William Guth begins this session confirming the necessary key process characteristics for effective strategic management in organizations, and that, without them, the best intentions and the best forecasting will not amount to much. In diversification, the trends that look at several hundred firms have been consistent in their implications, and indicate that there is a broad-based trend toward diversification. He goes on to state that related diversification is more successful than unrelated diversification, and that firms do better if they diversify in areas related to their existing resource base(s). To illustrate such a point, Guth highlights active versus passive conglomerates, with passive conglomerates having the worst kind of strategy of any type of approach. He proceeds to argue that the manager is, increasingly, a politician, and that this must be an embraced aspect of the manager’s work. They then move on to the question-and-answer portion of the session, with the first question directed at Peter F. Drucker. Drucker is asked to explain a previous comment in the Wall Street Journal that it is unrealistic for firms to strive for 15% growth in earnings and revenues. He states that he was misquoted, and that it is not unrealistic for firms to strive for such growth. Growth requires resources, he claims; it does not produce profits. He predicts that over the next decade, there will be far less diversification, and that there have been three primary engines for it--antitrust laws, tax laws, and fear that one’s market, product, or technology becomes old and that one has to find new areas. Diversification, Drucker states, is a strategy for the end of a cycle, not the beginning. In response to another question concerning objectives, Drucker states that he does not believe in them, instead opting to think in terms of survival needs. Guth, on the other hand, argues that acceptance of risk is a fundamental part of business management, and that such risk should be part of an organization’s approach. Setting high objectives, he states, is a mechanism to help encourage that rebirth. The next question concerns the future of strategic planning, given nuclear incidents. Guth states that, in his opinion, the nuclear incident will slow down, but not stop, the development of nuclear energy as a means of satisfying energy needs. Another question asks how managers should be insulated so that they can implement strategic decisions which tend to depress cash flow, earnings, and liquidity, and Drucker states that you do not depress all three together, but trade off one against the other. Guth comments that one should make up their mind that they intend to deal with such pressures. They move on to talk about what the characteristics are of a mature industry or a mature market--the clues and signals. Guth comments that slow or average growth in demand for the product, moribund technology in relation to the product, and, if after plotting the aggregate profitability of all producers in an industry, the product is on a curve which shows a steady depression or decline, it is indicative of a mature market. Drucker contributes that when antitrust divisions bring suits, that is another sign of a mature market.
Drucker, Peter F. (Peter Ferdinand), 1909-2005 New York University New York University. Graduate School of Business Administration Zand, Dale E Forecasting Diversification in industry Manager Politicians Guth, William D Wall Street Journal Revenue Risk Nuclear energy Nuclear fuels Cash flow Liquidity (Economics) Technology Conglomerates (Corporations) Active conglomerates Passive conglomerates Earnings (Business) Antitrust and competition law Tax laws Mature markets
Source
Original recording, April 17, 1979; Drucker Archives; Box 68
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