The Ideas of Peter Ducker on Management - Essay Example

Peter Drucker Introduction to Management: Drucker’s explanation of management is an all-encompassing concept which he proposed many decades ago, and still holds true. His insight and foresight have given ground-breaking principles to the management function which are viable even today, and would continue to be so. According to Drucker (2007), management is the fundamental institution describing the nature of modern industrial system and the needs of business enterprise that plays a major role in producing goods and services through human and material resources together. Management is also the face of Western society, and is based on the belief that man’s livelihood can be earned through systematic organisation of economic resources. Management can survive only through superior competence and continually improving performance. Drucker has emphasized the importance of role of management not only in business but also on political state of affairs of many countries. He asserted that only management can help most of the countries to come out of their economic and/or political struggle and build their economies. Drucker’s seven key elements, as described by Hutton and Holbeche, (Drucker, 2007a) that influenced organisational thinking and practice to a large extent include, scientific management as the key to productivity; decentralization as the basic principle of organisation; personnel management as the orderly way of fitting people into organisation structures; manager development to provide for needs of tomorrow; managerial accounting for use of analysis and information as the foundation for firm decision-making; marketing; and long-range planning (Drucker, 2007b). Drucker’s philosophy of management was based on five basic principles: setting objectives, organising, motivating and communicating, establishing measurements of performance, and developing people and self. Drucker refers to these principles as manager’s responsibilities. However, some of these principles have been criticized by others. For example, Parkinson argued that some of Drucker’s principles are vague and others are still to be defined. He also felt that Drucker’s ignorance of a specific issue/problem seems greater than his knowledge. Some of leading management theories of the 20th century contributed by Drucker include, management by objectives; putting the customer first; the role of chief executive in corporate strategy, and structure follows strategy. On Business Drucker proposed the theory of the business, in which he contended the fact that businesses are run on a set of fundamental premises that lead them to success. These fundamental premises include: firstly, the external environment in which the organisation operates, i.e. markets, customers, technology, and society as a whole; secondly, the organisation’s mission or purpose or role; thirdly, the core competencies required to achieve the mission and sustain its competitiveness. Organisations need to be aware of customers and non customers; identify danger signals such as rapid growth, unexpected success, and unexpected failure. The cure to such danger signals is to change the theory of business. Drucker quotes the examples of Merck and Sony, both the CEOs taking steps to change their theories of business even before hitting the crises (Drucker, 2006). The importance Drucker gave to creative thinking and innovation can be understood from his statement, ‘But while the fact that management is an organ of the business enterprise limits its scope and potential, it also embodies a major responsibility of creative action. For management has to manage, And managing is not just passive, adaptive behaviour; it means taking action to make the desired results come to pass’ (2007a; p.10). Decision making, according to Drucker, will be effective only when made by considering their impact on the future. Holistically, business decisions should consider the business cycle, anticipation of range of fluctuations, finding economic foundation, and a close and continuous trend analysis. However, Drucker himself doubted if one can even predict the business cycle because various other factors like changes in economy, customer preferences, technological changes etc also impact a business. Drucker advises that business leaders have to design tools that help in planning and developing the businesses in short-term of 5 to 7 years. Effectiveness in business, explained in terms of principles of production, can be achieved on the basis of three basic systems of industrial production, i.e. unique-product production, mass production and process production. In order to implement these, businesses should consider different competencies required for the purpose in addition to meeting different demands and consistency in applying these systems. However, these considerations in case of technological changes may not provide the same output with previously mastered competencies (Drucker, 2007a). Drucker advocated a flat organisational structure for simpler management and easy information flow. Drucker’s prophecies for future: Challenges in 21st century Drucker was the first one to suggest changes in the face of business, and that managers need to be prepared to face these changes triggered by technology, knowledge, and globalization. For this he suggested, ‘the businessman will have to acquire a number of new abilities, all of them entrepreneurial in nature, but all of them to be exercised in and through a managerial, and usually a fairly large and complex, organisation (1992; p.43). Drucker contemplated that analyzing technology and its dynamics is not a scientific process, but it is not intuition either. It requires an entrepreneurial thinking in terms of usefulness of technology; its potential areas of advancement; potential for applicability of new knowledge; potential for new insights and perceptions that can make an impact on business. These will pave way for people to think about the kind of developments, if they happen or made to appear to happen, will have major impact by opening up opportunities for new industry rather than just a new product and a new technology rather than just a tool or a method. For these to materialize, knowledge working becomes a necessity. Drucker referred to productivity of manual worker in manufacturing as the most important contribution of management in the 20th century; however, Drucker prophesied that with time the need changes; and 21st century would require knowledge workers and their productivity. In fact, the technological advancements, capital investments, etc are a result of applying knowledge to work. A similar trend of competitiveness would force organisations to improve their knowledge capital in order to survive. Next, organisations would require application of knowledge to knowledge. This principle of supplying knowledge to find out how existing knowledge can be best applied to reproduce results, in effect, as management (2003b; p167). Drucker has identified six major factors that determine knowledge-worker productivity namely, the task, autonomy, continuing innovation, continuous learning and teaching, quality, and knowledge retention by organisations. However, these factors cannot be standardized, unlike manual productivity. Knowledge work is time consuming and requires more than one heads to accomplish a task or solve the confronting issues. Drucker views that the theory of microeconomy will require much information, which may not even be available in a concrete form to all people. It is only practical knowledge that people would thrive on, without even knowing that their knowledge can be enhanced with some systematic approach. Some would do things just because others do it that way. Drucker’s philosophy on knowledge work although seems true today, had received criticism from different angles. For instance, Sapre pointed that Ducker’s works were self-contradictory in many aspects. While in one writing, Drucker referred to man as a machine tool in scientific management with an autocratic approach, in another he referred to Taylor’s scientific management as human democratic and farsighted, which aims at industrial harmony. In another instance Sapre pointed at Drucker’s reference to Japanese as decision makers without arriving at consensus as well as Japanese as taking consensus. Sapre contended that Drucker’s philosophies keep changing with time. In addition, in Drucker’s work, lack of empirical data/information has been highly criticized. Management researchers of that time would have regarded Drucker’s teachings as unreliable for this reason (Sapru.2006). The knowledge philosophy supports his principles on marketing. Drucker emphasized that the purpose of a business should be to create a customer, and this can be done through marketing and innovation. Drucker (2007c; p.p.16) refers to Sears way as the true marketing-with the customer, his demographics, his realities, his needs, his values. This way, marketing will help in understanding the customer well so that products fit their requirements and get sold. If this view had to be applied in contemporary market, then how would organisations compete with same product lines? This is a major challenge that can even define the organisation’s existence. For this, Drucker suggests innovation as the solution. However, innovation requires involvement, participation form wide range of people. Drucker suggested that decisions that could profoundly affect businesses and their capacities to perform, should involve people at all levels, risk taking actions, and knowledge. These suggestions do not include influences that management styles, leadership, socioeconomic and political factors have on management. Although this suggestion may be termed as ‘ideal’ way of doing business, practically its implications are sensitive. Critiques have argued that Drucker’s philosophies are highly Americanized. Researchers have pointed out that these philosophies reflect American culture, and do not have similar impact in other countries (Sapru, 2006). Drucker suggested that the four ways to create responsible workers include careful placement, high standards of placement, providing the workers with the information needed to control himself, and opportunities for participation that will provide workers a managerial vision (2007a; p.263). Drucker was against setting output standards to individual workers because these standards might either demean the good performer and/or misguide the average performers. Hence, he advocated objective setting, seen in IBM that eliminated general standards and let the individuals to set their own norms. Drucker believed that all employees need to be educated about what expectations the company has from them in line with the company’s goals, and allow the individuals to set their own objectives that can help them to contribute to achievement of the company’s goals, which he referred to as Managing by Objectives. In addition, Drucker believed that the worker should be enabled to control, measure and guide his own performance. However, Drucker himself felt these activities are difficult and highly sensitive. In reality, these activities are practically difficult and not possible in all settings because of variation in workers’ understanding, knowledge and expertise. Others felt, Drucker’s concept of MBO is regarded as a management program rather than personnel program. MBO also has significant ambiguity in terms of objectives itself and their measurement; secondly, MBO is a short-term oriented tool that focuses on performance appraisal and motivation, which may result in undesirable managerial behaviour (Sapru.2006). Maslow criticized Drucker’s support for McGregor’s theory, which lacked concern for the weak and vulnerable people who actually required direction in jobs instead of strict self-discipline. Maslow felt that Drucker discouraged freedom to the worker. Drucker (2007b) stated, “One cannot manage change. One can only be ahead of it” (p.62). Change has to be taken as an opportunity to improve, and it requires policies to make the future; systematic methods to look for and to anticipate change; the right way to introduce change, both within and outside the organisation; and policies to balance change and continuity. Policies to change include abandonment of what no longer contributes to performance in planned manner and/or on the verge of failure following successful establishment in the market. Secondly organised improvement based on benchmarking and performance management can transform the operation; lead to product innovation and to new processes; and to new businesses. Continuous improvement brings fundamental change to the organisation. Thirdly, exploitation of success through present and future budget management: while managers allocate budget for future, they should not ignore to exploit the successes of the present by minimizing allocation of resources to successful products/services. While manages are expected to be prepared for the good/bad times, focusing on present successes is also equally important. This proposition seems contradictory to Drucker’s concept of abandonment of products/services that have been well established. Also Drucker did not describe any time factor that defines the well establishment. From a change continuity perspective, Drucker advised that besides change, leaders require continuity in terms of predicting, understanding, and knowing the environment inside and outside the enterprise. They need to maintain a continuous relationship with suppliers and distributors. The most intense challenge for the 21st century organisations is the need to balance change and continuity. Drucker (2007b) suggests partnership system with suppliers and business partners. Internally, leadership can make the difference to continuing employee relationship. For this, Drucker asserted that information is the most important factor that can maintain or disrupt relationships. Secondly, change and continuity can thrive on compensation, recognition and rewards, thus motivation as a requirement for change and continuity. According to Drucker (2003a), the post-capitalist management would be very different from the past wherein management will be more through alliances, partnerships and joint ventures than through authority acquired through expansions or acquisitions. Drucker regards management as the fastest growing and most impactful institution of history and the changes are inevitable. Drucker predicted the outsourcing trend that has attracted most of the businesses all over the world, more for reasons of achieving high quality and efficiency. Post capitalism industries would rely on information rather than authority to prove their position. In addition, individuals would be responsible for their own career, and not the management. With increasing number of organisations and their complexities, every organisation would try to attract best human talent through various means which cannot stop people from leaving the organisation; same holds true about organisations retaining their inefficient and/or non-creative people. Hence, organisations will experience a rapid movement of people in and out, which would be a big challenge because of the efforts to enhance knowledge and talent that the organisation would have already invested. From individuals’ perspective, they would be required to take responsibility of their own careers and build knowledge that would make them indispensable; this way they could gain a competitive advantage which will help them to demand a position, job or even money. The centre of business has shifted from executive/entrepreneur to the manager who can bring resources together to identify/smell what impends business and its future. Communication and perception are the most important ingredients for success. In the knowledge economy, managers’ challenge lies in trying to understand the strengths and weaknesses of workers who are assigned the responsibilities of knowledge work, and have to manage individuals rather than groups; with every individual’s distinct traits assessed and managed to produce the desired outcome. This concept was derived from Maslow’s criticism of Drucker’s proposition, based on McGregor’s theory, that there should be one right way to manage people (2007c). Drucker’s (2003a) advise goes, ‘expand on your idea of information responsibility and how it fits into post-capitalist society’ (p.184). But, many managers do not know how to get the information in first place, which can happen only by identifying gaps in the knowledge that their people and themselves possess. Drucker appreciated the American exposure to knowledge than anyone, and contributes it to American’s success in knowledge work. He emphasized the need for teams to enhance knowledge in addition to the presence of technical expertise in executive teams that can be involved in strategic decision making processes. However, this practice may not be followed in countries like Europe and Japan. Summary and Conclusions To summarize, Drucker’s conceptualization of management includes theories on management, business, roles of managers, performance management, knowledge economy, change management, role of executive and challenges of the 21st century. The reinforcing point of this concepts is that these concepts not only described the state and nature of management during his time, but also its past and future as well. Many critical evaluations have been made on these concepts; yet, the principles stand as grounding principles of management at least for the next 100 years. Considering his post-capitalist management, emphasis on knowledge and change management aspects, on relationships, etc have, in some way or the other, addressed the critique’s views. On relationships, Drucker predicted that managers and/or authoritative concepts would become a history, and that the new relationship will be that of mutual understanding and responsibility. Organisations, existing and future, can take much learning from his all-encompassing management teachings, while considering that most of the criticisms Drucker’s concepts received could be subject to misinterpretation as these concepts were not empirically based. References Drucker, P.R. 1992. The age of discontinuity: guidelines to our changing society. 2nd Ed. New Jersey: Transaction Publishers. (Ch. 3; pp: 42-57). Drucker, P.F. 2003a. Peter Drucker on the Profession of Management. U.S.A: Harvard Business Press. Drucker, P.F. 2003b. From Capitalism to Knowledge Society. In A functioning society: selections from sixty-five years of writing on community, society, and polity. New Jersey: Transaction Publishers. (Ch. 16, pp:157-168). Drucker, P.F. 2006. The Theory of Business. In Classic Drucker: essential wisdom of Peter Drucker from the pages of Harvard Business Review. Harvard Publishing. (Ch.2, pp:21-34). Drucker, P. F. 2007a. The Practice of Management. 2nd Ed. Oxford: Butterworth-Heinemann. Drucker, P.F. 2007b. Management challenges for the 21st century. 2nd Ed. Oxford: Butterworth- Heinemann. Drucker, P.F. 2007c. The essential Drucker. 2nd Ed. Oxford: Butterworth-Heinemann. Sapru. 2006. Peter F. Drucker: Management Paradigm. In Administrative Theories and Management Thought. Delhi: PHI Learning Pvt. Ltd. (Ch.25, pp:320-333). Read More