I was cleaning my office and sorting papers when I came across a Xerox of the original WSJ version of Peter Drucker's famous The Five Deadly Business Sins article published in 1993. From time to time it's been on my bulletin board, which it is now, as a reminder of the eternal value of his comments. Here are excerpts:
- The worship of high profit margins and "premium pricing" always creates a market for the competitor. And high profit margins do not equal maximum profits.
- Mispricing a new product by charging "what the market will bear." This, too, will create a risk-free opportunity for the competition. It's the wrong policy even if the product has patent protections.
- Cost-driven Pricing. The only thing that works is price-driven costing. The only sound way to price is to start out with what the market is willing to pay--and thus what the competition will charge--and design to that price specification.
- Slaughtering tomorrow's opportunity on the alter of yesterday. It's what derailed IBM. IBM's catching up almost overnight, when Apple brought out the first PC in the mid-1970s. But then when IBM had gained leadership in the new PC market, it subordinated this new and growing business to the old cash cow, the mainframe computer.
- Feeding problems and starving opportunities. All one can get by "problem-solving" is damage containment. Only opportunities produce results and growth. And opportunities are every bit as difficult and demanding as problems are. First, draw up a list of the opportunities facing the business and make sure that each is adequately staffed (and adequately supported). Only then should you draw up a list of the problems and worry about staffing them.
Everything I've been saying in this article has been known for generations. Everything has been amply proved by decades of experience. There is thus no excuse for managements to indulge in the five deadly sins. They are temptations that must be resisted.