The Invention of Management and the First Corporations

Before meeting Drucker, I had always wondered about how management and the modern day corporation was born. Without prompting, “Professor Drucker” launched into a discussion of just that shortly after my arrival that December, Monday morning.

First a bit of background: The topics Peter Drucker chose to discuss with me during our day together gave me the impression that he viewed me as his biographer, even though I told him what I was writing was something quite different. My goal, I told Drucker, was to shine the spotlight on his most seminal management and leadership ideas and update them with modern examples, and then show how they can be applied in today’s hyper-competitive global marketplace. 

Still, none of this stopped Drucker from telling me story after story from his life. Because we never got to the items that we agreed to discuss in advance, I thought that I did a poor job interviewing him. However, as I transcribed the interview over the next many months (with his thick accent and hearing problems, it took forever to transcribe the interview), I realized that he had given me more than I had hoped for. He gave me a rare glimpse into his thought process, including stories and lessons that he had never revealed before (such as his assessment of JacK Welch visa vi other GE leaders). 

The discussion of the birth of modern corporations came about as a result of Drucker’s effort to put his career and contributions into context. He thought the best route was to take me back to the birth of the modern day corporation, providing details of when and where  they was created, structured, etc.    

He began by tracing the advent of the modern day corporation back to the 1870s and 1880s. The really large corporations came after the civil war.  Somewhat coincidentally, large companies were created simultaneously in the U.S., Japan and the United Kingdom. France did not develop as quickly. Drucker said France held on to “family companies longer than any of the major powers.”

“There had been managers all through the ages but they were very few and far between,” continued Drucker.  Before the large corporation was born, the most gifted members of the family ran the [family] business. Drucker referred to the best of these as “naturals,” born leaders. “But suddenly,” he said “you could no longer depend on the supply of naturals,” since they were so few of these. “You could only depend on the supply of naturals when the demand is low. But when you need large numbers of talented managers, you have to convert management into something that can be learned or taught. And that’s what I did.”

In other words, when there were too many companies to be managed by members of the family, there was a sudden need for hundreds and then thousands of managers. But before Drucker, there was no way to educate managers in the ways of the corporation. That’s what Druckers’ books accomplished. By establishing management as a discipline, he provided the much-needed tools that could transform “non-naturals,” into competent, practicing managers.

Tom Peters, lead author of In Search of Excellence—one of the two books that launched the modern day boom—sums it up nicely when he says “no true discipline of management existed before Drucker.

 

 

 

Broken Washroom Doors…or Don’t Jump 36 Floors!

Peter Drucker felt that every organization had its share of dysfunction. But he described it in a very vivid way:

Every business has its ‘broken washroom doors,’ its misdirections, its policies, procedures and methods that emphasize and reward wrong behavior, penalize or inhibit right behavior.” 

He described one very funny example of a dysfunctional organization to me, when he told me how Henry Luce—the founder of Time, Inc. as well as Life, Time & Fortune Magazines—managed his company. 

Drucker told me a few of the highlights of Luce’s story: Luce was “a very peculiar man.” He had been raised in China and managed Time, Inc. “by misdirection and by running around people.” Drucker told me Luce could not fire anybody, especially any classmates. (Remember that Drucker’s ideal manager could hire, fire and promote people, and here he was telling me that Luce could not fire anyone). 

That was a problem.

That’s because when Luce and Drucker met, about 70 years earlier (Luce apparently loved Drucker’s first book), the chief editor of Fortune Magazine was someone named Mitch Davenport. Drucker described him as “a very fine writer but a hopeless editor, and hopeless for one reason: he did not believe in deadlines. Simply did not believe in them,” he repeated for emphasis. Of course, deadlines are the lifelines of a magazine, whether it be a monthly or weekly. So Luce kept him “but managed around him,” asserted Drucker. He then made some noises that suggested that Luce wanted Drucker to take a management position at Time, Inc.

“And he [Luce] had another problem,” said Drucker.  He had a foreign editor at Time who was [allegedly] an ardent admirer of Hitler. And paranoid, by the way, but a classmate [of Luce’s], who eventually killed himself by jumping out of the 36th floor!”

Drucker then told me flat out that Luce wanted to hire him: “He wanted me to come to Time and be the foreign editor around that man (I assume he meant the man that admired Hitler). Fortunately, I said said no to all of these things,” said Drucker. “I wanted to do my own writing.”

Somehow, all of this helped Drucker make the decision to get into consulting, something he would do (and love) for the rest of his life.

The moral of the story? If you are interviewing with a company and sense that they have as much dysfunction as the company Drucker described…run! Even if the company is very successful, as Henry Luce’s Time Inc. certainly was.

If you are currently working for a company with as many “broken washroom doors” as described above, then prepare your resume and quietly make some industry inquiries. The company doesn’t have to have a manager who admires Hitler or a manager who cannot live by deadlines. There are a million other ways a company can be dysfunctional. In fact, if you work—or have worked—for a company that is dysfunctional in some unusual manner, I want to hear about it. So please drop me a comment and tell me about the dysfunction. I am curious by nature, and would love to hear how other organizations harbor, contribute to, or tolerate dysfunction. And who knows? Your story might make it into my next book (with your permission, of course).     

 

No Special Elevators

In promoting Inside Drucker’s Brain  these last few days, I have done tons of radio. And there is one question I get most often from the smart people who interview me (and I must admit that this one surprised me).

“Drucker wrote a great deal about people,” they usually start off. “How they should be treated and how much time should be spent on them?” Your book spends a lot of time on that. Can you tell us some of the specifics about this?

This is actually a great question, and not an obvious one. But I love fielding this question, since it allows me to tell people a great deal about Drucker and his humanity in a few minutes. Plus it allows me to talk about how so many organizations continue to fail to heed Drucker’s advice.

First, a bit of history: before Drucker came along in the 1940s and 50’s, people in corporations were often seen and treated like parts of an assembly line, like pieces of the machines they manned. The assembly line mentality still pervaded most companies then, and people were seen as “costs” on a company’s balance sheet. Nothing more. Drucker came along and changed the calculus. He saw people as living human beings with values and goals and dreams. They were to be respected and built up, and not treated as things or cogs or costs and beaten down. 

In 1946 he wrote  “Big business…must give status to the individual, and it must give him the justice of equal opportunities..”

He also wrote of equality as a “specifically American phenomenon for which no parallel can be found in Europe. Drucker describes this phenomenon as “a friendliness, an absence of envy, the absence of awe for the people at the top of the ladder. It shows…in the absence of special elevators for bosses in office buildings, and in such major traits as the deep resentment against anyone—man or nation—who throws his weight around.”

How those words resonate today! Everyone knows a boss that treats people like dirt, throws his weight around, and keeps people down. It is as if organizations are stuck in a 1970’s type autocracy where bosses yell out orders and criticize people for a living. All of the good things that people do are ignored and not acknowledged. Rather than build them up, this kind of manager tears them down. It is hard to believe, but this brand of manager is far from extinct. Even half a century after Drucker wrote those prolific words, there are countless companies and managers that just don’t get it.

Later, in 1954, Drucker wrote: “In making and moving things…knowledge and service work, partnership with  the responsible worker is the only way.”

He meant that managers should work with his or her direct reports: work with them to develop mutually acceptable goals, parameters for working together, promotions, etc. People are partners, and should be treated as such. If a manager can’t treat people as partners, they are “mis-managers,” insisted Drucker. And mis-managers will not be able to hold on to the best people and ultimately, do not deserve to keep their jobs.         

More on how Drucker lifted people up will be discussed in future postings.

 

Develop an “Outside-In” Perspective

In recent years much has been written about the importance of managers’ gaining and “outside-in” perspective. Although he may not have used those exact words, there is no doubt that the intellectual father of outside-in is Peter Drucker. You need only follow the books to see why this is important and  is true (Hansel and Gretel used bread crumbs. Peter Drucker left his trail with books).

In his 1954 groundbreaking work, The Practice of Management, Drucker wrote that “there is only one valid definition of business purpose: to create a customer. I called that “Drucker’s Law.” He added the following in order to make sure his message got through: 

“It is the customer who determines what a business is. For it is the customer, and he alone, who through being willing to pay for a good or a service, converts economic resources into wealth, things into goods. What the business thinks it produces is not of first importance—especially not to the future of the business and to its success. What the customer thinks he is buying, what he considers ‘value’ is decisive—it determines what a business is, what it produces and whether it will prosper. The customer is the foundation of a business and keeps it in existence. He alone gives employment.”

That may sound somewhat obvious now, but I assure you, it was anything but that half a century ago when the management boom was just coming into its own and few people or companies taught anything remotely related to management (at least, not the way we think of management today). That’s when Drucker really entered the scene in a big way. But he was just getting started.

In the 1960s Drucker put more meat on the bone by explaining that:

“The executive is within an organization…He sees the outside only through thick and distorting lenses, if at all. What goes on outside is usually not even known firsthand. It is received through an organization filter of reports.”

Drucker went so far as to call an executive a prisoner of an organization, meaning that all of his or her time is taken up by others. He felt that having others be the keeper of your time was the worst way to manage or lead anything. The most effective managers not only saw the marketplace clearly, they went to great lengths to make sure that any barriers that existed between them and the marketplace were toppled. Jack Welch echoed this theme when he described GE as a “boundaryless organization.”  That’s why Welch hated walls—all kinds of walls—such as those that existed between departments, people, etc.

Come back Friday to read more on how to overcome some of the things that keep managers from being more effective in their jobs.

 

It’s “What is Right” that Counts

 I learned a great deal from my day with Peter Drucker. He demonstrated his humility, as he did with so many others. When once asked what he did for a living, his response was a simple one, “I am a writer,” underscoring his understated manner. But he also told me that he “established management as a social discipline,” which was “probably my greatest contribution.” That told me that he was indeed humble, but he had his legacy in mind as well that December, Monday morning.

One lesson I learned from Drucker was that it never mattered who was right in an organization. That was something he learned from Alfred Sloan, the GM chairman that Drucker studied up close for most of two years.

It doesn’t matter who is right, insisted Sloan, but what is right that matters most.    

That’s something I have thought of many times. Think about the people you work with. Do you know someone who is more interested in getting the credit than making sure the organization achieves its goals? I am afraid to say I knew many of these people earlier in my career. They acted one way in front of their bosses, and a different way when they were with their peers. With their bosses they wanted to be sure that the spotlight was on them and their achievements. They wanted to be sure that anything positive they did was center stage with the higher ups. 

Drucker hated this sort of behavior. So much so that he felt anyone who thought who was right was more important than what was right had no business being a manager. Drucker felt that a truly authentic manager was one who had the maturity and the responsibility to worry far more about getting things right—-doing the right things for the good of the organization. Who got the credit was unimportant. Keep that in mind the next time someone close to you exhibits the selfish behavior Drucker warned about. Especially when you have to make hiring, firing or promotion decisions—what Ducker referred to as life and death decisions. 

D-Day

Today is the official release date for Inside Drucker’s Brain. As far as I know, the information gleaned from my full-day interview with Drucker—which forms the centerpiece of the book—is the last major Drucker interview never-before-published, until today.

As I have started doing radio interviews for the book, one of the first questions I usually get from interviewers is this:

Why did you write a book on Peter Drucker?  And why is he important now?

The truth is that I have been fascinated with Peter Drucker since the mid-1980s. First a bit of history: In 1992, I edited the first book ever published on GE’s Jack Welch, entitled The New GE: How Jack Welch Revived an American Institution. It had an awful jacket [cover] and was published by one of the smaller business book publishers (Dow Jones-Irwin), so even though the book did well, no one remembers it. Since that book came out I edited five other books on Welch and wrote three of my own. Ever since that first book on Welch, many of the former GE’s best management moves have been credited to Drucker. That always got me wondering about who this man really was. Because Drucker never headed up any large corporation (or any corporation, for that matter), nor was he a professor at say, Harvard or MIT, my curiosity over this man-behind-the-curtain only grew as time went on. 

Of course, I had heard of Drucker since getting into the publishing business in the early 1980s. It was common knowledge that he was the best of the best. That was something business editors had taken as a given—like how Babe Ruth was the greatest home-run hitter of all time. But my interest in him only grew to a fever pitch after I started editing and writing books about Welch.   

As an example of a Welch strategy that started with Drucker, let’s take [Welch’s] most famous management strategy—dubbed #1, #2. That was the theorem that held that unless one of your businesses was either #1 or #2 in its market, then it should either be “fixed, closed, or sold.” Welch explained that the originator of that concept was Peter Drucker. That got me thinking—how many more of Welch’s ideas came from Drucker (interesting aside: I learned far more about that during my interview with Drucker, which is highlighted in the book).      

As for how timely Drucker is now, well, I have always believed that when things get bad one needs to get back to the fundamentals. When it comes to management, there was no one more fundamental to the field of management than Peter Drucker. He was the one who said “there is only one valid definition of a business purpose: to create a customer.” That sounds pedestrian now, but it was anything but when he first espoused it in 1954. Whether Drucker used fancy catch phrases as other later authors (e.g. reengineering, execution), he was the first to discuss so many important topics. The chief purpose of Inside Drucker’s Brain is to devote a quick chapter to each of Drucker’s signature ideas (16 in all), including such topics as:

* How to build your organization on strength

* How to incorporate innovation into the fabric of one’s organization

* How to make “life or death decisions”

* How to manage during a crisis

That should give you some insight into what’s in the book. The book acknowledges that Drucker wrote 38 books in all, and is written to provide a succinct summary of the best of the best of his seminal ideas (to order the book, go to the home page and click on “store.” The book comes up first and will take you to Amazon, barnesandnoble.com, 1800ceoread, etc.).  

Two Days and Counting!

After more than six years in the making, INSIDE DRUCKER’S BRAIN  will be published this week—on sale Thursday, October 16th. it seems astonishing to me that it has been almost five years to the day that  I stood with Peter Drucker in his sitting room, discussing a wide array of topics (selected mostly by him). He turned out to be everything I had hoped for: he was incredibly intelligent, prescient, and well versed on more topics than I could have dreamed of. But as important, I spent a day with someone with incredible humility and warmth and selflessness. Even if you have no interest in business, Inside Drucker’s Brain can instill in you a mindset that can help you in any aspect of your life.

Peter Drucker was always optimistic, and always looked forward. He had a great affinity for this country. He arrived in the United States in 1937 but you would not know it from his terribly thick accent (he sounded more like a physicist than a management guru).  Even in his 95th year, he marvelled at the openness and economic mobility that existed in the U.S. Europe was far more structured, he explained to me. He told me that, to this day, Europeans who own their own businesses usually occupy a higher spot on the social ladder than those who work for large corporations (unless somebody is really high up). We care much less about social altitude in this country.

He then gave me a fascinating lesson in business history, by explaining that large corporations popped up pretty much at the same time in the U.S., Japan, and the U.K., in the 1880s or so (France held on to family run businesses longer). Before then, you could get by with what Drucker called “naturals,” that small group of talented titans who ran their own family-owned companies (e.g. Pierre S. du Pont, whose company was founded as a gunpowder mill and still exists today—sans the gunpowder). But when the demand exploded (no pun intended) with the advent of large corporations, “you could no longer depend on the supply of naturals,” asserted Drucker. “You could depend on the supply of naturals when the demand is low. But when you need large numbers [of managers] you have to convert it [management] into something that can be learned or taught, and that’s what I did,” he concluded. 

Drucker was telling me about how he invented the field of management, and although he said it cheerfully, he did it with all the fanfare of someone explaining how he passed a history exam rather than someone who established management as a social discipline.

Come back Thursday—the official publication date—to learn more about this remarkable individual!!      

 

 

 

The Book Package, Part II

In the last posting we discussed the specific elements of the book package, using a definition that included the author’s platform (e.g. how actively and effectively he or she is able to promote the book). Let’s pick up where we left off to discuss how the package impacts several key parts of the book’s campaign and its ultimate success:

* The # of copies advanced into bookstores: This is really a critical number. Based on the book’s depiction in the publisher’s catalog (e.g. picture of the cover, the author bio, description of book, etc), the book buyers will make their decision on how many copies of the book to order for their stores. Remember that in a weakened economy business book orders will suffer. If your book is able to advance, say, 10,000 copies or more into stores that’s a good number. That will ensure pretty wide distribution—meaning that if someone goes to a store looking for your book there is a good chance they will be able to find it. But  remember, your publisher does not get to decide how many copies each chain or store will order, or which stores they will put them in, or where in the store they will be placed. Those decisions are made by the bookstores themselves.

* Whether or not your book will be “green lighted” into a special placement promotion: Sometimes your book will appear on a table near the front of the store—either on a “just published” or a special business book table. When that happens, chances are your publisher paid a special promotional fee for that space (like “slotting” fees in grocery stores)—and the bookseller agreed to take the publisher’s money. Both the publisher and the bookseller must be on the same page for this to work. Put another way, publishers try to get special placement (tables or “end caps”) for many more books than the bookseller can handle, so the bookseller decides which of these books will be included in a promotion. If an author’s book does not get on a table (and the vast majority don’t), then it’s more than likely that your book will appear spine out in the business section. With something like 10,000 business books published each year, it makes sense that the vast majority of books go spine out on a shelf in a business book section.  

 * The licensing income: This is something authors hardly ever think about. However, a book that has a great package and global appeal will be highly sought after by publishers in other countries. For example, we recently published an incredibly timely book by David Smick entitled The World is Curved: Hidden Dangers to the Global Economy, with a reading line that says “The Mortgage Crisis was only the Beginning.”  We would classify this as a “globalization” book, and publishers in many countries have purchased the rights to publish this book in their native languages.

* The actual sell-through: This is, of course, where the rubber meets the road. The number of copies sold—week in and week out—is the authors’ and publishers’ primary concern. The book’s package will play a huge role in book sales, especially at the outset. But after a few weeks, word of mouth will come in and rule the day, making the package somewhat less important.  Nielsen Bookscan has made the entire publishing world one huge open book test, telling us how many copies every book sells each week, in each category, from what city, at what rate, etc. We can now see how each book sells vs. every other book, which is incredibly informative. A decade ago we had no way to measure this.

So when your publisher agonizes over the subtitle or the table of contents of your book, you will know why. They are trying to get the package exactly right.  

Is “Package” Everything? Assembling the Puzzle

Talk to an editor about a book and it is likely the word “package” will come up before long. That’s because in today’s crowded marketplace (not to mention a weak economy), a book’s package determines a book’s success more than any other single factor.

First let’s define our terms. When we talk package in publishing, we are referring to a number of elements simultaneously.  Getting them right is as involved as putting together the pieces of the most complex puzzle. Here they are, in no apparent order: 

The title, subtitle, and jacket design: First impression is everything. Booksellers, the first group that a publisher has to sell (that is, buyers from Barnes & Noble, Border’s, Amazon, etc.), make their buying decisions on a picture of the book jacket, description of the book, the author, the author’s track record, etc. All of this appears in a one or two page spread in a catalog (spring, summer or fall) that features books that will be published 6-8 months down the road.    

The book itself: Content is king, but if the package isn’t right, the king gets dethroned. This means that unless you have the aforementioned elements right, the ultimate reader may never become aware of your book, and even if they do, may reject it out of hand because the book does not resonate with any particular audience. But of course the contents, the book’s organization, readability, tone, message, etc. must all be on point and on target. Any one aspect of the content being off can sink a book. But the biggest factor may be the hook, or “unique selling proposition” (USP) of the book. It must offer something that people cannot get anywhere else.   

The invisible part of the package: One of the most important aspects of the book does not appear on the publisher’s catalog page. That’s what the author will do to promote his or her own book, and it applies here when you define “package” in the broadest sense of the word. In today’s hyper-competitive times, one cannot rely totally on the publisher to promote a book. Most bestsellers happen because an author does many things to sell her own book, such as: give tons of speeches or conduct many seminars on the topic; creates a Website for the book; calls in chits from media friends at high profile publications to get book mentions and reviews; plays an active role in securing high profile testimonials (blurbs) for the book, etc. You get the idea. The author’s own marketing moves often spell the difference between success and failure for a business book.    

Come back Friday to get the rest of the story on how a business book’s package affects specific parts of the book’s campaign. 

 

 

Humility—the Most Underrated Leadership Quality

All of the books I have written have been about the topic of leadership in one way or another. Some more directly than others. The Drucker book is all about leadership. Leading others, leading markets, leading companies. One of my earlier books—What the Best CEO’s Know—profiled seven CEOs and seven leadership characteristics they all had in common.  

It is clear now that I left one trait out.

Peter Drucker taught me that in one day.

I have learned that humility is one of the most underrated of all leadership qualities. Authors often write of character, integrity, compassion—and all have something to do with humility. However, Webster’s Dictionary defines humility as “the quality or state of being humble; and defines humble as “not proud or haughty; not arrogant or assertive; reflecting, expressing, or offered in a spirit of deference.”   

As the world and economic climate seems to get more complex, so does the importance of humility. Certainly there is much to humble us all in these turbulent times. All one has to do these days is take a look at his 401K to get a little humility, but that’s the least of it. Millions of our fellow citizens face far worse, like foreclosures of their homes and loss of their jobs. We are also at war not with one country, but two. The number of our enemies (such as members of al-Qaeda and other terrorist groups) has never been higher. In my relatively few years on this planet, I can think of no time of greater uncertainty than the one facing us now. That’s a lot to be humble about.    

We have had exceptional leaders who were imbued with great humility. In the political arena, leaders like Abraham Lincoln and Harry Truman were examples of two leaders who typified it. From humility springs accountability, as evidenced by Truman’s “the buck stop’s here” leadership philosophy.

We have also had great business leaders with great humility. Three that come to mind who were profiled by me in earlier works are Sam Walton (Wal-Mart), Herb Kelleher (Southwest Airlines), and Andy Grove (Intel). In the case of Intel’s co-founder Andy Grove, he became more humble when his company was almost crushed by the Japanese—forcing Grove and Intel to abandon the company’s key product (memory chips). It’s easier to get humble when you and the company you create face the abyss.

For us non-CEO types, humility is no less important, particularly in the workplace. That’s even more true for those that manage or supervise other people. I have always believed that there is a covenant—an implied contract—that exists between a company and the people they employ. On the employee’s end, he or she must put in a full day’s work, have a positive attitude, and make the kind of contribution that can help the company achieve its goals.         

On the employer’s side, handing over a pay check is the least of it. An employer must create a positive work environment, offer opportunities for advancement, and make sure the people they put in positions of power are mature, responsible, competent, and yes, humble. In my 27-odd years working for companies large and small, I have always thrived when working for a humble boss. Conversely, when I have worked for autocratic bosses who suffer from hubris, sooner or later things turned bad. Working for humble bosses has always helped to spark my performance. 

The lessons here? Well, you can’t often choose your boss but should you find yourself in that position (between jobs with multiple job offers), select the humble boss, other things being equal. If you are a manager or executive, you can indeed choose your employees, and the same advice applies here. 

Keep coming back to this site to learn more about the leadership qualities that are the real difference makers.  

   

Next Page →

  • Find It



  • Sign up!

    Enter your e-mail address to receive notifications in your inbox when there are new posts



  • The Unforced Error

      The Unforced Error



  • Sneak Peek - Chapter One!

    Source Notes