– Peter F. Drucker
You cannot eliminate risk if you want to reach the top. Drucker realized early in life that to eliminate risk is futile. He took a risk by not immediately going to college after graduating from Döbling Gymnasium, what we in the US would call high school. Even his parents probably wanted him to enter college immediately afterwards. Instead, he took an apprenticeship with a cotton import– export firm in Hamburg, Germany. But this wasn’t his last risk. He took a risk when he left the apprenticeship after a year and entered study for a doctorate in international law, a far cry from the cotton business. He took a risk when he left Germany for England in 1933. He took another risk when he left England for the United States in 1937. He took a risk when he accepted an academic appointment at Bennington College to teach not law, the subject of his PhD, but political science and philosophy. Of course, there was another risk when he committed himself to take the time to accomplish what apparently was a full-time social scientific analysis with General Motors for two years. And then he took a risk when he left Bennington to relocate to New York City to become a professor of management at New York University, yet another new discipline but at least this was somewhat aligned with his consulting work at General Electric though he had never taught management previously. He then took a risk again on leaving New York University and a full tenured professorship 20 years later to relocate 2,800 miles across the country to become a management professor at a small, little-known university, in California. He didn’t have a job when he left New York. He was 62, which many consider retirement age today and many more did then, when he began work in California.1
THE GENERAL AND THE GENIUS
Drucker, like General James Doolittle, was a master of the calculated risk. Doolittle was a famous flyer who left the Army to join Shell Oil in their public relations department. But he then resigned and returned to the Air Corps when war threatened. Only four months after Pearl Harbor was bombed, he led the desperate raid on Japan as the head of 16 B-25 medium bombers taking off from the aircraft carrier Hornet, something that had never been accomplished by a heavy bomber-type aircraft even then having only enough fuel for a one-way trip to bomb Tokyo and other Japanese cities successfully before running out of fuel. He was a master of the calculated risk. So was Drucker. Drucker even defined progress in economics as the ability to take greater risks.2 However, Drucker went one step further than General Doolittle. While Doolittle analysed the risks he took, Drucker studied risk as a concept and analysed it thoroughly.
DRUCKER’S FOUR CATEGORIES OF RISK
Drucker categorized risks into four types.3 First, there is the risk you must accept because its built into the business or profession that you are engaged in. If you are a professional boxer or professional football player you risk bodily injury and those risks are considered routine. You must accept these associated risks because it’s part of the activity.
The second and third categories consist of risks that you can afford to take and those you cannot afford to take. To lose money and effort in pursuit of an opportunity must always be a risk that you can afford to take. Of course, if you don’t have the money and must borrow it and the amount is excessive, compared to your means, it may not be a risk that you can afford to take regardless of the attraction of the opportunity. In other words, it is a risk that you cannot afford to take. That’s Drucker’s third category.
Drucker’s fourth category are risks that you cannot afford not to take. To lose money, time, and effort in pursuing an opportunity is a risk that you should always be willing to take. Of course, if the money or resources are more than you can lose and still survive, you cannot afford the opportunity. To put this in other terms, if General Doolittle (he was a lieutenant colonel at the time) could not have afforded to lose the 16 bombers for his one-way mission, the risk should not have been taken. In fact, 13 of the 16 aircraft were lost because they ran out of fuel, but this possibility was considered at the time the aircraft were launched and it was calculated that the impact of the successful completion of the mission on the war was worth this loss.
The one risk you cannot afford to take is the risk of being unable to exploit success. The initial investment needed is frequently misleading. A new business requires certain resources to reach initial success. Unfortunately, Drucker found that the initial success in acquisition of capital for a new venture is sufficient only if it fails completely. If it succeeds at all it will always require more money to take advantage of the opportunity of continuing its growth. To be unable to obtain this money when it is needed is a risk that you cannot afford to take.4
You can also find yourself in trouble by seeking an attractive opportunity, but outside your business. I remember a friend who owned a successful management recruitment firm. During a slow period his business saw a decline and he decided to shift resources into a multilevel marketing opportunity until things improved. He had been a successful headhunter for more than 20 years and he and his firm had built a strong reputation and image. It was true that his business had slowed down during this period. It was also true that he had the necessary qualifications to do well in the multilevel marketing opportunity. However, this other opportunity was well outside his normal business operations and he failed, fortunately without too much harm to his established business. This probably was another reason why a leading method of business portfolio analysis was eventually abandoned when it suggested that a firm’s routine acquisition of other businesses was the way to success since it automatically enabled an increase in sales. It is probable that although the acquiring company had certain qualifications including financial resources that could be of assistance to the company acquired, it was an entirely different business and this caused problems later down the line and was one reason mere acquisition of other businesses frequently led to failure rather than success.
Unfortunately, it is not only resources that will eventually fall short after obtaining a certain initial level of success with a new venture, but knowledge and the market itself.
Moreover, there are risks that are fully acceptable in one industry, but not in others where they could be considered risks that you cannot afford to take. Drucker examined the pharmaceutical industry and used it as an example. The goal of pharmaceutical manufacturers is to develop drugs which can cure or alleviate disease. Yet it is not unusual to go through all the tests verifying the safety of these new drugs and still develop a product that is hazardous to use. This happens frequently, unfortunately.
The solution for taking the right risks is to think ahead and to do a thorough analysis. That’s what the Doolittle raiders did when the decision was made to launch the raid even though it was known before launch that there was insufficient fuel to assure reaching their post-strike recovery bases in China.
I once witnessed top decision makers at a major aerospace company make the decision to commit huge economic and human resources to a product and business of which the company knew nothing. This was based on an almost offhand comment from a salesman present at the meeting. The salesman thought that there was a demand for such a product based on a recent trip to one of their government customers. Little additional serious investigation was planned. Much to my amazement under these circumstances there were a lot of announcements and a flurry of activity and assignments plus a great deal of money spent and other resources committed. Then eight months later after money was spent and resources wasted, the project was quietly abandoned. That’s not the way to do it.
The basic concept that Drucker recognized is to think through what is the worst thing that can happen before committing to taking the risk. If you can recognize and accept this worst-case scenario and have completed the analysis this requires, you are ready to proceed despite the risks involved.
THERE IS ALWAYS FEAR IN ANY RISK
With the analysis of any new venture or new opportunity, there is not only risk, but possibly fear which may have little basis in fact, as until a full analysis is completed, we don’t
know all the facts or what is true or accurate and what is not. Tony Robbins says that FEAR should stand for “False Evidence Appearing Real”. There is much truth in this, for usually the more we know and understand a situation, whether it has to do with a business opportunity or anything else, the less fearful we are about the engagement because there is less false evidence. So reducing the fear associated with any opportunity can be achieved by getting all the facts at an early part of the analysis.
AN ANALYSIS NEEDN’T TAKE A LONG TIME
An acquaintance of mine by the name of Lou Lenart passed away in 2015. He was in his nineties. He was a Hungarian Jew and had left Hungary at the age of ten with his parents to escape the Nazis. As soon as he finished high school he volunteered for the Marine Corps when the US entered World War II. The Marine recruiting sergeant had looked at the skinny young kid with the Hungarian accent and said “The Marine Corps is a pretty tough outfit. And basic training isn’t easy. Are you sure you can make it through basic training?” Lenart had immediately replied, “If you can make it, so can I.” He did make it and immediately volunteered for flight training and became a Marine fighter pilot. He flew combat missions against the Japanese and finished the war as a captain.
Because of his war experience, Lenart was made a flight commander in the fledging Israeli Air Force. In 1948, seven Arab countries invaded Israel, and on 29 May 1948 an Egyptian armoured column was slowly approaching Tel Aviv. This is the story that Lenart told me and why he was invited to speak at Air War College in Montgomery, Alabama that year.
The only force that the Israelis had to oppose the Egyptian column were four surplus Messerschmidt 109 airframes flown in parts from Czechoslovakia. However, these were not the same as the famous German aircraft flown during World War II. It was the same ME-109 airframe, but the only engines available were underpowered and unreliable. The Czechs designated the plane the S-199 and it was all Israel had to defend their new country, so the Israelis were grateful for them. Four of these aircraft had been flown in from Czechoslovakia and reassembled in Israel, but they hadn’t even been test-flown yet to see if they were safe to fly. Lenart was called to the Israeli Air Force Headquarters in Tel Aviv and asked to lead the flight of these four aircraft against the Egyptian column. Lenart agreed to do so but asked for a one-day delay in order to flight-test them before combat. He knew he was taking an additional risk flying them in combat without flight-testing them first. He was told that he couldn’t even have a one-day delay to do this. The armoured column was too close. If he delayed one day, there might not be any Tel Aviv to defend by the next day. On the positive side attacking the enemy column immediately with un-flight-tested aircraft would be a complete surprise to the Egyptians as they had been told that the Jews had no aircraft. They would therefore be unexpected. The pay-off would be greater than the expenditure and the risk.
Lenart understood the risk that he and the three other pilots would be taking. They all agreed that it was worth it and took off immediately. Under these circumstances, just getting the four aircraft off the ground and into the air was an accomplishment. The risks that Lenart and the other three pilots faced in combat were not only loss of their lives, that was a normal risk of the activity they were engaged in. Nor was it the loss of the aircraft. The biggest risk was that they would not succeed in turning the Egyptian column, or at least stopping it from penetrating to the commercial and population centre of Tel Aviv. They could not destroy the enemy column – the four fighter planes were not armed with enough ordnance to do that, and they knew it. In any case, Lenart and his comrades did succeed in halting the Egyptian advance, probably because of the considerable psychological effect that the air attack had on the Egyptians, who did not expect the Israelis to have combat aircraft. However, the attack was not without its price: one aircraft was lost, and its pilot killed. Another of the pilots was Ezer Weizman who 10 years later became Commander of the Israeli Air Force, after that Secretary of Defence and later yet, President of Israel.
Lenart’s analysis of his risks didn’t take long to determine what should be done and to take the appropriate risk based on the opportunity. He took the risk that needed to be taken. A review of his action reinforces an important central fact about risk taking. Risks should always be taken because of an opportunity that presents itself. Someone with a life-threatening illness agrees to a risky operation because the operation can save his or her life and that is the only option. That is an opportunity for this individual as powerful as the opportunity presented to Lenart to save Tel Aviv from capture.
RISKS ARE BASED ON DEVELOPING OPPORTUNITIES
If there were no opportunities, there would be no risks. However, failing to take any action involves the greatest risk of all and one can see this in a host of human endeavours from personal life decisions, business decisions, or on the international stage and a country not taking actions because they are unpopular or undesirable. Once you start looking at reasons not to do anything considered risky, you will find them. Yet one good reason for taking a risk may outweigh many reasons for not doing so.
In assessing risks on your way to the top, you must decide what opportunities you want to pursue and what associated risks you are willing to accept and which you are not.
Drucker recommended:
• Focus on maximizing opportunities and not minimizing or eliminating risk
• Looking at major opportunities jointly not individually and in isolation
• Analysing whether an opportunity fits what you want to do
• Striking a balance between easier short-term improvement opportunities and longer range, more difficult ones.
In summary, you can’t eliminate risk if you want to reach the top, but you can manage it and take the risks that are right and appropriate for the opportunities that are going to help you to reach success.
1. “Peter Drucker Biography”. The Famous People, last updated 29 May 2017, https://bit.ly/2KCyqEg, accessed 27 July 2018.
2. Drucker, Peter F. Management: Tasks, Responsibilities, Practices (New York: Harper & Row, 1973, 1974), 512.
3. Drucker, Peter F. Managing for Results (New York: Harper and Row, 1964), 206.
4. Ibid., 207
CHAPTER 19
THE IMPORTANCE OF A POSITIVE ATTITUDE
Results are gained by exploiting opportunities, not by solving problems. Those who perform love what they are doing.
– Peter F. Drucker
Drucker was a management thinker who focused on the positive. He knew that in many situations the attitude of an individual can be more important than ability, resources, past success, or sometimes anything else. Moreover, he saw that those who loved what they were doing, did well. This can be extremely important for one’s self-development and self-management, overcoming adversity, and success in anything that you do. This clearly implies that if you are not in a career or job that you enjoy, or you have come not to enjoy it, you should quit and do something else or do it elsewhere.
DRUCKER’S MANY CAREERS
Drucker left his ongoing careers several times. Some reasons for staying in his career, as well as for changing his career, were clear. He began with an apprenticeship in cotton trading because he was genuinely interested in working in this business at first, but he got a law degree at the University of Hamburg simultaneously probably to satisfy his parents’ desires and he read extensively on many topics at the same time. The wide reading and exploration of other activities aroused his desire to eventually do research and become a professor. So he left the apprenticeship after a year while he had managed to get his law degree at night school. But he never practised law. Instead he went on to the University of Frankfurt and earned a PhD in international law because, as he told his own PhD students, “It was the easiest PhD to get”, risking, I suppose, a mass exodus of his students who were overchallenged or underwhelmed with the field of management in which we were at the time labouring for our PhDs. He worked at the same time in journalism because he lik
ed to write, but abandoned his goal of becoming a professor and researcher at the University of Cologne when Hitler came to power in Germany. Understanding perfectly the likely implications under Hitler’s rule forced his decision to emigrate to England. This limited his own abilities to do research and to write immediately until he mastered the language.
Financial demands forced him into roles as an economist while working for a bank and an insurance company in which he may have had little interest: even Peter Drucker had to eat! Although he changed his strategy several times, he never abandoned his goal of becoming a professor, and he left England and immigrated to the US. He believed that there, in the US, he would have better opportunities for securing a teaching position than in the United Kingdom. Then in the US finally, the combinations of writing, temporary duty as a government employee, and an unexpected consulting opportunity landed him a professorship at New York University where in 1969 he was eventually awarded New York University’s highest honour, its Presidential Citation1 and he could indulge himself to think and write about what he called social ecology, a title, if not an entire field he invented which focuses on relationships between people and their environment. This was the umbrella profession Drucker defined as his life’s work, whether he was teaching, writing, consulting, speaking, or doing something else. And he loved it.
DID DRUCKER GIVE UP ON CORPORATE MANAGERS?
Drucker loved it all, yet it was rumoured that for the last few decades of his life, he abandoned what he had devoted himself to ever since he had written Concept of the Corporation in 1946. Some said that this was because corporate managers had ignored his guidance, ethical and otherwise, and he had abandoned them to devote his genius to non-profits. I doubt that. The study of either profits or non-profits falls under the definition of social ecology. Further, one of his many insights into business was that great advances were possible by bringing ideas from one industry and adapting them to another. Long after he began his study of non-profits, he shared the insight that paid employees must be led and treated as if they were non-paid volunteers, as in a free society knowledge workers can always go elsewhere, and frequently do.
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