CHAPTER  |  TWENTY

How to Be a Managerial Fortune-Teller

“The best way to predict the future is to create it.” That's Peter Drucker speaking. In fact, this has become one of Drucker's famous utterances. It has not only been quoted but also embossed on paperweights, developed for display on corporate walls, and printed in materials circulated around the world. In Beijing, I even saw some Chinese writing with Drucker's picture. A Chinese friend translated the text for me: “The best way to predict the future is to create it.” At the California Institute of Advanced Management (CIAM), we modified it slightly and translated our version into Latin to make it our university credo: Tantum vos can partum posterus. Or, as we like to say in English, “Only you can create the future.”

Drucker the Swami

Despite the fame of his proactive assertion, Drucker became a pretty good fortune-teller, which he implied was a second-best method for creating the future itself. When asked about his ability to predict the future so accurately, Drucker answered that he simply “looked through the window” and reported what he saw. Of course, he was fond of answering questions somewhat tongue-in-cheek. It's not that his answers weren't truthful, or that he was constantly making jokes, but it was easy to see why he was known as “that happy-go-lucky Austrian.” At least that's how his mother-in-law described him, as told by his wife, Doris, in her book Invent Radium or I'll Pull Your Hair.¹

The Only Person Drucker Listened to Besides His Wife

Once in class, when asked about his reputation for forecasting the future accurately, he answered, “I listen.” After a dramatic pause, he added, “to myself.” Drucker was neither arrogant nor excessively immodest, so he went on to explain; he said that you have to go one step further and ask yourself what the things you've seen or heard mean for the future. Stated another way, managers need to observe what is going on, and then take the additional step of analyzing this information and then deciding what will happen as a result of this event.

Drucker's Failure at Prediction

To my knowledge, Peter Drucker failed at his own method of prediction only once, and that was by not following his own advice. Or maybe he hadn't yet developed his methodology. However, you can't speak about his spectacular success as a management guru and fortune-teller without noting his first big public prediction, which was a bust. Moreover, and unfortunately for him, this prediction was widely disseminated. In a newspaper column published shortly before the 1929 stock market crash, Drucker predicted a rosy future and a bull market. He had to eat humble pie a few weeks later, in an article he wrote about the market crash, published in the Frankfurter General-Anzeiger and titled “Panic on the New York Stock Exchange.”

As he told us in class, had he “looked through the window” and drawn some simple conclusions from the unsupported financial bubble that was brewing, he could hardly have made this mistake. Writing that article must have been difficult for him. It was the last time he made any predictions about the stock market, though his confidence in his ability to listen to himself and develop his methodology never flagged.

The Wisdom of Drucker's Prediction Methodology

Analysis of internal corporate information, such as cash flow, liquidity, productivity, competency, resource allocation information, and so on, by itself is useful only for short-term tactics. Drucker knew that a strategy of any sort had to be based on information about “markets, customers and noncustomers; about technology in one's own industry and others; about worldwide finance; and about the changing world economy.”²

It doesn't matter whether the future you want to create is internal or external to your company. You begin by focusing your attention on what's going on in your area of interest. There are a vast number of items that will interest you, and they are constantly changing. Even trends are important, but sometimes changes can occur very rapidly. For example, the ubiquitous slide rule, carried for years by every practicing engineer for mathematical calculations, began to vanish within a year of the introduction of the handheld electronic calculator. That development should have caused leaders in many organizations to think through what this would mean for future operations: for engineers who would be able to make calculations more quickly and accurately; for companies producing slide rules; for planners who could anticipate jobs getting done with fewer errors, reworks, and costs; and many other ramifications. For example, HR people could also plan for a reduced need for engineers and others working with slide rules, in the same way that computers and answering machines resulted in a reduced need for secretaries.

Research Please, and Watch Your Assumptions

Looking through the window frequently requires research. This research may be primary or secondary; primary research entails interviews, business surveys, and a personal quest for the answers. Secondary research involves consulting other sources, including the library, the Internet, and previous studies conducted by your company, within the industry, or by the government. Secondary research is generally done first because it is already available. Do that first, before you spend the time and money to do primary research.

However, collecting this information is only part of the challenge. In fact, Drucker said that if you stop after just doing the research, you are heading for trouble. IBM made a major mistake when it considered developing a personal computer. This was a big computer company, and it built big mainframe computers. (Think of computers the size of a room—that's what IBM researchers had in mind.) As a result, IBM's market research told them that the market for personal computers was limited to about 1,000 customers—if they were lucky. I mentioned this in the previous chapter, but it's worth repeating because this kind of faulty reaction is almost inevitable when a product doesn't yet exist. It is difficult for consumers or businesses to feel comfortable about shelling out hundreds of dollars for a product that no one has seen or used yet.

What's the answer? Drucker suggested that leaders look at the market—through the window—when the product, service, or idea doesn't yet exist. His advice was to avoid making assumptions about such attributes as potential size, as this invariably leads you astray.

The Future Is a Result of the Past

What is going to happen in the future as a result of what has already happened in the past? That is the important part of the analysis equation. Joe Cossman, the man who sold more than a million “ant farms” for children and other unusual products, said that when you have a strong interest in a particular subject, you needn't worry about finding new products because everything you see (“through the window”) is in some way associated with your passion.

Cossman was always looking for new products he could promote. He looked through the window and found that his strong interest in finding new products made his observations self-focusing—no matter which “window” he looked out. Once, he bought 40,000 pieces of junk jewelry on a short chain for less than a penny each. Why would anyone want to pay $400 for 40,000 pieces of anything that could have no possible use? The jewelry sat in Cossman's storeroom for some months.

Then a hypnotist claimed he had caused a subject to regress into a past life while entranced. This was Bridey Murphy, who became an international sensation. And suddenly there was a lot of interest in hypnotism. In order to understand what it was all about, Joe enrolled in a course. The instructor told him that, to induce a trance, he needed a point of fixation. “I've got 40,000 points of fixation,” Joe told his instructor. He hired the instructor. Together, they designed a short course and made a recording on how to induce a hypnotic trance—using one of his jewelry pieces on a chain, which Cossman now described as a “trance inducer.” The whole package, including one piece of jewelry, sold for about $5. That was a pretty hefty markup. Cossman had looked through the window and saw that tremendous interest in Bridey Murphy and interest in hypnotism would lead to a demand for ways to practice this phenomenon.

Change Is Inevitable—What Are You Going to Do About It?

We know that change is inevitable. But change is caused by events that have already occurred. Drucker suggested that all we need to do is look at events that have already taken place and decide what will happen as a result.

When foreign-made automobiles first hit the American market, it was Volkswagen that American car companies were concerned about, not the Japanese models. In response, Ford introduced the Falcon, Plymouth had the Valiant, and Chevrolet had the Corvair. However, Americans wanted more on their vehicles than what the bare-bones Volkswagen provided in those days, and so the smaller American cars grew in size in a few short years, until they were simply scaled-down versions of the full-size American cars. Sales slowly eroded for all three models, and so all three were withdrawn from the market. These cars offered essentially the same options, so all three automobile manufacturers looked through the window and saw the same thing.

One car manufacturer, however, took another look and noticed that demand for certain features was increasing even as sales for its vehicles were declining. These features were bucket seats, “four-on-the-floor” gearshifts, and padded dashboards. Only Ford asked itself what this meant. It realized there was increasing demand for a sports-touring type of vehicle. The Mustang was kept under strict wraps until it was released. When eventually introduced, the Mustang generated tremendous sales to fulfill this new demand—which had been easily predicted by “looking through the window” and analyzing events that had already taken place and what they meant for the future.

Cossman's hypnotism package and the Ford Mustang are both marketing examples. But the same principle applies to everything else in management or business. Something significant happens. What is likely to occur as a result? What does it mean in your work? How can you use this to create a desired, or at least a more desirable future?

In summary, here are Drucker's thoughts about the information a leader needs to create the future:

• Look through the window and examine your environment.
• Consider both the general and the specific questions relating to your organization.
• Decide what is likely to happen as a result of significant events that have already occurred.
• Consider these factors as you develop a plan and take action to create the future you want for yourself or your organization.