27. Peter Drucker and Objectives for Small Business
Peter Drucker introduced the concept of Management by Objectives, which certainly from the 70’s onwards became universal in major companies. It is the concept that management is about balancing needs and goals with resources and setting relevant, measurable and achievable objectives. It has influenced generations of business managers, so much so that in larger businesses at least it is now taken for granted and we do not realise it was not always thus. Again, the focus is on how major corporations should organise, direct, motivate, monitor and manage their managers. So what’s the relevance for small business?
In my book, this is perhaps one of the most important areas of management for small business, and is a must if you want to succeed or get the best out of your business. I see many small businesses that have no clear objectives; just a vague hope that their business will ‘do OK’. This is a formula for reducing your chances of success and increasing your business risk. How can you judge any activity if you do not have clear objectives? If a business proposition is put to you: another business wants to work with you; you get offered a good advertising opportunity etc, unless you know where you are trying to go, you have no standard by which to evaluate it. How do you even decide what you will do today in the business, if you have no specific objectives to achieve? (And indeed, studies of business managers have shown that the vast majority of their time is spent reacting to whatever is happening now within the business, rather than working on longer term activities. Without objectives, you and/or your team will never get beyond reacting to events rather than driving them).
You would not normally consider undertaking a family holiday by just heading out the door and seeing where you came to: you would think about what you wanted to achieve, what the rest of the family wanted and what sorts of holiday might deliver those things, what sorts of places, and what you can afford. You would find out about different places, talk to friends and acquaintances – do the research – and then you would decide when and all the practicalities. And yet many people seem to think they can have a successful business without giving similar attention – well, it is possible, but as with the holiday, it is relying on luck rather than judgement and is much less likley to meet your hopes and expectations.
Setting objectives should also help you to clarify what you want from your business – the very act of writing it down helps the thinking process. It is not as difficult as you might think to develop a business which is not in fact in line with your personal wants and needs – there are trade-offs between potential reward and risk, between reward and personal satisfaction, reward and lifestyle, effectiveness and personal satisfaction etc and the right balance for everyone will be different.
I see many businesses about to start who say that they have no idea what their business is likely to achieve until they do it; my answer to this at that they cannot have done enough research if they cannot determine a realistic expectation for their business – whatever type of business it may be, there will be existing examples or equivalent examples; there will be expectations of price and cost and it will be possible to determine the liklihood that people will find out about your business and whether they will buy at least within a realistic ranges. These will not necessarily be accurate, but they can be reasonable and justifiable. They provide a best estimate of outcomes based on knowledge from the real world rather than hope or fantasy.
Of course, if your business needs some finance, no one will lend you money or invest unless these issues are clear to them. So why would you want to take a risk with your own future with less care than a bank manager investing someone else’s money or a busines angel gambling money that he or she can afford to lose?
