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Ten things you need to know about

Peter Drucker
5 Leaders and managers 8 People are assets
Peter Drucker said: ‘Management is doing things right; leadership is Drucker was critical of economists’ view of workers purely as costs.
doing the right things’, i.e. leaders choose what to do and managers He felt that many bosses had the same view. His experience with
get the task done. successful firms was that they saw people as assets, not costs.
Example: in 2019 Albert Bourla became chief executive of the Example: the Mini sells well across the world. It is designed and
US drug company Pfizer. When Covid hit in 2020 he struck a deal with made in the UK, with the marketing and the design experts the stars.
German vaccine specialist BioNTech. The Pfizer–BioNTech vaccine Advantage: a business with the right attitude to its staff looks after
proved highly effective, came to market quickly, saved lives and made them. That is repaid with loyalty and a willingness to go the extra
Peter Drucker (1909–2005) was a management consultant, Pfizer a fortune. Good decision. mile for the employer.
Advantage: leaders need good judgement and the confidence to Disadvantage: people are assets, but as every football manager
author and expert on business organisations decide quickly and firmly. knows, they are assets that can walk. Sometimes a well-trained and
Disadvantage: by contrast, managers may only need organisational well-looked-after employee walks out for a higher-paying rival, which
skills — to put the leader’s decisions into action. is hugely frustrating.

1 Core business 3 Decentralisation 9 Profit is not a goal

6 Management by objectives
Drucker was struck by how often companies stray into new markets Drucker did a great deal of research at General Motors, then the Drucker rejected the idea of making profit the central target for
that they know little about. He emphasised the need to focus on the world’s biggest manufacturer. He saw top-down decision-making that Management by objectives (MBO) involves breaking the corporate
a business. He said that profit is a need, not a goal: if the right
core business. was poorly considered and dispiriting for junior managers. objective down into manageable goals for every executive, who are
objectives are set for market share, new product development, and
given the delegated power and resources to meet the goals.
Example: in 2016 Australian DIY giant Wesfarmers bought the UK’s Example: centralised decisions fail to take into account the different customer and staff satisfaction; healthy profits will follow.
Homebase for £340 million. Money was poured into Homebase to tastes and attitudes of local consumers. Better to let local managers Example: Marks & Spencer bosses might set the firm the goal of a
Example: Amazon has long focused on growth, developing new
improve it, but after making heavy losses Wesfarmers pulled out in have more power. 30% profit boost in 2 years, and break this down into a profit goal of
markets and technological innovations. Profits have never been huge,
2018, selling Homebase for £1. £500,000 in 2 years for the manager of the Coventry store.
Advantage: decentralised decisions are better tuned to local needs but were more than enough to finance the growth plan (and make
Advantage: the advantage comes from maximising the expertise you and help build customer loyalty. Advantage: MBO allows full delegation of power to a manager Jeff Bezos worth $200 billion).
have over existing products in your home market (as Ansoff’s matrix who has full responsibility for achieving a limited goal. That’s hugely
Disadvantage: decentralised decisions can be too diffuse, with the Advantage: avoids the lazy short-termism that can arise when
also emphasises). motivating.
service being different in different towns. This can be confusing for managers are only focused on this year’s profit target.
Disadvantage: some firms flourish by diversifying, e.g. Nintendo customers, e.g. different Big Macs in different towns. Disadvantage: delegated power can conflict with business ethics
Disadvantage: for a business that’s short of capital, a focus on
went from making playing cards to video games. if the executive takes ethical shortcuts in order to achieve an overly
profit might make perfect sense.
ambitious objective.

4 Knowledge workers
2 Corporate objectives 10 Innovation
Setting a goal for the whole organisation, providing clarity for all
Drucker was the first to use this term. Today, most would see it at the
heart of human capital, especially in developed economies.
7 Marketing For Drucker, innovation is the key to success.
staff on the direction of travel. Example: designers are knowledge workers, e.g. iPhone designer According to Drucker: ‘Because the purpose of business is to create a Example: in 2009, US microchip-maker Intel sold 98% of the world’s
Example: when Pep Guardiola took over at Manchester City it was Jonathan Ive. customer, the business enterprise has two — and only two — basic ‘leading-edge’ chips. In 2021 Taiwanese firm TSMC is expected to reach
clear that the goal was not only trophies, but trophies won through functions: marketing and innovation. Marketing and innovation an 84% market share. Successful innovation has transformed TSMC into
Advantage: the term is a reminder that the most value is added
stylish football. produce results; all the rest are costs. Marketing is the distinguishing, the undisputed world number one.
today by knowledge, design and innovation, rather than by
Advantage: a clear objective helps in identifying who to recruit, how manufacturing more cheaply than rivals. unique function of the business.’ Advantage: innovation creates monopoly power — though perhaps
to organise training and how staff should behave. Example: Google is a perfect example — its innovation created only for 6 months while rivals catch up, which is why innovation has to
Disadvantage: virtually every worker is using knowledge to perform
a customer for something that didn’t exist before. At the time of be a continual process.
Disadvantage: if the objective is mistaken or can’t be achieved with their task, whether they are on the production line or in the finance
the company’s financial resources, the result can be a disaster. department. The term ‘knowledge worker’ may underestimate the writing, Google is valued at over $1.5 trillion. Disadvantage: perhaps no single function within a business should have
importance of production-line staff. Advantage: while economists think passively, of companies meeting centre stage. Successful businesses require everyone to work together.
customer needs, Drucker emphasised that firms ‘create’ customers.
BusinessReviewExtras Business is an active process, not a passive one.
Ian Marcousé is the author of many books on business,
Download this poster at Disadvantage: Drucker may downplay the importance of including A-level textbooks for AQA and Edexcel, published by
www.hoddereducation.co.uk/businessreviewextras controlling costs. Hodder Education.

16 Business Review September 2021 www.hoddereducation.co.uk/businessreview 17