Peter Drucker is the finest modern management thinker in terms of his groundbreaking ideas on management and business disciplines. This paper will discuss his major contributions to management theory and practice and critically appraise his ideas about marketing, performance management, knowledge economy, managing change and post industrialisation.
One of the contributions of Peter Drucker is the theory called “Management by Objectives.”MBO or Management by Objective emphasize the importance of identifying specific goals for each employee. Afterwards, the organization will then compare and direct their performance against established goals. MBO’s main intention is to improve organizational performance through aligning goals and subordinate objective across the organization. Employee often improves their input through identification of goals and setting reasonable time lines. Management by Objectives includes continuous monitoring and feedbacks during the process of reaching goals (Value Based Management 2010).
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Peter Drucker first created the concept of MBO in 1954 in his book “The Practice of Management.” As suggested by Drucker, managers must prevent activity trap or being engaged in their daily activities that they often ignore their primary purpose. To improve the effectiveness of a business strategic plan, MBO theories suggested that all managers (not some or few) must engage in the strategic planning process. Another aspect of MBO states that managers must establish various performance systems created to support the firm to remain on the right track. MBO Principles includes cascading objectives and goals of the organization, providing specific goals for every member, encourage participative decision making, established reasonable time line and evaluate performance and give feedbacks (Value Based Management 2010).
MBO also introduced the SMART approach for assessing the validity of Objectives that must be SMART: Specific, Measurable, Achievable, Realistic and Time Related (Value Based Management 2010). Specific means setting expected results that are more specific; for instance, rather than stating better customer satisfaction, the goal should increase customer satisfaction score by 12 points employing the customer service survey. Objectives should also be measurable. This may mean that the organization should include their objectives in the review process. They should create measure to determine clearly whether a member has satisfied its objectives or not; for example, please rate the cleanliness of the store ranging from excellent, good, fair and poor (Bogue 2005).
Achievable is the next crucial factor in establishing goals. For example, achieving 10 to 20 percent improve customer service is considered achievable while the goals of improving customer service by around 100 to 200 percent is considered unachievable. Being realistic signifies considering uncontrollable circumstances. Realistic objectives should be challenging but not too challenging that the chances of achieving such goal is minimal. Time-based signifies that the organization should set specific time period when the objective should be reached. In other words, objectives should not involve, “should increase customer satisfaction by 20 percents” but rather it must be “should increase customer satisfaction by 20 percent within the next 14 months” (Bogue 2005).
Peter Drucker also served as the leading authority of entrepreneurship and innovation. According to Drucker (cited in Iowa State University 2010), Innovation consists of finding a new and more effective way of performing tasks. He believes that the organization has seven sources or places to search for innovative opportunities that must be recognized by those people who are interested in venturing entrepreneurship. The first one is the unexpected. Signs of unique opportunity could be unexpected incident, unexpected failure or unexpected success. Any discrepancy regarding reality and what reality should be can also serve as an opportunity to innovate. Innovation can also arise from the process need. If a specific process has a weak link, but individuals involved are used to it rather than solving the issue, this presents an opportunity (Iowa State University 2010).
Opportunity for innovation might also emerge in changes in market structure and the industry as well as in the changes in population size, age structure, and employment, level of education and income of a society. Improvements in both scientific and non-scientific information can generate new products and new markets. Furthermore, apart from opportunities, Drucker also presented five principles of innovation so that interested people would be able to exploit what they have realized. The first one is they should start evaluation of the existing opportunity (Iowa State University 2010).
Next, they should assess if the target market would be interested with the said innovation. An innovation will also become more effective if it is simple and clearly emphasizes a specific need. Successful innovation often starts small. Entrepreneurs could target a small market niche and as the market grows, the organization would have the time to improve its processes to accommodate the demands of the expanding market. They should also focus on market leadership. Otherwise, the idea would not be innovative enough to become successful (Iowa State University 2010).
Drucker also stated that marketing and innovation serve as the two basic functions since the main purpose of entrepreneurship is to create a customer. The remaining functions are considered as costs. If marketers perform their job correctly, which signifies effectively focusing on customer and innovate, and then other business elements will fall into place. He also argued that the main focus of marketing should be ways to sell superfluously-meaning understand the customers that the service and product will become appealing. Therefore, marketing should make customers ready to purchase a specific service or product (Gonzalez n.d.).
Subject matters related to management and leadership also serves as another important contribution from Peter Drucker. In fact, he created his own definition of leadership. For Drucker, leadership and management only have few differences in terms of definition. He believes that leadership is not purely about specific characteristics since no leaders will show exactly similar characteristics. Leadership is not also about having a charisma and king-like features (will be discussed later). Leadership is about how people perform their responsibility being a leader-similar to management (Business Listening 2005).
One of the foundations of effective leadership is considering the organization’s mission and identifying it. Organization should clearly establish that mission. It would be the responsibility of the leaders to establish those goals and priorities with clarity. Similarly, it would be up to the leader to describe and sustain those standards. Another foundation for effective leadership is the leadership responsibility. Successful leaders do not blame others since they are aware that they will take responsibility of any actions made by his/her subordinate. Effective leaders are also not anxious of independent thinking subordinates and they often persuade their team to become more effective members. The leaders’ responsibility is to share their visions among the group and create a working atmosphere where team members may flourish (Winston-Churchill Leadership 2007).
Effective leadership also requires trust; otherwise, leaders will not gain effective followers. Trust can be earned but not through being loved. It does not also signify that subordinates and leaders should have the same opinion. Rather, anything what the leaders say should also reflect on their actions-integrity. If leaders have integrity, then they can be trusted (Winston-Churchill Leadership 2007).
Drucker also discussed the dangers of charisma. Examples of those charismatic leaders who are not effective leaders include Mao, Stalin, Mussolini and Hitler. In other words, people should not choose leaders on the basis of charisma. Harry Truman does not have any charisma but everyone became loyal to him since he is an effective and trusted leader. If Truman said yes, he truly means yes. He does not say no to other one, and then yes to the other person concerning the same issue. Another effective leadership without an ounce of charisma is Ronald Reagan since he is very aware what he is capable of and not capable of (Karlgaard 2004).
Furthermore, he created a five-part effectiveness model regarding management based on listening skills specifically steps one, two and five. The first step suggests that selecting ways to spend and not to spend time necessitates insistent delegation to avoid spending time on nonessential matters. Even though Drucker did not state it directly, it is clearly the Drucker’s concept of delegation is about coaching management style, wherein it involves timely listening with their subordinate regarding planning and progress. Direct control management style would discourage effective delegation of duties (Business Listening 2005).
The next step is the executive should ask their subordinates what they contribute for the company today and for the future. As Drucker suggested, regardless whether subordinates’ view is similar is similar to the manager’s perspectives or not, emphasizing and realizing the value of everybody’s roles being a contributor is necessary to the company’s overall effectiveness. This is similar to the principles covered by Covey and Goleman regarding self-awareness, listening to one-self and having awareness towards others (e.g. listening to subordinates) (Business Listening 2005).
In the fifth step, Drucker focused on the significance of actively searching for competing opinions and requesting regarding the basis for those opinions before selecting courses of action instead of acting based on pre-arranged or implicit consensus. This will need persistent listening with real curiosity to promote development of various opinions and assisting rationales, instead of simply establishing proposal and building consensus around them (Business Listening 2005).
Drucker encourages coaching management style since he believes that the next society will become a knowledge economy. Knowledge will serve as an important resource and knowledge workers will become dominant workforce. The three characteristics of knowledge includes borderlessness, upwards mobility and its potential for success and failure. Knowledge is borderless since it can be transferred to another effortlessly. Upward mobility signifies knowledge is readily available through formal education. However, having that knowledge does not signify success since it can also become a failure depending on how people execute that knowledge. Drucker also noted that knowledge economy will heavily rely on knowledge workers (Drucker 2001). Therefore, it would be prudent for leaders to create an atmosphere would help reached knowledge workers to reach their own potential (Business Listening 2005).
Critical Appraisal Drucker’s Ideas
However, the question remains whether the principles presented by Drucker are still applicable to the modern management. The most plausible answer is that in general they are still applicable to the modern management. However, all principles whether they are created by Drucker or by other scholars have their own limitations and strengths as well as. One good example is the Management by Objectives.
While Management by Objectives presented a foundation for organizations how to achieve goals, it might not be always applicable to all organizations. For instance, MBO is appropriate for knowledge-based enterprises that consist of competent staff. This is also suitable in situations that require tapping the creativity of their employees as well as their self-leadership skills. Management by Objectives is often used by CEOs in multinational corporations for their general managers overseas (Kotelnikov 2001).
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Another limitation of MBO is that it did not emphasize the significance of the environment as well as other aspects that would affect that satisfaction of goals. These aspects include quality and availability of resources and the influence of stakeholders over the objective (e.g. investors’ decisions). It did not also emphasize the importance of effectively responding to barriers and issues that are necessary to reach the objective. MBO did not emphasize the effect of the following concepts: limitations of planning, methodology and resources, expanding barriers related managing the information organization as well as the influence of changing environment which could change the business atmosphere and make planned actions inappropriate for the present situation (A Management by Objectives, History and Evolution n.d.).
MBO did not emphasize the human nature concern. People across the world establish goals each year but do not follow them until they reach that goals. Objectives should also reflect on behaviour. On the other hand, goal setting often represents best intentions on that moment, aspirations or good ideas. Objectives does not always associate to the degree of execution that is necessary for achieving objectives (A Management by Objectives, History and Evolution n.d.).
Another concept that will be assessed is Drucker’s perception of Effective Leadership. Drucker often emphasize either coaching management style or the delegating leader. However, he may have overlooked that effective leaders does not only delegate tasks or coach their teams. Leaders often made actions based on the situation, also known as situational leadership. The Situational Leadership Theory is not created by Peter Drucker but by Hersey and Blanchard. However, Hersey and Blanchard included delegating style as a part of Situational Leadership. Therefore, it does not necessarily signify that Drucker’s notions about leadership are wrong, but he only perceive an effective leadership in a limited scope-that is, his principles are only applicable in multinational corporations and other large scale businesses, not for small business management (Innovation and Entrepreneurship n.d.).
Unlike the leadership principles presented by Drucker, Hersey and Blanchard believe that an effective leader adjusts their leadership styles. Leaders that employ situational leadership structure change their focus on task and interaction behaviour in order to deal with various levels of follower maturity. Based on the aforementioned information, it seems Drucker did not emphasize the fact that followers have different levels of maturity and some of them are not creative as leaders might expect to their subordinates. Furthermore, Hersey and Blanchard enumerated four possible leadership styles that a leader should employ: delegating, participating, selling and telling styles (Wiley 2006).
Managers who employ situational leadership should be able to establish an alternative leadership styles as necessary. In order to do so, leaders should need to understand the maturity of follower in terms of readiness of tasks and employ the best leadership style that would be suitable to the working environment. If the follower maturity is high, then leaders should implement delegating style since this offer limited leadership intervention. If the situation is otherwise, then leaders should employ telling styles that focuses on task directed behaviours (Wiley 2006).
Delegating style is not effective for those staff that has low readiness and has insufficient capability to perform tasks. Instead, the coaching management style might suffice in this situation. Other leadership styles that do not fall on the aforementioned categories include participating style and selling style. Therefore, Drucker should have explained when to use and when not to use coach management style and delegating style. Drucker also failed to recognize that an effective leader should be flexible enough to change his leadership style since followers, situations and environmental factors changed over time (Wiley 2006).
Drucker believes that leadership is not purely about specific characteristics since no leaders will show exactly similar behaviours (Business Listening 2005). However, he did not consider that effective leaders have common qualities. One of these is the capability of listening, which is ironically speaking, this was acknowledged by Drucker but he did not consider as common features of effective leader. Effective leaders often accept and provide constructive suggestions, provide clear directions, establish and satisfy deadlines and capable of providing formal and informal presentation. Effective leaders often sets as a good role model, assist members in identifying and solving problems, elicits appreciations of members’ contributions and effectively handle dispute resolution. Other behaviours of an effective leader that was acknowledged by Drucker include delegation of responsibility, capable of developing productive atmosphere and asking questions to team members (The Government of Alberta 2001).
While Drucker’s notion about the importance of innovation holds true in general, innovation itself has own risks and challenges. Because Drucker only provided limited information about taking advantage of innovation opportunities successfully, people often fall on innovation traps. For instance, leaders might always think that they are always ready to consider innovation. While thinking helps entrepreneurs to understand the tools and techniques that they should use to implement innovation, fallacies can disrupt reaching such objectives (Glor n.d).
Innovators should have a clear thinking and not a wishful thinking. Another innovation trap is “there is only one effective approach to examine innovation,” which can be contrary to Drucker’s five principles of innovation. In other words, Drucker did not focus on the possible barriers that innovators might encounter during planning and implementation process. Successful innovators effectively ignore such barriers. Nevertheless, innovators should also anticipate specific threats and develop actions in order to overcome such problems (Glor n.d).
Conclusion
Peter Drucker is the finest modern management thinker in terms of his groundbreaking ideas on management and business disciplines. One of the contributions of Peter Drucker is the theory called “Management by Objectives.”MBO or Management by Objective emphasize the importance of identifying specific goals for each employee. Afterwards, the organization will then compare and direct their performance against established goals. MBO’s main intention is to improve organizational performance through aligning goals and subordinate objective across the organization.
While Management by Objectives presented a foundation for organizations how to achieve goals, it might not be always applicable to all organizations. For instance, MBO is appropriate for knowledge-based enterprises that consist of competent staff. This is also suitable in situations that require tapping the creativity of their employees as well as their self-leadership skills. Another limitation of MBO is that it did not emphasize the significance of the environment as well as other aspects that would affect that satisfaction of goals.
These aspects include quality and availability of resources and the influence of stakeholders over the objective. It did not also emphasize the importance of effectively responding to barriers and issues that are necessary to reach the objective. MBO did not focused on the effect of the following concepts: limitations of planning, methodology and resources, expanding barriers related managing the information organization as well as the influence of changing environment which could change the business atmosphere and make planned actions inappropriate for the present situation.
Drucker also stated that marketing and innovation serve as the two basic functions since the main purpose of entrepreneurship is to create a customer. If marketers perform their job correctly, which signifies effectively focusing on customer and innovate, and then other business elements will fall into place. He also argued that the main focus of marketing should be ways to sell superfluously-meaning understand the customers that the service and product will become appealing. Therefore, marketing should make customer ready to purchase a specific service or product.
While Drucker’s notion about the importance of innovation holds true in general, innovation itself has own risks and challenges. Because Drucker only provided limited information about taking advantage of innovation opportunities successfully, people often fall on innovation traps. In other words, Drucker did not focus on the possible barriers that innovators might encounter during planning implementation process. Successful innovators effectively ignore such barriers but innovators should also anticipate specific threats and develop actions in order to overcome such problems.
There are no questions regarding Drucker’s capability, wisdom and intelligence about the management, leadership and entrepreneurship. However, similar to other principles created by scholars, they have their own advantages and disadvantages. In the case of Druckers, it seems that he overlooked stakeholders and environmental factors that influence the success of achieving objectives as well as other barriers that entrepreneurs and innovators might ignore.
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