This important and timely book concerns the immediate future of business, society and the economy. We are, says Drucker, entering a new economic era with new trends, new markets, new currencies, new principles, new technologies and new institutions. How will managers and management deal with these new realities This book, the author explains, "is concerned with action rather than understanding, with decisions rather than analysis." It deals with the strategies needed to transform rapid changes into opportunities; to turn the threat of change into productive and profitable action that contributes positively to our society, the economy and the individual.
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April 14, 1993
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Excerpt from Managing in Turbulent Times by Peter F. Drucker
Managing the Fundamentals
In turbulent times, an enterprise has to be managed both to withstand sudden blows and to avail itself of sudden unexpected opportunities. This means that in turbulent times the fundamentals have to be managed, and managed well.
In predictable times, such as we lived through in the twenty-five years between the Marshall Plan and the OPEC cartel, the fundamentals tend to be taken for granted. But the fundamentals deteriorate unless they are being managed carefully, consistently, conscientiously, and all the time. Indeed, the greatest danger to most enterprises todaybusinesses, non-businesses, and public service institutions alike-may not be public hostility to business, environmental constraints, over-zealous regulations, energy, or even inflation. It may be a hidden deterioration in the fundamentals. After a long period of relative tranquillity there is always the danger of unexpected and hidden weak spots in the areas everybody takes for granted, everybody considers boring routine.
Fundamentals do not change. But the specifies to manage them do change greatly with changes in internal and external conditions. Managing in turbulent times thus has to begin with a discussion of the new and different demands affecting the fundamentals of survival and success in the existing business. These are:
-the costs of the future.
To manage the present business is not enough; but it has to come first.
Adjusting for Inflation
Before one can manage successfully, it is necessary to know precisely what one is managing. But executives today-both in businesses and in non-business public service institutions-do not know the facts. What they think are facts are largely illusions and half-truths. The reality of their enterprise is hidden, distorted and deformed by inflation. Executives today have available to them many times the reports, information, and figures their predecessors had; they have become dependent on these figures and are thus endangered if the figures lie to them. During inflation, however, the figures lie. Money still tends to be considered the standard of value and to be a value in itself, but in inflation this is a delusion. Before the fundamentals can be managed, the facts about any business-its sales, its financial position, its assets and liabilities, and its earnings-must be adjusted for inflation.
In the Western countries and in Japan, business -after business these last ten years has announced "record profits" year after year. In fact, very few businesses (if any) in these countries can have made a profit at all. Making a profit is by definition impossible in an inflationary period, because inflation is the systematic destruction of wealth by government. The public, it should be said, senses this even though it does not understand it. This explains why the announcement of these "record profits" is being greeted with such skepticism by the stock exchange and with hostility by the public at large. But the illusion of "record profits" also leads to the wrong actions, the wrong decisions, the wrong analysis of the business. It leads to gross mismanagement.
All this is known to most executives. Yet few so far, have even tried to correct the misinformation inflation creates. We know what to do and it is not very difficult. We need to adjust sales, prices, inventory, receivables, fixed assets and their depreciation, and earnings to inflation-not with total precision but within a reasonable range of probability. Until this is done, even the most knowledgeable executive will remain the victim of the illusions inflation creates. He may know that the figures he gets are grossly misleading; but as long as these are the figures he has in front of him, he will act on them rather than on his own better knowledge. And he will act foolishly, wrongly, irresponsibly.