In Peter Drucker's writing, he says a key strategy is to turn lapses into learning opportunities. And he followed his own philosophy
Lyndon Johnson occupied the White House when KeyCorp first began raising its dividend. The Beatles topped the pop charts. Martin Luther King Jr. led tens of thousands of civil rights marchers through Alabama.
For 43 straight years, the company's annual payout climbed, "a record we were extremely proud of," in the words of KeyCorp (KEY) Chief Executive Henry Meyer. That is, until earlier this month. The Cleveland bank, slammed by the weak housing market and an adverse tax ruling, announced that it would halve its dividend to 75 cents in a bid to save $200 million a year. It also said it would seek to raise $1.5 billion in capital.
"We think hope is a bad management strategy," Meyer explained. "We're trying to admit where we made mistakes."
Mistakes are part of life; they're part of business. But far too many enterprises spend time hiding them and running from them, rather than owning up to them.
Capitalizing on Candor
Given that, KeyCorp deserves much credit. Whether the company can now capitalize on its candor will depend, in large measure, on how management deals with those responsible for its stumbles. The smartest organizations, according to Peter Drucker, are those that turn lapses into learning opportunities.
"Nobody learns except by making mistakes," Drucker wrote in his 1954 landmark book, The Practice of Management. "The better a man is, the more mistakes he will make—for the more new things he will try. I would never promote a man into a top-level job who has not made mistakes, and big ones at that. Otherwise, he is sure to be mediocre. Worse still, not having made mistakes he will not have learned how to spot them early and how to correct them."
Drucker's tolerance for mistakes shouldn't be confused with him cottoning to incompetence. There are plenty of occasions, he believed, when employees should be let go. "Management owes this to the enterprise," Drucker said. "It owes it to the spirit of the management group, especially to those who perform well. It owes it to the man himself, for he is likely to be the major victim of his own inadequacy."
But he cautioned against overreaching: "That a man who consistently renders poor or mediocre performance should be removed from his job also does not mean that a company should ruthlessly fire people right and left." And he made clear that those in charge can't just turn around and blame those who work for them. "Whenever a man's failure can be traced to management's mistakes," Drucker declared, "he has to be kept on the payroll."
Among management's most common errors is putting a good person into the wrong job. After all, Drucker noted, "there is no such thing as an infallible judge of people, at least not on this side of the Pearly Gates." Whenever such a slip-up is made, Drucker counseled, it's incumbent on the boss to say: "I have no business blaming that person, no business invoking the 'Peter Principle,' no business complaining. I have made a mistake."
In the end, Drucker defined success not as being right every time. Rather, he wrote in his 1973 classic Management: Tasks, Responsibilities, Practices, performance must be evaluated on terms more akin to a batting average. (Slugging percentage might even be a more apt way to look at it: Sometimes you hit a single or a double, and occasionally a home run. But other times, you strike out. Maybe even with the bases loaded.)
In Drucker's view, not always getting a hit is not only acceptable; it's part of what it takes to be an organization of excellence. "A management which does not define performance as a batting average is a management that mistakes conformity for achievement, and absence of weaknesses for strengths," Drucker asserted.
A batting-average mentality, he added, allows for companies to accommodate different kinds of talent. "One man will consistently do well, rarely falling far below a respectable standard, but also rarely excel through brilliance or virtuosity," Drucker wrote. "Another man will perform only adequately under normal circumstances but will rise to the demands of a crisis or a major challenge and then perform like a true 'star.' Both are 'performers.' Both need to be recognized. But their performances will look quite different.
"The one man to distrust, however, is the one who never makes a mistake," Drucker continued, "never commits a blunder, never fails in what he tries to do. He is either a phony, or he stays with the safe, the tried, and the trivial."
Drucker not only penned these words; he lived them. By the 1950s, Drucker had concluded there was only one way to manage people correctly: by assuming that all of them will be responsible and self-directed as long as they find their work fulfilling. In 1960 a competing theory was articulated, which held that managers treat each and every employee as if they are inherently self-centered, lazy, and resistant to change.
But then along came psychologist Abraham Maslow, who in 1962 maintained that, either way, a single approach is silly. Drucker was quickly persuaded. "Maslow's evidence is overwhelming," he wrote, that "different people have to be managed differently."
The bottom line for Drucker was that he and others who'd shared his one-size-fits-all view of human motivation "were dead wrong." If only more people had the courage to say that—and then learn from it—a lot more things would go right.