The Contributions of Peter Drucker to Management Theories and Practice - Essay Example

Introduction There have been enumerable theories and applications on management that had emerged in the last century. Management is synonymous to leadership in the informed, planned, purposeful conduct of complex organized activity. One of the most influential men who was considered an expert in the field of management is Peter Drucker. In this regard, this essay is written with the objective of discussing Peter Drucker’s contributions to management theory and practice. In the process, the discourse would critically appraise his ideas of the following endeavors: marketing, performance management, the knowledge economy, managing change and post-industrialization. Brief Biography of Peter Drucker Born in Vienna, Austria in 1909, Peter Drucker was exposed to a regular gathering of intellectuals, scientists and high government officials who all converge in weekly soirees at their home in Dobling. According to his biography in the official website, Peter regarded those meetings as his initiation to education (Biography, n.d., par. 1). He graduated with a “doctorate in public and international law at Frankfurt University in Germany” (Peter Drucker, n.d., par. 1). Drucker assumed a variety of roles as a journalist, writer, consultant, professor, social ecologist, among others. His legendary contributions in the various fields of endeavor earned him the titles: “the "doyen of business consultants" and the "the man who invented management" (The New York Times)” (Peter Drucker, n.d., par. 2). His published books numbered about 41 in subjects such as management, economics, society and politics. As a consultant, he created professional training programs and even on-line courses on management strategies and business (Biography, n.d., par. 1). He was known to have a close business relationship with Jack Welch, former CEO of General Electrics. His inputs and keen business acumen contributed to the organization’s exemplary success (Heller, 2008, par. 7). Contributions to Management Theories Management by Objectives From among the most significant contributions of Peter Drucker, the concept of management by objectives which first emerged in his book, ‘The Practice of Management’ in 1954 (Management by Objectives, n.d. 2). As defined, management by objectives (MBO) “is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from achievable resources” (Management by Objectives, n.d. 2). The approach focuses on management’s ability to clearly identify organizational goals to assist each and every individual’s role toward its achievement. There are six stages which are critical in this approach, to wit: (1) definition of organizational goals at the board level; (2) the analysis of tasks and functions of management and the design of job responsibilities to designate accountabilities for each manager; (3) standards of performance must be set; (4) setting of specific objectives – possible per department or division and conforming towards ways of achieving these; (5) alignment of individual targets with corporate goals; and (6) an establishment of a well structured management information system for the purpose of monitoring the progress of goal achievement. (MBO, n.d., 15). Analysis The MBO approach has revolutionized management theories in terms of giving direction and focus on the critical aspect that must be prioritized. But even Peter Drucker admitted that this is not a great cure for management efficiency but just another tool which provides managers with guides to give direction for organizational performance (MBO, n.d., 2). The critical aspect in this approach is the identification of clearly, concise objectives at the highest level and to be cascaded and broken down into specific objectives in each department or result areas. Contemporary organizations have mission and vision statements which assist in achieving targets. The tasks of managers and leaders in each organization are to disseminate not only the objectives but the ways and means to achieve them. The ability of management to design clear objectives must be understood to incorporate essential elements such as time frame for achievement, must be clear, consistent, and achievable. Setting goals which are beyond the personnel’s capacities to attain would deter them from being motivated to reach these goals. Likewise, the identification of goals are just the initial step towards seeing the results. Other management theories should be applied to assist in the successful application of this approach. Goal setting, per se, is not sufficient to assure organizational success towards the achievement of their targets. An interplay of other management theories encompassing areas of production or operations management, human resources management (particularly motivation and leadership), organizational culture, marketing mix, environmental scanning and business policy must all be considered in the process. Theory of Business Another contribution which was heralded as one of Drucker’s foundations of management theories is the concept of the theory of business. As explained by Morris (n.d., par. 6) “Drucker asserts that a theory of business has three parts: assumptions about the environment of the organization; assumptions about the specific mission of the organization; and assumptions about the core competencies needed to accomplish the organization's mission. He then explains the specifications for each cluster of assumptions. Whether using the word "manager" or "executive", Drucker stresses the importance of making effective decisions, especially those concerning the management of others, and suggests a sequence of steps involved in the decision-making process.” Heller exemplified the approach by indicating that Peter Drucker actually applied a simple formula to respond to the complexities in management through the following: “• knowing what to do; • knowing how to do it; and • DOING IT!” (Heller, 2008, par. 22). Analysis This concept validates the previous analysis which contended that apart from MBO, there are other relevant factors that need to be considered by an organization to succeed in their endeavors: the inclusion of the environment as a relevant consideration as influencing organizational goals; and core competencies of the firm. According to Christensen, Andrews & Bower (1978, 247), “the environment of an organization in business, like that of any other organic entity, is the pattern of all the external conditions and influences that affect its life and development. They are technological, economic, social, and political in kind”. The importance of incorporating developments in the environment in an organization’s plan is that changes in the environment necessitates continuous monitoring of an organization’s definition of its business; otherwise, it falters, blurs or ultimately become obsolete. Any predictive theories of special disciplines in various fields such as economics, sociology, psychology, and anthropology, do not produce comprehensive appraisal readily applicable to long range corporate strategic decision. More information about the environment is available than commonly used. Drucker’s theory of business acknowledges the important role of scanning the environment and making use of critical information that affects the organization’s operations. On the other hand, the core competency, or the capability of an organization is its demonstrated and potential ability to accomplish, against the opposition of circumstance or competition, whatever it is tasked to do. Every organization has actual and potential strengths and weaknesses. Since it is prudent in formulating strategies to extend and maximize organizational strengths and contain or minimize weaknesses, it is important to try to determine what they are and to distinguish one from the other. Finally, management’s competence in putting plans into action spells the difference between failure and success. Theories without practice are totally useless. One needs to apply relevant management theories to actual practice to test their validity in contemporary settings. Contributions to Marketing Theories and Practice The conceptual and theoretical paper written by Uslay, Morgan & Sheth (2008) proffered Peter Drucker’s to marketing theories and practice, to wit: “(1) The Marketing Concept: Creating Value for Customers; (2) Broadened Role of Marketing in Society: Corporate Social Responsibility, Consumerism, Social Marketing, and Lessons from Non-Profit Organizations; (3) Contributions to Marketing Strategy: The Obvious and Not So Obvious; (4) Marketing-Innovation Interface: New Product Development; (5) Future of Globalization: Rise of Non-National Enterprises.” (Uslay, Morgan & Sheth, 2008, 1). According to Business Week, one of his famous lines which revolutionized the marketing concept is that there is “’no business without a customer’, a simple notion that ushered in a new marketing mind-set” (2005, par. 16). Drucker averred that profits are really a buy-product of doing business well and not the moral aim of business. Business, like other institutions of society, prospers only by maintaining legitimacy in the eyes of consumers, employees, and the general public. Legitimacy is grounded in the institution’s commitment to serve higher moral aims (Kotler, 1980, 16). Drucker viewed consumerism as “the shame of marketing” (Drucker, 1969, 60). He implied that if marketers were serving consumers as well as they should be, consumerism would exist. Accordingly, he averred that companies should strive to incorporate consumerist considerations in the design and marketing of their products, as a further step in the implementation of the marketing concept. Analysis In various theories in marketing, Drucker acknowledged an organization’s goal as satisfying the consumer. His inclusion of the concepts of social responsibility, consumerism, innovation, and even globalization, repeatedly acknowledges goal setting and putting plans into action. Further, the impact of environmental changes on the firm’s strategy is more eminent in marketing theories which emphasize that organization’s performance in the marketplace is a matter of the degree of alignment between the organization’s environmental opportunities, objectives, marketing strategy, organizational structure, and management systems (Kotler, 1980, 96). Kotler acknowledged Drucker’s observation that it is important to do the right thing than to do things right (Kotler, 1980, 97). Kotler emphasized that the marketing concept is a management orientation that holds that the key task of the organization is to determine the needs and wants of the target markets and to adapt the organization to delivering the desired satisfactions more effectively and efficiently than its competitors (1980, 31). The theories designed by Drucker had been consistent in identifying the need to establish a goal (in marketing, specified as determination of the wants and needs of the consumers – rather than focusing on the bottom line). Further, the challenges posed by the environment should never be dismissed. More so in the global environment, were global organizations focus not only on the elements of the external environment: technological, economic, social, and political, but must consider the diversity of culture, as well. The evolution of business organizations have transcended barriers due to the rapid technological advancement that occurred within the last century. The classifications and categories of enterprises continue to increase due to factors encompassing developments in time, space and culture. Global organizations must be aware that the nature of the business relationship with diverse governments is of primary importance to manage factors influencing its performance. The concept of globalization encompasses theories beyond the traditional view that global corporations merely do business abroad. Global organizations have predominantly more investments in various foreign markets. Their strategy employs a coordination of one brand and image in each and every market. There is a centralized corporate office which oversees the implementation of a global strategy emphasizing on the management of costs, volume, and increased efficiency. However, despite the expanse of the scope and resources, the management theories of MBO, theory of business, and challenges imposed by non-national enterprises designed by Drucker, still applies. Performance Management Drucker’s performance management requires measurement of results not by financial measures alone. As Heller emphasized, one should “look for indicators like market share, quality ratings by customers, successful innovations, competitive rankings, customer satisfaction, employment morale, cost of waste, use of capital, productivity. It’s a measure of the complexity of the management task that you need to get all these indicators moving upwards at the same time.” (Heller, 2005, par. 9). The means to measure performance is through the determination of progress in achieving well defined goals. With Drucker’s initiation of MBO, organizations were made aware of the importance of mission statements and well structured objectives which serve as standards for measurement of performance. His six stages in the MBO approach specifically requires setting standards of performance and an establishment of a well structured management information system for the purpose of monitoring the progress of goal achievement. (MBO, n.d., 15). This concept is validated by Warren when he averred that Drucker emphasized the following point in terms of performance management: “checking the results of a decision against its expectations shows executives what their strengths are, where they need to improve, and where they lack knowledge or information” (Warren, 2007, 1). The only means to determine the success of an endeavor is to measure the results of the strategies employed vis-à-vis the targets set at a given time frame. Knowledge Economy and Post Industrialization In Drucker’s knowledge economy, he averred that “knowledge will be its key resource, and knowledge workers will be the dominant group in its workforce. Its three main characteristics will be: borderlessness, because knowledge travels even more effortlessly than money; upward mobility, available to everyone through easily acquired formal education; and the potential for failure as well as success. Anyone can acquire the “means of production”, ie, the knowledge required for the job, but not everyone can win.” (Drucker, 2001, par. 5). The keen foresight of Drucker in terms of the economy of the future is manifested in this theoretical discourse. As advances in technology have been development, facilities and features ensuring the safety and security of organizations have adapted to these technological developments. Those organizations who have the capacity to access vast amounts of information are more at the advantage in the future markets. In contemporary global organizations, some equipment the company uses to store, transmit and receive business information include computers, mobile phones, radio equipment, fax machines, routers, printers and modems among many others. Various organizations have networked their ICT (information and communication technology) systems via the internet, WAN (Wide Area Network) and LAN (Local Area Network). Due to the delicate nature of information available in the organization’s information system, each and every organization must ensure all its vital data are transferred and kept secure - away from unauthorized access, modification, destruction, use, disruption and disclosure at any point of their lifecycles. This manifests issues confounding knowledge economy at its best. Managing Change Managerial interest in the topic has been stimulated by the comments of Peter Drucker as to whether one can manage change at all or merely lead or facilitate its occurrence within an organization (Drucker, 1999). Innovation can be viewed as a special form of adaptation. Peter Drucker defines innovation as changing the yield of resources (Drucker, 1985, 33). Being thought of as a social or economic rather than a technical term, innovation involves changing the value and satisfaction obtained from resources by the consumer. Change is initiated, implemented, and maintained in organizations to obtain a new and higher level of performance. Changes can be made in strategy, structure, technology, products and services, or people. They are often made in a reactive sense as a response to changes in the environment but they can also be made in a pro-active sense as an innovation and invention. Drucker’s discussion of change as a process which can be managed had spurred further studies which enhanced the theoretical framework for the subject. Today’s organizations have acknowledged the need to plan and control change to give direction and consistency to it. Conclusion The contributions of Peter Drucker to management theories and practice cannot be overemphasized. He was instrumental in enlightening business organizations through his theories and paved the way for renewed directions towards a clear and direct path. Business Week aptly illustrated Drucker’s impetus for his success: “he was saying that management was not a science or an art. It was a profession, like medicine or law. It was about getting the very best out of people. As he himself put it: "I wrote The Practice of Management because there was no book on management. I had been working for 10 years consulting and teaching, and there simply was nothing or very little. So I kind of sat down and wrote it, very conscious of the fact that I was laying the foundations of a discipline" (Business Week, 2005, par. 31). One of the most profound thinkers who envisioned management as a holistic profession encompassing diverse functions, Drucker’s contributions are legacies of this generation. His works and books containing inputs from his highly ingenuous mind would continue to move future generations in critically analyzing the intricate forces that made him ultimately exemplary. Total Word Count: Introduction to Conclusion – 2,696 Reference List Biography n.d. Peter Drucker, Viewed 20 April 2010, Business Week, 2005, The Man Who Invented Management, Viewed 20 April 2010, Drucker, PF 1985, Innovation and Entreprenuership, New York: Harper & Row. Drucker, PF 1999, Management Challenges for the 21st Century. New York: Harperbusiness. Drucker, PF 2001, “The Next Society”, The Economist, Viewed 20 April 2010, < http://www.druckerinstitute.com/whydrucker/why_articles_nextsociety.html> Heller, R 2005, Peter Drucker: Efficient v Effective, Viewed 20 April 2010, Heller, R 2008, The Drucker legacy, Viewed 20 April 2010, Kotler, P 1980, Marketing Management: Analysis, Planning and Control. Prentice-Hall, Inc. Englewood Cliffs, New Jersey. Management by Objectives, n.d., Viewed 20 April 2010, Morris, R n.d., Peter Drucker on the Profession of Management, Viewed 20 April 2010, Peter Drucker Biography n.d., Viewed 20 April 2010, Uslay, C, Morgan, RE, & Sheth, JN 2008, “Peter Drucker on marketing: an exploration of five tenets”, Journal of Academy of Marketing Science, Springer Netherlands, Vol. 37, No. 1, pp. 47 – 60. Warren, M 2007, Peter Drucker – one of the world’s most respected thinkers on management and society. 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