by Rosabeth Moss Kanter
The continuing relevance of the Drucker perspective.
Heeding the wisdom of Peter Drucker might have helped us avoid—and will help us solve—numerous challenges plaguing communities around the world: restoring trust in business in the wake of accounting scandals and the global financial crisis; attracting and motivating the best talent without creating crippling financial commitments; addressing societal problems such as climate change, health care, and public education; dealing with trouble spots in central Asia and the Middle East.
If Peter Drucker were here today, what would he have to say about such pressing matters? His first comment might be “I told you so”—and he would have every right to say that. In remarkably prescient writings, he pointed to important trends and looming disasters. He took a broad look at the context surrounding organizations, noting jarring events he called discontinuities. Next, since the signs of difficulties ahead were there all along, he might follow up by telling us, “Look at the underlying systems.” Drucker rarely named or blamed individuals; he saw root causes in the design of organizations—in their structures, processes, norms, and routines. He would remind us that it is the responsibility of executives to challenge that design while being mindful of their companies’ ultimate purpose. Then he might finish by asking leaders a few provocative questions: “What is your mission? What should you stop doing? Where has the drive for short-term efficiencies undermined long-term effectiveness? What should be your objectives and guiding principles?”
My credentials for channeling Peter Drucker stem from early in my career—the first time I spoke on a panel with him, more than 25 years ago in Brussels. They extend beyond his death to the Drucker fingerprints I found in my multinational research for my latest book, SuperCorp. Managers everywhere, especially in Asia, described Drucker encounters as pivotal in making their enterprises well run and helping their countries develop.
Drucker’s Early Warnings
In the process of identifying the tasks of managers, Drucker laid out their responsibilities in guiding organizations to endure in a world of change. Here are some of the critical issues he anticipated.
The bonus brouhaha. Drucker would not have been surprised that incentives to take excessive risks contributed to the recent global financial meltdown. Back in the mid-1980s, he warned about a public outcry over executive compensation—a main theme on the U.S. government’s agenda following the fall of banks in 2008. More than 20 years ago, Drucker pointed to a top-to-bottom ratio that was then rushing past 40 to 1. Just before his death, the ratio was greater than 400 to 1.
Drucker was not against wealth accumulation, but he was a pragmatic about the work of organizations and society. He held that the role of executives was to coordinate the actions of others whose motivation (and thus compensation) was necessary to get the job done. But he also held that pay should be associated with performance; that was a major point of management by objectives, perhaps his best-known practical management contribution. Listening to Drucker might have headed off some of the excesses associated with Wall Street in general and with AIG in particular, in which bonuses not only were decried for their amounts but also were often uncorrelated with company results. He argued that knowledge workers—a rising proportion of employees—should be motivated by a sense of purpose and not just by money. And he defined performance broadly, to encompass responsibilities to a wide range of stakeholders in addition to shareholders. He stressed that ensuring the long-term health of the company—and eschewing short hits that jeopardize the future—is executives’ primary job.
Auto industry woes and creative destruction. Drucker came close to predicting the fall of General Motors, the company he had praised early in its career for its decentralized organizational structure. Years ago, he warned of troubles ahead if GM executives remained stuck in memories of previous successes and failed to ask his famous “what to stop doing” question. GM was an iconic example of failure to see the need for significant innovation; its structure had become ossified, and its top management couldn’t consider a change.
Drucker was influenced as a child in Austria by his father’s friend Joseph Schumpeter, the economist whose concept of creative destruction defined generations of entrepreneurs. Innovation and entrepreneurship were central to Drucker’s theories. He distinguished between efficiency, which managers could achieve by doing more of the same with less effort or lower cost, and effectiveness, which involved setting the right goals and transforming organizations as conditions changed.
In an “age of discontinuity,” as Drucker called the current era, entrepreneurs could find significant opportunities to create or transform organizations if they were willing to get ahead of societal changes. Drucker said that the best way to predict the future is to invent it. Discontinuities provided gaps in society that could be filled with creativity. Note his emphasis on society rather than markets: He felt that innovators should be attuned to unmet needs that did not yet show up in market research.
Thus, a company like GM could not survive simply by doing the old things with redoubled efficiency and lower costs. The company needed to dramatically rethink its entire organizational model and related assumptions. It would not be enough, for example, to exhort GM to focus on fewer models or dealerships and “get back to building cars Americans want.” Sometimes there is no going back, because industry conditions and societal needs have forever shifted, requiring an organization to do things in fundamentally new ways. GM’s divisional structure of separate brands had helped the company break out from the pack, but it became a handicap over time as the divisions turned into hardened silos, each duplicating functions, proliferating products, and raising total costs. Drucker understood that industrial companies had to operate differently in the information age; in particular they needed to embrace ambiguity. Their challenge was to create an organization that could thrive in a rapidly changing world, where mixed signals make agility a minimum requirement and innovation a key to success.
The new economic powers. Drucker sounded early warnings that competition from emerging markets would eventually challenge the United States’ global economic dominance. He observed that newer economic powers were adopting American management lessons that Americans were forgetting, as his own ideas spread widely and were consumed eagerly in countries with aspirations to grow their economies. I glimpsed just how far ahead he had seen when I went to Kyoto for research on the Japanese company Omron, which I had chosen as an exemplary model for SuperCorp. Omron’s leaders had their Drucker story. In 1959 Drucker visited Omron’s founder, Kazuma Tateisi, and was impressed with the values and principles he had created for the company. Tateisi emphasized a disciplined drive for constant innovation and continuous improvement from sensing the needs of society. Drucker wrote his wife that if Japan had other companies like Omron, then it would soon be a major industrial power.
Not surprisingly, Drucker is a hero in emerging countries, which are dotted with Drucker societies that study his work. He gave leaders in those nations the concepts and permission to move from tribalism to corporatism, and from family-based enterprises to professional management. This paved the way for companies that could grow and compete in international markets. The rise of effective, professionally run organizations helped create a middle class and transformed political regimes.
The third sector. Drucker was an Austrian who fled authoritarianism and became an American advocating voluntarism. He focused on how organizations could best achieve their purpose, not on business per se or on profit as the main indicator of success. He championed a robust civil society of voluntary nonprofit organizations as an essential foundation on which business could thrive and people could prosper, because this sector plays a vital role in promoting health, education, and well-being. The role of government is fuzzier in Drucker’s writings, although it is clear that he mistrusted centralization of power and saw bureaucracy as a source of rigidity rather than innovation. He believed in voluntary action by employees in companies—especially knowledge workers whose contributions could not be coerced—as well as by concerned citizens who form or participate in mission-driven nonprofit organizations to achieve a social goal. He felt that business could learn from the not-for-profit sector about sources of motivation that lay beyond a financial bottom line. He also felt that a country like America neglected at its peril investment in not-for-profit organizations and community responsibilities.
