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Drucker, Peter F. The Essential Drucker: Selections from
the Management Works of Peter F. Drucker.
When Karl Marx was beginning work on Das Kapital in the 1850s, the phenomenon of management was unknown.
So were the enterprises that managers run. The largest manufacturing company
around was a Manchester cotton mill employing fewer than three hundred people
and owned by Marx’s friend and collaborator Friedrich Engels. And in Engels’s
mill—one of the most profitable businesses of its day—there were no “managers,”
only “charge hands” who, themselves workers, enforced discipline over a handful
of fellow “proletarians.”
Rarely in human history has any institution emerged as
quickly as management or had as great an impact so fast. In less than 150
years, management has transformed the social and economic fabric of the world’s
developed countries. It has created a global economy and set new rules for
countries that would participate in that economy as equals. And it has itself
been transformed. Few executives are aware of the tremendous impact management
has had. Indeed, a good many are like M. Jourdain, the character in Moliere’s Bourgeois Gentilhomme, who did not know
that he spoke prose. They barely realize that they practice—or mispractice—management.
As [4] a result, they are ill prepared for the tremendous challenges that now
confront them. The truly important problems managers face do not come from
technology or politics; they do not originate outside of management and
enterprise. They are problems caused by the very success of management itself.
To be sure, the fundamental task of management remains the
same: to make people capable of joint performance through common goals, common
values, the right structure, and the training and development they need to
perform and to respond to change. But the very meaning of this task has
changed, if only because the performance of management has converted the
workforce from one composed largely of unskilled laborers to one of highly
educated knowledge workers.
On the threshold of World War I, a few thinkers were just
becoming aware of management’s existence. But few people even in the most
advanced countries had anything to do with it. Now the largest single group in
the labor force, more than one-third of the total, are people whom the U.S.
Bureau of the Census calls “managerial and professional.” Management has been
the main agent of this transformation. Management explains why, for the first
time in human history, we can employ large numbers of knowledgeable, skilled
people in productive work. No earlier society could do this. Indeed, no earlier
society could support more than a handful of such people. Until quite recently,
no one knew how to put people with different skills and knowledge together to
achieve common goals.
Eighteenth-century
Knowledge, especially advanced knowledge, is always
specialized. By itself it produces nothing. Yet a modern business, and not
only the largest ones, may employ up to ten thousand highly knowledgeable
people who represent up to sixty different knowledge areas. Engineers of all
sorts, designers, marketing experts, economists, statisticians, psychologists,
planners, accountants, human-resources people—all working together in a joint
venture. None would be effective without the managed enterprise.
There is no point in asking which came first, the
educational explosion of the last one hundred years or the management that put
this knowledge to productive use. Modern management and modern enterprise
could not exist without the knowledge base that developed societies have built.
But equally, it is management, and management alone, that makes effective all
this knowledge and these knowledgeable people. The emergence of management has
converted knowledge from social ornament and luxury into the true capital of
any economy.
Not many business leaders could have predicted this
development back in 1870, when large enterprises were first beginning to take
shape. The reason was not so much lack of foresight as lack of precedent. At
that time, the only large permanent organization around was the army. Not surprisingly,
therefore, its command-and-control structure became the model for the men who
were putting together transcontinental railroads, steel mills, modern banks,
and department stores. The command model, with a very few at the top giving
orders and a great many at the bottom obeying them, remained the norm for
nearly one hundred years. But it was never as static as its longevity might
suggest. On the contrary, it began to change almost at once, as specialized
knowledge of all sorts poured into enterprise.
The first university-trained engineer in manufacturing
industry was hired by Siemens in
Even more important for its impact on enterprise—and on
the world economy in general—was another management-directed development that
took place at this time. That was the application of management to manual work
in the form of training. The child of wartime necessity, training has propelled
the transformation of the world economy in the last forty years because it
allows low-wage countries to do something that traditional economic theory had
said could never be done: to become efficient—and yet still low wage—competitors
almost overnight.
Adam Smith reported that it took several hundred years for
a country or region to develop a tradition of labor and the expertise in manual
and managerial skills needed to produce and market a given product, whether
cotton textiles or violins.
During World War I, however, large numbers of unskilled, pre-industrial
people had to be made productive workers in practically no time. To meet this
need, businesses in the
During the 1920s and 1930s, management was applied to many
more areas and aspects of the manufacturing business. Decentralization, for
instance, arose to combine the advantages of bigness and the advantages of
smallness within one enterprise. Accounting went from “bookkeeping” to analysis
and control. Planning grew out of the “Gantt charts” designed in 1917 and 1918
to plan war production; and so did the use of analytical logic and statistics,
which [7] employ quantification to convert experience and intuition into definitions,
information, and diagnosis. Marketing evolved as a result of applying management
concepts to distribution and selling. Moreover, as early as the mid-1920s and
early 1930s, some American management pioneers such as Thomas Watson Sr. at the fledgling IBM; Robert E. Wood
at Sears, Roebuck; and George Elton Mayo at the
The powerful effect of these changes became apparent
during World War II. To the very end, the Germans were by far the better
strategists. Having much shorter interior lines, they needed fewer support
troops and could match their opponents in combat strength. Yet the Allies won—their
victory achieved by management. The
After World War 11 we began to see that management is not
[8] exclusively business management. It pertains to every human effort that
brings together in one organization people of diverse knowledge and skills. It
needs to be applied to all third-sector institutions, such as hospitals,
universities, churches, arts organizations, and social service agencies, which
since World War II have grown faster in the
One important advance in the discipline and practice of
management is that both now embrace entrepreneurship and innovation. A sham
fight these days pits “management” against “entrepreneurship” as adversaries,
if not as mutually exclusive. That’s like saying that the fingering hand and
the bow hand of the violinist are “adversaries” or “mutually exclusive.” Both
are always needed and at the same time. And both have to be coordinated and
work together. Any existing organization, whether a
business, a church, a labor union, or a hospital, goes down fast if it does not
innovate. Conversely, any new organization, whether a business, a
church, a labor union, or a hospital, collapses if it does not manage. Not to
innovate is the single largest reason for the decline of existing organizations.
Not to know how to manage is the single largest reason for the failure of new
ventures.
Yet few management books have paid attention to
entrepreneurship and innovation. One reason is that during the period after
World War II when most of those books were written, managing the existing
rather than innovating the new and different was the dominant task. During this
period most institutions developed [9] along
lines laid down thirty or fifty years earlier. This has now changed
dramatically. We have again entered an era of innovation, and it is by no means
confined to “high-tech” or to technology generally. In fact, social innovation—as
this chapter tries to make clear—may be of greater importance and have much
greater impact than any scientific or technical invention. Furthermore, we now
have a “discipline” of entrepreneurship and innovation (see my Innovation and Entrepreneurship, 1986). It is clearly a part of management and rests,
indeed, on well-known and tested management principles. It applies to both
existing organizations and new ventures, and to both business and non-business
institutions, including government.
Management books tend to focus on the function of management
inside its organization. Few yet accept it as a social function. But it is
precisely because management has become so pervasive as a social function that
it faces its most serious challenge. To whom is management accountable? And
for what? On what does management base its power? What gives it legitimacy?
These are not business questions or economic questions.
They are political questions. Yet
they underlie the most serious assault on management in its history—a far more
serious assault than any mounted by Marxists or labor unions: the hostile
takeover. An American phenomenon at first, it has spread throughout the non-Communist
developed world. What made it possible was the emergence of the employee
pension funds as the controlling shareholders of publicly owned companies. The
pension funds, while legally “owners,” are economically “investors”—and,
indeed, often “speculators.” They have no interest in the enterprise and its
welfare. In fact, in the
Management—and not only in the business enterprise—has to
be accountable for performance. But how is performance to be defined? How is it
to be measured? How is it to be enforced? And to whom should management be
accountable? That these questions can be asked is in itself a measure of the
success and importance of management. That they need to be asked is, however,
also an indictment of managers. They have not yet faced up to the fact that
they represent power—and power has to be accountable, has to be legitimate.
They have not yet faced up to the fact that they matter.
But what is management? Is it a bag of techniques and
tricks? A bundle of analytical tools like those taught in business schools?
These are important, to be sure, just as thermometer and anatomy are important
to the physician. But the evolution and history of management—its successes as
well as its problems—teach that management is, above all else, based on a very
few, essential principles. To be specific:
·
Management is about human beings. Its task is to
make people capable of joint performance, to make their strengths effective
and their weaknesses irrelevant. This is what organization is all about, and
it is the reason that management is the critical, determining factor. These
days, practically all of us work for a managed institution, large or small,
business or non-business. We depend on management for our livelihoods. [11]
And our ability to contribute to society also depends
as much on the management of the organization for which we work as it does on
our own skills, dedication, and effort.
·
Because management deals with the integration of
people in a common venture, it is deeply embedded in culture. What managers do
in
·
Every enterprise requires commitment to common
goals and shared values. Without such commitment there is no enterprise; there
is only a mob. The enterprise must have simple, clear, and unifying objectives.
The mission of the organization has to be clear enough and big enough to
provide common vision. The goals that embody it have to be clear, public, and
constantly reaffirmed. Management’s first job is to think through, set, and
exemplify those objectives, values, and goals.
·
Management must also enable the enterprise and
each of its members to grow and develop as needs and opportunities change.
Every enterprise is a learning and teaching institution. Training and
development must be built into it on all levels—training and development that
never stop.
·
Every enterprise is composed of people with
different skills and knowledge doing many different kinds of work. It must be
built on communication and on individual responsibility. All members need to
think through what they aim to accomplish—and make sure that their associates
know and under-[12]stand that aim. All have to think through what they owe to
others—and make sure that others understand. All have to think through what
they in turn need from others—and make sure that others know what is expected
of them.
·
Neither the quantity of output nor the “bottom
line” is by itself an adequate measure of the performance of management and
enterprise. Market standing, innovation, productivity, development of people,
quality, financial results—all are crucial to an organization’s performance
and to its survival. Nonprofit institutions too need measurements in a number
of areas specific to their mission. Just as a human being needs a diversity of
measures to assess his or her health and performance, an organization needs a
diversity of measures to assess its health and performance. Performance has to
be built into the enterprise and its management; it has to be measured—or at
least judged—and it has to be continually improved.
·
Finally, the single most important thing to
remember about any enterprise is that results exist only on the outside. The
result of a business is a satisfied customer. The result of a hospital is a
healed patient. The result of a school is a student who has learned something
and puts it to work ten years later. Inside an enterprise, there are only
costs.
Managers who understand these principles and function in
their light will be achieving, accomplished managers.
Thirty years ago the English scientist and novelist C. P.
Snow talked of the “two cultures” of contemporary society. Management, however,
fits neither Snow’s “humanist” nor his “scientist.” It deals with action and
application; and its test is results. This makes it a technology. But
management also deals with people, their values, their growth and development—and
this makes it a humanity. So [13] does its concern with, and impact on, social
structure and the community. Indeed, as everyone has learned who, like this
author, has been working with managers of all kinds of institutions for long
years, management is deeply involved in moral concerns—the nature of man, good
and evil.
Management is thus what tradition used to call a liberal
art—“liberal” because it deals with the fundamentals of knowledge, self-knowledge,
wisdom, and leadership; “art” because it is also concerned with practice and
application. Managers draw on all the knowledges and insights of the humanities
and the social sciences—on psychology and philosophy, on economics and
history, on ethics—as well as on the physical sciences. But they have to focus
this knowledge on effectiveness and results—on healing a sick patient, teaching
a student, building a bridge, designing and selling a “user-friendly” software
program.
For these reasons, management will increasingly be the
discipline and the practice through which the “humanities” will again acquire
recognition, impact, and relevance.