Author: Elizabeth Matsangou
3 Dec 2015
Many policies in business and management are taken for granted, so much so that they have become seemingly obvious tactics for success. For example, although it is widely acknowledged that employees are an organisation’s greatest asset, and that companies require a healthy balance of meeting short-term needs while aspiring to long-term goals, there was a time when such insights were not engrained in business rhetoric. Someone had to profess them, publish them and develop management as a discipline in the first place. That person was Peter Drucker.
Born in Vienna in 1909, Drucker’s childhood played an undeniable influence in his later career. The son of Adolf (a senior government official) and Caroline (one of the first women to study medicine in Austria), Drucker grew up in an intellectual household. From an early age, his parents allowed him to join the evening soirees hosted at the family home, whose attendees included renowned economists, such as Joseph Schumpeter, as well as Austria’s influential elite of writers, scientists and artists. “That was actually my education”, Drucker once claimed, according to the Drucker Institute.
In 1929, he moved to Hamburg to study law, after which he transferred to Frankfurt University to continue his studies in the evenings. During this time, Drucker began writing for Der Frankfurter General-Anzeiger, the city’s biggest daily newspaper, and became senior editor at the age of just 20, while also completing a PhD in international law. Having realised the dangers of living in 1930s Germany, Drucker left for London in 1933.
Drucker’s guidance extended to presidential cabinets and non-governmental organisations that are still successful to this day
During his time in London, he began studying economics and had a profound moment of self-discovery during a lecture by John Maynard Keynes. “I suddenly realised that Keynes and all the brilliant economic students in the room were interested in the behaviour of commodities, while I was interested in the behaviour of people.” This humanist perspective became the basis of Drucker’s entire ethos, which was unlike anything else that had been explored at the time – namely, that the management of any type of organisation went far beyond the bottom line and individual concerns.
“I would say Peter really came to management and business not because he was super interested in business per se, or interested in helping companies make more money as a consultant, although he certainly thought profit was important. His core belief was that we are a society of organisations and for society to function well and be healthy, organisations and our institutions need to be effective and responsible”, said Rick Wartzman, Executive Director of the Drucker Institute, an organisation dedicated to keeping Peter Drucker’s legacy alive. “I think we’ve certainly seen in many cases that when our institutions don’t perform effectively and responsibly, really bad things happen and lots of lives and communities all over the world can be affected. I think Peter would also remind us that it all comes down to organisations functioning well, not just for the sake of profit – that’s just the oxygen they need to survive – but how are they being useful and how are they making the world a better place?”
The corporate concept
“Mr Drucker is one of those writers to whom almost anything can be forgiven, because he not only has a mind of his own, but has the gift of starting other minds along a stimulating line of thought”, Winston Churchill wrote of The End of Economic Man, Drucker’s first major work. Considered of major social importance, the 1939 book explored the European conditions that brought about the rise of fascism. Yet, despite its significance and astute analysis of the political landscape at the time, this was not actually the field in which Drucker would come to excel.
In 1943, Drucker began a consultancy service, which led him to work closely with some of the world’s largest companies, including IBM, General Electric, Procter & Gamble, and Intel. His guidance even extended to presidential cabinets and to non-governmental organisations that are still successful to this day, largely thanks to the Drucker touch. His first client was the world’s biggest corporation at the time, General Motors, where he restructured the company and drastically altered its financial strategy to focus on shareholder value and profitability. It was also Drucker who introduced the idea of employee ownership within the automobile giant, whereby staff were given the option of owning shares in the business – a shrewd move that promoted productivity across the ranks. So eye-opening was his two-year analysis of General Motors, Drucker used it as the basis for his widely successful 1946 work, Concept of the Corporation, his first noteworthy foray into management theory.
Until Drucker entered the field, the standard method of organisational decision-making involved top-down hierarchal management, in which the CEO was deemed lord of all. It was through his attendance at board meetings and countless interviews with employees at General Motors that Drucker realised decentralisation could make for a far more successful model. He argued that smaller units within a decentralised entity could create greater satisfaction among employees, who can more plainly see the fruits of their labour, giving them far greater ownership of their impact within a large organisation. Moreover, through this style of management, less risk is afforded to newly appointed managers, giving more room for mistakes without the risk of bringing the whole firm tumbling down. Though rejected by CEOs at the time, this has since become standard practice.
As Drucker continued his work with companies, he produced The Practice of Management in 1954, which is considered to be the first text in which the science of operating an organisation was laid out in one complete system. Of course, books on various subjects such as finance and human resources had come before, but they had dealt with these topics separately. By providing the information and guidance in one collective work, Drucker laid the foundations for a new disciple – business management. “Drucker was really the first one to organise it all under one rubric. He looked at it holistically, as an ecosystem – he really put it all together”, Wartzman observed.
Back in the 1950s, Drucker established that the two most important principles for an organisation were innovation and marketing. Although innovation has become a buzzword of the 2010s, Drucker actually realised its importance far earlier, and wrote about the need for all organisations to examine it through a variety of lenses. The first method for achieving innovation is what he called ‘planned abandonment’. “Everything becomes obsolete at some point, so you have to stop in order to make way for the new – you have to free up resources and free up capacity to make way for tomorrow”, explained Wartzman. “He said that one of the most dangerous things that can happen to an organisation is success.” The second is ‘continuous improvement’, and thirdly ‘disruptive innovation’, namely an innovation that creates a new market and disrupts the existing one, Uber being the most commonly cited modern example.
According to Drucker, simplicity and focus are the two underlying principles behind the most successful innovations, which can be discovered through analysing specific areas of opportunities: unexpected occurrences, incongruities, process needs, industry and market changes, demographic changes, changes in perception, and new knowledge.
“I think that today a lot of people hear the word marketing and they immediately think of it in the context of advertising, like having a slick slogan or something like that. For Peter, marketing was actually the opposite of advertising”, Wartzman explained. To Drucker, marketing entailed a deep understanding of who the customer is and who the customer isn’t, which is then followed by a thorough analysis of a customer’s needs and values, and how one’s business can fulfil those requirements. “So for him, if you marketed well, that is to mean if you really understood your customers’ needs, your products and services would sell themselves – there was almost no need for advertising.”
As well as making astute observations that drastically influenced some of the world’s most successful businesses, Drucker also made incredibly sharp predictions. One major prediction was the rise of the ‘knowledge worker’, a term he first coined to refer to employees hired on the basis of their expertise and skills. “[Drucker] started writing about the knowledge worker and knowledge work back in 1959. And what he really foresaw was an age when brains would trump brawn, when people would start using their heads as much as their hands in terms of the centre of the economy. This profound shift that we’re probably now a good portion of the way through [is a] tremendous transformation to economy and society”, said Wartzman. Drucker even predicted the rise of information culture in 1968 in his book The Age of Discontinuity, prophesying a situation in which the availability of electricity and information would bring forth a new age in society.
Drucker also foresaw the growing importance that NGOs would have in society, as governmental bodies retreated further from social responsibilities. Indeed, his consultancy services were not only limited to the private sector; Drucker’s influence in the public sphere was just as profound. He directly helped numerous NGOs in the US, such as Red Cross, the Salvation Army, Girl Scouts USA, Care International and many others, not to mention a host of governmental organisations. And for those that he did not help in person, Drucker invented a self-assessment tool, which can be found today in the aptly named book The Five Most Important Questions You Will Ever Ask About Your Organisation. Through his work within the social sector, Drucker found that NGOs had far more in common with private companies than was widely assumed at the time – he argued, in fact, that each could learn a lot from the other.
Even on paper, extremely few individuals can boast the accomplishments of Peter Drucker – 39 books, numerous academic papers, countless articles in Harvard Business Review, The Atlantic, Harper’s and The Financial Times, as well as a 20-year spell at The Wall Street Journal. And yet, Drucker’s legacy goes far beyond his many tangible achievements and how exceptionally prolific he was as a writer. Drucker’s concepts still deeply influence the greatest business leaders, NGOs and theorists to this day. “Peter taught for generations, beginning in the 1930s in the US and all the way up until the 2000s. He had many, many students who in turn became leaders in all sectors and they carried forward his teachings”, Wartzman noted. “There is a tremendous debt – I think that among today’s greatest management thinkers, almost all of them acknowledge that what they write and think is really just a new dimension of what Peter first identified and wrote about.”
What was so exceptional about Drucker’s work, aside from his prescient predictions, was his holistic interpretation. He illuminated the connection that organisations have with society, and thus showed that the success of each depended on the other. He also illustrated how organisations themselves operate as symbiotic micro-societies. For Drucker, business was not about profits – revenue was simply a measure of performance. Instead, it was about the overall effectiveness of an organisation and, subsequently, the impact that it has on society. Perhaps his most valuable lesson is that when looking at the world through this wide lens, it can indeed become a better place.
Drucker’s best quotes
“So much of what we call management consists of making it difficult for people to work.”
“Leadership is not magnetic personality; that can just as well be a glib tongue. Leadership is lifting a person’s vision to higher sights.”
“Meetings are by definition a concession to a deficient organisation. For one either meets or one works. One cannot do both.”
“Long-range planning does not deal with the future decisions, but with the future of present decisions.”
“There is nothing quite so useless as doing with great efficiency something that should not be done at all.”
“Results are gained by exploiting opportunities, they are not gained by solving problems.”
“People who don’t take risks make about two big mistakes a year. People who do take risks make about two big mistakes a year.”
“An innovation, to be effective, has to be simple and focused. It should do only one thing, otherwise it confuses.”
“Efficiency is doing the thing right. Effectiveness is doing the right thing.”
“The most important thing in communication is hearing what isn’t said.”
“Doing the right thing is more important than doing the thing right.”
“Time is the scarcest resource. Unless it is managed, nothing else can be managed.”