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The comeback Charlatan

The comeback Charlatan

The words of Peter Drucker are shown to be prophetic.

The late Peter Drucker was perhaps the only management thinker who deserved the epithet "guru", although the epithet would not have been happily accepted. Drucker thought the word "guru" was applied to management thinkers because charlatan is "too short for a headline". He thought of himself as a "social ecologist" even as he went about virtually inventing the discipline of management.

His was a talent for observation, rather than theoretical elegance (not a commonly observed characteristic of management thinking). Starting with his close examination of the management methods of General Motors, which he detailed in The Concept of the Corporation - a book that so outraged Alfred Sloan, the former chairman of General Motors, that he refused even to mention it - Drucker was for much of the second half of the 20th century the most important observer of American and European business.

His book Managing for the Future (Dutton, 1992) outlined many of his most basic insights. They continue to enjoy piquancy. Drucker commented that history "moves in a spiral: one returns to the preceding proposition, or the preceding problem, but on a higher level, and on a corkscrew path".

Witness his chapter: "A crisis of capitalism: who's in charge?" Here, Drucker decried the emergence of a "speculator capitalism" that "makes traders rich and investors poor".

"Corporate capitalism promised that large corporations would be run in the interests of a number of stakeholders," he wrote.

"Instead, corporate managements are being pushed into subordinating everything (even such long-range considerations as a company's market standing, its technology, indeed its basic wealth producing capacity) to immediate earnings and next week's stock price."

As boards around the world, in the wake of the financial crisis, struggle to explain why they saw so little of what was coming, and did so badly at protecting shareholder wealth, it is clear that the problems described by Drucker a decade and a half ago have got worse.

Similarly diverting is Drucker's chapter: "The poverty of economic theory". Again, in the wake of a global financial crisis that was predicted by almost no economists, his comments are prescient. If the economics profession has begun what may prove to be a long period of re-examining its reason to exist, it can do worse than to look at these observations.

Drucker says economics was called the dismal science in the 19th century because it forced on people unpleasant choices. But in the past 50 years, he says, it has become more like the "euphoric science", apparently offering clear answers to difficult questions.

It is hard to think of a better description of the widespread faith in the self-corrective power of markets - a faith proven to be spectacularly wrong.

Drucker implies that economists started pretending to know what they cannot know, and that this has led to a deep intellectual dishonesty. "When someone asked an economist of 1925 a question, his answer was: 'I don't know,' which in many ways is a respectable answer (at least it's a modest answer).

"And then he said: 'We don't know and therefore the intelligent thing to do is as little as possible and pray. Keep taxes low, expenditures low, and pray ... macroeconomic theory is no longer a basis for economic policy because no one knows what is going to happen. Political leaders have no economic theory they can trust, a fact which escapes many business men."

In the wake of a two-decade cult of central bankers, who claimed, erroneously, that they possessed a god-like insight into the workings of financial markets, such praise for intellectual prudence is pertinent.

Drucker's next argument is that knowledge creates wealth, a point which he regarded as the basis of "post-economic theory". He coined the term "the productivity of knowledge" to identify the main imperative in the management of organisations.

To the extent that wealth creation is increasingly dependent on intangible factors of production, which are, by definition, the result of human knowledge, his point is unarguable.

But a tendency towards glibness does emerge. He talks about knowledge as the organisation's vital "resource". It is not a resource (resources are inanimate; knowledge is an act of animate humans).

Likewise, his use of the economics-derived term "productivity" is doubtful. It is not how much knowledge is "produced" but how well it is applied.

In an interview with BRW, Drucker dismissed these concerns, saying that "eventually, we will have to work out the proper methodology for both defining and measuring knowledge, work and the knowledge worker".

He always had the practical in mind. "What we already can do - and must do - is take out of the knowledge worker's working day all the work that does not produce results and only wastes the knowledge worker's time and skills."

Verdict:

Peter Drucker, the pre-eminent thinker about management, established many of the basic themes of the discipline. His insights into the nature and purpose of the corporation, the significance of knowledge work in post-capitalist society, the intricacies of corporate strategy, the function and purpose of capital markets and institutional shareholdings, the globalisation of commerce, the vital need to create customers, the poverty of economic theory and the emergence of a post-capitalist society all retain their relevance. He was, above all, an extraordinary observer, demonstrating in his long career that such acuity is a key to the success of any manager.

This is the first of a series reviewing classic management texts.

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