This series of articles on the work of Peter F

By STEVE FORBES
November 15, 2005; Page A22

What made Peter Drucker, who died last Friday just shy of his 96th birthday, the most influential management guru of the modern era?

Mr. Drucker's genius for extraordinarily farsighted insights came from a combination of intense curiosity, right principles and deep understanding of the perfections and imperfections of human nature. He never went stale intellectually, which is why business journalists, executives, entrepreneurs, leaders of nonprofit institutions, students and the occasionally wise politician eagerly sought to pick his brains right up to the time he died.

* * *

What helped make Mr. Drucker so insightful was a profound understanding of economics, an understanding that still eludes most economists today. Not for him was the notion of "macroeconomics," of seeing the economy as something of a machine that can achieve steady, stable growth. To him, traditional economic notions of "equilibrium" or Keynesian ideas of "aggregate demand" were nonsense. Innovation, constant change, and turmoil were the true constants of a progressing economy.

No surprise that the economist fellow-Austrian (at least by birth) Joseph Schumpeter was Mr. Drucker's hero. In 1983, at the centennial of both Schumpeter and the then-legendary John Maynard Keynes, Mr. Drucker wrote in Forbes that Schumpeter's centenary birthday would hardly be noticed. Yet "Schumpeter it is who will shape the thinking and inform the questions on economic theory and economy policy for the rest of this century, if not for the next 30 or 50 years." Today Schumpeter's emphasis on the crucial importance of entrepreneurship and "creative destruction" are now commonplaces.

As Mr. Drucker wrote over two decades ago, "The economy is forever going to change and is biological rather than mechanistic in nature. The innovator is the true subject of economics. Entrepreneurs that move resources from old and obsolescent to new and more productive employments are the very essence of economics and certainly of a modern economy. Innovation makes obsolete yesterday's capital earnings and capital investment. The more an economy progresses the more capital formation -- profits -- will it therefore need." These two men saw profits as a moral imperative, a genuine "cost" in the cost of staying in business because "Nothing is predictable except that today's profitable business will become tomorrow's white elephant."

B.C. Forbes, our company's founder, who came to this country 100 years ago with little education and even less money, liked to say that you learn more about a company's prospects from observing its "head knocker" (what he called CEOs) than you will from its balance sheet. Mr. Drucker spent a lifetime hammering home the point that people are key. For instance, a leader who looks at workers as a cost instead of a resource is fatally flawed.

No surprise he long recognized the importance of entrepreneurs: "All great change in business has come from outside the firm, not from inside."

Mr. Drucker's ability to prophesy -- almost always correctly -- was uncanny. All of this is why he could come up with innovations that now seem commonplace, such as management by objective. He continued to admonish executives to carve out time to think and make careful decisions, to focus on one or two tasks, to delegate to others what you can't do well yourself. That's why, for example, Mr. Drucker remained a one-man shop, a soloist; he could easily have founded a large consulting firm and gotten immensely rich. But that would have gone against his profoundest instincts. He was at his best as a teacher -- gathering information, gaining insights and then getting others to gain understanding. Schumpeter believed asking the right questions was more important than the answers. Mr. Drucker agreed -- to a point, anyway.

Decades ago, Mr. Drucker foresaw the rise of "knowledge workers." After World War II, he realized the far-reaching consequences of the GI Bill of Rights, which enabled millions of veterans to go to college, thus leading him to predict long before computer chips and the Internet that "knowledge workers" would replace manual workers. Mr. Drucker also prophesied the breakdown of the traditional, thoroughly integrated, hierarchal industrial corporation. In the 1950s, he predicted the rise of Japan as a major economy, an astonishing insight when many experts thought the country would forever be a nation of small farmers and manufacturers of cheap, shoddy goods. He also saw Japan's subsequent troubles -- an aging population and lack of vigorous entrepreneurship and worker flexibility.

Mr. Drucker long ago warned of the consequences of the rise of corporate and government pension funds, and the impact these vast accumulations of money -- and thus power -- would have on corporate governance, years before anyone had heard of Calpers. He also warned of a backlash from the extraordinary rise in CEO pay. "In the next economic downturn," he told Forbes readers nearly a decade ago, "there will be an outbreak of bitterness and contempt for these super corporate chieftains who pay themselves millions. In every major economic downturn in U.S. history, the villains have been the heroes during the preceding book."

Mr. Drucker also told us to expect enormous changes that will come in higher education, thanks to the rise of satellites and the Internet. "Thirty years from now big universities will be relics. Universities won't survive. It is as large a change as when we first got the printed book." He believed "High school graduates should work for at least five years before going on to college." It will be news to most college presidents and a lot of alumni that "higher education is in deep crisis. Colleges won't survive as residential institutions. Today's buildings are hopelessly unsuited and totally unneeded." All this from a life-long academic.

He brooked no nonsense about some of the topics that obsess Chicken Little today. Outsourcing? He told Fortune in 2002 that "We import two to three times as many jobs as we export. Wage costs are of primary importance for very few industries. The industries that are losing jobs out of the U.S. are the more backward industries." He never tired of pointing out the huge advantage the U.S. has over Europe and Japan and other countries with American workers' flexibility, not only for changing jobs but physically moving from one area to another to pursue opportunities.

In fact, outsourcing is a necessity, Mr. Drucker said. Companies should have others do what is not their prime task. Outsourcing is not so much about cost cutting ("illusory") as it is about improving the quality of work that others can do better than you: "You should outsource everything for which there is no career track that can lead to senior management."

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How higher education is managed did not impress Mr. Drucker; but what did is our continuing education system, whether in community colleges or by computers. Also: "Our most important education system is in the employees' own organization." That is where most Americans learn the most. Mr. Drucker also came up with the admonition of pursuing your opportunities and cutting your losses: "A critical question for leaders is 'When do you stop pouring resources into things that have achieved their purpose?'" As he repeatedly told Pastor Rick Warren, founder of the 15,000 member Saddleback Community Church in Lake Forest, Calif., and who has helped start another 60 churches around the world, "Don't tell me what you are doing, Rick, tell me what you stopped doing."

Until his last breath, Mr. Drucker himself never stopped doing and doing.

Mr. Forbes is president & CEO of Forbes, Inc. and editor-in-chief of Forbes magazine
Theory & Practice
Peter Drucker's Legacy
Includes Simple Advice:
It's All About the People

By SCOTT THURM and JOANN S. LUBLIN
Staff Reporters of THE WALL STREET JOURNAL
November 14, 2005; Page B1

Peter Drucker was the most influential management thinker of the past century. But his most crucial insights were about workers.

Mr. Drucker, who died Friday at age 95, was among the first to see the limits of large industrial organizations and their authoritarian hierarchies. Long before the Internet, before even the first computer chips, he foresaw the arrival of "knowledge workers" motivated by personal pride as much as by fear and a paycheck. Harnessing their talents, he argued, required a new approach to management.

He dispensed this advice in simple prose in 39 books over a remarkable 60-year career, and in probing conversations with scores of executives. Along the way, he developed a loyal following among many of the world's most-famous corporate chieftains, and became the model of the modern management guru, a craft he plied far more modestly than many of his successors.

While Mr. Drucker's eclectic interests ran from European history to Japanese art, his management teachings centered on ways to make workers more effective.

David A. Jones, co-founder and retired chairman and chief executive of Humana Inc., a Louisville, Ky., health insurer, recalls the core of Mr. Drucker's advice this way: "Successful enterprises create the conditions to allow their employees to do their best work."

Mr. Drucker offered plenty of other lessons, of course. He believed organizations should articulate a clear purpose, with specific, measurable goals; he developed the concept of "management by objective," to keep managers in step with those goals; he encouraged managers to ask unspoken questions and consider ignored issues.

His interests weren't limited to profit-seeking corporations. Mr. Drucker viewed nonprofit organizations as social linchpins, and devoted entire books to management of these groups.

"He had the anthropologist's insight into this strange tribe [of managers] that had these formal rituals and strange practices," says Michael Useem, a professor at the University of Pennsylvania's Wharton School, and an author of several books on management and leadership. "Peter Drucker was able to see behind them, and also see what could be changed and made for the better."

Mr. Drucker contributed much to the modern cult of the chief executive. Yet as an emigrant from Nazi Europe, he retained a lifelong distrust of charismatic leaders. "He was skeptical of hero worship," says John Alexander, president of the Center for Creative Leadership in Greensboro, N.C. "He saw management as an activity rather than a heroic venture."

Mr. Drucker's varied interests led him to predictions that gave him a reputation of a visionary in some circles. Warren Bennis, a University of Southern California business professor and author of more than two dozen books about leadership and related subjects, recalls Mr. Drucker warning him 15 years ago about coming social disruptions because of shrinking populations in Western Europe. In 1987, when Japan's roaring economy was the envy of the world, Mr. Drucker saw trouble ahead. "The pillar of their success -- lifetime employment -- is becoming an almost insurmountable barrier to flexibility," he said.

Skeptics, and there were few, who studied his record said that Mr. Drucker was wrong as often as he was right, and had a penchant for twisting anecdotes in the retelling. But that did little to shake the faith of several generations of CEOs. Mr. Drucker's impact was so profound that most of them still remember the first time they read, or met, him.

 

For Humana's Mr. Jones, it was in 1974, when his colleague Wendell Cherry bought one of Mr. Drucker's books at an airport to help pass the time of a flight delay. "Wendell called me and said, 'Some guy wrote a book about us," Mr. Jones recalls. The two finished the book, "Management, Tasks, Responsibilities, Practices," in a weekend, then called Mr. Drucker on Monday morning.

A few weeks later, the pair flew to Mr. Drucker's home in Claremont, Calif. There, Mr. Jones quickly learned the cornerstone of Mr. Drucker's style: "He never really answered questions. He always asked them." Still, Mr. Jones was sufficiently impressed that he repeated the pilgrimage annually for more than a decade. He recalls two preachings: That profit is a requirement for a company, but should not be a goal in itself; and that productivity and quality are effectively the same thing. "A day or two spent with Peter was the most valuable way I could spend my time," Mr. Jones says.

Dan W. Lufkin, co-founder of the Wall Street investment firm Donaldson Lufkin & Jenrette, encountered Mr. Drucker's unusual style during their first meeting, in the early 1960s, just as DLJ was just getting off the ground. Mr. Drucker, who spoke with an Austrian accent, initially seemed "formal and authoritarian," Mr. Lufkin recalls. "I asked him if he thought we should sell a certain product or do a certain strategy, but all he said

was 'I don't know' to every question I posed," he recalls. "So finally I asked, 'what am I hiring you for?' " Mr. Lufkin says.

In response, Mr. Drucker said, "I'm not going to give you any answers, because there are always many different ways to approach problems, but I'm going to give you the questions you should ask,' " Mr. Lufkin says. "So we started talking in great length and depth about who we were and what we wanted to do -- and I can't tell you how important he was to the development of the firm," Mr. Lufkin says.

For Andrew Grove, the retired chairman and chief executive of Intel Corp., the Peter Drucker moment came in the late 1970s, when he ran across a book that Mr. Drucker had published about a decade earlier. The book included a chapter on the multiple roles of a CEO: the public face of the company, a strategist and an operational manager.

Mr. Grove says the descriptions echoed the way that he and two other Intel co-founders, Robert Noyce and Gordon Moore, had unconsciously divided the duties at the top of the semiconductor maker: Mr. Noyce as the public face, Mr. Moore as "a man of thought," and Mr. Grove as "a man of action." Mr. Grove says he ran to a copy machine and distributed copies of the chapter to Messrs. Noyce and Moore.

At the time, Mr. Grove says, he was a "young manager, very skeptical about management gurus and consultants." Nonetheless, he says Mr. Drucker's writings "spoke to me." He was so impressed that Mr. Grove drove an hour from Intel's Silicon Valley offices to San Francisco to watch that era's motivational video -- a three-hour movie of Mr. Drucker speaking about management.

Mr. Grove singles out two of Mr. Drucker's precepts that have stuck with him: That managers should never promote an employee on the basis of his or her potential, but based only on performance; and that managers should make a decision "no later than you need it, but as late as possible, because you always have more information."

Mr. Drucker's lessons still resonate with a younger generation of managers. Mike Zafirovski, 51, who begins work tomorrow as chief executive of Nortel Networks Corp., never met Mr. Drucker, but says the author had a "huge influence" on him. Reading Mr. Drucker's books, Mr. Zafirovski says he was persuaded by the argument that companies should "treat employees like their most valuable resources, including pushing decision making to the lowest levels."

--Carol Hymowitz and Erin White contributed to this article

Drucker on Everything

November 14, 2005; Page A22

Books on management are published by the hundreds each year, but for our money you can skip everything else and simply re-read Peter F. Drucker, who was the Shakespeare of the genre and who died Friday at his California home at age 95.

For 30 years, the immigrant from Austria graced these pages as a contributor, usually under the heading, "Drucker on Management." That was a typical piece of modesty, because the more accurate description of his work would have been Drucker on Everything. He was a student of human behavior in all its ways and means, and through his many books and articles he sought to explain how managers could get the most from themselves, their colleagues and their institutions.

The business world would surely be a better place if every manager were required to read his 1966 classic, "The Effective Executive." It includes pearls on time management, especially the necessity of carving out chunks of time for thinking and decisions, on how to manage a meeting, and on the importance of focusing not on what any job requires but on what every individual can contribute.

His achievements include anticipating the rise of the modern corporation, and then dissecting its strengths and weaknesses; predicting the challenge that Japan would pose to American business; describing the rise and importance of "the knowledge worker"; and defending profit-making as central to the business enterprise at a time, in the middle of the last century, when that was not a widely held proposition.

His final piece for us, "The American CEO," was published last December 30, and was billed as a three-part series. He was too ill to complete the other parts, though it is a tribute to his stature and wisdom that readers kept sending us notes asking when the other articles would be published. We excerpt from some of his Journal articles nearby. R.I.P.

Talking About Tomorrow
Peter Drucker

The 'arch-guru of capitalism' argues that we need a new economic theory and new management model
December 27, 2005 2:34 p.m.

(This article originally appeared in The Wall Street Journal on Jan. 1, 2000)

CLAREMONT, Calif. -- Peter Drucker invented management -- not as a practice, but as a field of study. It's safe to say that no theorist in his field has a longer track record: He turned 90 years old in November. It was he who first asked managers to decentralize their operations and treat their employees like humans -- in the 1940s. The concept of "knowledge work" is his coinage, from the 1950s. He has remained consistently fresh and ahead of the times ever since, dubbed by Wired magazine as the "arch-guru of capitalism."

He grew up in Vienna, studied finance, and went to work as a newspaper reporter. In 1939 the first of his 28 books, "The End of Economic Man," also became his first bestseller when Winston Churchill hailed it publicly. A short time later, as a professor at Bennington College in Vermont, he spent two years observing General Motors Corp. from the inside. The resulting books, called "The Concept of the Corporation," cemented his reputation a management theorist and his career as a consultant to major corporations.

He remains an active professor at Claremont College's Peter F. Drucker School of Management. He was interviewed in his single-story home filled with books, Japanese art, and vinyl recordings of music by Bach.

--Thomas Petzinger Jr.

Untenable Assumptions

The Wall Street Journal: Do we have a "new economy?"

Dr. Drucker: If by "new economy" you mean something in which a boom can go on forever, I don't think we have that. In Germany there were periods known as Founders Years, which you had in the 1830s with the railroad boom in Europe -- a very long period that seemed to defy the law of gravity only to end in a really spectacular collapse. Founders Years are periods of fundamental technological and economic transformation; you have long, heady years of certain enormous fortunes. You have that again in the 1860s, followed by the 1870s with the crash of the Vienna stock exchange that spread world-wide. So seven or even 10 years of boom are not unprecedented.

Whether there is a new economy, we don't know. But there is a need for new economic theory, which is something else again. Our economists, not just American economists, still consciously or subconsciously operate in terms of the old axioms.

WSJ: Such as?

Dr. Drucker: I would say that economics makes three assumptions that are no longer tenable -- three basic axioms on which economic theory is based. One is that the national economy is a unit of activity in which monetary and tax policy determines the behavior of both individuals and businesses. Secondly is the scarcity axiom. The third one is that if you sell something you alienate it, you have lost it. None of these is valid anymore.

WSJ: Let's unpack that. You say the national economy is no longer a unit?

Dr. Drucker: Goods and services are increasingly global, even if your market is purely regional, purely local. Your potential competition overnight can be from anyplace in the world. Someone has a nice niche in a regional market in Dayton, Ohio. Overnight, somebody from Denmark takes over the market.

WSJ: And within the U.S., the economy is splintering into smaller and smaller independent pieces. Isn't that so?

Dr. Drucker: Yes. Instead of seeing cycles of the economy, we may see cycles of industries. For instance, we had a fairly substantial cyclical recession in this country in the early '90s, but a good many industries were totally unaffected. Home Depot grew fastest in those years. On the other hand, traditional heavy industry had five very nasty years. So maybe the national economy is no longer a meaningful economic center.

WSJ: You also said the scarcity axiom was becoming obsolete. Do you mean the idea that things have value only insofar as they're limited in supply?

Dr. Drucker: What I mean is that the scarcity axiom does not pertain to information. Let me give you two examples, one where they understand this and one where they don't. I will not give company names.

There is the company that gave you the map and driving direction you used to get from the Los Angeles airport to my home; you go to the Internet, and they don't charge a penny. They make their money from advertising, which you have to look at to get these directions. They understand that the scarcity axiom does not apply to information because they can keep giving away information and receive more revenue in another way.

On the other hand, there is a major newspaper, one I am very fond of, which believes in selling subscriptions to the online edition of the paper, which is a total misunderstanding. It should be given away to create a larger subscription base.

This first company understands information, the second one has yet to learn.

WSJ: Let's move on to the third obsolete axiom.

Dr. Drucker: Economics holds that if you sell something, if you transfer something, you no longer have it. That does not apply to information. On the contrary, you have no information, basically, unless you share it. Sure, of course, you try to keep strategic information to yourself. But when your product is information, information accrues as you release it.

Some implications of this we don't understand, but some we begin to realize. For instance, our balance of payments is probably a total delusion. I don't know what percentage of the information industries today export. In terms of their own domestic prosperity, my guess is that 40% of the employment of Silicon Valley and the like comes out of information sold outside of the U.S. But how they get paid, we don't know.

There is a fourth assumption of economics which very few economists are aware of, which is that production, employment and value move in parallel. That is no longer true. In the 20th century, certainly since 1918, the relative value of the products of agriculture and minerals relative to manufactured goods has been going down by 1% a year compounded. At the same time, agricultural production has exploded the world over, even though agricultural employment has disappeared since World War I. That does not fit the assumptions of economists.

We face the same now in manufacturing in this country. Forty years ago in the late Eisenhower years, 35% of all the workers were in manufacturing. The figure is now less than 18%, while manufacturing production has tripled. Manufacturing prices are now going down at the rate of 1% a year compounded, which is one of the main reasons why we have no inflation.