Drucker is a real hero for me. Apart from his monumental work in Management he has devoted more than 30 years of his life in the social sector. One of the smallest but most useful books you can read his “The 5 most important questions you will ever ask about your organisation? by Peter Drucker”.
As I prepare the business model workshop to think about impact at scale for the finalists in the SEED Challenge that we are partnerring with VicHealth in Melbourne (You can find out more about it here) I am rereading this book.
Drucker defines the need for “management” and “business principles” for the not for profit sector as a need much greater than the need for for profit businesses because of the lack of a bottomline. Without the rigour of profits what is that will keep the not for profit creating value and knowing that it is creating value.
He says that there are 5 questions any not for profit will need to answer to create change.
1. What is your mission?
The goal for any organisation in the social sector is on changing lives. This is the key. However, that is too broad and not generally enough. An effective mission in Drucker’s view is that which will “match opportunities, competence and commitment”. A good way of doing that is what Drucker called the “Theory of the Business” which I will cover in a future post.
It should answer the questions, what is our purpose? why do we do what we do? What, in the end, do we want to be remembered for?.
2. Who is your customer?
Most social sector organisations do not like the word customer. It is too businessee. You may call them clients, members, donors, users, or something else. Rather than debate language he asks “Who must be satisfied for the organisation to achieve results?”. When you answer that question you will find somebody who values your service and is important for them. That is your customer.
The important point though is that there are two types of customers. A primary customer and a supporting customer.
A primary customer is the person whose life is changed through your work. I would suggest you re-read it twice.
Drucker believes that effectiveness requires focus and that means there can only be one primary customer. Supporting customers on the other hand are volunteers, donors, employees, partners and funders and they all need to be satisfied. They are all the people who can say no, and they can say yes or no to your offer. The organisation should satisfy them by providing meaningful work or by directing their contributions to results that both believe and by joining forces to meet the community needs.
In my view, the distinction of the primary and supporting customer is key to understanding the business model in this space and creating value propositions or offers that matter to both kinds of customers.
Kotler, the marketing guru goes deeper in that book on who is a customer.
3. What does your customer value?
This in my view is the single most important question that anyone can answer. This is not easy and is not generally asked but is key. We should be aware of our assumptions about what we think the customers value but it is always best to understand the customer and see what they value. One important idea here is that there are “no irrational customers”. They behave rationally in terms of their own realities and their own situation.
One way to do this better is to use design methods like rapid ethnographies, guided interviews and go deep in understanding not just the kind of decisions that customers make but the context in which they make. It goes without saying that it is important to find out what primary customers value and what supporting customers value.
4. What are our results?
Druckers says that “the results of social sector organisations are always measured outside the organisation in changed lives and change conditions-in peoples behaviour, circumstances, health, hopes, and above all, in their competence and capacity.” This means we need to move away from needs to focus on results.
In business, you can debate whether profit is really an adequate measuring stick, but without it, there is no business in the long term. In the social sector, no such universal standard for success exists. Each organisation must identify its customers, learn what they value, develop meaningful measures, and honestly judge whether, in fact, lives are being changed. This is a new discipline for many nonprofit groups but it is one that can be learned.
Judith Rodin expands on this and suggests that the work of organisations in this space is iterative and not linear which means plans need to be adaptive. In this context, measurements and results are a way to provide feedback and guide our plans.
5. What is our plan?
To further the mission, there must be action today and specific aims for tomorrow. Yet planning is not masterminding the future. Any attempt to do so is foolish; the future is unpredictable. In the face of uncertainties, planning defines the particular place you want to be and how you intend to get there. Planning does not substitute facts for judgement nor science for leadership. It recognises the importance of analysis, courage, experience, intuition—even hunch. It is responsibility rather than technique.
The next step is to have clear goals that provide a long-range direction for the organisations. Drucker suggests not more than five. He says that “building around mission and goals is the only way to integrate shorter-term interests”. Then follows objectives which are specific and measurable levels of achievement that move the organisation towards its goals.
The five elements of effective plans
Abandonment: The first decision is whether to abandon what does not work, what has never worked—the things that have outlives its usefulness and their capacity to contribute.
Concentration: Concentration is the building on success, strengthening what does work.
Innovation: You must look at tomorrow’s success, the true innovations, the diversity that stirs the imagination.
Risk Taking: Planning always involves decisions on where to take risks.
Analysis: Finally, in planning it is important to recognise when you do not know, when you are not yet sure whether to abandon, concentrate, go into something new or take a particular risk.
Then comes action steps and a budget.
This book and Drucker’s other work has always helped me to provide clarity and understanding. I hope it does the same and inspires you to create change.