This was a test which Sloan and Rockefeller passed with flying colours - and which many other leaders fail lamentably. At Coca-Cola Roberto Goizueta, by concentrating on adding more value, helped boost the share price by 3,800% in 16 years. But his successor lasted little more than two years as the shares dropped 9%. And the next man up had another two-year reign: the shares fell 5%.

Fortune attributes the failures to incompetence amid an atmosphere of intrigue and jealousies - in other words, bad behaviours. Obeying the Nine Elements yourself, which Goizueta may well have done, gets you nowhere unless you also insist that everybody else behaves likewise - and, if they can’t, they must leave. Otherwise your personal effectiveness will be dragged down by their failures, to nobody’s benefit at all.