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What types of responsibilities do managers have in the workplace? How can managers steer businesses toward the future?
Peter F. Drucker is widely regarded as one of the most influential thinkers in the field of modern management. The Essential Drucker is composed of key chapters from Drucker’s most respected works and provides an overview of Drucker’s core ideas.
Read below for a brief overview of The Essential Drucker.
The Essential Drucker by Peter F. Drucker
Of all the innovations of the last two hundred years, the growth of the field of management may be the one that’s had the most dramatic impact. Today, it’s hard to imagine a world without management as the guiding force behind every business, government, and nonprofit institution. Without it, how would organizations coordinate the efforts of people with disparate skills to work together toward a common goal? Without management, would those goals even be defined?
Peter F. Drucker (1909-2005) is widely regarded as one of the greatest and most influential thinkers in the field of modern management practices. Drawing from his knowledge acquired through decades of experience as a professional management consultant, Drucker authored dozens of volumes on management, including The Effective Executive, Managing Oneself, and Innovation and Entrepreneurship. Drucker’s writings cover the gamut of organizational development from the period between the World Wars to the start of the 21st century, and he’s been cited as a powerful influence on many important business leaders of today.
In The Essential Drucker, published in 2001, editors Atsuo Ueda and Cass Canfield Jr. compiled and abridged key chapters from 10 of Drucker’s most respected works and wove them into a cohesive narrative describing the challenges, opportunities, and demands facing modern organizations and the people who manage them. In doing so, Ueda and Canfield provide an overview of Drucker’s core ideas and a starting point for business leaders and students who may wish to delve further into Drucker’s writings.
What Is Management?
The first thing to do when discussing management is to define what it is, its purpose, and its scope. At its most basic, management is the practice of enabling groups of people with different knowledge, skills, and backgrounds to work together toward a common goal. More than any other part of an organization, management is directly responsible for whether the organization’s efforts produce its desired results. Drucker writes that managers, both at the highest level and all the way down, do this by articulating an enterprise’s mission, spelling out its objectives, and developing its people’s strengths to maximize their individual contributions.
Though political, military, and religious leaders have existed for thousands of years, Drucker traces the start of modern “management” to the period of industrialization beginning in the late 1800s. Before then, workers were largely unskilled and relied on a taskmaster’s orders—a much more authoritarian system than what we think of as management today. With the growth of subject-specific expertise and a workforce of laborers with a variety of skills, a new specialty emerged—that of coordinating large groups of people to work toward a unified purpose. Today, people who make management decisions comprise more than a third of the workforce. For this reason, learning management skills is now a requirement in nearly every line of work.
Defining the Mission and Objectives
Though management is usually discussed in business terms, its practices are central to any organization, and managers’ first duty is to spell out their organization’s mission. That mission will determine every aspect of how the business functions internally and how it interacts with the external world. We’ll describe Drucker’s views on how an organization’s mission should be defined, why managers must communicate it clearly to employees, how a business relates its mission to the market, and the concrete goals management has to set to put the organization’s mission into action.
Drucker says that even in the business world, turning a profit is never the overriding mission. Rather, making money is merely the yardstick by which a business can measure its success. The mission of an organization is based on the results it hopes to achieve outside itself. For a law firm, that mission might be to successfully litigate on behalf of its clients. For a public library, the mission might be to grow readership in its local community. For a toothpaste company, the mission might be to help people take better care of their teeth.
Drucker writes that defining the mission of an organization is vital because at some point every person within it is going to make decisions that affect the whole enterprise, from the organization’s founder to the person who cleans the floors. Therefore, everyone has to have the same understanding of the group’s shared purpose, who the organization’s customers are, and by what external measures its success can be judged. When management can clearly articulate that purpose, it guides decision-making at all levels of the business and sets the direction for future innovation.
Developing People
It goes without saying that an organization is nothing without the people who comprise it. The task of managers has always been to give those people direction, though the old style of top-down control is no longer always appropriate. We’ll explain how Drucker says the workforce has changed, how businesses may have to adapt, and how managers should think about employee motivation.
Drucker is clear that managing people is different from managing work. The latter is focused on tasks and processes and relies on the faulty assumption that everyone who works for you is a subordinate who can’t accomplish anything without direct supervision. However, we now live in an age in which we’ve transitioned from a mostly unskilled workforce to one that’s more educated than ever before. Therefore, instead of directing people like cogs in a machine, it’s the role of modern management to help them grow their skills so that they can be more productive.
Cultivating Experts
Drucker invented the term “knowledge worker” to describe employees whose primary contribution comes from subject-matter expertise that isn’t shared by everyone else in an organization. Knowledge workers are now the driving force in most, if not all, businesses and organizations, and their cultivation requires special management skills. Drucker explains what knowledge workers are, how organizations facilitate their productivity, the risks involved with mismanaging knowledge workers, and why communication between managers and knowledge workers must flow clearly in both directions.
Drucker writes that by the end of the 20th century, knowledge workers comprised the majority of the US workforce. As a result, it’s now commonly assumed that workers need a college degree to pursue a productive career of any kind. Knowledge workers are experts in their fields in ways that their managers aren’t. Therefore, while managers set overall expectations for knowledge workers’ direction and productivity, there are many situations in which the knowledge worker has higher authority than their boss, such as in the example of the software engineer in the previous section. While managers teach knowledge workers the needs and mission of the organization, knowledge workers teach their bosses the ins and outs of their own expertise.
Making Decisions
Finally, it’s management’s role to make decisions based on issues affecting the whole organization. Drucker asserts that at the executive level, managers should devote their time to making strategic, broad-ranging decisions, not solving low-level problems. The decision path that Drucker lays out involves establishing the nature of the issue being addressed, determining the minimum requirements that a solution needs to meet, devising an action plan to implement your decision, and collecting feedback to determine whether your solution was correct.
Drucker writes that the first step in making a business decision is to determine whether the problem at hand is an isolated occurrence (such as property damage caused by a natural disaster) or a systemic issue (such as damage caused by lack of maintenance). Isolated problems can be solved individually, but systemic problems require policy decisions. However, managers ought to keep in mind that isolated problems are extremely rare, and what may seem like a one-of-a-kind problem could be a warning sign of a new systemic issue. It’s important to figure out the underlying nature of a problem before deciding on a course of action.
The next step is to determine what bare minimum requirements your decision must meet to ensure a successful result. Drucker says not to try this on your own—instead, you should seek input from a variety of others within your organization or outside it. When seeking advice, you want different opinions. Especially for tricky problems, you’ll want a selection of alternatives, not consensus from colleagues who are afraid to ruffle each other’s feathers. Encourage debate if you have to, avoiding the assumption that there’s only one viable solution. When there’s disagreement on an issue, Drucker suggests figuring out why people disagree. Answering that will give you further insight into what decision you should make.
Management and Innovation
In addition to keeping an organization afloat, managers are also responsible for steering their business toward the future, which requires innovating and experimenting with new ideas. Innovation is vital for any organization because the world in which it operates is continually changing. Drucker describes how organizations should approach innovation as a part of doing business, how market analysis can generate new ideas, and how businesses should structure themselves to enable risk-taking experiments while protecting the organization as a whole.
To be clear, innovation isn’t limited to new technological developments. It includes new business practices, sales strategies, or moving a company into new markets. Drucker states that even the basic premise on which an organization is founded can go out of date. For example, video rental stores saw their business evaporate when streaming replaced physical media. The question that managers should always be asking is “What will our organization’s mission be in the future, not just in the present?” The needs you’re currently fulfilling may vanish, while new needs (and therefore customers) emerge that your organization may be suited to engage with. Watching for changes keeps organizations alive and creates opportunities for growth.
Innovation and the Market
Drucker says that innovation comes from hard, diligent market analyses. Managers should watch for anomalous events, ongoing changes in demographics, and unforeseen failures or triumphs, either within the organization itself or from elsewhere in the market. If these lead to new ideas, Drucker insists that you should test innovations on a small, simple scale before developing them further. Small-scale innovations will let your organization fail, recover, and experiment again without a major loss of resources. Once you have a successful innovation, you should then be able to scale it up as much as your business and the market can bear.
It’s a common, though untrue, stereotype that big businesses aren’t innovative. The kernel of truth behind that idea is that within large, corporate structures, new ideas have a hard time taking root. Drucker writes that the solution to that is to create new, innovative business programs as separate startup ventures outside the regular chain of operations. Rather than running wild, however, the organization’s entrepreneurial side venture should be managed by someone high in the organization who can give it their full attention. If the venture is successful, it can be folded back into the larger institution, and if it fails, its negative returns won’t impact the ongoing success of the parent company.
Three Innovation Strategies
While discussing the importance of innovation in general, Drucker lays out three different approaches that managers can apply to entrepreneurial endeavors. These include innovations that establish preeminence in a market, those that improve upon competitors’ work, and those that identify a specialty niche in which there’s no competition at all.
According to Drucker, the first of these options—establishing a commanding lead in the market—is the most popular in the literature on entrepreneurship, but it’s also by far the most risky approach. It requires extensive research, planning, and a willingness to commit all your resources to pushing forward one single gamble. If your innovation succeeds and your organization takes control of a market, your work will only get harder after that. You’ll constantly have to push for the next innovation, and the next, or else your competitors will pass you by and you’ll lose any advantage you may have had.
The second and somewhat less risky strategy is to identify someone else’s innovation that isn’t being used to its fullest extent. Drucker says this commonly happens in the tech industry, where innovators are so focused on the technology that they’re not paying attention to how customers actually use it. The primary catch to riding someone else’s coattails is that when you copycat someone else’s innovation, you have to give your version a distinctive twist that sets it apart from the original. Looking for these almost-successful innovations can let your business open up whole new markets.
Drucker’s final strategy is one that comes along rarely but can yield rich rewards. The trick is to identify a niche in a market that isn’t being served and where there’s no competition. Taking advantage of this kind of opportunity usually involves your organization having a specialized skill or body of knowledge that’s otherwise absent in the market you’re exploring. If you spot such a niche and can fill it, it offers a form of monopoly protection—others may be discouraged from competing because the cost to duplicate your business’s specialty may be high. However, if your company successfully establishes a niche monopoly, it’s vital not to abuse that monopoly. Dissatisfied customers create a demand for competitors to step into the game.
Management for Startups
Whereas large organizations may struggle to innovate, small businesses just starting out often suffer from a lack of managerial expertise. Drucker explains that people starting new ventures must pay close attention to their markets, carefully manage their finances, and put a leadership team in place long before a business grows to the size where such a team is needed.
Especially for a new business based on an innovative product or service, market research must take a different tack than that employed by established industries. Drucker writes that most of the time, a new business doesn’t know who its customers are yet, nor how they’ll actually use what it has to offer. Therefore, the manager of a new operation should assume that their original business model will have to be adjusted as the market demands. For example, someone opening a vegan grocery in an underserved area may discover that their customers are more interested in pre-made dishes than buying separate ingredients. In the end, the market defines the nature of a business, despite the intentions of the owner.
Funding and Organizing
While identifying customers and its true market, a new business must also take great care with its money. Drucker argues that a new enterprise should absolutely not set its sights on profits. Instead, a growing business always needs more money, and draining its revenues during its early days to enrich its owners and investors is the surest way to starve it of resources. Money management for new businesses should focus on finding new sources of capital as the organization outgrows its original funding method. This may entail bringing in new partners, private investors, or even incorporating and taking the company public.
Drucker writes that most businesses start as small operations with only one person or a handful in charge. If successful, a business will eventually outgrow its original management structure, and when that happens, it’s crucial that a management team is already in place. If it appears that your business will grow significantly over the next few years, you and your team should plan how management tasks will one day be divided so that everyone can start learning their future jobs and how they’ll interact. Another key decision to make at this point is what role the business’s founder will play. It may be that they don’t want to run a big business, but would rather contribute in some other fashion, such as being the company’s public face.
Management in Society
As watching the market and customers should make clear, organizations only exist in the context of a larger community. Therefore, in addition to guiding the inner workings of a business, managers must also set objectives relating to the impact their organization has on the wider world. Drucker divides businesses’ social impacts into two classes—what an organization does to society, and what it can do for society—while arguing that an organization’s primary social responsibility is to carry out the function for which it was designed.
First of all, Drucker insists that social objectives aren’t just window dressing—they’re vital for an organization’s continued existence. After all, society won’t tolerate a business that it perceives as causing more harm than good. Managers must always be aware of any negative impacts an operation has and find a way to minimize those impacts before they do harm to the business. However, that solution may come at a cost, especially for large industries. Some negative impacts require cooperation between competitors and government agencies to find a cost-efficient path to mitigation. In these cases, Drucker says the responsible course is for a business to actively participate in the solution before one is imposed from the outside.
What Does a Business Owe Society?
There are also problems in society that aren’t a particular business’s fault but may still be worthy of that business’s concern. These may take the form of societal ills that negatively impact customers to the business’s detriment. There may also be problems customers face that a business might be uniquely suited to address, creating an outlet for even more business. Drucker warns against managerial overreach—in which a business steps into a social arena outside its area of competence—but within an organization’s expertise, there may be opportunities to make social contributions that pay dividends in higher revenues and new markets. Managers would be foolish to let chances like that slip by.
Nevertheless, Drucker insists that management’s first responsibility to society is to make sure the organization fulfills its primary mission. A successful business or nonprofit exists only because it fills a social need. If a business’s job is to provide the world with shoelaces, then it should focus on making the best shoelaces it can before it gets involved in external social problems. The same holds true for nonprofit groups, each of which has its own circle of competence. It’s always possible—and even desirable—for that circle of competence to grow, but that growth should be deliberate, well-planned, and consistent with an organization’s fundamental reason to exist.
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