Peter Drucker disliked the term “guru,” though it was often applied to him; “I have been saying for many years,” Drucker once remarked, “that we are using the word ‘guru’ only because ‘charlatan’ is too long to fit into a headline.”
According to Drucker, the basic task of a management is twofold: marketing and innovation. Drucker’s books and scholarly and popular articles explored how humans are organized across the business, government and the nonprofit sectors of society. He is one of the best-known and most widely influential thinkers and writers on the subject of management theory and practice. His writings have predicted many of the major developments of the late twentieth century, including privatization and decentralization; the rise of Japan to economic world power; the decisive importance of marketing; and the emergence of the information society with its necessity of lifelong learning. In 1959, Drucker coined the term “knowledge worker” and later in his life considered knowledge worker productivity to be the next frontier of management.
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization. Management is often included as a logistic factor of production along with machines, materials and money.
“The most efficient way to produce anything is to bring together under one management as many as possible of the activities needed to turn out the product”. (Peter Drucker)
The size of management can range from one person in a small firm to hundreds or thousands of managers in multinational companies. In large firms the board of directors formulates the policy which is implemented by the Chief Executive Officer.
“Management is doing things right; leadership is doing the right things” (Peter Drucker)
Several ideas run through most of Drucker’s writings:
- Decentralization and simplification. Drucker discounted the command and control model and asserted that companies work best when they are decentralized. According to Drucker, corporations tend to produce too many products, hire employees they don’t need (when a better solution would be outsourcing), and expand into economic sectors that they should avoid.
- The concept of “Knowledge Worker” in his 1959 book “The Landmarks of Tomorrow”. Since then, knowledge-based work has become increasingly important in businesses worldwide.
- The prediction of the death of the “Blue Collar” worker. A blue collar worker is a typical high school dropout who was paid middle class wages with all benefits for assembling cars in Detroit. The changing face of the US Auto Industry is a testimony to this prediction.
- The concept of what eventually came to be known as “outsourcing.” He used the example of front room and a back room of each business: A company should be engaged in only the front room activities that are core to supporting its business. Back room activities should be handed over to other companies, for whom these are the front room activities.
- The importance of the non-profit sector, which he calls the third sector (private sector and the Government sector being the first two.) Non-Government Organizations (NGOs) play crucial roles in countries around the world.
- A profound skepticism of macroeconomic theory. Drucker contended that economists of all schools fail to explain significant aspects of modern economies.
- Respect of the worker. Drucker believed that employees are assets and not liabilities. He taught that knowledgeable workers are the essential ingredients of the modern economy. Central to this philosophy is the view that people are an organization’s most valuable resource, and that a manager’s job is both to prepare people to perform and give them freedom to do so.
- A belief in what he called “the sickness of government.” Drucker made nonpartisan claims that government is often unable or unwilling to provide new services that people need or want, though he believed that this condition is not inherent to the form of government. The chapter “The Sickness of Government” in his book The Age of Discontinuity formed the basis of New Public Management, a theory of public administration that dominated the discipline in the 1980s and 1990s.
- The need for “planned abandonment.” Businesses and governments have a natural human tendency to cling to “yesterday’s successes” rather than seeing when they are no longer useful.
- A belief that taking action without thinking is the cause of every failure.
- The need for community. Early in his career, Drucker predicted the “end of economic man” and advocated the creation of a “plant community” where an individual’s social needs could be met. He later acknowledged that the plant community never materialized, and by the 1980s, suggested that volunteering in the nonprofit sector was the key to fostering a healthy society where people found a sense of belonging and civic pride.
- The need to manage business by balancing a variety of needs and goals, rather than subordinating an institution to a single value. This concept of management by objectives forms the keynote of his 1954 landmark The Practice of Management.
- A company’s primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company’s continued existence.
- A belief in the notion that great companies could stand among humankind’s noblest inventions.
Outsourcing is the process of contracting an existing business process which an organization previously performed internally to an independent organization, where the process is purchased as a service. Though this practice of purchasing a business function – instead of providing it internally – is a common feature of any modern economy, the term outsourcing became popular in America near the turn of the 21st century. An outsourcing deal may also involve transfer of the employees involved to the outsourcing business partner.
Although the definition of outsourcing includes both foreign or domestic contracting, the term is sometimes used exclusively referring to the former. The more clear term for this is offshoring, which is described as “a company taking a function out of their business and relocating it to another country,” whether the external country is physically offshore or not.
Management by Objectives
The principle behind Management by Objectives (MBO) is for employees to have a clear understanding of the roles and responsibilities expected of them. They can then understand how their activities relate to the achievement of the organization’s goal. MBO also places importance on fulfilling the personal goals of each employee.
“Management by objectives works if you first think through your objectives. Ninety percent of the time you haven’t”. (Peter Drucker)
Objectives can be set in all domains of activities (production, marketing, services, sales, R&D, human resources, finance, information systems etc.). Some objectives are collective, for a whole department or the whole company, others can be individualized. Some of the important features and advantages of MBO are:
- Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment. This increases employee job satisfaction and commitment.
- Better communication and Coordination – Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the organization and also to solve many problems.
- Clarity of goals
- Subordinates tend to have a higher commitment to objectives they set for themselves than those imposed on them by another person.
- Managers can ensure that objectives of the subordinates are linked to the organization’s objectives.
Knowledge workers are workers whose main capital is knowledge. Knowledge workers are employees who have a deep background in education and experience and are considered people who “think for a living.” Typical examples may include software engineers, architects, engineers, scientists and lawyers. Knowledge workers spend lots of their time searching for information. They are also often displaced from their bosses, working in various departments and time zones or from remote sites such as home offices. As businesses increase their dependence on information technology, the number of fields in which knowledge workers must operate has expanded dramatically.
Even though they sometimes are called “gold collars”, because of their high salaries, as well as because of their relative independence in controlling the process of their own work, current research shows that they are also more prone to burn-outs, and very close normative control from organizations they work for, unlike regular workers.
What differentiates knowledge work from other forms of work is its primary task of “non-routine” problem solving that requires a combination of convergent, divergent, and creative thinking. However, it should be acknowledged that the term “knowledge worker” can be quite broad in its meaning, and is not always definitive in who it refers to.
The ‘business thinker’
Drucker’s career as a business thinker took off in 1942, when his initial writings on politics and society won him access to the internal workings of General Motors (GM), one of the largest companies in the world at that time. His experiences in Europe had left him fascinated with the problem of authority. He shared his fascination with Donaldson Brown, the mastermind behind the administrative controls at GM. In 1943 Brown invited him in to conduct what might be called a “political audit”: a two-year social-scientific analysis of the corporation. Drucker attended every board meeting, interviewed employees, and analyzed production and decision-making processes.
The resulting book, Concept of the Corporation, popularized GM’s multidivisional structure and led to numerous articles, consulting engagements, and additional books. GM, however, was hardly thrilled with the final product. Drucker had suggested that the auto giant might want to reexamine a host of long-standing policies on customer relations, dealer relations, employee relations and more. Inside the corporation, Drucker’s counsel was viewed as hypercritical. GM’s revered chairman, Alfred Sloan, was so upset about the book that he “simply treated it as if it did not exist,” Drucker later recalled, “never mentioning it and never allowing it to be mentioned in his presence.”
“So much of what we call management consists in making it difficult for people to work” (Peter Drucker)
Drucker taught that management is “a liberal art,” and he infused his management advice with interdisciplinary lessons from history, sociology, psychology, philosophy, culture and religion. He also believed strongly that all institutions, including those in the private sector, have a responsibility to the whole of society. “The fact is,” Drucker wrote in his 1973 Management: Tasks, Responsibilities, Practices, “that in modern society there is no other leadership group but managers. If the managers of our major institutions, and especially of business, do not take responsibility for the common good, no one else can or will.”
Drucker was interested in the growing effect of people who worked with their minds rather than their hands. He was intrigued by employees who knew more about certain subjects than their bosses or colleagues and yet had to cooperate with others in a large organization. Rather than simply glorify the phenomenon as the epitome of human progress, Drucker analyzed it and explained how it challenged the common thinking about how organizations should be run.
His approach worked well in the increasingly mature business world of the second half of the twentieth century. By that time, large corporations had developed the basic manufacturing efficiencies and managerial hierarchies of mass production. Executives thought they knew how to run companies, and Drucker took it upon himself to poke holes in their beliefs, lest organizations become stale. But he did so in a sympathetic way. He assumed that his readers were intelligent, rational, hardworking people of good will. If their organizations struggled, he believed it was usually because of outdated ideas, a narrow conception of problems, or internal misunderstandings.
During his long consulting career, Drucker worked with many major corporations, including General Electric, Coca-Cola, Citicorp, IBM, and Intel. He consulted with notable business leaders such as GE’s Jack Welch; Procter & Gamble’s A.G. Lafley; Intel’s Andy Grove; Edward Jones’ John Bachmann; Shoichiro Toyoda, the honorary chairman of Toyota Motor Corp.; and Masatoshi Ito, the honorary chairman of the Ito-Yokado Group, the second largest retailing organization in the world. Although he helped many corporate executives succeed, he was appalled when the level of Fortune 500 CEO pay in America ballooned to hundreds of times that of the average worker. He argued in a 1984 essay that CEO compensation should be no more than 20 times what the rank and file make – especially at companies where thousands of employees are being laid off. “This is morally and socially unforgivable,” Drucker wrote, “and we will pay a heavy price for it.”
“Some of the best business and nonprofit CEOs I’ve worked with over a sixty-five-year consulting career were not stereotypical leaders. They were all over the map in terms of their personalities, attitudes, values, strengths, and weaknesses” (Peter Drucker)
Drucker served as a consultant for various government agencies in the United States, Canada and Japan. He worked with various nonprofit organizations to help them become successful, often consulting pro bono. Among the many social-sector groups he advised were the Salvation Army, the Girl Scouts of the USA, C.A.R.E., the American Red Cross, and the Navajo Indian Tribal Council.
In fact, Drucker anticipated the rise of the social sector in America, maintaining that it was through volunteering in nonprofits that people would find the kind of fulfillment that he originally thought would be provided through their place of work, but that had proven elusive in that arena. “Citizenship in and through the social sector is not a panacea for the ills of post-capitalist society and post-capitalist polity, but it may be a prerequisite for tackling these ills,” Drucker wrote. “It restores the civic responsibility that is the mark of citizenship, and the civic pride that is the mark of community.”
Drucker’s 39 books have been translated into more than thirty languages. Two are novels, one an autobiography. He is the co-author of a book on Japanese painting, and made eight series of educational films on management topics. He also penned a regular column in the Wall Street Journal for 10 years and contributed frequently to the Harvard Business Review, The Atlantic Monthly, and The Economist.
“Executives owe it to the organization and to their fellow workers not to tolerate nonperforming individuals in important jobs” (Peter Drucker)
His work is especially popular in Japan, even more so after the publication of “What If the Female Manager of a High-School Baseball Team Read Drucker’s Management”, a novel that features the main character using one of his books to great effect, which was also adapted into an anime and a live action film. His popularity in Japan may be compared with that of his contemporary W. Edwards Deming.
Peter Ferdinand Drucker (November 19, 1909 – November 11, 2005) was an influential writer, management consultant, and self-described “social ecologist.
Peter Drucker was of Jewish descent on both his paternal and his maternal sides, but his parents converted to Christianity and lived in what he referred to as a “liberal” Lutheran Protestant household in Austria-Hungary. His mother Caroline Bondi had studied medicine and his father Adolf Drucker was a lawyer and high-level civil servant. Drucker was born in Vienna, the capital of Austria, in a small village named Kaasgraben. He grew up in a home where intellectuals, high government officials, and scientists would meet to discuss new ideas.
After graduating from Döbling Gymnasium, Drucker found few opportunities for employment in post-World War Vienna, so he moved to Hamburg, Germany, first working as an apprentice at an established cotton trading company, then as a journalist, writing for Der Österreichische Volkswirt (The Austrian Economist). Drucker then moved to Frankfurt, where he took a job at the Daily Frankfurter General-Anzeiger. While in Frankfurt, he also earned a doctorate in international law and public law from the University of Frankfurt in 1931.
In 1933, Drucker left Germany for England. In London, he worked for an insurance company, then as the chief economist at a private bank. He also reconnected with Doris Schmitz, an acquaintance from the University of Frankfurt whom he married in 1934. The couple permanently relocated to the United States, where he became a university professor as well as a free-lance writer and business consultant.
In 1943, Drucker became a naturalized citizen of the United States. He then had a distinguished career as a teacher, first as a professor of politics and philosophy at Bennington College from 1942–1949, then for more than twenty years at New York University as a Professor of Management from 1950 to 1971.
Drucker came to California in 1971, where he developed one of the country’s first executive MBA programs for working professionals at Claremont Graduate University (then known as Claremont Graduate School). From 1971 to his death he was the Clarke Professor of Social Science and Management at Claremont Graduate University. Claremont Graduate University’s management school was named the “Peter F. Drucker Graduate School of Management” in his honor in 1987 (later renamed the “Peter F. Drucker and Masatoshi Ito Graduate School of Management”). He established the Drucker Archives at Claremont Graduate University in 1999; the Archives became the Drucker Institute in 2006. Drucker taught his last class in 2002 at age 92. He continued to act as a consultant to businesses and non-profit organizations well into his nineties. Drucker died November 11, 2005 in Claremont, California of natural causes at 95.
Peter Drucker gave his name to two institutions: the Drucker Institute and the Peter F. Drucker and Masatoshi Ito Graduate School of Management, both at Claremont Graduate University. The annual Global Peter Drucker Forum in his hometown of Vienna Austria, honors his legacy. In Claremont, California, Eleventh Street between College Avenue and Dartmouth Avenue was renamed “Drucker Way” in October 2009 to commemorate the 100th anniversary of Drucker’s birth.