I’ve been keeping this quotation in my Ideas folder for quite some time:
1. What is the manager’s job?
It is to direct the resources and the efforts of the business toward opportunities for economically significant results. This sounds trite—and it is. But every analysis of actual allocation of resources and efforts in business that I have ever seen or made showed clearly that the bulk of time, work, attention, and money first goes to problems rather than to opportunities, and, secondly, to areas where even extraordinarily successful performance will have minimal impact on results.
2. What is the major problem?
It is fundamentally the confusion between effectiveness and efficiency that stands between doing the right things and doing things right. There is surely nothing quite so useless as doing with great efficiency what should not be done at all. Yet our tools especially our accounting concepts and detail focus on efficiency. What we need is (1) a way to identify the areas of effectiveness (of possible significant results), and (2) a method for concentrating on them. —Peter S. Drucker, https://hbswk.hbs.edu/archive/peter-drucker-on-managerial-courage
Until today I’d see the file; sometimes I’d even open it and reread it. I’d shake my head and go on to something else.
Why I never read Drucker when I was at Wharton is a mystery. (Probably for the same reason the entire Western world ignored Deming.—KD) It’s not just his well–reasoned and well–written ideas. Drucker continues to be clear and concise when he lays out the limit of his ideas. In this piece on managerial courage he says, “I know of no [third job of management].”
I was attracted to this piece for an entirely different reason. “You can’t manage what you can’t measure” is attributed to Drucker, if only because of his insistence on setting measurable goals. Accordingly, I was always troubled by his assertion that accountants don’t supply information that management needs. I finally found that perspective in these words.
We’ve all cursed the bean counters when we’re required to choose efficiency at the expense of all other goals. We blame the bean counters because they provide the data to support the emphasis on efficiency. We should blame those who choose the easy decision.
And while we blame the bean counters, we ignore much of the information they actually provide. A complete set of financial statements includes four reports: the balance sheet, the income statement, the cash flow statement, and the statement of changes in equity. That’s more than just a list of expenses.
Is the opportunity under consideration a new product? That opportunity will increase revenues and expenses. It may require investments in new production facilities and markets. The evaluation will require projecting revenues, expenses, and investments. The current revenue, expenses, and investments are set forth in those financial statements.
Is the opportunity a new market? Like a new product, it will require investments, and we must project those new revenues and expenses.
Is the opportunity new technology? Like a new product or new market, it will require investments and a projection of revenue and expense.
The key phrase from Drucker is “opportunities for economically significant results.” This is not economics; it’s management, and economic significance is measured by accountants, as are the investments we must make to pursue the opportunity.
Don’t let the pursuit of efficiency cost you good opportunities to make money.