The Importance of Theory of the Business


This article is a summary of a classic by the father of modern business management Peter Drucker on the need to test business model assumptions. In the source article IBM and GM are used as examples of the need to refresh the “Theory of the Business”.

The Central Challenge

– “what to do” is increasingly becoming the central challenge facing managements
– The root cause of nearly every one of many business crises is not that things are being done poorly. It is not even that the wrong things are being done. Indeed, in most cases, the right things are being done—but fruitlessly. What accounts for this apparent paradox? The assumptions on which the organization has been built and is being run no longer fit reality.
– Every organization, whether a business or not, has a theory of the business. Indeed, a valid theory that is clear, consistent, and focused is extraordinarily powerful.

Theory of Business Assumptions

A theory of the business has 3 parts which are assumptions about:
1. the environment of the organization: society and its structure, the market, the customer, and technology.
2. the specific mission of the organization.
3. the core competencies needed to accomplish the organization’s mission.

The assumptions about environment define what an organization is paid for.

The assumptions about mission define what an organization considers to be meaningful results; in other words, they point to how it envisions itself making a difference in the economy and in the society at large.

Finally, the assumptions about core competencies define where an organization must excel in order to maintain leadership.

Specifications for a Valid Theory of Business

There are 4 specifications of a valid theory of the business:
1. The assumptions about environment, mission, and core competencies must fit reality.
2. The assumptions in all three areas have to fit one another.
3. The theory of the business must be known and understood throughout the organization.
4. The theory of the business has to be tested constantly.

Time for a Change

When a theory shows the first signs of becoming obsolete, it is time to start thinking again, to ask again which assumptions about the environment, mission, and core competencies reflect reality most accurately—with the clear premise that our historically transmitted assumptions, those with which all of us grew up, no longer suffice.

Theory of Business Update Needs

1. There is a need for preventive care—that is, for building into the organization systematic monitoring and testing of its theory of the business.
2. There is a need for early diagnosis.
3. Finally, there is a need to rethink a theory that is stagnating and to take effective action in order to change policies and practices, bringing the organization’s behavior in line with the new realities of its environment, with a new definition of its mission, and with new core competencies to be developed and acquired.


The True Nature of Personal Leadership

I really like this quote about personal leadership because it helps us to keep the focus on our human endowments:

“In his book, First Things First, Stephen Covey notes that the development of what he calls our four human endowments:

  • • self-awareness,
  • • conscience,
  • • independent will, and
  • • creative imagination
  • is at the core of personal leadership. It is our personal leadership that helps us to do our best creative work. Personal leadership means having the clarity to know what meaningful work looks like, and having the wherewithal to do that work.”

    33 Presentation Tips

    Pat Flynn on the Smart Passive Income blog provides 33 tips for public speaking in a 38 minute video. I like his suggestion about mingling with the audience to understand them better before the presentation. I don’t like his suggestion to start things off by showing a video because your presence right from the start should be used to begin developing a rapport with the audience. His alternative of telling a story is much preferable in my opinion and I would go further to emphasize not relying on over scripting which can make you come across as being robotic rather than being spontaneous and engaged. There is lots more in the video so give it a try if you are looking for suggestions to creatively make your presentation more interesting.

    Preparing for Your Next Presentation Performance

    Darren Hardy of Success Magazine

    Darren Hardy, publisher of Success magazine, has provided a concise article on the 6 preparation rituals he uses to achieve success in his presentations. These rituals are for preparing to perform a completed presentation and not a process used to develop the presentation which is another topic that will be covered in my blog. I agree with all of his performance preparation suggestions and especially endorse having a routine of your own to systemize your presentation preparation. I think his third recommendation to write down notes on the beginning of your presentation is ok but what is much better is to use memory techniques with particular focus on your start so you can get rolling and use the momentum to deliver your best performance. My observation is that even the most inexperienced speakers can perform much better and are more convincing if they memorize the key points of their speech rather than relying on notes. Most memorization techniques rely on location and visualization prompts (e.g. method of loci) but more complete coverage of that topic will be included in a future post.

    Craftmanship with Dignity for Great Work

    99u, byline Insights for Making Things Happen, is a very worthwhile site for actionable improvements and today it had an insightful article on The Craftman’s Guide for Working with Dignity.The 99u article makes a good case for why craftsmanship and dignity are so important in work and life. It encourages people to think about what they can do to increase their dignity. It also makes the point that this applies to modern knowledge work as much as traditional occupations.

    Three attributes were identified and their relevance to dignity explained:

    1. Curiosity
    2. Craftmanship
    3. Humility

    What struck me was that these attributes are also essential for innovation and creativity. Restating it in a slightly different way:

    • Having fun
    • Caring and showing care
    • Learning and applying improvements

    are all important in doing great work. It seems to me that caring and attention are becoming increasingly precious in a world which seems to be tempted towards being unconsciously automated and distracted.

    Web Site Quality Indicators

    One of the ongoing innovations in web design is support for higher quality and more variety in web fonts and better typography in general. Jason Santa Maria has recently published a book “On Web Typography” in the A Book Apart series on web design. One of the topics is using proper characters like smart quotes instead of the default straight quotes. This is part of a larger topic about how to judge web site quality (more on that coming in additional articles). This is a very large topic but let’s review a few quick examples that can be found from examining web site text.

    Spelling Mistakes

    The quickest indicator of lack of quality control on even the most stylish sites are spelling mistakes. This usually means the person didn’t read or at least didn’t sufficiently check their own writing and if it wasn’t worth it for them to review why should you?

    Use of Smart Quotes and Other Special Characters

    One quick way to see if your web site is of high quality is to check the quote and other special characters. Smart quotes show that the designer cares about typography and pays attention to details enough to use the proper characters.
    example: “Smart quotes” "Dumb quotes".

    Primes which are used to denote feet and inches as well as longitude and latitude co-ordinates are a different character than straight quotes.

    Feet and inches
    “He was 6′4″ and full of muscle”
    Latitude and longitude 40° 44′ 54.3588″ N, 73° 59′ 8.3616″ W

    You can see these character differences even more prominently displayed and the key shortcuts to enter the characters at Smart Quotes for Smart People.

    For an overview and praise for Jason’s book you might like the article on Medium.


    Many words in their proper form contain accents.

    Example: The one I use the most often is Orléans, Ontario. Many fierce debates were held to decide that it was important to include the accent which in this case denotes the French heritage of where I live.


    In addition to Jason’s book

    • “On Web Typography” published by A Book Apart 2014

    Robin P. Williams wrote a classic style manual for the Macintosh

    • “The Mac is not a Typewriter” published by Peachpit Press in 2003.

    Robin has also written a design book

    • “The Non-Designer’s Design Book, 3rd edition”

    A 4th edition is estimated to be released in December 2014.