The Legacy of Peter Drucker

By Prof. B. Manchanda, MA,PGDMM,MBA

Few managers today can have escaped exposure to the management
industry. They have very likely been taught some aspect of management,
been exposed to some new (or once new) management idea, worked
alongside expensive management consultants, come across an interesting
article in a management journal, even read a whole management book
(even if it’s only The One-Minute Manager). All these now familiar
exposures trace back to the same source: the Austrian-born writer, lecturer,
consultant and management guru Peter Drucker.

"The world knows he was the greatest management thinker of the last century,"
Jack Welch, former chairman of General Electric Co. (GE ), said after Drucker's
death.

"He was the creator and inventor of modern management," said management guru
Tom Peters. "In the early 1950s, nobody had a tool kit to manage these incredibly
complex organizations that had gone out of control.Drucker was the first person to
give us a handbook for that."

Adds Intel Corp. (INTC ) co-founder Andrew S. Grove: "Like many philosophers, he
spoke in plain language that resonated with ordinary managers. Consequently,
simple statements from him have influenced untold numbers of daily actions; they
did mine over decades."

The story of Peter Drucker is the story of management itself. It's the story of the
rise of the modern corporation and the managers who organize work. Without his
analysis it's almost impossible to imagine the rise of dispersed, globe-spanning
corporations
In one way or another, armies of managers have sat at his feet, either literally or
metaphorically. He died in 2005, at the great age of 95, but his legacy is certain to
live on. Even if his books should lose currency (and this is a fickle market), the ideas
contained within them cannot fade, for the simple reason that most are right.

Drucker specialised in the most powerful of all the management techniques -

applied intelligence. Like the best of spies, he found out truths (including those which
people wanted to conceal) and drew the right, commonsense conclusions from what
he saw.
ACADEMIC STATUS

This didn’t endear him to all academics, even though decades of teaching, notably at
New York University and the Peter F. Drucker Graduate School of Management at
Claremont in California, were evidence enough of his academic status. But, then,
Peter didn’t find academics universally appealing either – witness an exchange we
had when my daughter Jane was about to go to the Fontainebleau institution,
INSEAD, to study for an MBA.

Peter made a disapproving face. ‘That won’t do her any harm’, he said. I
protested: ‘It’s only for one year’. He looked at me: ‘That’s why it won’t do her any
harm’. He was famous for asking what it was which business schools taught that was
any different from the lessons imbibed by economics students down the ages. There
was no real answer. The quantitative studies which preoccupied the B-schools were
not, in Peter’s view, much use in real management. As a humanist to his fingertips,
Drucker knew that business rested on the optimum use of human potential - which
meant much that couldn’t be measured or quantified.

This didn’t imply any disregard for numbers, or any other factual tools. Drucker was
no mean prophet. This ability - which made him, for example, first to identify the
unstoppable rise of the knowledge worker – was based on factual observation. What
Drucker saw was available to anybody. The difference was that Peter absorbed what
he saw happening and projected the observed present into the probable future.

The use of applied intelligence in this way has huge commercial value, as Drucker
showed when he observed that the post-war baby boom was inevitably resulting in a
sharp rise in the number of potential college students. Couple this with another
observed fact - the rise in the proportion of young people seeking a college education
- and the consequences were very obvious: a great expansion in university places
would be required.

The established suppliers, however, didn’t see this inevitability. It was left
to newcomers to exploit the student boom, to their own great profit. Such a
development was no surprise to Drucker. The fallibility of mankind, which often leads
people to act against their own best interests, is another observable fact. As he once
noted, incompetence is the only commodity in inexhaustible supply.

QUESTION AND ANSWER

That sounds highly pessimistic. But Drucker seldom veered away from his optimistic
view that anything and everything can be improved, if the right questions are asked
and the right answers activated. As a consultant of unique authority, that positive
attitude gave him high value. For example, GE’s Jack Welch consulted Drucker at the
start of a 20-year tenure that created billions of wealth for shareholders in the
company - and was asked two questions:

• If you weren’t already in any GE business, would you enter it today?

• And if the answer is no, what are you going to do about it?

Welch’s answer was his famous dictum that any GE business that was neither leader
nor runner-up in its market, and couldn’t reach those heights, would be closed or
sold. The results earned Welch the nickname ‘Neutron Jack’, after the bomb which
destroys all the people, but leaves the buildings intact. But Welch moved on to
create new growth in a saga which illustrates one of Drucker’s many highly original
ideas - named ‘the theory of the business’. It demands getting truthful answers on
four key points;

• What assumptions are we making about

(1) the environment,

(2) our mission and

(3) the core competencies that we need?

• Do the assumptions in all three areas fit each other?

• Is the theory of the business known and understood by everybody?

• Is the theory tested constantly - and altered if necessary?

Even if your answers are four resounding cries of Yes!, the theory of the business
won’t last forever. Drucker was fully aware that change is inevitable, like it or not: ‘A
theory of the business always becomes obsolete when an organisation attains its
original objectives’. That’s why he advised use of ‘abandonment’ - meaning that
every three years you should challenge every product, service, policy and
distribution channel with the question, ‘If we were not in it already, would we be
going into it now?’ - the self-same question that led to the revolution at GE. But
Drucker adds three more queries:
• Why didn’t this work, even though it looked so promising when we went into it five
years ago?

• Is it because we made a mistake?

• Is it because we did the wrong things?

• Or is it because the right things didn’t work?

Note the simplicity of the questions – Drucker believed in making himself

understood. He also insisted that preventing collapse required studying the
customers - and, very important, the non-customers: ‘The first signs of fundamental
change rarely appear within one’s own organisation or among one’s own customers’.

It’s now a statement of the obvious that ‘there is no business without a customer’,
but Drucker was the first to articulate this bedrock truth - and thus gave birth and
validity to a whole dynasty of marketing pundits.

COLLAPSE OF THE THEORY

The theory of the business obviously stems back to Drucker’s foundation work,
Concept of the Corporation, based on unprecedented access to General Motors and
published in 1945. This research into the first truly modern corporation more than
made up for Drucker’s own lack of direct management experience or business
exposure. It’s a piquant fact that a week or so after his death GM announced
closures and layoffs that demonstrate all too harshly what happens when the theory
of the business collapses.

Today’s loss-making GM is paying the price of listening to its inner voices and
ignoring over many decades the external voices of those who bought and didn’t buy
its cars. The upshot may well be forced takeover. Yet this isn’t the result of sudden
and unforeseeable events. Rather, it exemplifies the power of Drucker’s prognosis.
GM got locked into the mindsets which befitted a colossus with once had half the
huge US auto market, a strong global position, a track record of successful
acquisition, and an unassailable lead over the competition. As for those customers,
they by and large bought what GM wanted to make. When deviants appeared in
large numbers - buying VW Beetles, then US ‘compacts’, and finally Japanese
vehicles of superior quality, the Detroit management ran through cycles of denial,
delay and imitation, accompanied by management shake-ups.
Since the ingredients in the shaker were much the same, none of the solutions even
recognised the problems adequately, let alone solved them. Drucker was never
surprised by such failures. He had applied a simple formula to the complexities of
management.
This boiled down to....

• knowing what to do

• knowing how to do it

• DOING IT!

I’ve capitalised the third stage because of its final and definitive importance. Thanks
in very large part to Drucker, ignorance of what to do and how has lessened
markedly over the decades since 1954, when Drucker, having discovered an almost
total absence of valuable management literature, filled the gap with “The Practice of
Management”. But taking effective action is honoured mostly in the breach because
of psychological inhibitions and structural weaknesses.

MASSIVE DEFICIENCY

This massive deficiency was a phenomenon that Drucker never let alone. What has
been described as his ‘signature management concept’ is “Management by
Objectives” or MBO. It’s a logical concomitant to his advocacy of decentralisation,
which he discovered in his GM researches. Drucker was the first writer to stress the
importance of setting objectives, installed as the first of five basic management
operations, or pillars, the others being organisation of the group, motivating and
communicating, measurement of performance, and developing people (very much
including yourself) .

Since setting objectives intimately involved and deeply affected all the other four
pillars, lovers of panaceas were quick to transform Drucker’s concept into a complete
management system, starting at corporate level with strategic management
objectives and cascading down through job specifications to individual objectives
aligned with the corporate ones - with a universal management information system
as final control.

Getting results was to be as automatic as pressing a button, which made MBO

systems very attractive to many top managements - but not to Peter Drucker.
As I noted earlier, Peter was essentially a humanist, who believed profoundly in
treating people like human beings, not as automata. The authors of a debunking
book entitled The Witch Doctors were right in concluding that Drucker was trying ‘to
create a balance between what was best in both the humanist and rationalist’ schools
of management. Actually, the need for that balance goes without saying. If you want
managers and other employees to manage rationally - and you do - then people
policies must defeat the negative, irrational organisational forces and achieve an
alliance of the factors of change and improvement, running throughout the company.

PEOPLE PHILOSOPHY

The flavour of Drucker’s people philosophy comes across clearly in his guidelines for
recruitment – the alpha and sometimes the omega of organisational success. Hiring
managers have four questions to ask, not of the candidate, note, but of themselves:

• What has the candidate done well?

• What is the person likely to do well?

• What do they have to learn to be able to get the full benefit from their strengths?

• If I had a son or daughter, would I be willing to have them work under this person?

The advice which Drucker offered, to the young candidates and captains of industry
alike, very often flew in the face of conventional wisdom. The great manager, like
this great thinker, needs to challenge above all (advice also given by Edward de
Bono). As Jack Beatty summarised them in The World According to Drucker, getting
results hinges on eight contrarian propositions:

• Resources and results exist outside, not inside, the business

• Results come from exploiting opportunities, not solving problems

• For results, resources must go to opportunities, not to problems

• ‘Economic results’ do not go to minor players in a given market, but to leaders

• Leadership, however, is not likely to last

• What exists is getting old

• What exists is likely to be misallocated (i.e. the first10% of effort produces 90% of
the results)

• To achieve economic results, concentrate

Note that teaching, rather then preaching, is the essence of Drucker’s thought and
guidance. He saw the folly of panaceas and watched with justified cynicism as the
latest management cure-all soared up the charts, heading towards certain eclipse.
Whether they know it or not, though, effective managers will be following in the
great man’s giant steps for decades to come.