Alan Vercio, strategic cost manager for Bank of America, recently asked me,\u00a0\u201cIf you\u2019re a Christian, would you ever join a church that has a pastor who does not read the Bible?\u201d<\/em><\/p>\n

\u201cAbsolutely not.\u201d<\/em><\/p>\n

\u201cThen why would you ever work for a manager who does not read Peter Drucker?\u201d<\/em><\/p>\n

\u201cIf leaders don\u2019t refer to their instruction manual, I believe any follower has a right to be concerned with their direction\u201d,\u00a0<\/em>I responded.<\/p>\n

As he did with me, Alan posed these two questions to grab attention and elicit discussion. Interestingly, Alan also uses them to segue Bank of America employees to ABM\/ABC training.<\/p>\n

Drucker is the father of modern management. Scholars\u00a0(1)<\/strong><\/a>\u00a0credit Drucker\u2019s pioneering use of transactional analysis during the 1950\u2019s as one of the early building blocks for Activity Based Costing. His books are bibles for business. Bibles, however, are unfortunately forgotten and overlooked until people are confronted with a crisis. The current recession is a crisis for many. Possibly for you and your organization.<\/p>\n

Peter Drucker will be 94-years old this year. His wisdom and experience is of particular relevance, for he\u2019s lived through many recessions. He\u2019s been there, done that. WWDD\u2026 what would Drucker do? His advice is proactive, not reactive. He approaches recessions like an energetic entrepreneur, not an empty-handed embalmer.<\/p>\n

In\u00a0Peter Drucker: Shaping the Managerial Mind<\/strong><\/a>, author John Flaherty says,\u00a0\u201cDrucker asserted that it was possible to improve performance in the existing business by using the entrepreneurial approach of converting problems into opportunities and thus neutralizing resource misallocation and modifying vulnerabilities. In the long run he (Drucker) thought that the model of activity accounting might be the best approach to entrepreneurial management.\u201d<\/em><\/p>\n

You may not be an entrepreneur, but it may help to think like one.\u00a0<\/strong>Drucker recommends three thought-provoking actions to convert business problems into opportunities.<\/u>\u00a0Each action uses information created by or available from Activity Based Cost Management:<\/u><\/p>\n

\n
• Reduce the sales staff.<\/strong>\u2028Drucker is not only innovative, he\u2019s controversial. A pervasive theme in Drucker\u2019s writings is his belief that too much time and money is spent on selling.\u00a0\u201cIndeed, selling and marketing are antithetical rather than synonymous or even complimentary. There will always, one can assume, be need for some selling. But the aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself.\u201d<\/em>\u2028<\/em>Drucker contends that most organizations allocate too much resource to the Sales Department and not enough to the Marketing Process. Viewing marketing from a process angle makes it impossible to perceive as an independent function. The Marketing Process, defined and measured in an Activity Based Management system, \u201cis the whole business seen from the point of view of its final result, that is, from the customer\u2019s point of view.\u201d\u00a0(2)<\/strong><\/a>\u2028On which customers should we focus? Like an entrepreneur, Drucker says,\u00a0\u201cthe great reservoir of potential demand lies in the category of noncustomers.\u201d<\/em>(2)<\/strong><\/a>\u00a0To grow or re-grow a business, align products and processes to the category of non-customers.\u2028Which of these two beliefs does your organization hold?<\/em><\/strong>\u2028 Our sales department will sell whatever the business produces; or,\u2028b. Our business will produce whatever the market needs.<\/li>\n
• Manage the pieces to improve the whole.<\/strong>\u2028Typical P&L\u2019s report what happened during the recession, not why it happened. Decisions based solely on an aggregate corporate P&L leads to \u201cdistorted impressions and misguided conclusions.\u201d\u00a0(2)<\/strong><\/a>\u00a0To turnaround or improve asset productivity in an existing business, Drucker recommends digging below the P&L aggregate\u2019s surface to analyze the pattern of sales and cost transactions.\u2028Proponents of Lean Manufacturing argue transactional analysis, such as Activity Based Costing, is non-value added work. Drucker and ABC experts, such as Gary Cokins, take an opposite view. Cokins states in\u00a0Activity-Based Cost Management: An Executive\u2019s Guide<\/strong><\/a>,\u00a0\u201cA major tenet of lean thinking is that as the processes and value streams become more simplified, there is less need for financial accounting, control, and measurement systems. In fact, the reverse is true. The margin for error is getting slimmer, and teams need greater not less proficiency in using financial data.\u201d\u00a0<\/em>(3)<\/strong><\/a>\u00a0<\/em>Even if ABC is used as a one-time project to analyze product and customer profitability, Drucker sees value in the data.\u2028As a case in point, Drucker uses this example:\u00a0\u201c$1 million in volume produced in one order \u2013 or in one product \u2013 carries the same cost as $1 million in volume produced by 1 million individual orders or by 50 different production runs.\u201d\u00a0<\/em>(4)<\/strong><\/a>\u00a0Drucker considered it intolerable that so many managers were ignorant of how some of the key business segments and products contributed to total revenue results, and were unaware of the cost burdens of those parts of the business that were making little or no contribution to financial results.\u2028Using transactions named activities, output measures and cost drivers, Activity Based Costing (ABC) dissects an aggregate P&L into individual product, service and customer P&L statements. ABC helps managers dissect and act to improve the parts, thereby improving the whole.\u2028Are you managing an aggregate of unknown pieces that don\u2019t add up to what you want?<\/em><\/strong><\/li>\n
• Abandon nonproductive activities, products, services, customers, projects and mission statements.\u00a0<\/strong>\u2028Give up to go up during a recession.\u00a0\u201cThere is only one way to make innovation attractive to managers; a systematic policy of abandoning whatever is outworn, obsolete, no longer productive, as well as the mistakes, failures, and misdirections of effort.\u201d<\/em>(5)<\/strong><\/a>\u00a0Abandonment frees up time, talent and resources for working capital.\u2028Drucker uses two methodologies for diagnosis and removal of things that need to be abandoned \u2013 the aforementioned ABC transactional analysis and the Bernoulli theorem.\u2028ABC identifies marginally successful products and customers or outright clinkers. Drucker asserts that repeated attempts to revive a marginal product or customer are exercises in futility.\u2028To support his contention, Drucker offered the Bernoulli theorem\u2026 in any series of endeavors, the chances of succeeding were reduced 50% with each new effort. If test results don\u2019t match expectations, good scientists don\u2019t redouble initial efforts nor question results. They begin a second diagnosis or abandon the project altogether. If Drucker were a Texan, the Bernoulli theorem of abandonment would be summarized in five words: \u201cWhen your horse dies, dismount.\u201d\u2028Do you have any candidates to apply the Bernoulli theorem in your organization?<\/em><\/strong><\/li>\n<\/ul>\n

  Conclusion<\/strong>\u2028Breaking routine is often necessary to rise to a higher level of performance.<\/p>\n

  World champion athlete Victor Martinez says,\u00a0\u201cI used to do all my training by the book \u2013 a certain way and schedule. Then I noticed my progress plateaus quickly. When I change out of the routine, my condition changes faster than ever. This is known as the \u2018Confusion Principle\u2019 of training, but in actuality it is not \u2018confusion\u2019 at all. It is the shock of breaking routine that has allowed me to go past my limitations, and to succeed at ridiculous levels.\u201d\u00a0<\/em>(6)<\/em><\/strong><\/a><\/p>\n

  Troubled times may be new to you, but it\u2019s familiar territory to those who have walked through the valley before. Implementing teachings of the Bible and Peter Drucker may initially confuse, confound or confront. But they\u2019re guaranteed to take you on a journey to a higher level. Happy trails!<\/p>\n

   <\/p>\n

  E-mail your comments on this article to Tom Pryor at\u00a0<\/em>TomPryor@icms.net<\/em><\/a>.<\/em><\/p>\n

  (1)\u00a0Relevance Lost: The Rise and Fall of Management Accounting<\/strong><\/a>, Robert Kaplan & H. Thomas Johnson, Harvard Business School Press, 1983.\u2028(2)\u00a0Peter Drucker: Shaping the Managerial Mind<\/a>, John E. Flaherty, Jossey-Bass, 1999.\u2028(3)\u00a0Activity-Based Cost Management<\/a>, Gary Cokins, Wiley Press, 2002.\u2028(4)\u00a0\u201cManaging for Business Effectiveness\u201d<\/a>, Peter Drucker, Harvard Business Review, June 1963, p. 56.\u2028(5)\u00a0Innovation and Entrepreneurship: Practice and Principles<\/a>, Peter Drucker, Harper-Collins, 1985, p. 151.\u2028(6)\u00a0\u201cThe Un-Confusion Principles\u201d<\/a>,\u00a0www.YourKingdomCome.com<\/a>, May 2003.<\/p>\n","protected":false},"excerpt":{"rendered":"

  Alan Vercio, strategic cost manager for Bank of America, recently asked me,\u00a0\u201cIf you\u2019re a Christian, would you ever join a church that has a pastor who does not read the Bible?\u201d \u201cAbsolutely not.\u201d \u201cThen why would you ever work for a manager who does not read Peter Drucker?\u201d \u201cIf leaders don\u2019t refer to their instruction…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[131],"tags":[],"_links":{"self":[{"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/posts\/9809"}],"collection":[{"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/comments?post=9809"}],"version-history":[{"count":1,"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/posts\/9809\/revisions"}],"predecessor-version":[{"id":9810,"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/posts\/9809\/revisions\/9810"}],"wp:attachment":[{"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/media?parent=9809"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/categories?post=9809"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/icms.net\/wp-json\/wp\/v2\/tags?post=9809"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}