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The Change Leader, according to Peter Drucker

We must accept that change is like “death and taxes” – it should be postponed as long as possible and no change would be vastly preferable, outlines Drucker.

Certainly, it’s painful and risky, and above all requires a lot of hard work. Unless an organization sees that its task is to lead change – whether a business, a university or a hospital, etc. – it will not survive.  In a period of rapid structural change the only organizations that survive are the change leaders, Drucker concludes.

To this author, a change leader sees change as an opportunity, seeks and knows how to find successful changes and how to make the most of them both inside and outside the organization.  This requires the following strategies:

  • Policies to create change.
  • Systematic methods to look for and to anticipate change.
  • Know the right way to introduce change inside and outside the organization.
  • Policies to balance change and continuity.

Listed below we summarize some aspects Drucker proposes for each one of these factors:

1. Policies to create change

Achieving openness to innovation in an organization is far from enough to become a change Leader. It can even be distracting,  because in order to be a change leader you need the will and the ability, to both alter what is already underway as well as doing new and different things.

The first policy – and the foundation to all other – is the need to abandon yesterday, a planned abandonment. The first requirement is to free resources from being committed to maintaining what no longer contributes to performance, and no longer produces results. It is not possible to create tomorrow unless one first sloughs off yesterday. However,  doing things differently always clashes with unexpected problems. For this reason, leadership must be exercised by people with great and proven capacity.

A change leader makes each product, each service, each project, each procedure,  “stand trial” and sentence them to life or death. And this should be done on a regular basis,  based on the following question: “If we were not doing this already, knowing what we know now, would we get into it now?”. If the answer is no, the reaction can’t be “let’s have another assessment”, but “What do we do now?”.

In these three cases, the right action is always outright abandonment, according to Drucker:

If a product, service, market or process “still has a few good years of life”. These dying products, services, or processes always demand the greatest care and the greatest efforts. They tie down the most productive and ablest people. But equally, a product, service or process should be abandoned if the only argument for keeping it is “It is fully written off.” The question should not be “How much have they cost?” but ” How much will they yield?”.

The third case where abandonment is the right policy – and the most important one-  is the one where, for the sake of maintaining the “old” or declining product, service, market or process the “new” and growing product, service or process is being stunted or neglected.

Abandonment may come in many forms. The right solution may be doing more of the same, but doing so in a different way.

That is why, after defining “what must be abandoned.”, the second question the change leader must ask is  “how to do it?”. Therefore he must ask himself the following question in reference to each product, service or process: “If we were to launch into this now, knowing what we know,  would we do so in the same way as we are currently doing it?”.

According to Drucker, this is a question the change leader needs to ask in relation to each successful product, service or process with the same seriousness and consistency as with unsuccessful products, services or processes.

This applies to all areas of the enterprise. But it applies with particular force to an area that many enterprises tend to neglect: distributors and distribution channels. In a time of rapid change distributors and distribution channels tend to change faster than anything else. And it is also on distributors and distribution channels that the “information revolution” is likely to have the greatest impact, as Drucker points out. The most obvious example is the impact of the e-commerce incursion on commercialization and marketing approaches and practices. Some data to illustrate this took place in the U.S. by the late 90s, more than half the purchases in the automotive industry were made over the Internet, relegating dealers to mere sale points.

The following policy for a change leader is what Drucker calls planned innovation, what Japanese know as “Kaizen”. This implies that whatever an enterprise does internally and externally needs to be improved systematically and continuously: products, services, processes, marketing, technology, training and development of people, use of information. Such improvements must be carried out at a preset annual rate: In most areas, as the Japanese have shown, an annual improvement rate of 3 percent is realistic and achievable.

However, continuous improvement requires an important decision.  What is “performance” in a given aspect? If we seek to improve performance – and this is naturally the goal of continuous improvement – we then need to define the meaning of “performance”. The essence here is to start from what is most valuable for customers, not limited to the quality of the product, but also considering services, speed, post-sale services, guarantee and others.

The other policy that a change leader must establish is the so-called exploitation of success. Drucker criticizes the “monthly reports” that most organizations perform and focus on highlighting problems, arguing that “problems can’t be ignored, and critical ones must be tackled. To be a change leader, companies have to focus on opportunities. They must starve problems and feed opportunities.”

In this regard, Drucker suggests a small but fundamental procedural change, an additional “first page” in the monthly report that should focus on results that are better than expected, whether in terms of sales, revenue, profits or volume.  Organizations that succeed as change leaders dedicate a whole morning or a full day to opportunities, and after that, they dedicate a second morning to problems.

Enterprises that succeed in being change leaders make sure they staff opportunities, they focus on the ablest most performing people, acknowledge them and assign them tasks that constitute the best opportunities. According to Drucker, this means that the first opportunity for successful change is making the most out of one’s own success and build on it.

The best example is the Japanese company Sony, it has built itself into one of the world’s leaders in a number of major businesses by systematically exploiting one success after the other. All Sony’s electronic products are based on a product that was not invented by Sony:  the magnetic tape recorder, making the most out of success they took the opportunity to improve the design into their following product and another after that, all based on the first products success and so on.


2. Systematic methods to look for and to anticipate change (Creating change)

Drucker holds that without the abandonment, improvement and success exploitation policies, no organization can expect to be a successful innovator. However, to be a successful change leader you must have a systematic innovation policy,  this promotes creating a company mindset towards becoming change leaders. This makes the entire organization to deem change as an opportunity.

In view of the above the company needs a systematic policy to find, every six or twelve months, changes that can result in opportunities within the aspects the specialist considers ” windows of opportunity”,  and point out the following:

The organizations own unexpected successes and unexpected failures, as well as competitors’ successes and failures. Incongruities in the process, whether productivity or distribution or customer’s behavior.

  • Process needs
  • Changes in the market and industry structure
  • Changes in demographics
  • New Knowledge

A change in any one of these areas raises the question:  “Is this an opportunity for us to innovate, that is,  to develop different products, services, processes? Does it indicate new and different markets and/or customers? New and different technologies? New and different distribution channels: Innovation can never be risk-free. But if innovations based on exploiting what has already happened it is far less risky than not to innovate by exploiting these opportunities.

Innovation is not a “flash of genius” It is hard work. And this work should be organized as a regular part of every unit within the enterprise, and of every level of management, Drucker makes clear.

What not to do? There are three traps to avoid, into which change leaders fall again and again.

The first trap is an innovation opportunity that is not in tune within certain realities discussed, this means, any identified opportunity must correspond to the trends in the company’s environment, in technological, economic, demographic, social and political aspects.

The second trap is to confuse “novelty” with “innovation.” The test of an innovation is that it creates value. A novelty only creates amusement. Yet, again and again, managements decide to innovate for no other reason than that they are bored doing the same thing or making the same product day in and day out. The question to consider on innovation-  besides the “quality” test- is not: “Do we like it?” It’s: “Do customers want it and will they pay for it?”

The third trap is confusing motion with action. Typically when a product, service or process no longer produces results and should be abandoned or changed radically, management “reorganizes.” Reorganization is often needed. But it comes after the action, that is, after the “what” and the “how” have been faced up to. By itself, reorganization is just “motion” and no substitute for action.

These three traps are so attractive that every change leader can expect to fall into one of them. There is only one way to avoid them, or to extricate oneself if one has stumbled into them: to organize the introduction of change, that is, to PILOT,  according to Drucker.


3. The right way to introduce change both inside and outside the organization (Piloting)

Enterprises increasingly use all kinds of market research and customer research to limit, if not eliminate, the risks of change. But one cannot market research the truly new. But also nothing new is right the first time. Invariably, problems that nobody even thought of crop up. It is almost a “law of nature” that anything that is truly new, whether product or service or technology, finds its major market and its major application not where the innovator and entrepreneur expected, and not for the use for which they designed the product, service or technology. And that, no market or customer research can possibly discover, states Drucker.

Neither studies, nor market research, nor computer modeling are substitutes for the test of reality. Everything improved or new needs therefore first to be tested on a small scale, that is, it needs to be piloted. The way to do this is to find somebody within the enterprise who really wants the new. Everything new needs a champion. It needs somebody who says: “I am going to make this succeed”, and who then goes to work on it. This person needs to be someone the organization respects. This need not even be somebody within, it could be a customer.

If the pilot test is successful – it finds the problems nobody anticipated but also finds the opportunities that nobody anticipated, whether in terms of design, of market, of service – the risk of change is usually quite small. And, it is usually also quite clear where to introduce the change, and how to introduce it, that is, what entrepreneurial strategy to employ.

Finally, successful change leadership requires appropriate accounting and budget policies.  It requires TWO separate budgets, Drucker makes clear. In most enterprises, there is only one budget, and it is adjusted to the business cycle.  In good times expenditures are increased across the board, In bad times expenditures are cut across the board. This, however practically guarantees missing out on the future.

The change leader’s firs budget is an operating budget that shows the expenditures to maintain the present business. This is normally 80 to 90 percent or so of all expenditures. The budget should always be approached with the question: “What is the minimum we need to spend to keep operations going?” And in poor times it should, indeed, be adjusted downward (though in good times most of it, probably, should not be adjusted upward, and certainly no more than volume and/or revenues increase).

And then the change leader has a second, separate budget for the future”. This budget remains stable throughout good times and bad times. It rarely amounts to more than 10-12% of an enterprise’s total expenditures. Very few of the expenditures for the future produce results unless maintained at a stable level over substantial periods. This goes for work on new products, new services, and new technologies; for the development of markets and customers and distribution channels, and above all, for the development of people.

The “future budget” should be approached with the question: “What is the maximum this activity can absorb to produce optimal results?” The amount should be maintained in good times or bad- unless times are so catastrophic that maintaining expenditures threatens the survival of the enterprise, suggests Drucker.

Now, the author alerts, the future budget also should include expenditures to exploit success. The most common, but also the most damaging, practice is to cut back on expenditures for successes, especially in poor times, so as to maintain expenditures for ongoing operations, and especially expenditures to maintain the past. The argument is always: “This product, service or technology is a success anyhow; it doesn’t need to have more money put into it.” But the right argument is: “This is a success, and therefore should be supported to the maximum possible.”  And it should be supported, especially in bad times, when competitors are likely to cut spending and therefore likely to create an opening.


4. Policies to balance change and continuity

The traditional institution is designed for continuity. It also explains why existing institutions face resistance to change. For traditional institutions, this is a contradiction in terms. Change leaders are, however, “designed” for change. And yet they still require continuity. People need to know where they stand. They need to know what they can expect. They do not function if the environment is not predictable, not known. But continuity is equally needed outside the enterprise. The enterprise also has to have a “personality” that identifies it among its customers and in its markets.

Therefore Drucker states, change and continuity are thus poles rather than opposites. The more an institution is organized to be a change leader, the more it will need to establish continuity internally and externally, the more it will need to balance rapid change and continuity. This balance will predictably be one of the major concerns of tomorrow’s management. But we do know already a good deal about how to create it. Some institutions are already change leaders and have tackled the problem, though not always solved it.

One way is to embrace the idea of partnerships in change as the grounds for continuing relationships. This is what the Japanese have done regarding the relationship between supplier and manufacturer, and what is now adopted fast in American business through “Economic-Chain Accounting” and is facilitated due to computer network interconnections. 

But relationships within the enterprise are also increasingly going to be partnerships – with employees of the organization, with people who work for an outsourcing firm but who are actually members of the enterprises own working teams. Balancing change and continuity requires continuous work on information. Nothing disrupts continuity and corrupts relationships more than poor or unreliable information. It has become routine for any enterprise to ask in the face of change, even the most minor one: “Who needs to be informed of this”?

It has to be a firm rule in any enterprise that wants to be successful as a change leader, that there are no surprises. Above all, there is a need for continuity in respect to the fundamentals of the enterprise: its mission, its values, its definitions of performance and results.

Finally, the balance between change and continuity has to be built in compensation, recognition and rewards. We long ago learned that an organization will not innovate unless innovators are properly rewarded. Similarly, we will have to learn, that an organization will have to reward continuity by considering, for instance, people who deliver continuing improvement are highly valuable to the organization, and as deserving of recognition and reward as the genuine innovator.

Loneliness in Leadership

Being the boss is fine… or probably not so. As a general rule, you earn more money, make the decisions you want and do not depend on others. But, at the other end of the scale- the exercise of power, generally, carries the heavy burden of loneliness. What can you do to avoid it?

If you are not ready to come to terms with loneliness, then you better get another job, in which other people make decisions for you. When you take on the challenge of creating or directing a company, you know perfectly well what the position entails,” states Mª Angeles Tejada, CEO at Select Group, a temporary employment company.

In her opinion, that ‘loneliness in power’ is very much related to the responsibility undertaken: “Ultimately, managing means making decisions. People are afraid of making mistakes, failing or being rejected; everything is fine as long as you are not committed to something, but as soon as you express your opinion you are a prisoner of your own words. This is the main reason why young people have a hard time calling the shots and taking risks.

“Loneliness in Leadership”  is a fact,  so you rather tackle it sooner than later. And it becomes present in many different scenarios and situations, some  are  memorable –  and can be overcome with more or less difficulty –  others can become mayor problems if they are not handled with great skill and in due time. How many leaders can say they have not felt ousted or ignored when approaching, for example, the coffee machine, and subordinates lower the tone of their voice or change the topic of their conversation? Or when making decisions that may affect employees, hasn’t felt they were carrying a huge burden on their backs? Or has felt compelled to put personal concerns aside, avoid revealing potential weaknesses that makes one look vulnerable in the eyes of others. Or when questioning whether it is convenient or not to have friends within the team they lead. Or when…These are only some of the many assumptions we analyze throughout this article. And with the cooperation of several experts consulted, we suggest how to avoid and address situations in order to mitigate or suppress permanently any concern on loneliness.

1. Distrust

A good leader must inspire confidence, but also needs to know when to keep proper distance. Therefore, one of the main symptoms in leader’s loneliness is the mistrust it may generate in some employees. Miguel Bonet, advisor at Select, explains this with an anecdote: “One of my friends that worked in a furniture company would tell me, ever since he had been promoted to manager, no one ever asked him to join them for a smoking break.

Suggestion: Jose Manuel Casado, Talent & Organization Performance and Partner at Accenture, believes there are many privileges in being a leader, and many responsibilities as well. One of them is the need to earn the trust of those working for you. “This is essential in order to accomplish a real commitment towards what your employees do”. However, Bonet aims at a sometimes insurmountable barrier:  the widespread belief that “a boss is never in a position of equality towards others; the subordinates always set distance with the decision maker.

For example, we unconsciously believe we can’t become close to whom decides on our salary or income. This is inevitable, but we must avoid an excessive distance between the leader and the employees.” What’s the answer to this? According to Tejada, if in spite everything you cannot transmit an acceptable level of confidence, you can compensate for this loneliness with a rich emotional and personal life.

 2. Isolation

This is one of the other core symptoms of loneliness in leadership. Many easily recognizable situations arise on a day to day basis. For example, when you summon a meeting and the participating employees sit at a distance or avoid sitting next to you. Yo may also notice this attitude or sensation when running into your employees, for example, at the coffee machine or other common areas, and as you go by they become silent or swap the topic of there conversation, or you are even left aside.

Suggestion: Miquel Bonet advises managers to try not to isolate from their employees and, mainly, from their close working team: “If you do so, you will prevent them from getting to know you, and no one enthusiastically endorses someone they do not know”.

Anyway, Jose Manuel Casado highlights the fact that many leaders might feel isolated on several occasions, but points out that this only applies to bad leaders: “Those who on a daily basis like to underscore the fact that THEY are the authority within the company or correspond.

José Manuel Casado wishes to remind this type of leaders a quote from the Italian Niccolo Machiavelli: “You do not need to be a genius to accomplish great things. You must not be above men but among them”.

3. Friendless

Some friendships are broken when someone is promoted and turns into his friends’ boss. Other times, when someone becomes a close friend of the boss. Is it convenient to have friends within the company? Some experts state that leaders usually do not have friends. Sometimes, getting along too well with an employee leads to misconceptions.

Suggestion: Some experts argue that the company is not a place to make friends, but also agree that not getting on with the boss serves no purpose. Tejada explains: “You must know your employees and interest in their lives and not expect them to approach you”. According to Casado, leaders as all human beings, need and must have friends, feel loved and appreciated.

“However, it is preferable they are not within the company. Making decisions is generally an emotional process, but proves to be more rational when there are no feelings involved”.

This expert states there is a positive side in getting along with people within the company, but hesitates when it comes to friendship,  ” unless they are colleagues or at peers”.

4. The dilemma of decision-making

When changes affect people, there is no doubt that decisions are harder to take Bonet remembers when a top executive and businessman once confessed that nothing ever made him feel as lonely as the time when he had to fire someone who had worked for him for a number of years. “Even if you are right, you feel miserable, a kind of executioner”. According to Bonet this is the authentic loneliness

Suggestion: If all decisions managers take need too be thoughtful, those affecting people should be even more thoughtful. According to Tejada, values are a person’s most important assets. For this reason, “Your actions must reflect your values”. I recommend you make a daily mental assessment of the decisions you have made. Casado also advises, before deciding; gather sufficient information to guarantee you decide on the best alternative”.

 5. Resistance to change

Uncertainty in the face of changes makes most people rather keep things just as they are at all times. For this reason, most managers find themselves lonely when they need to introduce structural, organizational or any other kind of business changes.

Suggestion: Most people don’t like changes, because we get used to situations where we feel in relative comfort It’s necessary to listen to everyone, as Tejada advises, and explain the need and the benefits resulting from change, even though the last word on the decision is the sole responsibility of the leader. Casado explains that resistance to change is inherent to mankind: “In the face of changes, even if they are positive changes, there is always a certain degree of resistance generated by a feeling of insecurity”.

 6. I need to get it of my chest and I can’t

We need to vent every now and then. For example, when professional life collides with personal life or when we are overwhelmed by problems that need to be resolved (some colleagues believe leaders don’t have personal issues) Some leaders find it difficult to show their outrage or the burden they carry, because they are concerned about exposing their weaknesses and vulnerabilities.

Suggestion: Tejada considers we should not be prisoners of rage, weakness or frailties. He advises “Do not complain, especially not in front of your subordinates”. In addition, he advises you surround  with ‘positive’ people and participate in circles of people that hold similar responsibilities, in order to understand how they face their problems and feel stimulated by their stories.

Casado ensures we all need a safe haven, the higher the pressure the more we need it. Each leader must find some kind of entertainment that allows him to forget, from time to time, his concerns. “This exercise is necessary for an adequate mental health. Each person must find their own”

 7. The leader who knew too much

The impossibility to share certain information with other employees may be understood, to some extent,  as a lack of understanding, and therefore leads to loneliness. Often enough the members of the board of directors ask themselves why the president made a certain decision when all the reports and opinions indicated otherwise. Possibly, the president had access to information the other members had no knowledge of. Sometimes, the boss is compelled to adopt a decision based on information that only he or a few others have access to.

Suggestion: In these cases, Tejada advises that before accepting suggestions from your employees, it is best to know the answer to certain problems that they might introduce. On the other hand, Casado highly recommends leaders to flee from what we know as “paralysis by analysis”: “Trying to have all, absolutely all the information, is not only inefficient but impossible”. In his opinion, understating the decision making process is a matter that would benefit all leaders.

 8. Leaders are always criticized

Some times for having taken certain decisions, others for not adopting them and others due to the consequences of their decisions. According to experts, when one takes the right decision, or just gets things done the right way, “being acknowledged by your employees is rare. If yo get things done the right way, its how it had to be done and it’s usually considered the teams accomplishment. And if it turns out wrong, its your problem, because the rest of the team was following your orders”.

Suggestion: According to Casado, leaders should pay attention to objective critiques, because only these can lead to improvement. “Many leaders, believing in their own divinity, mistakenly consider they own the one and only truth and do not accept any other interpretation of the facts”. This expert emphasizes that many leaders are obsessed in trying to control everything that surrounds them, “and seem to be the only ones who know the truth, their truth. And when a co-worker offers his contribution or dares to correct them, they do not hear what they are being told, but what they want to hear”.

On the other hand, Tejada advises leaders not to isolate when facing criticisms. “It is important to keep in mind that leaders are often criticized”, so they need to come to terms with certain situations and not give them more significance than necessary.

 9. Sense of risk

Leadership is achieved, fundamentally, with attitude and learning from experience. However, experience comes from making mistakes. If you never make mistakes, it’s because you are not taking risks. But sometimes, one feels very lonely when taking too many risks.

Suggestion: According to Bonet, it is easy to say mistakes are part of success, because they inspire innovation, create opportunities and provide opportunities to learn. “But the responsibility you feel when taking decisions or the sense of guilt, concerns only the bearer”. For this reason, leaders must know how to get along with loneliness. Tejada states ” if you are not willing to take risks, you are not worthy of being a leader”.

In order to minimize mistakes, experts advise that “when making difficult decisions, try to sleep well the night before, and to solve any problem, observe from a distance and do so alone”. Casado claims that taking controlled risks is an essential task for any executive. “Only by risking a little can you innovate and change things. Conservative decisions, as its names suggests, conserves, and those that are a little more risky, transform and change the status quo”.

10. Stimulate initiative

Creativity and initiative are not always available at our convenience. When something unexpected happens, something that is not within regular procedures, “you notice that everyone looks at you and no one speaks out, no one offers ideas, unless you ask someone directly”. This lack of initiative is usually because everyone always expects the boss to provide ideas and make decisions.

Suggestion: Tejada suggests we surround ourselves at work by an autonomous and independent team. In this way, they will have a greater ability to act and take leading roles. On the other hand, Casado suggests that “if we want our collaborators to take initiatives, we must encourage them to participate, seek for forums and create procedures that promote they come up with ideas of their own, and more importantly, tolerate mistakes”.

This expert assures that “if you do it this way and establish an acknowledgment system, this problem will not exist”.