By Alan Graner
This is a synopsis of a Dow Jones & Company copyrighted article—“Drucker on Management: The Five Deadly Business Sins”—published in the Wall Street Journal on October 21, 1993.
Peter Drucker, the guru of business management, wrote several definitive books on the subject.
Although this article is almost 20 years old and some economic conditions have changed, the principles remain valid as Mr. Drucker explains why once-dominant businesses such as General Motors, IBM and Sears declined. Since then, General Motors emerged from bankruptcy to once again lead the world in total automobile sales, surpassing Toyota. IBM exited the PC business. And Sears’ decline continues.
Sin #1: Worshipping high profit margins and “premium pricing”
Example: Xerox Corporation, which invented the photocopier, began adding ever more features to drive up the profit margin and increase the stock price. Most consumers, however, wanting only a basic machine, turned to Xerox’s competitors instead. Xerox barely survived.
Sin #2: Mispricing a new product by charging “what the market will bear”
Example: Again, Xerox charged the highest prices possible when they first produced the photocopier. New Japanese competitors charged about 40% less and came to dominate the market.
Sin #3: Cost-driven pricing
Example: Consumer electronics industry. American companies totaled costs and added a profit margin on top and eventually abandoned many of their products because they were priced incorrectly to begin with.
The Japanese, on the other hand, used price-led costing—start out with a good price and then reduce costs through efficiency and productivity.
Sin #4: Slaughtering tomorrow’s opportunity on the altar of yesterday
Example: Although IBM once dominated the personal computer business, it was subordinated to mainframe sales—their old cash cow—even forbidding the sale of PCs to potential mainframe businesses. Instead of creating new mainframe sales, PC sales were stunted, opening the way for “clones” to take over the market. IBM no longer sells PCs.
Sin #5: Feeding problems and starving opportunities
Example: Sears.
In many companies the best-performing people are assigned to solving problems, i.e., damage containment for old business. Meanwhile, opportunities are ignored—and only opportunities produce results and growth.
What are some examples you’ve observed?
Image: Simona Dumitru
Alan Graner is Chief Creative Officer at Daly-Swartz Public Relations, an Orange County, CA marketing communications firm. When you need an effective PR campaign to take advantage of opportunities, email Jeffrey Swartz at jeffreyswartz@dsprel.com.
