Drucker Institute’s / Wall Street Journal Best Managed Companies

by Jamie Flinchbaugh on 12-19-17

The Wall Street Journey released their inaugural Management Top 250, a list of the best managed companies. It is based on the research of the Drucker Institute at Claremont Graduate University, releasing a much larger list and their scoring in this table Amazon tops the list, followed by Apple and Alphabet / Google.

Click here for a closer view of the full list

The Drucker Institute is founded by the late Peter F. Drucker, one of the top management thinkers of all time. They based the study on 5 principles based on Drucker’s work.

Those principles are Customer Service, Employee Engagement and Development, Innovation, Social Responsibility, and Financial Strength. In the linked page, they include quotes from Drucker supporting each principle. Customer Service should likely be first, as Drucker said, “to satisfy the customer is the mission and purpose of every business.” Employee Engagement and Development is next, and again as Drucker said, “developing talent is business’ most important task.” The principles are sound, although I am not certain they were ever meant as a blueprint. Furthermore, while I certainly support social responsibility, I don’t see its relevance to effectiveness. It seems more a principle of purpose than effectiveness.

I spent quite a bit of time reviewing the methodology, because I wanted to understand and form an opinion on whether this report has any relevance. I imagine less than 1% of the report’s readers will review the methodology, and even the Wall Street Journal’s own reporting only commits 2 sentences to the subject. But before everyone celebrates or bemoans their ranking, there are serious concerns that the methodology is interesting but not fully valid.

Above all else, all of the data used can be collected while sitting in a conference room anywhere in the world. It is compiled from other organization’s rankings and other publicly available data. Then it is all compiled into a model with category scores, which are then weighted, and then converted to a final score. In other words, it is an abstract model built on top of abstract models with no ground truth validation to support it. Now they do some elegant and thoughtful math on top of that abstract model, so the math is likely sound, just not the overall methodology. As I said, it is interesting, but destined to be flawed.

Here are some of my specific challenges when digging through:

  • It is a measurement of effectiveness, yet in the weight scheme, they demote customer satisfaction and promote social responsibility. Again, not a judgement against the importance of social responsibility but for a measurement of effective management this is absolutely backwards.
  • One of the innovation metrics is to use magazine subjective lists of “most innovative”, several of which are going pure on reputation, not methodology.
  • When you go through the input data, you understand why company size appears to matter (when of course it shouldn’t). In the top 20 include all the regulars: Amazon, Apple, Alphabet, J&J, IBM, Microsoft, P&G, 3M, Cisco, Nike, Dow, Intel, Exxon Mobile. One could say that effective management builds big companies, but that’s not what’s happening here.
  • One indicator is patent abandonment, included because a company shouldn’t invest resources into maintaining outdated IP or technology. I’m fully onboard with the explanation. However, there is no in-depth review to see if a company is not abandoning patents because they aren’t managing carefully, or because they are genuinely still useful patents.
  • They started with over 100 metrics and narrowed it down to 37 . One of the factors they used was correlation, meaning that if it tells them the same relative story that the rest of the metrics told them, they were more likely to include them. That’s fine if something is one dimensional, and lack of correlation indicates lack of relevancy. But innovation and employee engagement are not one dimensional factors, and using that method to throw out metrics means you are missing key contributing factors, even if they only change the net result a little.

Overall, based on what I consider both a biased and flawed methodology, I wouldn’t put much stock in your specific number. But what bracket (top 20%, bottom 20%?) you fall may be reason to ask questions. Which brings me to the important task – how should a management team use this report?

The value is to help drive reflection. Don’t spend time defending your current state. Focus on asking yourself questions that drive action. If you use the scores as a thought starter, it will likely lead to interesting questions. Here are some starters for you:

  • Do we have a good understanding of our effectiveness?
  • Do we have a good understanding of our peers’ effectiveness?
  • What can we learn from our peers?
  • Are our actions and systems aligned to deliver customer satisfaction?
  • Do we have a long-term strategy that emphasizes employee engagement and development?
  • Where does innovation come from in our organization?

Then, of course, take action on what you learn and conclude.