The Wisest Philosopher in Business

Peter Drucker felt without a strong dedication to society, the modern corporation cannot withstand the challenges of global business.

Throughout your career, your job will be shaped by something Peter Drucker said.

Drucker was the Austrian born consultant turned professor who could quite accurately be called the father of modern management thinking. All the great consultants from McKinsey to Bain owe their evolution from cerebral practitioners to transformation raconteurs to Drucker.

He was as humble as he was wise. I had the pleasure of meeting Drucker and asked him to speak to a group of executives when I was with Forbes Magazine. At 85 years old and with his thick Austrian accent, the audience rated him the best of the bunch. I sent him a note describing the reaction, “you were by far their favorite speaker,” and his partner, Frances Hesselbein, wrote that he had pinned the note on his wall. He wrote 39 management all time best-sellers but this was glory to Drucker!

Here is some background before I share his wisdom.

He was born in 1909 in Vienna, Austria and died on November 11, 2005 at age 95. He was a professor at NYU before joining the faculty at of Claremont Graduate School. He was awarded the Presidential Medal of Freedom in 2002, the highest civilian award from our country.

He made a living as a management consultant before moving onto writing and academia. His primary focus was on the operation and leadership of the modern business corporation. He was innately curious about how people interacted in ways that led to profound success or failure and tried to systematize the thinking so others could follow. He happened to be around at a time when the Japanese economic miracle was happening and his work led to our renewed respect for Japanese practices after WWII, which was highly contrarian at the time.

He coined the term Knowledge Worker, and felt this type of employee was the key to improving results. He was fortunate enough to have learned from Jospeh Schumpeter, the economist who gave us the phrase, creative destruction. That led Drucker to focus on the behavior of people more than the fluctuation of commodities as a way to understand markets and productivity. The realization set him on a path that was part professor, consultant, and industrial psychologist.

His work for General Motors in 1942 made him a young eminence grise amoung management counselors. He also investigated management philosophy in European companies, which were far more authoritarian and militaristic than Amerian companies. He paved the way for the American approach to a more democratic way of decision making, with profound effects felt from Silicon Valley to Wall Street.

Drucker believed management was more than a profit chasing activity. He defined it as one of the ‘liberal arts,’ and drew lessons from history to religion in his work. He felt business needed a greater purpose than just profit making, it needed a strong dedication to society. Otherwise, that kind of organization would not last through the many challenges that occur in the life cycle of a business. It is why we no longer have an Enron and why we do have a General Electric.

Drucker presciently wrote in his 1973 bestseller, Management: Tasks, Responsibilities, Practices, “In modern society there is no other leadership group but managers. If the managers of our major institutions, and especially of business, do not take responsibility for the common good, no one else can or will.”

Drucker was a palm reader as much as a philosopher. He loved to make predictions and watch them come true. When he was wrong he would get criticized for the occasional misjudgment, for instance, when he said the nation’s financial center would drift to DC from NY. If you judged that remark before Sarbanes Oxley and Dodd Frank, you would undoubtedly agree he may have over-exaggerated the power of Washington on business.

Fast forward to today. He was right once again.

Peter Drucker died November 11, 2005, at age 95, in Claremont CA.

Drucker’s Ideas

They were novel at the time and they have since become standards of business thought (Wikipedia):

• Decentralization and simplification. Drucker discounted the command and control model and asserted that companies work best when they are decentralized. According to Drucker, corporations tend to produce too many products, hire employees they don’t need (when a better solution would be outsourcing), and expand into economic sectors that they should avoid.
• The concept of “knowledge worker” in his 1959 book The Landmarks of Tomorrow. Since then, knowledge-based work has become increasingly important in businesses worldwide.
• The prediction of the death of the “Blue Collar” worker. The changing face of the US Auto Industry is a testimony to this prediction.
• The concept of what eventually came to be known as “outsourcing.” He used the example of “front room” and “back room” of each business: A company should be engaged in only the front room activities that are critical to supporting its core business. Back room activities should be handed over to other companies, for whom these tasks are the front room activities.
• The importance of the nonprofit sector, which he calls the third sector (private sector and the Government sector being the first two). Non-Government Organizations (NGOs) play crucial roles in the economies of countries around the world.
• A profound skepticism of macroeconomic theory. Drucker contended that economists of all schools fail to explain significant aspects of modern economies.
• A lament that the sole focus of microeconomics is price, citing its lack of showing what products actually do for us, thereby stimulating commercial interest in discovering how to calculate what products actually do for us; from their price.
• Respect for the worker. Drucker believed that employees are assets not liabilities. He taught that knowledgeable workers are the essential ingredients of the modern economy, and that a hybrid management model is the sole method of demonstrating an employee’s value to the organization. Central to this philosophy is the view that people are an organization’s most valuable resource, and that a manager’s job is both to prepare people to perform and give them freedom to do so.
• A belief in what he called “the sickness of government.” Drucker made nonpartisan claims that government is often unable or unwilling to provide new services that people need and/or want, though he believed that this condition is not intrinsic to the form of government. The chapter “The Sickness of Government” in his book The Age of Discontinuity formed the basis of New Public Management, a theory of public administration that dominated the discipline in the 1980s and 1990s.
• The need for “planned abandonment.” Businesses and governments have a natural human tendency to cling to “yesterday’s successes” rather than seeing when they are no longer useful.
• A belief that taking action without thinking is the cause of every failure.
• The need for community. Early in his career, Drucker predicted the “end of economic man” and advocated the creation of a “plant community” where an individual’s social needs could be met. He later acknowledged that the plant community never materialized, and by the 1980s, suggested that volunteering in the nonprofit sector was the key to fostering a healthy society where people found a sense of belonging and civic pride.
• The need to manage business by balancing a variety of needs and goals, rather than subordinating an institution to a single value. This concept of management by objectives and self-control forms the keynote of his 1954 landmark The Practice of Management.
• A company’s primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company’s continued existence and sustainability.
• A belief in the notion that great companies could stand among humankind’s noblest inventions.
• “Do what you do best and outsource the rest” is a business tagline first “coined and developed” in the 1990s by Drucker. The slogan was primarily used to advocate outsourcing as a viable business strategy. Drucker began explaining the concept of outsourcing as early as 1989 in his Wall Street Journal (WSJ) article entitled “Sell the Mailroom.” In 2009 by way of recognition, Drucker was posthumously inducted into the Outsourcing Hall of Fame for his outstanding work in the field.

Drucker’s Wisdom

Here are some of his more well known expressions, all gems of business thinking:

• People who don’t take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.
• If you want something new, you have to stop doing something old
• Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.
• The best way to predict the future is to create it.
• Since we live in an age of innovation, a practical education must prepare a man for work that does not yet exist and cannot yet be clearly defined.
• Marketing and innovation make money. Everything else is a cost.
• Innovation opportunities do not come with the tempest but with the rustling of the breeze.
• Innovation requires us to systematically identify changes that have already occurred in a business — in demographics, in values, in technology or science — and then to look at them as opportunities. It also requires something that is most difficult for existing companies to do: to abandon rather than defend yesterday.
• Knowledge is the source of Wealth. Applied to tasks we already know, it becomes Productivity. Applied to tasks that are new, it becomes Innovation…
• There are only two things in a business that make money — innovation and marketing, everything else is cost.
• Business has only two basic functions — marketing and innovation.
• Marketing and innovation produce results; all the rest are costs.
• Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service. It is capable of being presented as a discipline, capable of being learned, capable of being practiced. Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicate opportunities for successful innovation. And they need to know and to apply the principles of successful innovation.
• What we need is an entrepreneurial society in which innovation and entrepreneurship are normal, steady and continuous.
• Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.
• Because its purpose is to create a customer, the business has two and only two functions: Marketing and Innovation. Marketing and Innovation produce results. All the rest are costs.
• Thus, for those who are willing to go out into the field, to look and to listen, changing demographics is both a highly productive and a highly dependable innovation opportunity.
• The enterprise that does not innovate ages and declines. And in a period of rapid change such as the present, the decline will be fast.
• Whenever anything is being accomplished, it is being done, I have learned, by a monomaniac with a mission.
• No other area offers richer opportunities for successful innovation than the unexpected success.
• An established company which, in an age demanding innovation, is not able to innovation, is doomed to decline and extinction.
• Managing innovation will increasingly become a challenge to management, and especially to top management, and a touchstone of its competence.
• It is commonly believed that innovations create changes — but few ever do. Successful innovations exploit changes that have already happened.
• Above all, innovation is not invention. It is a term of economics rather than of technology.
• Effective innovations start small. They are not grandiose. They try to do one specific thing.

Drucker’s Books

• 1939: The End of Economic Man (New York: The John Day Company)
• 1942: The Future of Industrial Man (New York: The John Day Company)
• 1946: Concept of the Corporation (New York: The John Day Company)
• 1950: The New Society (New York: Harper & Brothers)
• 1954: The Practice of Management (New York: Harper & Brothers)
• 1957: America’s Next Twenty Years (New York: Harper & Brothers)
• 1959: Landmarks of Tomorrow (New York: Harper & Brothers)
• 1964: Managing for Results (New York: Harper & Row)
• 1967: The Effective Executive (New York: Harper & Row)
• 1969: The Age of Discontinuity (New York: Harper & Row)
• 1970: Technology, Management and Society (New York: Harper & Row)
• 1971: The New Markets and Other Essays (London: William Heinemann Ltd.)
• 1971: Men, Ideas and Politics (New York: Harper & Row)
• 1971: Drucker on Management (London: Management Publications Limited)
• 1973: Management: Tasks, Responsibilities, Practices’ (New York: Harper & Row)
• 1976: The Unseen Revolution: How Pension Fund Socialism Came to America (New York: Harper & Row)
• 1977: People and Performance: The Best of Peter Drucker on Management (New York: Harper’s College Press)
• 1978: Adventures of a Bystander (New York: Harper & Row)
• 1980: Managing in Turbulent Times (New York: Harper & Row)
• 1981: Toward the Next Economics and Other Essays (New York: Harper & Row)
• 1982: The Changing World of Executive (New York: Harper & Row)
• 1982: The Last of All Possible Worlds (New York: Harper & Row)
• 1984: The Temptation to Do Good (London: William Heinemann Ltd.)
• 1985: Innovation and Entrepreneurship (New York: Harper & Row)
• 1986: The Frontiers of Management: Where Tomorrow’s Decisions are Being Shaped Today (New York: Truman Talley Books/E.D. Dutton)
• 1989: The New Realities: in Government and Politics, in Economics and Business, in Society and World View (New York: Harper & Row)
• 1990: Managing the Nonprofit Organization: Practices and Principles (New York: Harper Collins)
• 1992: Managing for the Future (New York: Harper Collins)
• 1993: The Ecological Vision (New Brunswick, NJ and London: Transaction Publishers)
• 1993: Post-Capitalist Society (New York: HarperCollins)
• 1995: Managing in a Time of Great Change (New York: Truman Talley Books/Dutton)
• 1997: Drucker on Asia: A Dialogue between Peter Drucker and Isao Nakauchi (Tokyo: Diamond Inc.)
• 1998: Peter Drucker on the Profession of Management (Boston: Harvard Business School Publishing)
• 1999: Management Challenges for 21st Century (New York: Harper Business)
• 1999: Managing Oneself (Boston: Harvard Business School Publishing) [published 2008 from article in Harvard Business Review]
• 2001: The Essential Drucker (New York: Harper Business)
• 2002: Managing in the Next Society (New York: Truman Talley Books/St. Martin’s Press)
• 2002: A Functioning Society (New Brunswick, NJ and London: Transaction Publishers)
• 2004: The Daily Drucker (New York: Harper Business)
• 2008 (posthumous): The Five Most Important Questions (San Francisco: Jossey-Bass)