Management Challenges for the 21st Century

Peter Drucker

• Publisher: Routledge
• Year: 2012
• eBook ISBN: 9781136386312
• Topic: Business
• Subtopic: Management
• Index: Business

Management Challenges in the 21st Century looks afresh at the future of management thinking and practice. The content revolves around two fundamental issues that are occuring simultaneously: changes in the world economy, and shifts in the practice of management. These developments, especially in developed countries are crucial in exploring and understanding the challenges of the future. This volume focuses on the key questions for all business: What are the new realities? What new policies are required of companies and executives in order to deal with these changes. Facing a whole swathe of issues head-on in his usual clear-sighted style, Drucker offers up a prescient and informed analysis that will help every executive to build a proactive strategy for the future.

CHAPTER 1

Management’s New Paradigms

Why Assumptions Matter •Management Is Business Management •The One Right Organization •The One Right Way to Manage People •Technologies and End-Users Are Fixed and Given •Management’s Scope Is Legally Defined •Management’s Scope Is Politically Defined •The Inside Is Management’s Domain

INTRODUCTION

Why Assumptions Matter

BASIC ASSUMPTIONS ABOUT REALITY are the PARADIGMS of a social science, such as management. They are usually held subconsciously by the scholars, the writers, the teachers, the practitioners in the field. Yet those assumptions largely determine what the discipline—scholars, writers, teachers, practitioners—assumes to be REALITY.

The discipline’s basic assumptions about reality determine what it focuses on. They determine what a discipline considers “facts,” and indeed what it considers the discipline itself to be all about. The assumptions also largely determine what is being disregarded in a discipline or is being pushed aside as an “annoying exception.” They decide both what in a given discipline is being paid attention to and what is neglected or ignored.

A good example is what happened to the most insightful of the earlier management scholars: Mary Parker Follett (1868–1933).^* Because her assumptions did not fit the realities which the budding discipline of management assumed in the 1930s and 1940s, she became a “nonperson” even before her death in 1932, with her work practically forgotten for twenty-five years or more. And yet we now know that her basic assumptions regarding society, people and management were far closer to reality than those on which the management people then based themselves—and still largely base themselves today.

Yet, despite their importance, the assumptions are rarely analyzed, rarely studied, rarely challenged—indeed rarely even made explicit.

For a social discipline such as management the assumptions are actually a good deal more important than are the paradigms for a natural science. The paradigm—that is, the prevailing general theory—has no impact on the natural universe. Whether the paradigm states that the sun rotates around the earth or that, on the contrary, the earth rotates around the sun has no effect on sun and earth. A natural science deals with the behavior of OBJECTS. But a social discipline such as management deals with the behavior of PEOPLE and HUMAN INSTITUTIONS. Practitioners will therefore tend to act and to behave as the discipline’s assumptions tell them to. Even more important, the reality of a natural science, the physical universe and its laws, do not change (or if they do only over eons rather than over centuries, let alone over decades). The social universe has no “natural laws” of this kind. It is thus subject to continuous change. And this means that assumptions that were valid yesterday can become invalid and, indeed, totally misleading in no time at all.

Everyone these days preaches the team as the “right” organization for every task. (I myself began to preach teams as early as 1954 and especially in my 1973 book Management: Tasks, Responsibilities, Practices.) Underlying the present orthodoxy regarding teams is a basic assumption held practically by all management theorists and by most practitioners since the earliest days of thinking about organization, that is, since Henri Fayol in France and Walter Rathenau in Germany around 1900: There is—or, at least, there MUST be—ONE right organization. And what matters most is not whether the team is indeed “the answer” (so far there is not too much evidence for it), but, as will be discussed a little later, that the basic assumption of the one right organization is no longer tenable.

What matters most in a social discipline such as management are therefore the basic assumptions. And a CHANGE in the basic assumptions matters even more.

Since the study of management first began—and it truly did not emerge until the 1930s—TWO SETS of assumptions regarding the REALITIES of management have been held by most scholars, most writers and most practitioners:

One set of assumptions underlies the DISCIPLINE of management:

1 Management is Business Management.

2 There is—or there must be—ONE right organization structure.

3 There is—or there must be—ONE right way to manage people.

Another set of assumptions underlies the PRACTICE of Management:

1 Technologies, markets and end-uses are given.

2 Management’s scope is legally defined.

3 Management is internally focused.

4 The economy as defined by national boundaries is the “ecology” of enterprise and management.

For most of this period—at least until the early 1980s—all but the first of these assumptions were close enough to reality to be operational, whether for research, for writing, for teaching or for practicing management. By now all of them have out-lived their usefulness. They are close to being caricatures. They are now so far removed from actual reality that they are becoming obstacles to the Theory and even more serious obstacles to the Practice of management. Indeed, reality is fast becoming the very opposite of what these assumptions claim it to be. It is high time therefore to think through these assumptions and to try to formulate the NEW ASSUMPTIONS that now have to inform both the study and the practice of management.

I Management Is Business Management

For most people, inside and outside management, this assumption is taken as self-evident. Indeed management writers, management practitioners and the laity do not even hear the word “management”; they automatically hear BUSINESS MANAGEMENT.

This assumption regarding the universe of management is of fairly recent origin. Before the 1930s the few writers and thinkers, who concerned themselves with management—beginning with Frederick Winslow Taylor around the turn of the century and ending with Chester Barnard just before World War II—all assumed that business management is just a subspecies of general management and basically no more different from the management of any other organization than one breed of dogs is from another breed of dogs.

The first practical application of management theory did not take place in a business but in nonprofits and government agencies. Frederick Winslow Taylor (1856–1915), the inventor of “Scientific Management,” in all probability also coined the terms “Management” and “Consultant” in their present meaning. On his calling card he identified himself as “Consultant to Management”—and he explained that he had intentionally chosen these new and strange terms to shock potential clients into awareness of his offering something totally new. But Taylor did not cite a business but the nonprofit Mayo Clinic as the “perfect example” of “Scientific Management” in his 1912 testimony before the Congress which first made the United States management-conscious. And the most publicized application of Taylor’s “Scientific Management” (though aborted by union pressure) was not in a business but in the government-owned and government-run Watertown Arsenal of the U.S. Army.

The first job to which the term “Manager” in its present meaning was applied was not in business. It was the City Manager—an American invention of the early years of the century. The first conscious and systematic application of “management principles” similarly was not in a business. It was the reorganization of the U.S. Army in 1901 by Elihu Root (1845–1937), Theodore Roosevelt’s Secretary of War.

The first Management Congress—Prague in 1922—was not organized by business people but by Herbert Hoover, then U.S. Secretary of Commerce, and Thomas Masaryk, a world-famous historian and the founding President of the new Czechoslovak Republic. And Mary Parker Follett, whose work on Management began at roughly the same time, never differentiated between business management and nonbusiness management. She talked of the management of organizations, to all of which the same principles applied.

What led to the identification of Management with Business Management was the Great Depression with its hostility to business and its contempt for business executives. In order not to be tarred with the business brush, management in the public sector was rechristened “Public Administration” and proclaimed a separate discipline—with its own university departments, its own terminology, its own career ladder. At the same time—and for the same reason—what had begun as a study of management in the rapidly growing hospital (e.g., by Raymond Sloan, the younger brother of GM’s Alfred Sloan) was split off as a separate discipline and christened “Hospital Administration.”

Not to be called “management” was, in other words, “political correctness” in the Depression years.

In the postwar period, however, the fashion turned. By 1950 BUSINESS had become a “good word”—largely the result of the performance during World War II of American business management. And then very soon “business management” became “politically correct” as a field of study, above all. And ever since, management has remained identified in the public mind as well as in academia with “business management.”

Now, however, we are beginning to unmake this sixty-year-old mistake—as witness the renaming of so many “business schools” into “schools of management,” the rapidly growing offerings in “nonprofit management” by these schools, the emergence of “executive management programs” recruiting both business and nonbusiness executives or the emergence of Departments of “Pastoral Management” in divinity schools.

But the assumption that Management is Business Management still persists. It is therefore important to assert—and to do so loudly—that Management is NOT Business Management—any more than, say, Medicine is Obstetrics.

There are, of course, differences in management between different organizations—Mission defines Strategy, after all, and Strategy defines Structure. There surely are differences between managing a chain of retail stores and managing a Catholic diocese (though amazingly fewer than either chain stores or bishops believe); between managing an air base, a hospital and a software company. But the greatest differences are in the terms individual organizations use. Otherwise the differences are mainly in application rather than in principles. There are not even tremendous differences in tasks and challenges. The executives of all these organizations spend, for instance, about the same amount of their time on people problems—and the people problems are almost always the same. Ninety percent or so of what each of these organizations is concerned with is generic. And the differences in respect to the last 10 percent are no greater between businesses and nonbusinesses than they are between businesses in different industries, for example, between a multinational bank and a toy manufacturer. In every organization—business or nonbusiness alike—only the last 10 percent of management has to be fitted to the organization’s specific mission, its specific culture, its specific history and its specific vocabulary.

That Management is not Business Management is particularly important as the growth sector of a developed society in the 21st century is most unlikely to be business—in fact, business has not even been the growth sector of the 20th century in developed societies. A far smaller proportion of the working population in every developed country is now engaged in economic activity, that is, in “business,” than it was a hundred years ago. Then virtually everybody in the working population made his or her living in economic activities (e.g., farming). The growth sectors in the 20th century in developed countries have been in “nonbusiness”—in government, in the professions, in health care, in education. As an employer and a source of livelihood business has been shrinking steadily for a hundred years (or at least since World War I). And insofar as we can predict, the growth sector in the 21st century in developed countries will not be “business,” that is, organized economic activity. It is likely to be the nonprofit social sector. And that is also the sector where management is today most needed and where systematic, principled, theory-based management can yield the greatest results the fastest.

The first Conclusion of this analysis of the ASSUMPTIONS that must underlie Management to make productive both its study and its practice is therefore:

Management is the specific and distinguishing organ of any and all organizations.

II The One Right Organization

Concern with management and its study began with the sudden emergence of large organizations—business, governmental civil service, the large standing army—which was the novelty of late-19th-century society.

And from the very beginning more than a century ago, the study of organization has rested on one assumption:

There is—or there must be—one right organization.

What is presented as the “one right organization” has changed more than once. But the search for the one right organization has continued and continues today.

Organization structure in business was first tackled in France around the turn of the century, by Henri Fayol (1841– 1925), the head of one of Europe’s largest but also totally disorganized enterprises, a coal-mining company. (He did not, however, publish his book until 1916.) Practitioners were also the first ones concerned with organization in the United States and at about the same time: John J. Rockefeller, Sr.; J. P. Morgan, and especially Andrew Carnegie (who still deserves to be studied and who had the most lasting impact). A little later Elihu Root applied organization theory to the U.S. Army, as already mentioned—and it is hardly coincidence that Root had been Carnegie’s legal adviser. At the same time, Georg Siemens (1839–1901), the founder in 1870 of the Deutsche Bank, used (around 1895) the organization concepts of his friend Fayol to save the rapidly floundering Siemens Electric Company that his cousin Werner Siemens (1816–1892) had founded but had left leaderless at his death.

Yet the need for organization structure was by no means obvious to everybody in these early years.

Frederick Winslow Taylor did not see it at all. Until his death he wrote and talked of “the owners and their helpers.” And it was on this concept, that is, on a non-structure, that Henry Ford (1863–1947), up to the time of his death, tried to run what for many years (until the late 1920s) was the world’s largest manufacturing company.

It was World War I that made clear the need for a formal organization structure. But it was also World War I that showed that Fayol’s (and Carnegie’s) functional structure was not the one right organization. Immediately after World War I first Pierre S. Du Pont (1870–1954) and then Alfred Sloan (1875–1966) developed Decentralization. And now, in the last few years, we have come to tout the “Team” as the one right organization for pretty much everything.

By now, however, it should have become clear that there is no such thing as the one right organization. There are only organizations, each of which has distinct strengths, distinct limitations and specific applications. It has become clear that organization is not an absolute. It is a tool for making people productive in working together. As such, a given organization structure fits certain tasks in certain conditions and at certain times.

One hears a great deal today about “the end of hierarchy.” This is blatant nonsense. In any institution there has to be a final authority, that is, a “boss”—someone who can make the final decisions and who can expect them to be obeyed. In a situation of common peril—and every institution is likely to encounter it sooner or later—survival of all depends on clear command. If the ship goes down, the captain does not call a meetin...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• Foreword
• Acknowledgments
• Introduction: Tomorrow’s “Hot” Issues
• 1. Management’s New Paradigms
• 2. Strategy—The New Certainties
• 3. The Change Leader
• 4. Information Challenges
• 5. Knowledge-Worker Productivity
• 6. Managing Oneself
• Index