S ix G reatest M anagement T hinkers
Idea 63 Peter Drucker, author of The Practice of Management
‘In most areas of intellectual life nobody can quite agree who is top dog. In man-agement theory, however, there is no dispute. Peter Drucker has produced groundbreaking work in every aspect of the field.’
‘Good guru guide’, Economist, 25 December–7 January 1994.
If the assertion of the Economist is true, then many would say that The Practice of Management is the greatest management book of all time. It is certainly a book of huge range. It is based on much historical research and experience and for the hum-ble management practitioner ‘all human life is there’. Indeed one of the assertions of the book is that management and managers are at the epicentre of economic activ-ity. So the book is important not only for the management process and practices it advocates, but also for the central role management plays in twentieth-century soci-ety.
Written in 1954, many of the theories discussed have survived the passage of time, and some have now been proven very prescient. He is never very far away from the first principles of business as he paints a picture of the nature and require-ments of managers.
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109Starting from the heart of business life he says ‘There is only one valid defini-tion 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.’
Such views are commonplace now, but they were originally propounded and tested by Drucker. This means that the only essential functions are marketing and innova-tion, a truth brought very much home to the people compiling this book of the greatest ideas.
From such philosophical beginnings, Drucker quickly gets to the specific prac-tices required to run a thriving organisation:
‘1 There must be high performance requirements; no condoning of poor or me-diocre 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 always be some way for a manager to appeal to a higher court.
‘5 In its appointments, management must demonstrate that it realises that integ-rity is the one absolute requirement of a manager, the one quality that he has to bring with him and cannot be expected to acquire later on.’
Probably the idea from The Practice of Management that was most seized and acted upon is the idea of management by objectives. It is interesting to note, in Drucker’s description of this, the overlap with McGregor’s The Human Side of Enterprise. Only a theory Y company could live by Drucker’s statement ‘A manager’s job should be
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The 100 Greatest Business Ideas of All Timebased 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.’
While The Practice of Management has had its detractors, including a real trashing by Tom Peters, it speaks practically about, for example, the number of layers of management for any organisation never needing to exceed seven.
Turning to the manager of the future, writing over 40 years ago, we can see the prescience of the ‘seven new tasks’ for tomorrow’s managers. They 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 manag-ing and measurmanag-ing his own performance and results, in relation to the common objectives
‘5 be able to communicate information fast and clearly
‘6 be able to see the business as a whole and to integrate his function with it – traditionally a manager has been expected to know one or more functions but this will no longer be enough
‘7 be knowledgeable – traditionally a manager has been expected to know a few products or one industry – this, too, will no longer be enough.’
Drucker re-evaluated some of his conclusions later, but The Practice of Management was complete enough to act as the foundation for many of the developments in management thinking in subsequent years.
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111Ask yourself
• How much time are you going to spend today on creating a customer?
• How many of the seven new tasks are you confident about?
Idea 64 – Alfred P. Sloan, author of My Years with General Motors
It has always been well known to motorists that much of the financial value of a new car has disappeared as soon as it was driven off the garage forecourt; Sloan’s strat-egy was that motorists should also realise that their brand new car was also out of date.
In the 1920s Ford dominated the emerging car market. Sixty per cent of the cars sold were Model Ts while General Motors could only manage 12. The received wisdom in this situation was that other manufacturers should concentrate on the much smaller luxury car market, with much lower volumes but potentially much higher profit margins. Sloan, on his appointment as chief executive, disagreed and aimed at the middle market with a range of cars that provided the car buying public with choice.
His next problem was how to manage a business of GM’s size and historical organisation. The business had grown through acquisition of smaller businesses and no-one had managed to develop a corporate culture or strategy. Sloan was to build that, while at the same time allowing local managers to manage. More than 50 years ago he invented what have become known as profit centres or business units.
The divisions were made responsible for their market share and profitability, and given all the necessary functions to make them work more or less autonomously.
There were five car manufacturing units and three divisions building components.
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The 100 Greatest Business Ideas of All TimeIn a particularly forward-looking move, the component units were allowed to sell their products and services outside the GM organisation.
This ‘federal decentralisation’ was probably the first implementation in a com-pany the size of GM. It set out to encourage the top executives to concentrate on strategy, leaving the operations side to the people at the front rather than to a re-mote, by style as well as location, head office.
On the other hand
Profit centre management can become counterproductive
A company, because it had got itself into serious financial problems, re-cruited a new managing director whose background was finance.
He rightly diagnosed the root of the problem as being in sales manage-ment. The sales managers were used to working with high gross margins and had developed expensive habits of discounting and providing free support.
They were not ‘spending the company’s money as though it were their own’ and the company had become vulnerable to any slow-down of revenue.
This threatened to cause further cash problems.
By Herculean effort the company’s accountants produced the information and systems to push real profit centre management down to first line sales managers.
This lasted only for one year. The sales managers became totally intro-verted about their P&Ls and balance sheets. If, for example, a salesperson wanted to offer a trade-in of an old product to support a campaign to sell a new one, sales managers would spend a huge effort to unload the second-hand product on someone else’s territory. If they failed to do so, the product was charged to their profit and loss account.
They would disallow sales in favour of making money in some other way.
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113It cannot be said that the year-long experiment did not work. Once the situation was made more standard by lifting the level of profit centres, the first line managers were much more conscious of selling profitably.
As became very obvious during the periods of trouble through which GM has had to go, Sloan worried about the problems associated with the company’s size. ‘In practically all our activities we seem to suffer from the inertia resulting from our great size’ said Sloan in the 1930s. ‘There are so many people involved
and it requires such a tremendous effort to put something new into effect that a new idea is likely to be insignificant in comparison with the effort that it takes to put it across … Sometimes I am almost forced to the con-clusion that General Motors is so large and its inertia so great that it is impossible for us to be leaders.’
But prior to that in 1925 they had overtaken Ford. The new organi-sation and commitment to annual changes to its models had successfully put the good old Model T into second place. Sloan’s segmentation of the market changed the structure of the car industry and provided a model for how firms could do the same in other industries.
While remembered mainly for the product and organisational strat-egy, Sloan, it is interesting to note, again took a very lively interest in what
we would now regard as progressive human resource management. Whilst he might from time to time miss out on policy meetings, he always attended personnel meet-ings and invested a lot of time in selecting the right people for the job.
Sloan’s
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