Peter F. Drucker is considered the most influential management thinker ever. The author of more than twenty-five books, his ideas have had an enormous impact on shaping the modern corporation. Drucker passed away in 2005.

Management Rev Ed

HarperCollins Publishers, Inc.

Chapter One

Introduction: Management and Managers Defined

Management may be the most important innovation of the twentieth century—and the one most directly affecting the young, educated people in colleges and universities who will be tomorrow's "knowledge workers" in managed institutions, and their managers the day after tomorrow. But what is management? Why management? How do you define "managers"? What are their tasks, their responsibilities? And how has the study and discipline of management developed to its present state?

When the first business schools in the United States opened around the turn of the twentieth century, they did not offer a single course in management. At about that same time, the word "management" was first popularized by Frederick Winslow Taylor to describe what he had formerly (and more accurately) called "work study" or "task study"; we call it "industrial engineering" today. But when Taylor talked about what we now call "management" and "managers," he said "the owners" and "their representatives."

The roots of the discipline of management go back approximately 200 years (see "Note: The Roots and History of Management," later in this chapter). But management as a function, management as a distinct work, management as a discipline and area of study—these are all products of the twentieth century. And most people became aware of management only after World War II.

Within the life span of today's old-timers, our society has become a "knowledge society," a "society of organizations," and a "networked society." In the twentieth century, the major social tasks came to be performed in and through organized institutions—business enterprises, large and small; school systems; colleges and universities; hospitals; research laboratories; governments and government agencies of all kinds and sizes; and many others. And each of them in turn is entrusted to "managers" who practice "management."

What is Management?

Management and managers are the specific need of all institutions, from the smallest to the largest. They are the specific organ of every institution. They are what holds it together and makes it work. None of our institutions could function without managers. And managers do their own job—they do not do it by delegation from the "owner." The need for management does not arise just because the job has become too big for any one person to do alone. Managing a business enterprise or a public-service institution is inherently different from managing one's own property or from running a practice of medicine or a solo law or consulting practice.

Of course, many a large and complex enterprise started from a one-man shop. But beyond the first steps, growth soon entails more than a change in size. At some point (and long before the organization becomes even "fair-sized"), size turns into complexity. At this point "owners" no longer run "their own" businesses even if they are the sole proprietors. They are then in charge of a business enterprise—and if they do not rapidly become managers, they will soon cease to be "owners" and be replaced, or the business will go under and disappear. For at this point, the business turns into an organization and requires for its survival different structure, different principles, different behavior, and different work. It requires managers and management.

Legally, management in the business enterprise is still seen as a delegation of ownership. But the doctrine that already determines practice, even though it is still only evolving in law, is that management precedes and even outranks ownership. The owner has to subordinate himself to the enterprise's need for management and managers. There are, of course, many owners who successfully combine both roles, that of owner-investor and that of top management. But if the enterprise does not have the management it needs, ownership itself is worthless. And in enterprises that are big or that play such a crucial role as to make their survival and performance matters of national concern, public pressure or governmental action will take control away from an owner who stands in the way of management. Thus the late Howard Hughes was forced by the United States government in the 1950s to give up control of his wholly owned Hughes Aircraft Company, which produced electronics crucial to U.S. defense. Managers were brought in because he insisted on running the company as "owner." Similarly the German government in the 1960s put the faltering Krupp company under autonomous management, even though the Krupp family owned 100 percent of the stock.

The change from a business that the owner-entrepreneur can run with "helpers" to a business that requires management is a sweeping change. It requires the application of basic concepts, basic principles, and individual vision to the enterprise.

One can compare the two kinds of business to two different kinds of organism: the insect, which is held together by a tough, hard skin, and the vertebrate animal, which has a skeleton. Land animals that are supported by a hard skin cannot grow beyond a few inches in size. To be larger, animals must have a skeleton. Yet the skeleton has not evolved out of the hard skin of the insect; for it is a different organ with different antecedents. Similarly, management becomes necessary when an organization reaches a certain size and complexity. But management, while it replaces the "hard-skin" structure of the owner-entrepreneur, is not its successor. It is, rather, its replacement.

When does a business reach the stage at which it has to shift from "hard skin" to "skeleton"? The line lies somewhere between 300 and 1,000 employees in size. More important, perhaps, is the increase in complexity. When a variety of tasks all have to be performed in cooperation, synchronization, and communication, an organization needs managers and management. One example would be a small research lab in which twenty to twenty-five scientists from a number of disciplines work together. Without management, things go out of control. Plans fail to turn into action. Or worse, different parts of the plans get going at different speeds, different times, and with different objectives and goals. The favor of the "boss" becomes more important than performance. At this point the product may be excellent, the people able and dedicated. The boss may be—and often is—a person of great ability and personal power. But the enterprise will begin to flounder, stagnate, and soon go downhill unless it shifts to the "skeleton" of managers and management structure.