This series of articles on the work of Peter F

Chains of Command

WSJ: Even if you don't commit to the idea of a new economy, you certainly seem to think we need a "new management."

Dr. Drucker: When we went into the modern corporation around 1870, we looked for a model. There was only one model. It was the Prussian Army. And in combat you have to have command. You have to have command in a crisis, someone who can say "This is it" and stop the yapping. But you are not in a crisis situation normally, and you have more time than you have in combat. So that model is no longer used in the military. I've done a fair amount of work at a tactical Air Force base. There is a colonel who is in charge of all the maintenance. The maintenance is done by a crew chief, who is a sergeant. If the sergeant says a plane is not ready to be flown, it isn't. Now, if he says it too often, you replace him. But as long as he is the crew chief, the colonel can't overrule him.

WSJ: Are corporations catching up to the military, or are they still following Frederick the Great?

Dr. Drucker: If you were to come on Saturday afternoon to my advanced management program, you would find 78 people, very successful people, 60% from business, 40% from elsewhere. They are upper-middle management. The companies don't send them to us unless they are the most successful, most promising people. And their bitterness about their management and their companies is unbelievable. They feel the financial people treat them like peons. What really offends them most is that the financial people think they can make them happy by bribing them.

WSJ: Bribing them with high salaries?

Dr. Drucker: Yes, and stock options, but not respecting them as professionals. And have you looked at turnover rates?

WSJ: Some places in Silicon Valley it's 30% a year.

Dr. Drucker: And in the pharmaceutical industry it is reaching 30%, where it used to be nil. And the cost of replacing one of these people is absolutely astronomical.

WSJ: So what is the answer?

Dr. Drucker: The answer is respect. Let me tell you a story.

I just spent 10 days in the hospital. This is our local hospital, and I know the administrator. Nine of those 10 days I was in good shape, but I had to lie flat and motionless because I had an IV in each arm. So all the nurses came and chatted with me. They came to me in the hope that I would get across to the administrator something that irked them. I won't tell you the details. It involved a change in policy imposed on the hospital by the HMOs that altered their professional status. They were being told what to do instead of being asked what should be done. They are used to that from physicians -- but not from administrators.

And all I had to do was, when the administrator came to say hello, I said, "Look, you are creating trouble with your nurses. Yes, the HMO put pressure on you. But instead of issuing orders, you should call in the senior nurse from each group and sit down with them. You explain the pressure from the HMOs and ask, 'How do we handle it best? What are your ideas?' They may curse. They may say that HMOs are perfectly stupid. But they should make the decision on how to handle it. They should be treated as professionals who know their job."

And he did it while I was still there. And in two days the atmosphere changed. The same nurses came to me and said, "This is again the place I like to work in." That was all he had to do.

WSJ: And will more businesses in the future take that kind of action?

Dr. Drucker: More and more have. More and more will. Because otherwise, the results aren't there. And more and more organizations are becoming conscious of the mobility of the good people -- which, you know, is a shock to most of them, those in the older generation. We grew up still with the belief that the employee needs the company more than the company needs him. Try to tell that to my grandchildren.

WSJ: They would laugh in my face.

Dr. Drucker: They don't even know what it means. Sure, some young workers are very greedy, very conscious of rapid promotion. But they also see themselves much more like craftsmen of old. It used to be the tradition that when the craftsman had finished his apprenticeship, he would spend five years traveling as a journeyman. Even in this country, up to the Linotype, the printer had his own fonts, his own tools. And the old saying was that he stayed in one place until he married. We are getting there again, except that you don't have to marry anymore.

Getting, and Giving, Satisfaction

WSJ: So what is the lesson for an employer? To honor craft? To honor personal fulfillment?

Dr. Drucker: Yes. It's not difficult! Put responsibility on your good people. Stop talking "empowerment." That's an obscene word.

WSJ: Certainly a patronizing word.

Dr. Drucker: Plus the fact that you take power from one place and put it in another, it is still power. Instead, talk responsibility. Look, who is the most successful in attracting and holding good people? The nonprofits. The satisfaction has to be greater than in business because there is no paycheck.

WSJ: Do our schools need to change?

Dr. Drucker: Our schools do not prepare people. The school is an invention of the eighth century. Antiquity didn't have schools in our sense. It had tutors. Then the monastery came. If you put one of those Benedictine monks into a modern high school, he would feel very comfortable. And in the 11th century came the convent and schools for girls. We really haven't changed all that much. The subjects have changed, but not much since the 19th century. We are becoming more specialized -- not less. There is no synthesis yet. Nobody teaches social sciences, the understanding of the behavior of people in institutions. They teach economics and psychology and sociology as if those things existed. They do not exist. They are contrivances. Nobody teaches numeracy. Mathematics, yes. But numeric literacy we don't know how to teach.

WSJ: How will this change?

Dr. Drucker: Traditionally, schools have not been changed by the needs of society or the changes in knowledge, but by external technology.

WSJ: Like the introduction of the book.

Dr. Drucker: Like the book. So online technology is going to have an incredible impact, but we don't know when and we don't know whether it will involve what is being taught or how it is being delivered. The history of the book would argue that we are very, very slow. It took 200 years for books to become used in schools. And things that could not be taught with the help of the book disappeared. Up until 1600, music was an integral part of education. It vanished after the book.

WSJ: You're a man of 90 in plainly robust health. What's the secret to your longevity?

Dr. Drucker: Two things. First, genetics, obviously. My father died at 91. My mother probably would have lived just as long if she hadn't been in an accident. Secondly, being a workaholic. I need stress.

WSJ: Always have to go against the grain, don't you?

Dr. Drucker: Look, stress is bad for people for whom stress is bad. The rest of us -- and I don't know what the proportion it is, but it is a large proportion -- we thrive. I set my own deadlines. I know they are fictitious, but they still put pressure on me. And I think that is the secret. My wife is 88. She is also a workaholic. But believe me, it is constitution more than anything else.
The Original Management Guru
December 27, 2005 2:37 p.m.

(This article originally appeared in The Wall Street Journal on Nov. 19, 1999)

By Joan Magretta and Nan Stone. Ms. Magretta is the editor of "Managing in the New Economy" (Harvard Business School Press, 1999). Ms. Stone, a former editor of Harvard Business Review, is the executive director of the Peter F. Drucker Archive and Institute.

Today is the 90th birthday of Peter Drucker, the man who more than any other invented the discipline of management. Before he wrote his seminal 1954 book, "The Practice of Management," there were books on accounting, on sales, on labor relations -- on all the many individual functions of management. But Mr. Drucker was the first to present the work of management as a coherent whole.

Over the past century management has revolutionized both the experience of work and its productivity. But it remains the least understood of our social institutions. For many people, one of the most positive aspects of the "new economy" is its promise to do away with management and traditional organizations altogether. In this view, self-organizing work teams will replace managerial hierarchies, leadership will be everyone's responsibility, and free agency will be the norm.

There is enough reality in this scenario to make it seductive. But as long as the world continues to become more complex and specialized, the discipline of management will play a growing role in our lives. Mr. Drucker's work remains the best guide to that discipline.

When Peter Drucker decided in 1943 to spend two years studying General Motors from the inside, he put his career at risk. Back then, no academic in his right mind would study something as mundane as a profit-making corporation. But this professor had once been a financial reporter, and he never lost his journalist's eye for the big story. Recovery from the war would shift the locus of power toward companies like GM. Making sense of modern society, Mr. Drucker saw, would mean making sense of management and then explaining it, both to the public and to managers themselves.

Mr. Drucker understood that if management could be made a discipline then it could be taught and widely disseminated, enabling ordinary people to achieve better-than-ordinary results. The discipline of management has made possible a world in which organizations are so integral to the fabric of our lives that we take them for granted.

Before 1900 hardly anyone but soldiers, clergy and teachers worked for organized institutions. Most people labored alone or in small groups, and much work still centered on the home. At the turn of the century four-fifths of the U.S. population worked with their hands in farming, domestic service and blue-collar work. Today the largest single occupational group consists of knowledge workers engaged in a myriad of technical and professional specialties.

For the first time in history, large numbers of highly educated, skilled people can come together in organizations of all sorts to achieve purposes that no individual could achieve on his own. Management makes that possible by articulating an organization's purpose and translating it into performance. As a nation of investors, we are more likely than ever to think that the purpose of a business is to generate profits. But Mr. Drucker teaches us that organizations perform only when their purpose is clearly defined and that profit is not a purpose but a result.

Before Peter Drucker, most people thought about their businesses with a manufacturing mindset, defining a business based on what it produced. Today, the marketing mindset prevails. It was Mr. Drucker's critical insight that instead of buying a "product" the customer buys the satisfaction of a need. Home Depot would not have reached $30 billion in sales in 21 years if it had defined its business as selling hardware and building supplies. Instead, its management asked who its customers are and what they value. It understood that inexperienced do-it-yourselfers don't want tools per se; they want affordable home improvements. So Home Depot delivers advice and instruction along with the products it sells, helping amateurs develop confidence and know-how.

Mr. Drucker is famous for a series of questions: What is our business? Who is the customer? What does the customer value? The answers to those questions, asked by generations of managers around the globe, became known as "the theory of the business." The most distinctive hallmark of the managerial mindset is that it operates from that theory. Major decisions and initiatives all become tests of the theory. Profits are important in part because they tell you whether your theory is working. If you fail to achieve the results you expected, you re-examine your model. It is the managerial equivalent of the scientific method, starting with hypotheses which are then tested in action, and revised when necessary.

It is a stunning experience to reread the Drucker of the 1950s, 1960s and 1970s and to recognize one seminal idea after another. Few major developments in management escaped his observation. He laid out the basics of competitive strategy years before the word strategy could be used intelligibly in a business context. He has always been a decade or two ahead on subjects as wide-ranging as organizational design, cost accounting, entrepreneurship and managing information. In a field often derided for its faddishness, his insights endure.

Equally remarkable, at age 90 he continues to look forward. His latest book is called "Management Challenges for the 21st Century." No one lays out more clearly the new economy's defining challenge: raising the productivity of knowledge work. By the same token, while the world fixates on e-business, Mr. Drucker points toward management's truly new frontier, the nonprofit social sector, where "systematic, principled, theory-based management can yield the greatest results the fastest."

Mr. Drucker's insights about "knowledge work," a phrase he coined decades ago, grow out of his broad understanding of work as a human activity and management as a liberal art. He has always understood that people are deeply--and rightly--resistant to being "managed." This point is especially relevant for knowledge workers, who know more about their jobs than their bosses do. For them, supervision is a special kind of hell. This is why good managers help people manage themselves by focusing consistently on performance and results and by teaching them, often by example, to think about what they are good at, how they learn, what they value. Such self-knowledge is essential to performance.

As we ride the current economic boom, we face a paradox: At a time when the reputation of business has never been higher, the reputation of management has never been lower. Talented young people want to be entrepreneurs, consultants, venture capitalists--but can you remember the last time you heard one say he wanted to be a manager? Yet as Peter Drucker helps us to see, the quality of our lives and of our society depends on the quality of the organizations we build, that is, on the discipline of management.

For access to some of the books and writings of Peter F. Drucker go to:
www.lib.uwo.ca/business/dru.html