Peter F. Drucker - Peter F. Drucker on Management Essentials

Grateful acknowledgment is made to the publishers for permission to reprint the material specified:

Fifty Years of ManagementA Look Back and a Look Forward, paper no. 60-W-46 (part of the report Ten Years Progress in Management, 19501960). Reprinted with permission of the American Society of Mechanical Engineers.

The Delusion of Profits, from the Wall Street Journal, February 5, 1975. Reprinted with permission of the Wall Street Journal 1976 Dow Jones & Company, Inc. All rights reserved.

Managing Capital Productivity, from the Wall Street Journal, July 24, 1975. Reprinted with permission of the Wall Street Journal 1976 Dow Jones & Company, Inc. All rights reserved.

How to Be an Employee, from Fortune, May 1952. Reprinted with permission of Fortune magazine.

The Drucker Library

Peter F. Drucker on Technology

Peter F. Drucker on Business and Society

Peter F. Drucker on Management Essentials

Peter F. Drucker on Nonprofits and the Public Sector

Peter F. Drucker on Economic Threats

Peter F. Drucker on Globalization

Peter F. Drucker on Practical Leadership

Peter F. Drucker on the Network Economy

MANAGERS ARE THE BASIC resource of the business enterprise. In a fully automated factorysuch as already exists in a few places, modern oil refineries for instancethere may be a few highly skilled technicians and professionals, but almost no other workers at all. But there will be managers! In fact, there will be many more managers than there used to be in yesterdays factory filled with semi-skilled machine operators. Where the foreman on the assembly line supervises fifty people, managers in automated plants rarely have more than two or three people on their teamand each of them has greater autonomy, more responsibility and far more decision-making power than the foreman in the traditional mass-production plant.

Managers are the most expensive resource in most businessesand the one that depreciates the fastest and needs the most constant replenishment. It takes years to build a management team; but it can be depleted in a short period. The number of managers as well as the capital investment each manager representsboth in the investment of societys capital in his education (which runs upward of $40,000 for each college graduate) and in the employers direct investment in the managerial job (which in the U.S. today ranges from $50,000 to $500,000 for each managerial job, dependent on industry and function, e.g., whether in the research lab, in manufacturing or in accounting)are bound to increase steadily as they have increased in the past half century. Parallel with this will go an increase in the demands of the enterprise on the ability of its managers. Todays manager, even at a fairly low level, is, for instance, expected to know a good deal both about analytical and quantitative methods, and about human behavior; both were advanced subjects less than a generation ago. These demands have doubled in every generation; there is no reason to expect a slowing down of the trend during the next decades.

How well managers manage and are managed determines whether business goals will be reached. It also largely determines how well the enterprise manages worker and work. For the workers attitude reflects, above all, the attitude of their management. It directly mirrors managements competence and structure. The workers effectiveness is determined largely by the way they are being managed.

During the last quarter century managers everywhere have subjected themselves to a steady barrage of exhortations, speeches, and programs in which they tell each other that their job is to manage the people under them, urge each other to give top priority to that responsibility, and furnish each other with much advice and many expensive gadgets for downward communications. But I have yet to sit down with a manager, at any level or job, who was not primarily concerned with upward relations and upward communications. Every vice-president feels that relations with the president are the real problem. And so on down to the first-line supervisor, the production foreman, or chief clerk, all of whom are quite certain that they could get along with their people if only the boss and the personnel department left them alone.

This is not a sign of the perversity of human nature. Upward relations are properly a managers first concern. To be a manager means sharing in the responsibility for the performance of the enterprise. A person who is not expected to take this responsibility is not a manager. And the individual contributors, the research engineer, the tax accountant, the field salesperson, who are expected to take such responsibility for the results and performance of the enterprise are, in effect, managers even though they are not bosses, have no subordinates and manage only themselves.

The story of Henry Ford, his rise and decline, and of the revival of his company under his grandson, Henry Ford II, has been told so many times that it has passed into folklore. The story is

• that Henry Ford, starting with nothing in 1905, had built fifteen years later the worlds largest and most profitable manufacturing enterprise;
• that the Ford Motor Company, in the early twenties, dominated and almost monopolized the American automobile market and held a leadership position in most of the other important automobile markets of the world;
• that, in addition, it had amassed, out of profits, cash reserves of a billion dollars or so;
• that, only a few years later, by 1927, this seemingly impregnable business empire was in shambles. Having lost its leadership position and barely able to stay a poor third in the market, it lost money almost every year for twenty years or so, and remained unable to compete vigorously right through World War II; and
• that in 1944 the founders grandson, Henry Ford II, then only twenty-six years old and without training or experience, took over, ousted his grandfathers cronies in a palace coup, brought in a totally new management team and saved the company.

But it is not commonly realized that this dramatic story is far more than a story of personal success and failure. It is, above all, what one might call a controlled experiment in mismanagement.

The first Ford failed because of his firm conviction that a business did not need managers and management. All it needed, he believed, was the owner with his helpers. The only difference between Ford and most of his contemporaries in business, in the U.S. as well as abroad, was that Henry Ford stuck uncompromisingly to his convictions. The way he applied theme.g., by firing or sidelining any one of his helpers, no matter how able, who dared act as a manager, make a decision, or take action without orders from Fordcan only be described as a test of a hypothesis that ended up by fully disproving it.

In fact, what makes the Ford story uniquebut also importantis that Ford could test the hypothesis, in part because he lived so long, and in part because he had a billion dollars to back his convictions. Fords failure was not the result of personality or temperament but first and foremost a result of his refusal to accept managers and management as necessary and as grounded in task and function rather than in delegation from the boss.

In the early twenties, when Ford set out to prove that managers are not needed, Alfred P. Sloan, Jr., the newly appointed president of General Motors, put the opposite thesis to the test. GM at that time was almost crushed by the towering colossus of the Ford Motor Company and barely able to survive as a weak number two. Little more than a financial speculation, stitched together out of small automobile companies that had been for sale because they could not stand up to Fords competition, GM did not have one winning car in its line, no dealer organization, and no financial strength. Each of the former owners was allowed autonomy, which in effect meant that he was allowed to mismanage his former business his own way. But Sloan thought through what the business and structure of GM should be and converted his undisciplined barons into a management team. Within five years GM had become the leader in the American automobile industry and has remained the leader ever since.