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Peter Drucker's 5 Deadly Sins of Leadership -and How They Relate to Oncology

2006; Wolters Kluwer; Volume: 28; Issue: 10 Linguagem: Inglês

10.1097/01.cot.0000303108.11413.36

1548-4688

Joseph V. Simone,

Advances in Oncology and Radiotherapy

This column, the third in a series on leadership and management (the first two were published in the April 25 and May 10 issues) describes the condensed wisdom of Peter Drucker, an icon of business management wisdom. It became clear when reading his works that the key values he describes can be applied to leadership in the “cancer industry,” from the FDA, NCI, and pharmaceutical companies to academic medical centers and oncology practices. The “sins” of leadership described below can be seen in the nonprofit as well as the for-profit industry, and in professional businesses such as academic departments and private medical practices. Drucker wrote an article for the Wall Street Journal in 1993 entitled, “The Five Deadly Business Sins.” It was reprinted in the 21 October 2005 issue of the Journal following Drucker's death. What prompted the article was the downward slide in the few years before of once-dominant businesses such as General Motors, IBM, and Sears. He believed that each was guilty of at least one of five business sins. Some of these come uncomfortably close to describing recognizable “sins” in the oncology world. Keep in mind that Drucker calls these “sins” because they are bad for business, not necessarily for one's soul or moral compass (though Drucker has made the argument that good business practices and high ethical standards are often aligned). Sin #1: Worship of high-profit margins and “premium pricing” Drucker says this is the most common of the deadly business sins and offers several examples. Xerox invented the copier but kept adding features to increase the profit margin. But most consumers needed a plain copier at reasonable cost; when Canon brought one out it proceeded to dominate the US market for years. General Motors neglected the market for smaller, more fuel-efficient cars even after the oil crisis of the 1970s, consciously ceding that market to Volkswagen and Japanese car makers. Only after the latter controlled that large market did GM try to respond, but GM remains behind 30 years later because the Japanese cars have been of consistently higher quality. The pharmaceutical company functions as a legal monopoly with a new drug because of patent protection and will charge “what the market will bear.” But is that bad business? Drucker would say, Yes. Xerox and GM made billions of dollars early in their downward spiral, but the market eventually caught up with them and we see the consequences three decades later. Xerox is now a minor player in copiers and there is talk, only half-jokingly, that Toyota may buy GM. And we can point to ourselves for what has happened to oncology practices, both academic and community-based. While chemotherapy revenues were soaring, reaching an average of 65% or more of all revenues, there was no agitation to improve the paltry reimbursement for seeing and managing the patient, so practices were dependent on that single source of revenue. The Medicare Modernization Act has severely reduced the profit from the resale of drugs so many patients are being sent to hospitals for their chemotherapy, especially from small practices, which have been the hardest hit. And larger practices are scrambling to reorganize into buying consortiums and to own lucrative diagnostic or radiation therapy facilities to make up for the income “shortfall.” The key difference between the cancer industry on the one hand and Xerox and GM on the other are that patients are not machine products. So the consequences of charging desperate patients tens of thousands of dollars for minimally effective cancer treatment are exponentially greater and, I would argue, more relevant to the cancer industry, not less. There is a strong moral-ethical as well as a business case for addressing these “sins.” Sin #2: Mispricing a new product by charging “what the market will bear” This is simply an extension of Sin #1. Drucker offers an interesting example of an American company that did it right. DuPont has remained on top of the synthetic fiber industry. When DuPont developed nylon, it priced the patented product at the price they would have to charge in five years to stay competitive. They sacrificed short- term profits for long-term stability and, in the long run, greater profits. Sin #3: Reliance on cost-driven pricing Most companies total up their costs and add a profit to arrive at the sales price. They do this because “we must recover our costs and make a profit.” But the market often changes due to competition, government regulation, or unforeseen production or distribution problems. So the company then must cut the price or redesign the product. Drucker says the alternative and wiser approach is the opposite: “price-driven costing”—that is, price a product or service to what the market is willing to pay and control the costs to fit the price. If one takes this approach, the competition will have a hard time undercutting the price and grabbing market share. This would be a hard sell at every level of the cancer industry. Certainly, the NCI finds itself facing serious reductions in research grants because the Congress believes it isn't doing a good job. Whatever the merits of Congress's judgment, the recent large investment in nanotechnology, proteomics, and bioinformatics at the cost of creative research demonstrates either NCI's lack of planning for what “the market will bear” or a misunderstanding of how research progress is and always has been made: by a pool of creative individual investigators who teach the next generation of creative investigators. Each is a potentially fatal error for the future of biomedical research. Sin #4: Slaughtering tomorrow's opportunity on the altar of yesterday IBM brought out the first personal computer, but consciously ceded that new and growing business to Apple and then many others to focus on its lucrative mainframe business. It is said that IBM forbade its PC salesmen to sell to its mainframe customers. It forced the development of PC clones which businesses wanted. IBM recently sold even its successful laptop business to Lenovo, a Chinese company, and has changed its business model to feature consulting. The cancer industry (all of us in research, production, and care) is in danger of making the same error. Reliance and continued investment in marginally effective diagnostics and therapies at enormous cost to patients, the public, and to the government keep the industry profitable. But one can argue that this failure by the industry to call into question the true value of these approaches for general use—proton-beam therapy, expensive targeted drugs (When did we ever give drugs we believed were not targeted?) for lung cancer that extend life on average only a few weeks—is the same as IBM sticking with the mainframes. Sin #5: Feeding problems and starving opportunities This is a variant of Sin #4. Drucker illustrates this with an anecdote. He says he always asks new clients who their best-performing people are and where they are assigned. In almost all cases they are assigned to problems—old products, fading lines of business, old technology. He then asks, “Who takes care of opportunities?” Their development is usually left to less able performers who are often left to fend for themselves. He believes Sears has been doing this for years. He said GE on the other hand “gets rid of all old business, even if profitable, that do not offer long-range growth and the opportunity for the company to be number one or two worldwide.” The biomedical research community of the US, funded largely by the NIH, is number one in the world. I would argue it is because its main focus has been its priority of supporting research project grants that are competitively awarded. Although large-scale projects such as nanotechnology, bioinformatics, and proteomics have merit, I question whether the NCI can ever be number one or number two in these areas. It has little strength in technology development. And such expenditures come at the extremely high cost of squeezing many scientists, especially the up-and-comers, out of the business. The result: the pay lines for investigator-initiated grants are shrinking toward single digits. Peter Drucker's words should give us pause about the direction of the NCI and the whole cancer business. Admittedly, it is difficult to see how individuals can address these issues. It will require an open-minded leadership at NCI to invite an analysis of its portfolio by competent extramural scientists and clinical investigators. If the next director and the Congress continue in the current direction, a decade or two from now the US will no longer be number one in cancer research and, by extension, biomedical research. Just keep in mind the letters SGX—Sears, GM, and Xerox.Figure: Peter DruckerFigure: Joseph V. Simone, MD, is Clinical Director Emeritus of Huntsman Cancer Institute, Professor Emeritus of Pediatrics and Medicine at the University of Utah and President of his own consulting company (www.SimoneConsulting.com). He was previously Physician-in-Chief of Memorial Sloan-Kettering Cancer Center and Director of St. Jude Children's Research Hospital, and has served as Medical Director and Chairman of the National Comprehensive Cancer Network, Chairman of the Institute of Medicine's National Cancer Policy Board, and as a member of the NCI's Board of Scientific Advisors. Dr. Simone welcomes comments about this column, as well as suggestions for future topics. E-mail him at [email protected].