Peter Drucker Review

“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.”

Marketing gets a bad rap. Businesses market lousy products (and bad behavior). But when marketing promotes the true, good, and beautiful, wonderful things happen.

Winston Churchill said:

“Advertising nourishes the consuming power of men. It creates wants for a better standard of living. It sets up before a man the goal of a better home, better clothing, better food for himself and his family. It spurs individual exertion and greater production.” (Tested Advertising Methods, 43)

Not only can marketing promote good things, it is the critical function for building a business. General Motors became a great company via a brilliant marketing strategy. They carefully evaluated and defined different car buying markets and what customers in those markets wanted to buy.

The second function–innovation–is the making of better products and services that provide greater value and service to customers. The Model T and PayPal were innovations that improved service. Drucker believed that a nation’s capacity to innovate depends upon the degree to which new generations are educated. (The Practice of Management, 42).

(The Practice of Marketing, chapter 5)

“There is only one valid definition of business purpose: to create a customer.”

Great businesses create lots of customers and keep them buying for a long time. The key is service. They serve by providing customers with what they consider to be valuable.

Moreover, not only service, not only valuable service but also reliable service. A business provides reliable service when it assumes responsibility for the customer’s welfare. When it sees itself as the customer’s benefactor.

A business that creates and keeps customers by providing what the customer considers to be valuable and reliable service is a business that understands its purpose.

(The Practice of Management, chapter 5)

“I am inclined to believe that Automation will not inundate us in a sudden flood but will seep in gradually though steadily.”

What Drucker wrote about automation can be said about artificial intelligence (AI). AI will not transform business, economy, and society overnight. Its impact will be felt steadily but over time.

AI will become more and more powerful, but it will not replace the need for human judgment or human beings. It will not obviate God, truth, goodness, and beauty, or our need for community.

Moreover, just as Drucker observed about automation, AI will increase the need for managerial responsibility and judgment.

(The Practice of Management, chapter 3)

“…the ultimate test of management is business performance.”

The first duty of managers is to generate results. In particular, managers must be competent at creating customers. With diligence, through training and experience, one can learn how to do this.

(The Practice of Management, chapter 2)

“In a competitive economy, above all, the quality and performance of the managers determine the success of a business, indeed they determine its survival.”

Drucker did not believe society and economy determine destiny. He believed managers were critical actors–makers of moral and strategic decisions that shape economies and nations.

Behavior, responsibility, and judgment were more important to Drucker than technology and capital. The ideas and actions of the manager determined the results, purpose, and prosperity of organization, employee, and society.

The work of a good manager, the fruit of it, is hard to see. But the consequences of a bad manager cannot be denied. FTX, the infamous crypto-currency company, is a modern parable of the wealth and soul destroying nature of bad management.

Good managers are a company’s and a nation’s greatest asset.

(The Practice of Management, chapter 1)

“Managing, I soon learned, always had to take into account the results and performance for the sake of which the business exists, the internal organization of people engaged in a common task and the outside social dimension–the dimension of social impacts and social responsibilities.”

Peter Drucker wanted to write a book that explained the requirements of management, a foundational work that managers and future managers could turn for knowledge and wisdom. The Practice of Management is that book.

The preface identifies three manager responsibilities: performance, governance, and society. Part one of the book reveals the essentials of business performance for achieving results. Next, Drucker spells out governance in the management of mangers and management structure. Then he introduces management of work and worker. Finally, what managers do in their daily tasks and functions; planning, organizing, and communicating are three examples. The last two chapters deal with strategic decision making and a manager’s education.

This is the foundation book; future books extended its topics. Business performance (business strategy) is masterfully comprehended and expounded in Managing for Results. Drucker explains what must be done to diagnose business health, evaluate opportunities, and achieve results. In The Effective Executive, Drucker shares what an executive must do to be effective. All the topics are extended and deepened in Management: Tasks, Responsibilities, Practices. And finally, Drucker explains managing change in Managing in Turbulent Times.

(The Practice of Management, Preface)