January 13, 2012

Management: Five deadly business sins

Just how lethal are Peter Drucker’s "five deadly business sinsâ€? You might ask Eastman Kodak (EK), which has committed at least a couple of them and now finds itself on the verge of bankruptcy.

Word emerged last week that Kodak, founded in 1892 and for many decades widely celebrated as one of the world’s greatest companies, may soon file for Chapter 11 protection if it can’t raise enough cash by selling off pieces of its patent portfolio. The news was a sharp reminder of how incredibly challenging it is to sustain any organization, even the most iconic.

How did it come to this? In certain respects, Kodak has been on the defensive since it began facing heightened competition from its arch rival Fuji (8278:JP) some 30 years ago. But fundamentally the company has slipped because it fell prey to two of what Drucker identified in a 1993 essay as a quintet of "avoidable mistakes that will harm the mightiest business.â€

The first is a preoccupation with high profit margins. The second: "slaughtering tomorrow’s opportunity on the altar of yesterday.†(The three other deadly business sins, according to Drucker, are "mispricing a new product by charging ’what the market will bear’ "cost-driven pricing†in which you merely add up your expenses and then stick a profit margin on topa subject I’ve explored previously; and "feeding problems†while "starving opportunities.â€

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