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Drucker on Management in the 21st Century

Posted in Business by Administrator on the December 2nd, 2003
Management Challenges for the 21st Century by Peter F. Drucker  

In the last few months we’ve read and have been discussing Managing Oneself, a chapter from Peter Drucker’s latest book. In the following paper, I offer a summary of each of the other chapters from the book, my bracketed comments and an introduction to some of the many distinctions, so that you can get a sense of the context in which Managing Oneself is offered. Perhaps you’ll determine from this summary that, as with the chapter Managing Oneself, the rest of this book might contribute to your thinking about what you need to do now in anticipation of the future.

One of the recurrent themes in this book is the impact of the challenges of the 21st century for us, the knowledge workers. The knowledge worker is seen as a form of capital for an organization. The knowledge worker is mobile and when we leave an organization we can (ideally) be regarded as an asset that is no longer available. When we are thinking about our own challenges for the 21st century and the enterprises we as individuals represent, we can anticipate and work to produce the skills that will be valued in the coming century.

Drucker is clearly a world-class speaker on the management of organizations. I recognize when I read his books a great hunger on my part for the “right” answers and an implicit valuation on his part of the virtue of hard work. His thinking also seems to be grounded largely on the individual acting as an individual and misses out on the great power available in coordinated action, cooperation, and networks of help. I am, however, regularly surprised and challenged when encountering his uncommon “common sense”, for instance, his willingness to reexamine the obvious, even the obviousness that he admits helping perpetuate.

Drucker has a different common sense about instant gratification. For him, relatively quickly can mean “in two to three years”! This is an example of the wonderful wisdom he shares and a telling perspective from a man in his nineties. He is an observer of organizations in the world and helps me see things in a different light while always challenging me to act.

Chapter 1 Management’s New Paradigms

Why assumptions matter.

“..despite their importance, the assumptions are rarely analyzed, rarely studied, rarely challenged–indeed rarely even made explicit.”

In this chapter, Drucker offers a handful of fundamental assumptions about management and organization structure that have to be reexamined. He offers some basis for what he means, why these assumptions show up and how they produce thinking that won’t be effective in the future. He says he doesn’t answer questions here but raises them.

Chapter 2 Strategy – The New Certainties

[This chapter was particularly relevant for me these days as I am working with managers that are not committing to a strategy (which, in itself, is the default strategy). This is a problem as we treat all ideas and possibilities as equally valuable. We do not have a strategy against which we can evaluate these possibilities effectively.] Drucker points out that without a strategy “there is no way to tell what genuinely advances the organization toward its desired results and what is diversion and splintering of resources.”

[In the context of reading of Managing Oneself, if we think of ourselves as an enterprise, we can ask ourselves what is our strategy (or ambition)? What is the story we hold about what results we want to produce? What kind of life do we want to live? It is our thinking about these questions that can have us evaluate opportunities effectively or determine what is “diversion and splintering of resources.”]

From a global perspective, Drucker offers five certainties for the coming century. These are fundamental considerations for both our business [and personal] strategies.

1) The collapsing birthrate in the developed world

In western and central Europe and Japan the birthrate has fallen well below the rate necessary to reproduce the population. The US birthrate is declining and is only as as high as it is because of the immigrant population. Drucker points out that there is no precedent for a population of older people outnumbering younger people. For the last two hundred years all institutions of the modern world have assumed growing populations. The implications Drucker describes are (1) demographics will dominate the politics of all developed countries for the next twenty or thirty years, (2) government instability will be the norm, (3) retirement will mean something different effecting, among other things, employment relations which will become increasingly heterogeneous and flexible, (4) the productivity of all knowledge workers will have to increase rapidly or the country will risk growing poorer.

2) Shifts in the distribution of disposable income

The four growth industries of the twentieth century were Government, Healthcare, Education and Leisure. The changes in demographics ensure that Healthcare and Education will continue to be major growth sectors. [The need of healthcare is obvious as the population grows older.] Drucker predicts that the knowledge worker will take advantage of the opportunity for lifelong learning.

The present growth industries are financial services or “retail finance” and printed books dominated by non-American companies such as Bertelsmann with its book clubs in China and Murdoch.

3) Defining performance

Since the late 1920’s it was a fuzzy notion that a business should be run to serve a balance of interests among its employees, customers and shareholders. The emerging American approach is that the business is run for the short-term interests of the shareholder. Drucker proposes that we’ll “have to learn to develop new concepts of what performance means in an enterprise. As performance is no longer obvious and simple, work will have to be made meaningful for the knowledge worker. New strategies will have to take into consideration new definitions of performance.”

4) Global competitiveness

Any institution has to measure itself against the standards set by each industry’s leaders anyplace in the world. [Where we see this in our business is the opportunity, amidst the great technical labor shortage of the San Francisco Bay Area during the dot-com bubble, to “import” India’s programming talent to supplement our own more expensive and difficult to retain programmers. Similarly, the Internet based technology and content we broadcast is wide open to being plagiarized by foreign businesses that do not share Western values of proprietary intellectual property or copyright protection.]

5) Growing incongruence between economic globalization and political splintering.

National economies and boundaries are increasingly irrelevant as defining the scope of businesses. Businesses have to deal with and perform in three overlapping spheres, the global economy, regional economies and national and local realities. Another implication is that businesses will have to manage their currency exposure. Strategy has to be based on the assumption that currencies will continue to be volatile and unstable.

[It is interesting here to compare Drucker’s thinking with Russell Redenbaugh’s three major forces in the world; Demographics, Technology and The March to Freedom. While demographics is represented in Drucker’s thinking as well as the March to Freedom, it’s less clear to me is where technology fits in Drucker’s thinking. Perhaps technology is incorporated into his concerns for shifts in disposable income and defining performance. Changes in technology change realities of scarcity and abundance and is a contributing force in shifting disposable income.] Drucker points out that the 60-hour workweek and 51 weeks a year (3000 hours annually) was the norm in 1900. In the last century that has dropped in half to 1500 hours in Germany and 1850 hours in the US contributing to the 20th century growth of the leisure industry.

[The impact of technology in travel, communication and information systems has contributed to the march to freedom, the resulting global economy and need for global competitiveness.]

Chapter 3 The Change Leader

Drucker proposes that unless the task of an organization is to lead change it will not survive. He contrasts this with the thinking prevalent ten or fifteen years ago about “overcoming resistance to change”. Being a change leader is a central challenge for management in the 21st century requiring:

1) Policies to make the future.

2) Systematic methods to look for and to anticipate change.

3) The right way to introduce change, both within and outside the organization.

4) Policies to balance change and continuity.

[This is a particularly challenging chapter when we apply this thinking to ourselves as enterprises. We have the challenge of maintaining some stability in our lives while at the same time examining our current practices to determine if they are relevant to our concerns and whether they are effective. As Toby Hecht points out, we recognize change when we acknowledge that today’s practices are no longer effective. Where in our lives do we need to introduce change and adopt policies to be change leaders? Are the strengths we identify in feedback analysis sufficient to produce the futures we want? Where are we introducing innovation in our practices?

Drucker provides some interesting thinking here about the budget allocation to sustaining operations and expenditures for the future whether in good times or bad. Rather than reducing expenditures across the board when the business down cycle occurs and missing out on the future, Drucker suggests that a budget for the future whether in good times or bad remain at a steady 10 to 12 percent. Applied to the individual we might look to our practices for continuous improvement or lifelong learning when times get tough. Is this the first place we look to cut from our budgets?]

Chapter 4 Information Challenges

Drucker says that the information revolution for the coming century represents a focus on the “I” in Information Technology. The question will be, “What is the MEANING of information and its PURPOSE? And this is leading rapidly to redefining the tasks to be done with information and, with it, to redefining the institutions that do these tasks.

[What will continue to be abundant will be information, what will remain scarce is access to timely and relevant information that is meaningful and allows an organization to act with purpose.]

Drucker points out that enterprises are paid to create wealth and that requires four sets of diagnostic tools:

1) Foundation Information

This information is the oldest and most widely used set of diagnostic tools, such as cash flow or sales. If they are normal they do not tell us much, if they are abnormal they indicate a problem to be identified and addressed.

2) Productivity information

This information deals with the productivity of key resources. Economic Value Added Analysis (EVA) is popular because it measures, in effect, the productivity of all factors of production. With benchmarking, comparing one’s performance with the best performance in the industry, EVA provides tools to measure and manage total factor productivity.

3) Competence Information

Companies are developing the methodology to measure and manage core competencies. Every organization needs one core competence: innovation.

4) Resource Allocation Information

[Where are you going to apply your scarce resources? In business, Drucker says these are capital and performing people. For us as individuals, this might reasonably be our individual time. What projects are we going to undertake? This is another way we can measure our strengths and competencies. Which of our projects were successful? What results did they yield?]

“These four kinds of information tell us only about the current business. They inform and direct tactics. For strategy we need organized information about the environment.” [As individuals, this is where our skills and the need for help from people like Redenbaugh and Drucker for Reading The World apply. “In the long run, information about the outside may be the most important information executives need to do their work”.]

Drucker expects technology to lead a revolution in education. A probable consequence will be the shift to “the continuing professional education of adults during their entire working lives.”

Chapter 5 Knowledge Worker Productivity

The most important contribution of management in the 20th century was the fifty-fold increase in the productivity of the manual worker in manufacturing. The most valuable assets of a 20th century company were its production equipment. The most valuable asset of a 21st century institution will be its knowledge workers and their productivity.

After looking at the measures for manual labor productivity, Drucker offers six major factors that determine knowledge worker productivity.

1) What is the task?

Knowledge work unlike manual work does not program the worker. Work on knowledge worker productivity begins with asking the knowledge worker: What should you be expected to contribute? and What hampers you in doing your task and should be eliminated?

2) Knowledge workers have to manage themselves. They have to have autonomy.

This entails responsibility for their own contribution and accountability in terms of quality, quantity, time and cost.

3) Continuing innovation has to be part of the work, the task and the responsibility of the knowledge worker.

4) Knowledge work requires continuous learning and teaching on the part of the knowledge worker.

5) Productivity of the knowledge worker is not primarily a matter of quantity. Quality is at least as important.

Defining quality and productivity is a matter of defining a task, requiring the difficult, risk taking and controversial definition as to what “results” are. To answer it requires controversy, requires dissent.

6) Knowledge worker productivity requires that the knowledge worker is both seen and treated as an “asset” rather than a “cost”. It requires that knowledge workers want to work for the organization in preference to all other opportunities.

Knowledge workers own the means of production. “It may still not be true for all knowledge workers that the organization needs them more than they need the organization. But for most of them it is a symbiotic relationship in which they need each other in equal measure.”

Knowledge worker productivity is the biggest of the 21st century management challenges. As mentioned before, because of the demographic changes in developed countries, knowledge worker productivity is required for survival. Drucker predicts that the questions about knowledge worker productivity will, within a few decades, bring about fundamental changes in the structure of the economic system.

Chapter 6 – Managing Oneself

As the rest of the book deals with changes in society, economy, politics and technology, this chapter deals with the new demands on the individual.

Drucker coined the term “knowledge worker” thirty years ago. In this chapter, he describes a practice of feedback analysis to assess our strengths.

He sums up the drastically new demands the knowledge worker faces:

1) They have to ask: Who am I (What are my values)? What are my strengths? How do I work?

Drucker recommends concentrating on your strength. Place yourself where your strengths can produce performance and results. Secondly, work on improving your strengths. Thirdly, watch for intellectual arrogance, areas that you do not believe you need to have any knowledge or being contemptuous of knowledge outside one’s own specialty. Fourth, eliminate bad habits. Fifth, have good manners. Sixth, identify where you shouldn’t do anything and seventh, waste as little effort as possible on improving areas of low competence.

2) They have to ask: Where do I belong?

After answering the questions above, the knowledge worker can decide where they belong or where they don’t belong. Knowing the answers to the questions enables people to say to an opportunity, an offer, to an assignment: Yes, I’ll do that. But this is the way I should be doing it. This is the way it should be structured. These are the kind of results you should expect from me, and in this time frame, because this is who I am.

3) They have to ask: What is my contribution?

This question is new in human history. Traditionally, the task was given. To ask it means moving from knowledge to action. To know our strengths we can also answer this question by answering, Where and how can I have results that make a difference?

4) They have to take relationship responsibility.

[It is in this small section of the book that Drucker acknowledges “very few people work by themselves and achieve results by themselves”.] To manage oneself requires taking relationship responsibility. First, accept that others are individuals and have their own strengths. Find out how others work and adapt to the way they are effective. The second thing to become effective is to take responsibility for communication. A knowledge worker should request of people with whom they work that they adjust their behavior to the knowledge worker’s strengths and the way he works.

5) They have to plan the second half of their lives.

The knowledge worker, for the first time in history, can be expected to outlive the organization. There is one requirement for managing the second half of one’s life: to begin creating it long before one enters it. There are three answers: 1) start a second and different career 2) develop a parallel career 3) become a social entrepreneur, keep doing what you’ve done all along but starting another, usually a non-profit, activity.

In summary, Drucker confesses that while he has confined this book to management challenges, the changes discussed in this book “go way beyond management. They go way beyond the individual and his or her career. What this book actually dealt with is: THE FUTURE OF SOCIETY.”

One Response to 'Drucker on Management in the 21st Century'

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  1. on August 23rd, 2007 at 5:45 am

    your summary helped me a lot.. tnx!

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