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The Wisdom of Peter Drucker from A to Z

Known widely as the father of management, Peter Drucker formulated many concepts about business that we now take for granted. On the 100th anniversary of his birth, we take a look at Drucker's contributions, from A to Z.
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Peter Drucker was known to gently chide ambitious acolytes to replace their pursuit of success with the pursuit of contribution. Certainly few people contributed as much to Twentieth Century business, social, and political thought as Drucker, who was born 100 years ago--on November 19, 1909--in a suburb of Vienna.

Known widely as the father of management, Drucker immigrated to the United States in 1937. In a career that produced 39 books, as well as lectures, classes, consultations, and even movies, Drucker anatomized the functioning (and dysfunctioning) of companies. It would be easier to list the ideas he didn't promulgate in some form than those he did. (As far as we know he never weighed in on Secret Santa or pets in the workplace.) Much of the business lexicon bruited about in offices--from "knowledge worker" to "management by objective"--can be traced to Druckerian coinage. For decades harried CEOs have restructured their work lives based on Drucker's almost zen insights about efficiency and time management. His pronouncements on customers, marketing, and profitability deserve to be framed and hung in every corner office to remind business leaders where their priorities should lie.

Encountering Drucker for the first time, readers may dismiss as obvious his observations on subjects like motivating workers and encouraging innovation. But such observations were far from obvious when Drucker first made them; and if they seem so now it is because his wisdom and clarity compelled so many companies to act as he advised. "What I find is that whenever I think I have got a really creative idea, if I go back [to] Peter's books I always find he already said it first," said One-Minute Manager author Ken Blanchard during a celebration of the centary at Claremont University's Peter F. Drucker and Masatoshi Ito Graduate School of Management. Drucker had the ears of CEOs, heads of state, and major philanthropists. Corporate titans like General Electric and Toyota were swayed by his ideas. "Drucker gave us the language, the metaphor, the lens, the understanding of the role of management as the critical function," said Good to Great author Jim Collins at the Claremont event.

In honor of the centenary, we have compiled an alphabetical list of some people, places, and concepts drawn from the life and works of Drucker.

Abandonment: Jim Collins earns applause when he lectures about his "stop doing" list. Jack Welch gained fame for shedding businesses in which General Electric wasn't first or second. But it was Drucker who first suggested that choosing what not to do was a decision as strategic as its opposite. Drucker's theory of "purposeful abandonment" exhorted business leaders to quickly sever projects, policies and processes that had outlived their usefulness. "The first step in a growth policy is not to decide where and how to grow," he told author Jeffrey Krames in 2003. "It is to decide what to abandon. In order to grow, a business must have a systematic policy to get rid of the outgrown, the obsolete, the unproductive."

Bystander: Though he bestrode the management world like a Colossus, Drucker was less assuming than many of today's mega-wattage gurus. An early advocate of servant leadership, he both valued and practiced humility, describing himself as a "bystander" who is "on the stage but not part of the action." Even his quasi-autobiography, Adventures of a Bystander, refracts Drucker's life through the stories of people he had known, such as Sigmund Freud and Henry Luce.

Customers: Having trouble formulating a mission statement? Let Drucker boil it down for you: "The purpose of business is to create and keep a customer," he argued. And: "What does our customer find valuable?" is the most important question companies can ask themselves. This focus helped reorient marketing away from advertising and onto a higher plane.

Decentralization: Little fish learn to be big fish in little ponds. Drucker favored decentralized organizations because they create small pools in which employees gain satisfaction by witnessing the fruits of their efforts, and nascent leaders can make mistakes without bringing down the business. When Drucker laid out these ideas in the mid-1940s, the command-and-controllers who dominated corporations were not amused. Today, of course, "stovepipe" organizations--those that remain--are widely maligned for their failure to make the most of human and information resources.

Effectiveness: Perhaps the most revelatory insight in the history of time management tore the bottom out of Frederick Taylor's time-and-motion studies: "Efficiency is doing things right," Drucker wrote in The Effective Executive. Effectiveness is doing the right things." What's true for individual managers is also true for organizations, which often squander time and resources trying to improve processes for products not worth producing. The solution? See "abandonment," above.

Future: Drucker dismissed attempts to label him a "futurist," insisting that "the best way to predict the future is to create it" and "the only thing we know about the future is that it will be different." Still, his forecasting tended to be spot-on. Among other things, he anticipated the rise of Japan, the importance of computers, and the backlash against executive pay. His method was to study significant events that had already occurred and had predictable effects going forward. Or to use Drucker's elegant oxymoron: "the future that has already happened."

General Motors: Drucker's Concept of the Corporation (1945) was arguably the first drop in what would become a deluge of organizational and management studies. The corporation in question was GM, to which Drucker was given the kind of access for which today's business scholars would sell their grandmas up the river. Drucker's conclusions about corporate structure and management style and their effect on worker productivity and morale were enormously influential--although they so annoyed then-CEO Alfred Sloan, that he pretended the book didn't exist.

Hitler: Drucker's first book, The End of Economic Man, was a study not of management but of totalitarianism. Living in Germany during Hitler's rise (two pamphlets he wrote--one praising a German-Jewish philosopher and one roundly condemning the National Socialists--were banned and burned by the Nazis), Drucker was achingly aware of the worst government and society could dish out. His later writing can be interpreted as a lifelong quest for functional, principled institutions.

Innovation: Thomas Edison would get no pushback from Drucker on his 1 percent inspiration-99-percent-perspiration formula. Drucker believed that innovation--"the specific function of entrepreneurship"--must be methodically ferreted out, and he posited seven likely places to find it: in unexpected occurrences, incongruities, process needs, new knowledge, demographics, perceptions, and changes in industries and markets. The crucial characteristic of innovators is focus. Even Thomas Edison, Drucker pointed out, "worked only in the electrical field."

Japan: The Japanese found much to love about Drucker in the 1960s, as industrial giants like Toyota embraced his theories on the primacy of employees and ideas about marketing--a comparably nascent discipline there. The admiration was mutual, with Drucker praising such Japanese practices as lifetime employment (though he later conceded the need for greater flexibility) and deliberative decision-making followed by quick action. Among Drucker's great passions was Japanese art, which he both collected and lectured on extensively.

Knowledge workers: The term "knowledge management" has that PC era smell. But almost 20 years before the founding of Microsoft, Drucker coined the term "knowledge worker" to describe the growing cadre of employees who labored with their brains rather than their hands. Drucker explained that knowledge workers require a new style of management that treats them more as volunteers or partners than as subordinates. He predicted correctly that the ability of leaders to motivate these founts of productivity--"the most valuable asset of a 21st century institution"--would become a cornerstone of competitive advantage.

Lifelong learning: Another Peter--Senge--popularized the concept of "learning organizations" in the 1980s. But learning organizations are predicated on learning individuals. Drucker called teaching people how to learn "the most pressing task" for managers, given the perpetual expansion of skills and knowledge that are products of the information economy. He personally eschewed the designation "guru"--which suggests one who counsels--casting himself rather as a student. True to form, Drucker every year assigned himself a topic about which he knew nothing and made it the subject of intense study.

Marketing: Drucker was born in 1909, the same year that Henry Ford famously declared, "Any customer can have a car painted any color that he wants so long as it is black." Drucker's theories of marketing--the "distinguishing, unique function of business"--amount to an extended refutation of that attitude. The aim of marketing, in Drucker's view, was to "know and understand the customer so well that the product or service fits him and sells itself." Innovation, which Drucker considered the other basic function of business, is responsible for the creation of those self-selling products.

Non-profits: What's better than a run on Thin Mints? Being declared the best-run organization in America by the world's preeminent business thinker. In 1981, Drucker bestowed that encomium on the Girl Scouts USA, one of many non-profits with which he worked closely over the years (others included the American Heart Association and The Salvation Army). Drucker was a passionate proponent of the social and economic importance of non-profits, which he deemed the "most distinguishing feature" of American society. He created a set of management principles specifically for that sector, and urged businesses to draw lessons in establishing a mission and motivating workers from the non-profit world.

Objectives: In the daily scrum of business, employees become so focused on what they're doing they forget why they're doing it. And off the rails they go. In The Process of Management (1954), Drucker called this "the activity trap" and proposed "management by objective" as a way to avoid it. With MBO, employees participate in setting goals and are then evaluated on how they fulfill those goals. Managers can focus on the "what" rather than the "how." "Management by objective works--if you know the objective," Drucker wrote. "Ninety percent of the time you don't."

Profitability: Drucker was all for profit--but not for profit maximization. He viewed healthy margins as a necessary condition for the social good of wealth creation. Yet profits are not the purpose of an organization but rather a constraint: not the reason to behave in a particular way but rather a test of whether the business is behaving appropriately. "If archangels instead of businessmen sat in the directors' chairs, they would still have to be concerned with profitability, despite their total lack of interest in making profits."

Questions: In effective organizations, employees know their roles. And Drucker was acutely aware of his. "My job is to ask questions," he once informed a consulting client, according to an article in Business Week. "It's your job to provide answers." In this Socratic style, Drucker inspired a generation of business leaders to wax introspective about their organizations. Any journey of self-exploration, he believed, should begin with five essential questions. "What is our mission? Who is our customer? What does the customer value? What are our results? What is our plan?"

Respect: For more than 60 years, Drucker preached that workers are assets not liabilities, and should be treated with respect. (Pick up your Daily Dilbert or watch an episode of The Office, then judge how persuasive he was.) Drucker reimagined the organization as a human community and the job of management as preparing people to perform and then getting out of their way. That attitude wasn't just nice. Given that knowledge skills are more portable than manual ones, it was also smart. "The management of knowledge workers should be based on the assumption that the corporation needs them more than they need the corporation."

Schumpeter: Drucker really understood entrepreneurs, an appreciation spawned in part by the work of Austrian economist Joseph Schumpeter. Schumpeter introduced the idea of creative destruction: the necessary collateral damage that occurs when entrepreneurs--whom he called "wild spirits"--breach established markets. Entrepreneurs drive progress and create wealth, Schumpeter believed, a mantra Drucker took up in his own copious writings on innovation. "The entrepreneur always searches for change, responds to it, and exploits it as an opportunity," Drucker wrote.

Time management:"Time is the scarcest resource, and unless it is managed nothing else can be managed."In a sense, much of Drucker's writing about effective organizations boils down to time management. If time is the insurmountable constraint, deciding how to use it becomes is the most strategic of decisions. On a more personal level, Drucker suggested managers measure how they spend their time and compare that with how they should be spending it, then make the requisite modifications. His overarching question: "What needs to be done right now for the business?"

Universals: Drucker faulted business literature for raising performance expectations unrealistically high, demanding that managers be mathematical and creative, adept at decision-making and analysis, and in possession of excellent people skills and a firm grasp of organizational dynamics. "What seems to be wanted is universal genius, and universal genius has always been in short supply," he observed. "The experience of the human race indicates strongly that the only person in abundant supply is the universal incompetent."

Vienna: Drucker grew up in a small suburb of the city named Dobling, where his parents--a government official and a doctor--hosted soirees for scientists and intellectuals. Living near the starry seat of the Hapsburg monarchy, the family was able to attract prominent economists and political philosophers like Joseph Schumpeter, Friedrich August von Hayek, and Ludwig Heinrich Edler von Mises, whose conversation instilled in Drucker a lifelong curiosity and interest in ideas.

Welch: The chemical combustion that birthed "Neutron Jack" Welch was set off in a meeting with Drucker in 1981. Drucker posed two questions to Welch, who had just been named General Electric's CEO: "If you weren't already in this business, would you enter it today? And if not, what are you going to do about it?" Those questions inspired Welch's dramatic restructuring of General Electric, including the elimination of many low-growth businesses and 240,000 positions. From there, Welch rebuilt GE into a hugely successful, market-leading corporation with an employee-development program ambitious enough even for Drucker.

X-ray: How do you know when it's time for the next Next New Thing? In Managing for Results (1964) Drucker introduced the concept of a "business x-ray"--a tool for determining innovation strategies. Companies use the x-ray to evaluate the life cycles of their existing offerings. They then identify the gap between those offerings' expected future performance and their own larger goals. Finally, they fill that gap with--what else?--innovation. "The entrepreneurial achievement must be large enough to fill that gap and timely enough to fill it before the old becomes obsolescent," Drucker wrote.

Yardsticks: With his emphasis on results, Drucker was bullish on metrics. But he worried that managers often measure the wrong things (for example, things unrelated to the leader's desired outcome) or that they measure too much, or that they express their measurements in the wrong way. When evaluating management effectiveness, he touted one metric (or "yardstick" as he often it) above others. That yardstick: productivity, which Drucker defined as "the degree to which resources are utilized and their yield."

Zen: In 1998, when the writer Harriet Rubin interviewed Drucker at his home for Inc., he showed her this passage from a book on Japanese art: "The Zen-inspired painter seeks the 'truth' of a landscape, like that of religion, in sudden enlightenment. This allows no time for careful detailed draftsmanship. After long contemplation, he is expected to be able to seize inner truth in a swordlike stroke of the brush...." Similarly, Drucker achieved enlightenment through quiet observation, waiting patiently until he saw an idea whole, then rendering universal truth in the swift space of a sentence. Thus was the essence of the master.

Last updated: Nov 19, 2009

LEIGH BUCHANAN | Staff Writer | Editor at Large, Inc. Magazine

Leigh Buchanan is an editor-at-large for Inc. magazine. A former editor at Harvard Business Review and founding editor of WebMaster magazine, she writes regular columns on leadership and workplace culture.




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