Peter Drucker

Like every professional manager and teacher in India, I was deeply influenced by Peter Drucker, who was born 100 years back. I became a manager after studying commerce and economics. I tried to determine his relevance for us in India.

Drucker gave me an academic frame that built on my education and a conceptual understanding of management. As a student, I had been attracted by the ideas of Joseph Schumpeter on capitalism and the role of innovation as creative destruction, by those of Frederick Taylor and Frank Gilbreth on ways in which efficiencies could be improved, and of John Maynard Keynes about how economies could be well managed. Drucker wrote about the centrality of the consumer. Theodore Levitt expanded on Drucker in “Marketing myopia” and other writings. Their ideas taught people how to create and stimulate demand.

The first book on management that I had read was Drucker’s The Practice of Management, which showed how management could make things happen. It bridged the gap between the theories and concepts I had studied and ways to actually make things happen.

In 1955, he wrote: “There is only one valid definition of business purpose: to create a customer.… It is the customer who determines what a business is. Because it is its purpose to create a customer, any business enterprise has two — and only these two — basic functions: marketing and innovation. They are the entrepreneurial functions.”

Alfred Sloan as the chief of General Motors showed how large organizations could be managed to achieve complex and ambitious objectives through management, how to segment markets and design products that appealed to different consumer segments, thus maximizing market share and profits. Years later he wrote My Years with General Motors, that described what he had learnt. The lessons that Sloan taught by his work in General Motors were applied in the development of the most complicated Polaris submarine. They have since become part of the training for managing large organizations. Sloan gave Drucker the opportunity to study General Motors closely at the time when Sloan was applying the ideas that made General Motors the largest company in the world and the driver of the American economy. Drucker wrote: “Management converts a mob into an organization, and human efforts into performance.” But there is a limit to size in organizations, particularly to those selling services. We learnt this at great cost to the world economy in the recent financial crisis when banks, brokerages, hedge funds, and so on, reached such large sizes that planning, coordination and control became problematic.

Even in the command and control economy during the Nehru and Indira Gandhi years, Drucker was relevant to India in the growing and running of large organizations, and in the improving of their efficiencies. Indian companies had their own management ideas. They employed professionals and developed large organizations, distributed manufacturing, managed quality standards, distribution over vast distances, and so on. Professional management enabled the organizing of people to achieve agreed goals in changing situations in a variety of businesses and other occupations in non-profit organizations, government-owned enterprises, health, education, and so on.

Jack Welch implemented the Drucker idea that a large organization should aim to be number one or two in its line of business or get out. By a clear focus on objectives, Welch made General Electric the most successful organization for many years. Recently, Indian managers have begun to follow this idea. Similarly, Drucker said that many have benefited from following the idea of empowering workers, treating them as resources and not just as costs. The best examples of this are the highly successful information companies.

Long before many began to criticize the declaration of corporate results every quarter, saying that it puts excessive pressure on organizations to deliver short-term results while paying less attention to long-term development, Drucker criticized short-term profit as the principal goal of business. (Unfortunately, India, under Clause 49 of the Securities and Exchange Board of India’s listing agreements, has introduced this practice.)

He was critical of soaring executive pay. His prescience, if heeded, might have prevented the collapse of financial institutions, especially in the United States of America. Incentives related only to immediate profit performance neglect the long-term consequences of the decisions for which incentives were paid. Fortunately, India with its past history of government regulation to bring about equality of incomes, avoided American excesses. However, Indian salaries soared after 1991, widening inequalities, but not to the extent that they did in the US.

Drucker predicted the rise of a knowledge economy and that brains in a workforce would increasingly replace brawn. We have seen this happen in India in our time and Indian companies have developed ways to manage large workforces of skilled people over many different areas, to deliver high quality services at profit.

He championed privatization and argued that private ownership gave more incentive for an enterprise to perform well. We have examples of companies that have performed very well after privatization like the Bharat Aluminium Company Limited, CMC Limited, some of the privatized Indian Tourism Development Corporation hotels, and many other State-owned enterprises, including the Delhi Electricity Board. We are also learning that moving the dead hand of the government from enterprises, even by introducing some private shareholding, can improve an enterprise’s performance.

In the early Clinton years, Al Gore pushed for “reinventing government”. This was another Drucker idea. In India, we are seeing the beginnings of this with independent regulatory commissions replacing opaque government decision- making, the Right to Information Act and other legislations that have made the government more transparent and closer to the governed, and the growing emphasis on decentralization. Similarly, India has benefited by lower taxation and the abolition of the licence permit raj since 1991, further examples of reinventing government.

Drucker moved innovation from mere technology to management. He wrote: “The second function of a business is innovation, that is, the provision of better and more economic goods and services.... Innovation may take the form of a lower price... be a new and better product... a new convenience or the creation of a new want... finding new uses for old products.... Inovation must be in design, in product, in marketing techniques, in price or in service to the customer, in management organization or in management methods, in materials handling, in manager development.” However we still have companies that do not see that the customer (or citizen in the case of the government) has to be at the core of the business.

Drucker was convinced that the best hope for saving civilization from barbarism was in the humdrum science of management. He was not willing to leave everything to market forces. There would always be some to exploit others. In India, institutions like regulatory commissions and the competition commission show that we have recognized that markets need regulation. He did not, unlike many others of his generation, admire the command and control model of the Soviet Union. Big government was not the answer. For him, the “man in the grey flannel suit” (adapting the phrase from Sloan Wilson) held more hope for mankind than the hidden hand of Adam Smith or the command and control model.

Drucker is criticized because he did not build rigorous systems with complex mathematical logic, as do many management writers today. He is not identified with a great idea as, for example, Michael Porter is with competitive strategy, Levitt with market segmentation, or C.K. Prahlad with core competence, to name just three. Instead, the fact that Drucker’s ideas are clichés today is his major contribution. Drucker stands for all professional management. That is his contribution to India and the world.