Why Drucker and Confucian Foundations?

This book is based on Virginia’s dissertation which focused on the comparison of Drucker and Confucian philosophies. Both thinkers were fundamentally concerned with a harmonious and functioning society. For Drucker, the majority of his life’s work was focused on a functioning society. And, since society transitioned from farming and local communities to a “society of organizations,” Drucker felt that organizations needed to be well-managed for society to function well. At the time of Confucius, society was largely comprised of families in small, farm-based communities. For society to function well families need to function well. His viewpoint was that each individual needed to live a life based upon moral foundations, in particular integrity, benevolence, kindness, and values. Thus, with different units of analysis (families vs. organizations) both thinkers had a strong point of view of what an effective human being (or leader in the case of Drucker) needed to embody and role model for society to function well. As such, we used their thinking as the foundation of our work.

Introduction

Our experience is that most organizations start with a product or service idea. In the case of a product, the engineers go to work to craft a better solution than exists in the marketplace. The aim is to provide a product that is regarded by the market as much better than competing offers. If successful, the product or service gets adopted by innovators, and over time the organization gains customers, adds employees, and experiences revenue growth. If all goes well, it grows from a small start-up to a healthy mid-size or large firm.

Both Peter Drucker and Confucius had a strong point of view of what an effective human being needed to embody for society to function well.

At this stage, we observe that organizations take one of two paths. The first is positive. The firm continues to renew itself. It closely monitors marketplace developments and can meet current marketplace needs as well as transition to the future marketplace. Thus, it balances competing in two time periods, the current marketplace, and the future marketplace. This is what Peter Drucker termed “managing continuity and change” and it is the essence of Confucius's teachings “The only constant is change itself.” For a variety of reasons, this is very hard to do. Within the semiconductor industry, we have examples such as AMD, Intel, Texas Instruments, and Nvidia.

The second pathway is quite the opposite. the firm “locks” in on a business model, optimizes the business model, and, as a result, is unable to reinvent itself to compete in the future. S3 and Silicon Graphics are examples of firms that competed well in a particular historical period but were not able to pivot to a new business model. Unfortunately, many firms follow this second path. As Confucius noted “If the situation changes, I change too. Just like the shadow follows the shape of things.” Drucker’s constant admonishment was to abandon products, processes, and strategies that no longer “fit” the realities of the marketplace.

There are many reasons why this pivot does not happen. One critical reason is that the senior leadership remains technology- or product-focused rather than asking the basic question of “What business are we in?” Kodak was not in the business of cameras and film: It was in the business of creating memories. The technology to make memories is constantly evolving, but recording these events will ensure that they are with us forever. Back in the 90s, Texas Instruments was in the business of defense, personal computers, semiconductors, calculators, and other initiatives. It would be difficult to address the question of “what business are we in? Today, they are laser-focused on core enabling technologies (i.e., semiconductors) that create the future.

As Confucius noted “If the situation changes, I change too. Just like the shadow follows the shape of things.”

Five Fundamental Direction-Setting Domains

If one is satisfied with just competing with a core product in one historical period, then it may not be necessary to set a sustainable direction for the firm. However, if the organization aims to be around for a long period, it is essential to address five fundamental domains that we cover in our recent book, Creating the Organization of the Future: Building on Drucker and Confucious Foundations. They provide an overarching goal for the firm that transcends a particular historical period as well as the values and culture to achieve the target. In the best of all worlds, the direction-setting activities place the firm on a course not just to respond to marketplace developments but to shape the evolution of the market.

If we reflect on market leaders Tesla, TSMC, Microsoft, and Apple they also shaped the evolution of their markets they did not simply ‘respond’ to marketplace needs. They influenced the evolution of the “five forces” that impacted their industry structure. From this vantage point, industry structure is a variable to be managed rather than something that exists outside the boundaries of the firm. As Drucker often reminded us, great executives do not simply adapt to changing market conditions; rather, they influence the economic conditions in which the firm competes.

In particular, we are talking about five key areas firms need to focus on:

• Mission. The mission enables the firm to go beyond the “offering” to focus on the core customer benefit. The core customer benefit in Disney’s case storytelling lasts for decades if not centuries. It is not bound to one historical period.

In our experience, it often takes many months to answer the very basic question, ‘What business are we in?’

• Vision. The vision articulates the fundamental target or goal of the enterprise. What does the world look like when you have accomplished your mission? Often this vision takes decades to achieve: It is ambitious, motivating, and energizes the workforce.

• Purpose. The purpose of an organization answer a simple question, “why do we exist?” At the most fundamental level: how does your community or society benefit from the presence of your organization? Why do you make the world a better place? A strong purpose is rooted in ways that organizations help society function.

• Values. The values of the organization provide the guardrails for ideal behavior in the firm. How are we going to go about achieving our mission and vision? What is the right set of beliefs and behaviors to guide all employees?

• Culture. Culture is how the work currently gets done inside the firm. What are the rituals, norms, and beliefs that shape how work gets done now? What type of culture does the firm want to put in place to compete now and in the future?

The first three of these five domains are externally focused. The mission answers the question of what business your organization is in, and the vision focuses on the achievement of that mission (i.e., what is the specific goal that we achieve if we accomplish our mission?). Both address your served market. Your purpose is also rooted in the marketplace, but it reaches beyond your immediate customer as it relates to the broader community and the societal impact of your mission and vision. The key question, “Why do we exist?” must be answered from a societal perspective.

In sharp contrast, the remaining two domains of direction-setting values and culture focus on how the work gets done within the organization. What are the principles under which we want our organization to ideally operate (i.e., our values) and how can our culture support our vision? Different missions and visions require different cultures, so the setting of values and culture generally should come after establishing your mission, vision, and purpose. A mission that is focused on “convenience and easy access” requires a very different culture than one focused on “the best cutting-edge technology.” The former may emphasize a customer-service-driven culture while a technology orientation may mean focusing on a culture of technology innovation.

The strategy of the firm must follow from setting the direction. Strategy the specific, integrated set of choices related to “where to play” and “how do we win” in an industry should be articulated in the context of a clear mission, vision, and purpose. Without that context, the senior leadership team has no rationale to make the important choices around which markets to serve (or not serve), the specific positioning of the organization, or the capabilities that must be built to support their position. However, we recognize that this is not an easy task. In a different context and era, Confucius noted in any significant journey “the way is long, but with every step one is making progress.”

In the next section, we briefly review the central logic of our chapter on mission. If space permitted, we would have described all chapters. However, we chose mission since it is the starting point of most direction-setting journeys.

A Closer Look at Mission

At first glance, well-crafted mission statements often seem rather obvious. However, our experience is that it often takes many months to answer the very basic question, ‘What business are we in?’ Peter Drucker stated the challenge as follows: “Nothing may seem simpler or more obvious than to answer what a company’s business is. A steel mill makes steel, a railroad runs trains to carry freight and passengers, and an insurance company underwrites fire risks. Indeed, the question looks so simple that it is seldom raised, the answer seems so obvious it is seldom given. Actually, ‘What is our business’ is almost always a difficult question that can be answered only after hard thinking and study. The answer is usually anything but obvious.”

Equally important, the crafting of a mission statement is not simply a nice poster on the wall or a “who we are” message on the website; rather, it is one of the most important decisions of the leadership team. If the mission statement is narrowly focused on current products and technology, the firm will likely miss out on the next generation of products and technology. If it is too broad, it will not help focus the firm’s resources its R&D investments, its people investments, and its selection of target markets. Drucker believed that most firms did not give sufficient consideration to their business purpose and mission. He believed that this error was perhaps the most significant cause of business frustration and failure. There’s similar advocation in Confucian teaching on the importance of setting a clear direction, he stated, “Nothing is as important as focusing upon the correct goal… when it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.”

Specify the Target Customers

Mission statements must specify your target set of customers. For a company such as Microsoft the target market could be exceptionally broad and for a small startup, the core segment could be very narrow. Indeed, one of the major problems with start-ups is that they often spread their resources too thin across many opportunities and segments.

Keep it Short One or Two Sentences

Mark Twain once said, “I didn’t have time to write you a short letter, so I wrote you a long one.” In the same spirit, it takes a good amount of time for a senior leadership team to write a one-sentence mission statement.

Grounded in the Theory of the Business

Recall that a key component of Drucker’s thinking is that the mission of the firm must fit the “realities” of the marketplace. He termed this ability to specify the core assumptions of the industry as a key part of his theory of the business. A mission statement must fit comfortably with the key trends, developments, and evolution of the industry. If the core profitability assumptions of the industry change (e.g., the profit in the industry shifts from the product itself to the services or information provided by the product), then the mission must be revisited.

Inspirational

As Drucker noted, a mission cannot be impersonal; it has to have deep meaning and be something you believe in something you know is right. It is a fundamental leadership responsibility to make sure that everybody knows the mission, understands it, and lives it. Drucker stated, “The mission is broad, even eternal, yet directs you to do the right things now and into the future so that everyone in the organization can say, “What I am doing contributes to the goal.” So, it must be clear, and it must inspire. Every [stakeholder] should be able to see the mission and say, “Yes. This is something I want to be remembered for.”

Every Employee Can Contribute to the Mission

Hence, each employee must ask the question, what can I do to support the mission of my organization? What strengths do I possess that enable me to direct my activities and results in support of the mission? This reflection on the “contribution of each individual to the mission” is a conversation each employee should have with his or her boss each year. This alignment with a broader collective purpose is consistent with Confucius’ thinking that individual development is best focused on shared goals rather than individual goals. Similar to many other Eastern philosophies, Confucian teaching heavily promotes mutual responsibility and collectivism, and Drucker described Confucianism as an “ethic of interdependence, an ethic of mutual obligations.” Indeed, if employees cannot see how their role can support the mission statement, the mission statement is not useful and must be rewritten. Keep in mind: One purpose of the mission statement is to align all employees toward a common goal.

Building on Peter Drucker and Confucianism

In the title of our book, we use the term “foundation” to emphasize that we are building on the work of Drucker and Confucius and moving it forward into the 21st century. In particular, we enhance and contemporize their work in five specific ways.

First, business practices have advanced. Today’s business world is highly networked both in terms of “ecosystems” of players that compete against other ecosystems and in terms of the tidal wave of change brought about by digitization. Drucker could not have forecast these fundamental shifts. Furthermore, the emergence of purpose-led organizations and brands has only truly emerged since he died in 2005. Our key point is that the world of business has changed and that we need to update our thinking about this world to reflect this change.

Second, business theory has advanced. Much has been written in the past 20 years that has pushed our knowledge of management forward. For example, Drucker did not have a distinctive position on purpose. Rather, his writing on the mission included purpose. Given how much has changed regarding the role of purpose in organizations--we offer the examples of Microsoft, J&J, Unilever, and several others as case studies in our recent book--we believe it is now exceptionally important to craft a stand-alone chapter on purpose. The purpose is distinct from the mission, and this must be acknowledged. More generally, the advancement of business theory is reflected throughout our book.

Third, we have advanced our thinking on the topic, and we want to share our perspective. For example, we specify criteria to assess the quality of the concept (e.g., five specific criteria to evaluate a mission statement). This is our perspective, not that of Drucker or Confucianism. We have spent a good deal of time thinking about these issues, and we want to share our viewpoints.

Fourth, we shift from concepts to very practical guidance. This is distinct from Drucker since he was focused more on the novel concept than the exact details of crafting the statements. This is not to say whether he would agree with us (or not), but “How to get started on the journey?” would not be part of a typical Drucker book or manuscript.

Fifth, we introduce new concepts and language to enhance the precision of work and reflect the changes that are unfolding in organizations. This is reflected throughout the entire book, in particular, the examples, criteria, and identification of the best-of-class illustrations in the first section. Each of these sections includes new thinking and language that moves practice forward. The idea behind our book was to use the wonderful thinking of Drucker and Confucius as a platform for building practical and straightforward advice on how to construct your mission, vision, purpose, culture, and values and ideally shape the markets in which you compete. We hope you enjoy the book and its timeless insights.