Why Entrepreneurs Should Learn to Delegate

The Executive PhD program that Peter Drucker, “the Father of Modern Management,” and his dean, Paul Albrecht, developed at Claremont Graduate University in 1975 was the first accredited PhD intended for future top executives. According to Albrecht, this PhD taught the “Drucker Difference” for those “with top management potential.” It was and is expensive. There were only ten students in the first cohort, and only one of the ten completed the program. This individual eventually rose to the rank of major general in the U.S. Air Force, and, after retirement, founded The California Institute of Advanced Management with Minglo Shao, a Chinese billionaire who had earlier founded Drucker Academies across China. Others graduated in later cohorts and became senior corporate executives, presidents of colleges and universities, and entrepreneurs. Was Drucker Really Different? Most professors built their careers on conventional research and publication in academic journals. Drucker didn’t. His numerous articles were written for practitioners, not primarily researchers. They appeared in the Harvard Business Review, the Wall Street Journal and other journals read primarily by practitioners. In June 2004, Harvard Business Review honored Drucker with his seventh McKinsey Award for his article, "What Makes an Effective Executive. Drucker’s 39 books were written for practitioners as well. They won and received numerous accolades. Yet Drucker did not write synthetic research typical in academia, where one or more hypotheses based on multiple inputs are tested for significant differences. Drucker used a different research model. He declared, “corporations are my laboratories.” His conclusions from observation are the basis of the Drucker Difference. They were explained first by Einstein who used the method and explained it in an article in the London Times. Drucker’s Research Model Asked in class where he got his vast knowledge and extensive experience to help organizations in so many different industries, Drucker answered: “I have no vast knowledge nor extensive experience on any specific topic. I have only ignorance and lack of experience. Therefore, all I can do is to ask questions. Clients have the knowledge and experience which I lack; they are the real experts on the topics they hire me for.” He then gave examples of his questions, beginning with “What business are you in?” “Who is your customer” “What does your customer value? “What are your objectives” and “What is your plan for getting those results?” Other Questions General Electric’s former CEO Jack Welch, who retired with the largest retirement package ever awarded, significantly increased GE’s wealth. He credited Drucker’s consulting. Welch said that Drucker had asked him two questions: “If you have a choice, which GE businesses would you discard?” and “If this is true, what are you going to do about it?” Welch explained that he made the decision to sell or liquidate even profitable GE businesses, which were not number one or two in their markets and were unlikely to attain these positions. He used the funds to invest in businesses with better potential. Over nine years this increased GE’s wealth by 4000 percent. This became known as Drucker’s Abandonment Theory. Another former client explained: “Drucker got us thinking through our problems and applying our own knowledge and experience in a way we had never considered previously. This was amazingly effective, and we found solutions to our problems with his guidance that we had overlooked.” Drucker was Different Here was an expert who not only did not claim special talents but rejected the title “guru.” Drucker made no claim as being an extraordinary management researcher. When not at the university, Drucker used his home as his office. He practiced without a staff or even a secretary. He even answered his own phone. He did not claim any special expertise or experience. Yet he reportedly received as much as $10,000 for a few hours work. Few complained. He taught a simple procedure to students. It began with defining the problem and determining the relevant factors including facts, estimates, speculations, assumptions, time available and financial limitations. Only then did he advise clients to identify, discuss, compare, and analyze possible solutions. Strategy, not Formulae Drucker refused to develop strategy by formula. There was no BCG nor GE/McKinsey chart with cash cows or dogs. He believed that each situation was so unique, that a manager must know as much as possible to determine strategy. There was no common element of identical importance for all situations. What was decisive and important in one situation might be totally unimportant in another. Decisive elements might not even be quantitative or directly associated with profit. While profitability was deemed as necessary to a business as oxygen to breathing, he said that profit maximization was not, and noted that transistor radios were developed in the U.S., but lost the market to the Japanese because American developers tried to maximize profit. Drucker described management as a liberal art and suggested that liberal arts should be employed in developing strategies and management decisions. He noted economics, ethics, history, humanities, philosophy, social science, physical sciences, and psychology, as all being useful in a variety of managerial and business situations. He noted that in addition to external knowledge, self-knowledge of the organization and its people and available resources might be of even greater importance. Drucker also wrote that 50% of the outcome of any project was due to its leadership. Once invited by an organization to explain the latest leadership techniques, he rejected the opportunity with the explanation that the latest techniques were known to the ancients and recommended that his inquirer read “the first systematic book on leadership and still the best” which had been written 2000 years earlier by Xenophon, an ancient Grecian general and author. Drucker and Research Most controversial was Drucker’s approach to research, yet it was also employed by Einstein who’d been a researcher in theoretical physics. In the single year, 1905, Einstein produced four papers, winning the Nobel Prize for theoretical physics. All four were written a year after earning his PhD at the University of Zurich while he was working at the only job he could obtain: as Assistant Patent Examiner in the Swiss Patent Office in Bern. Like Drucker, he had no conventional laboratory or computers. The Theory of Relativity Einstein himself described the development of one of his most famous theories, the Theory of Relativity. He imagined himself traveling along side of a moving beam of light. Einstein may have provided Drucker with ideas of research. Drucker observed people in companies in action as Einstein had observed his imaginary beam of light. He used analysis and development of what he observed to develop his theories of management. Einstein Reveals His Research Methodology Einstein described his research methodology in an article in the London Times in 1919, discussing what he called his “Theories of Principle.” Einstein wrote “these theories employ the analytical, not the synthetic method of research. Their starting-point and foundation are not hypothetical components, but empirically observed general properties of phenomena, principles from which mathematical formulae are deduced of such a kind that they apply to every case which presents itself.” Synthetic research is what most use in research. It starts with the known and proceeds to the unknown, beginning with a hypothesis or hypotheses. It then tests these hypotheses by proving or disproving each usually by examination of a sufficient number of examples and testing mathematically for significant differences. Einstein’s analytical research starts with the unknown and proceeds to the known. There is no hypothesis. One definition of analytical research is “a specific type of research that involves critical thinking skills and the evaluation of facts and information relative to the research being conducted.” This analytical process is how Drucker arrived at his theories and is part of the Drucker difference. This research approach comes from a simple model: 1. Observation, either real or even imagined 2. Analysis of the observation or imagination 3. Construction of theory based on this analysis A sampling of Drucker’s theories derived analytically include: · That marketing and selling are not the same. · Moreover, selling is not a subset of marketing and marketing and selling could be adversarial. Since, if the product or strategy chosen by the company were better, with the same effort and ability, the same salesmen might sell more product with less effort. · What everyone knows (or think they know) is usually wrong. This short statement was the one most uttered by Drucker in the classroom. · Social Responsibility and Ethics are part of good leadership. · Society demands that an organization be profitable, but not the maximum profit attainable. · Many managerial decisions are made from the gut, and these may be optimal despite complex analyses. · Managers must ultimately make decisions from the gut.  What Drucker taught, worked, and the “Drucker Difference” produced many successful leaders using “Drucker Difference” skills. While other factors influence results and other research methods are still valuable, researchers using primary analytical research including Einstein confirm the value of the “Drucker Difference” confirming Drucker’s conclusion that Management is a Liberal Art.

The formal study of entrepreneurship begins with the works of Richard Cantillon and Adam Smith in the 18th century. Cantillon's (1755) Essai Sur La Nature Du Commerce En Général is considered by many an important early treatise on enterprise economics and entrepreneurship. In this work, Cantillon provides his conception of the entrepreneur as a risk-bearer - someone whose acceptance of risk allows them to pursue entrepreneurial activities. Two decades later, Adam Smith in his (1776) An Inquiry into the Nature and Causes of the Wealth of Nations explains that nations grow wealthy through changes in the division of labor. Smith describes how human actions lead to changes in the division of labor, economic outcomes, and subsequent new venture formation. Smith suggested that division of labor (implicitly entrepreneurship) was the driver of wealth in society. The French economist, Jean-Baptiste Say in his (1803) Traité d'économie politique ou simple exposition de la manière dont se forment, se distribuent et se composent les richesses posits that the entrepreneur, who he also refers to as the ‘undertaker’, is someone who takes upon himself the immediate responsibility, risk, and conduct of a concern of industry, whether upon his own or on borrowed capital. Say argued: “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield” (Say 1803). By pursuing areas of greater yield, Say argues, the entrepreneur is effectively taking on greater risk. Accordingly, the entrepreneur is also receiving a higher return on investment. Although entrepreneurial activities continued for two hundred years, the study of entrepreneurship remained largely ignored by academics until the early 20 th century. An economist by the name of Joseph Schumpeter in the 1930s,and other Austrian economists such as Carl Menger, Ludwig von Mises, and Friedrich von Hayek begun to increasingly discuss entrepreneurship in their works. Schumpeter would argue that the innovation and technological change of a nation stem from the efforts of entrepreneurs. Schumpeter even devised the term Unternehmergeist , German for entrepreneur-spirit. Schumpeter suggested in his 1942 book Capitalism, Socialism and Democracy , that “creative destruction” represents the disruptive process of transformation that accompanies innovation. Moreover, he argued that the innovative entry by entrepreneurs into a market was the disruptive force that sustained economic growth. Schumpeter contended that entrepreneurship drives economic growth by disrupting existing industries and creating new ones. Thereupon, the entrepreneur challenges the status quo, leading to the replacement of older technologies, businesses, and economic models with new, more efficient ones. Schumpeter maintained that entrepreneurship is a dynamic force of change which drives progress and societal advancement. Ergo, as agents of change, entrepreneurs introduce new products, services, and market structures that generate economic growth and influence society. Schumpeter argued that entrepreneurship involves introducing new and different combinations of resources, technologies, and organizational methods that create value. Yet, he emphasized the importance of having an entrepreneurial spirit and mindset in fostering economic dynamism. He believed that entrepreneurship is supported by a mindset which is characterized by initiative, ingenuity, and a yearning to challenge the status quo. A few decades later, Peter F. Drucker would also discuss entrepreneurship in his writings. In his 1985 book titled: “ Innovation and Entrepreneurship ”, Drucker states: “Entrepreneurship rests on a theory of economy and society. The theory sees change as normal and indeed as healthy. And it sees the major task in society – and especially in the economy – as doing something different rather than doing better what is already being done” (Drucker, 1985, p. 26). Drucker opined that entrepreneurs introduce changing, newer ways of doing things, and hence fulfill an important role in the market, economy, and society. By addressing needs, solving problems, and offering innovative solutions, entrepreneurs contribute to economic growth and development. In his Innovation and Entrepreneurship , Drucker also dissects the practice of entrepreneurship, highlighting the importance of establishing systematic, organized, and purposeful management. He describes entrepreneurship as “not natural”, nor “creative”. Instead, Drucker argues that entrepreneurship is work. And entrepreneurship must be consciously driven for, thereby it requires effort. Drucker explains that entrepreneurial management requires policies and practices that support four key areas: (1) fostering an entrepreneurial climate – the organization must be receptive to innovation and be willing to perceive change as an opportunity rather than a threat; (2) developing systematic measurement of performance and learning to improve performance; (3) adapting organizational structure – adjusting staffing, managing, compensation, incentives, and rewards; and (4) recognizing that trying to become “entrepreneurial” without changing basic policies and practices that support those efforts, could lead to entrepreneurial failure. Drucker believed that entrepreneurs are constantly seeking opportunities for innovation and change. Hence, they have a keen ability to recognize market needs and identify existing inefficiencies. He also believed that entrepreneurs have the courage to step outside of traditional boundaries and challenge the status quo. Yet, Drucker emphasized the importance of taking disciplined initiative in entrepreneurship. Without consistency, discipline, and initiative, the entrepreneur cannot develop new products, services, or solutions that address societal challenges. Drucker highlighted the criticality of results-oriented thinking and of measuring performance. He opined that entrepreneurs must constantly seek ways to improve, and that continuous learning is essential to evolve and deliver value. Hence, entrepreneurs are lifelong learners who are adaptable and resilient, able to pivot and adjust their approaches and strategies in response to varying market conditions and unanticipated challenges. Through their works, Joseph Schumpeter and Peter Drucker have influenced our perspective of entrepreneurship, and the way entrepreneurship is practiced. Schumpeter and Drucker possessed some similar views on who entrepreneurs are, and what they do. Perhaps, one of the key differences between Schumpeter and Drucker, is that the former considered that “creativity” contributes to and supports entrepreneurship, while the latter argued that entrepreneurship is not about creativity, but rather work and effort. Notwithstanding this notable difference, both Schumpeter and Drucker envisioned the entrepreneur as an agent of change, someone who is willing and able to change the way things are done, challenging the status quo, and delivering value to society. As such, entrepreneurs do not solely create new products or services, they have the ability to profoundly impact society. References Cantillon, R. (1755). Essai sur la nature du commerce en général. INEd. Drucker, P. (1985). Innovation and entrepreneurship: practice and principles. New York, NY: Harper Business. Say, J. B. (1846). Traité d'économie politique: ou simple exposition de la manière dont se forment, se distribuent et seconsomment les richesses (Vol. 9). O. Zeller. Schumpeter, Joseph A. (1942), Capitalism, socialism and democracy. London: Unwin. Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations.