Peter Drucker: From Vienna To Qingdao

In the late 1980s I was sent to interview Peter Drucker. Normally such interviews are largely transactional. An hour is spent in the company of the great thinker who relentlessly promotes their book or latest piece of research. With Drucker, the interview was more of an education. Over a number of hours, including a walk down the road to a pharmacy, Drucker talked about his love of Jane Austen’s novels which he re-read every year to remind himself of the beauty of her prose. He also talked of Anthony Trollope’s work, his experience at General Motors in the 1930s where he was an embedded organization expert, his passion for Japanese art, skiing, meeting Freud as a young child in Vienna, working as a journalist in London and much more. He joked about writing a business book called “How to make a million and still go to heaven”.

Many, many others met Peter Drucker over his long life. Those meetings, I suspect, are burned in their memories. Drucker was not conventionally charismatic nor an electric speaker, but his intellect was colossal and claimed every room he walked into.

But, more than that, Peter Drucker had an impact on the practice of management and of business organization which was extraordinary and which, thanks to the indefatigable work of Richard Straub of the Drucker Forum, continues to this day.

The impact of Drucker can truly be felt when you talk to Zhang Ruimin, CEO of the Haier Corporation. Based in Qingdao, China, Haier is now the world’s biggest white goods manufacturer. In 1979, when he was aged 30, Zhang Ruimin came across Drucker’s book The Effective Executive. At the time, Drucker’s work was largely unknown in China and Haier was a shadow of what it is today. Its factory, the Qingdao Daily Appliance Plant, was dilapidated and the company in a dire situation. It was a struggle (not always successful) to generate enough money to pay the wages of the people who worked there.

In Drucker’s work, the factory director, Zhang Ruimin found inspiration. It was Drucker’s assertion that “good management of a factory is always monotonous” which set his mind working. Zhang Ruimin explains:

“Drucker’s words were exactly opposite to the approach we were taking, not only for Haier. At that time, all Chinese enterprises were finding ways to do something exciting every day, for example, engaging in mass campaigns, oath swearing rallies and the like. Drucker’s statement was completely different to our approach. But I thought carefully and realized that what he said made sense. Most things in an enterprise should be treated as routine events. Inspired by Drucker, we started doing budgets for Haier, and created the Daily Clearing Act. The act made clear that ‘work for the day should be completed on the day, clean daily and improve standards daily’. The goals for each task were applied for each person every day. Every person looks at their completed work based on their goals before leaving, and clears their tasks daily. The clearing daily work method solved the confusion caused by ineffective management, so that the factory, which was near collapse, quickly turned around, and won the first gold medal in the history of Chinese refrigerators.”

Later, as Zhang Ruimin continued exploring Drucker’s work, he came upon the observation that “an organization’s mission is to allow ordinary people to do extraordinary things”. Zhang Ruimin decided that Haier would seek to become such an organization.

Living ideas
Peter Ferdinand Drucker (1909-2005) was the major management and business thinker of the twentieth century. Of that there is little question. “In a field packed with egomaniacs and snake-oil merchants, he remains a genuinely original thinker,” observed the Economist late in his career. Prolific, even in his nineties, Drucker’s work was all-encompassing. Management Challenges for the 21st Century was written just before his ninetieth birthday. There was little that executives do, think or face that he did not write about.

Consider the political fashion of the 1980s for privatization. It was Drucker who first introduced the idea of privatization – though he labeled it “reprivatisation”. This was energetically seized upon by politicians in the 1980s, though their interpretation of privatization went far beyond that envisaged by Drucker.

Alternatively, take the idea of knowledge management. “The knowledge worker sees himself just as another professional, no different from the lawyer, the teacher, the preacher, the doctor or the government servant of yesterday,” wrote Drucker in his 1969 classic The Age of Discontinuity. “He has the same education. He has more income, he has probably greater opportunities as well. He may well realize that he depends on the organization for access to income and opportunity, and that without the investment the organization has made – and a high investment at that – there would be no job for him, but he also realizes, and rightly so, that the organization equally depends on him.”

Drucker was exploring the implications of knowledge being both power and ownership 30 years ago. If knowledge, rather than labor, was to be the new measure of economic society then Drucker argued that the fabric of capitalist society must change: “The knowledge worker is both the true capitalist in the knowledge society and dependent on his job. Collectively the knowledge workers, the employed educated middle-class of today’s society, own the means of production through pension funds, investment trusts, and so on.”

In Managing on the Edge (1990), Richard Pascale noted: “Peter Drucker’s book The Age of Discontinuity describes the commercial era in which we live.” Drucker proved remarkably prescient time and time again.

How ideas begin
Far sighted and always opinionated, Peter Drucker was born in Austria where his father, Adolph, was the chief economist in the Austrian civil service. (Freud had lectured in psychiatry to his mother.) His early experiences in the Austria of the 1920s and 1930s proved hugely influential. “His background … has done more than shape Mr Drucker’s style. It has left him with a burning sense of the importance of management. He believes that poor management helped to plunge the Europe of his youth into disaster, and he fears that the scope for poor management is growing larger, as organizations become ever more complicated and interdependent,’ noted the Economist in 1994.

Drucker worked as a journalist in London, before moving to America in 1937. His first book on management, Concept of the Corporation (1946) was a groundbreaking examination of the intricate internal working of General Motors and revealed the auto-giant to be a labyrinthine social system rather than an economical machine. (In the UK the book was retitled Big Business as, Drucker explains, “both Concept and Corporation [were] then considered vulgar Americanisms”. They still are.)

His books emerged regularly– and eventually numbered over 40. Along the way he coined phrases and championed concepts such as Management By Objectives. Many of his innovations became accepted facts of managerial life. He celebrated huge organizations and anticipated their demise. (This led to suggestions of inconsistency – though this is a rather hollow criticism of a career spanning over 70 years.) His 1964 book Managing for Results was, Drucker said, “the first book ever on what we now call strategy”; The Effective Executive (1966) was “the first and still the only book on the behavior being a manager or executive requires”. (As Drucker’s comments suggests he was well aware of his influence – “Mr Drucker is not shy about reminding people of his contribution to management studies and some find him a touch dogmatic,” wrote The Economist.)

The coping stones of Drucker’s work are two equally huge and brilliant books: The Practice of Management (1954) and Management: Tasks, Responsibilities, Practices (1973). Both are encyclopaedic in their scope and fulsome in their historical perspectives. More than any other volumes they encapsulate the essence of management thinking and practice.

The genius of Drucker was that he combined quantity and quality while ploughing a thoroughly idiosyncratic furrow. He resolutely pursued his own interests, and the dictates of his considerable intellect, rather than the dictates of the dollar. In an age of thinkers as media personalities, Drucker refused to be distracted. Disturbers of his Californian retreat received a preprinted message assuring them that he “greatly appreciates your kind interest, but is unable to: contribute articles or forewords; comment on manuscripts or books; take part in panels and symposia; join committees or boards of any kind; answer questionnaires; give interviews; and appear on radio or television”.

Drucker did not shun the world. He was not J.D. Salinger. But he was focused – as he observed: “The single-minded ones, the monomaniacs, are the only true achievers. The rest, the ones like me, have more fun; but they fritter themselves away. The monomaniacs carry out a mission; the rest of us have interests. Whenever anything is being accomplished, it is being done … by a monomaniac with a mission.”

Twin tracks and more
Drucker’s book production was supplemented by a somewhat low key career as an academic and some-time consultant. He was Professor of Philosophy and Politics at Bennington College from 1942 until 1949 and then became a Professor of Management at New York University in 1950 – “The first person anywhere in the world to have such a title and to teach such a subject”, he proudly recalled. From 1971, Drucker was a Professor at Claremont Graduate School in California. He also lectured in oriental art and wrote two novels (positively reviewed but less successful than his management books). As if to prove that he was multi-dimensional, in Who’s Who Drucker listed mountaineering as one of his recreations.

Drucker considered himself as much a journalist as an academic or consultant. (One career option he ruled out: “I would be a very poor manager. Hopeless. And a company job would bore me to death.”) His autobiography was entitled, Adventures of a Bystander, emphasizing his role as a journalistic recorder of trends steering clear of direct involvement. “I have always been politically incorrect. I have never belonged to the outer circle, let alone the inner circle. No, I am an outsider and I am a loner. I have always done my own work,” he said in 1996, getting in a barbed comment on the propensity of academics to get others to do their research and writing. Drucker’s formidable ire was particularly reserved for business schools. “The business schools in the US, set up less than a century ago, have been preparing well-trained clerks,” he wrote. Drucker noted in 1996 that “only now in my very old age has academia been willing to accept me”.

Drucker’s greatest achievement lies in identifying management as a timeless, human discipline. It was used to build the Great Wall of China, to erect the Pyramids, to cross the oceans for the first time, to run armies. “Management is tasks. Management is discipline. But management is also people,” he wrote. “Every achievement of management is the achievement of a manager. Every failure is the failure of a manager. People manage, rather than forces or facts. The vision, dedication and integrity of managers determine whether there is management or mismanagement.”

Drucker put the historical importance of management at our fingertips. But, though management is the universal science, this does not necessarily mean we are very good at it, or improving in our execution of it. “Actually very little has changed so far. Most organizations are being run very much the way they were when I first started to study them. We have a lot of new tools, but not very many new ideas,” lamented Drucker in 1995. He might well have said the same in the second decade of the twenty-first century.

First principles
Drucker’s first attempt at creating the managerial bible was The Practice of Management (“a fairly short book of fundamentals” according to him). He largely succeeded. The book was a masterly exposition on the first principles of management. There may not be many new ideas, but it still pays to understand the fundamentals. In one of the most quoted and memorable paragraphs in management literature, Drucker gets to the heart of the meaning of business life:

“There is only one valid definition of business purpose: to create a customer. Markets are not created by God, nature or economic forces, but by businessmen. The want they satisfy may have been felt by the customer before he was offered the means of satisfying it. It may indeed, like the want of food in a famine, have dominated the customer’s life and filled all his waking moments. But it was a theoretical want before; only when the action of businessmen makes it an effective demand is there a customer, a market.”

Drucker also provided an evocatively simple insight into the nature and raison d’être of organizations: “Organization is not an end in itself, but a means to an end of business performance and business results. Organization structure is an indispensable means, and the wrong structure will seriously impair business performance and may even destroy it … The first question in discussing organization structure must be: What is our business and what should it be? Organization structure must be designed so as to make possible the attainment of the objectives of the business for five, ten, fifteen years hence.” With its examinations of GM, Ford and others, Drucker’s audience and world view in The Practice of Management was resolutely that of the large corporation. The world moved on (and so did Drucker).

In The Practice of Management and the equally enormous Management: Tasks, Responsibilities and Practices in 1973, Drucker established five basics of the managerial role: to set objectives; to organize; to motivate and communicate; to measure; and to develop people. “The function which distinguishes the manager above all others is his educational one,” he wrote. “The one contribution he is uniquely expected to make is to give others vision and ability to perform. It is vision and moral responsibility that, in the last analysis, define the manager.” This morality is reflected in the five areas identified by Drucker “in which practices are required to ensure the right spirit throughout management organization:

1. There must be high performance requirements; no condoning of poor or mediocre performance; and rewards must be based on performance.
2. Each management job must be a rewarding job in itself rather than just a step on the promotion ladder.
3. There must be a rational and just promotion system.
4. Management needs a ‘charter’ spelling out clearly who has the power to make ‘life-and-death’ decisions affecting a manager; and there should be some way for a manager to appeal to a higher court.
5. In its appointments, management must demonstrate that it realizes that integrity is the one absolute requirement of a manager, the one quality that he has to being with him and cannot be expected to acquire later on.”

At the time, the idea from The Practice of Management which was seized upon was what became known as Management By Objectives (MBO). “A manager’s job should be based on a task to be performed in order to attain the company’s objectives … the manager should be directed and controlled by the objectives of performance rather than by his boss,” Drucker wrote. Hijacked as yet another bright idea, MBO became a simplistic means of setting a corporate goal and heading towards it and bore little relation to Drucker’s broader interpretation.

Moving relentlessly forward, Drucker identified “seven new tasks” for the manager of the future. Given that these were laid down over 60 years ago, their prescience is astounding. Drucker wrote that tomorrow’s managers must:

1. “Manage by objectives
2. Take more risks and for a longer period ahead.
3. Be able to make strategic decisions
4. Be able to build an integrated team, each member of which is capable of managing and of measuring his own performance and results in relation to the common objectives
5. Be able to communicate information fast and clearly
6. Traditionally a manager has been expected to know one or more functions. This will no longer be enough. The manager of the future must be able to see the business as a whole and to integrate his function with it.
7. Traditionally a manager has been expected to know a few products or one industry. This, too, will no longer be enough.”

In his eighties and nineties Drucker maintained his remarkable work rate. In particular, his energies were focused on non-profit organizations. His ability to return to first principles and question the fundamentals remained undimmed. In Managing in a Time of Great Change (1995) he objected to the term manager – “Manager has implications of subordinates”. He preferred to talk of executives and suggested, “To build achieving organizations, you must replace power with responsibility.” The call to take responsibility was a consistent thread throughout 70 years of productive work.

Drucker also developed his thinking on the role of knowledge – most notably in his 1992 book, Managing for the Future, in which he observed: “From now on the key is knowledge. The world is becoming not labor intensive, not materials intensive, not energy intensive, but knowledge intensive.”

Given Drucker’s heavyweight reputation it’s worth listening to what he said about the state of management. Drucker noted four great changes that had occurred since his first book was published:

• “The end of orthodoxy in the management principle, as a way of organizing and managing people.
• The shift of the gravity center in the equation of the information technologies, with the weight of the T from technologies shifting to the I from information.
• A return to ‘casual’ times of turbulence.
• The understanding that the growth areas of the 20th Century in developed countries were not linked to the business world. There were others: governments, liberal professions, health, education, areas where good management is dramatically lacking.”

Drucker castigated managers for becoming obsessed with promotions and suggested that new forms of work need to be explored. He remained a trenchant realist. “The first constant in the job of management is to make human strength effective and human weakness irrelevant,” he said. Forget the theorizing. Drucker could make corporate life appear understandable, though never easy. And, the bottom-line was never far away: “Managers are accountable for results, period.”

Stuart Crainer is co-founder of Thinkers50 (thinkers50.com) and author of The Management Century.