Lessons from Peter Drucker's Approach to Business Strategy in an Era of Fast-Paced Change
Peter Drucker is widely recognized as the founding father of modern management. His many visionary writings on business organization have become landmarks for the management profession and remain highly relevant today.
Drucker's greatest contribution to the discipline of management lies not so much in the merits of his ideas, as in the disciplined thinking that went into formulating them. His thinking was at once broadly contextual, logical and holistic, coupled with common-sense reasoning. He saw management as an art, not a science.
20 years ago (1988), Drucker was already predicting that the company of the future would be knowledge-based; knowledge would become the basic economic resource, enabling the development of new ideas and innovation at all levels of the organization. Teamwork and collaboration – not command and control – would be the new name of the game.
More than a century after his birth, what would Peter say about the path forward?
On innovation: "There's nothing as useless as doing efficiently that which should not be done at all." – Peter Drucker
Growth and success are not the result of efficiency gains and cost cutting alone. Drucker distinguishes between efficiency, which managers can achieve by doing more of the same with less effort or at lower cost, and effectiveness, which involves setting the 'right goals' to transform organizations in response to changing conditions. To preserve their competitive edge and deliver added value to their customers, companies need creativity and innovation, especially in times of uncertainty.
In the 21st century, Drucker predicted, that new knowledge would have to be applied to knowledge itself. "Knowledge will be used to systematically determine what new knowledge is needed, how feasible it is, and what steps need to be taken to make it actionable”. Knowledge has thus become the resource rather than a resource. This is creating new social, economic, and political dynamics. The command-and-control system will no longer work because workers possess most of the means of production, i.e., knowledge.
It is also becoming increasingly clear that the next revolution in knowledge work will be sparked by the application of artificial intelligence. Rather than making intellectual work obsolete, it will automate basic, tedious, and time-consuming tasks. So, the tasks that take up our time will change, as will the skills we need to make full use of them.
In Drucker's view, the winners of the new game will be those who are capable of harnessing the value of knowledge-generated insights, that is, the ability to change the way people think about, invest in, and pay for intangible assets such as ideas, experiences, brands, values, and knowledge.
On creative destruction: “The best way to predict the future is to invent it.”– Peter Drucker
"In an 'age of discontinuity,' as Drucker called the current era, entrepreneurs can find significant opportunities to create or transform organizations if they are willing to get ahead of societal changes.”
Gaps arising from discontinuities in society can be filled by creativity and innovation driven by an appreciation of society's needs. Note that his focus is on society rather than markets. He felt that innovators should be attuned to unmet needs that have not yet emerged from market research.
At times, there is no going back, because industry conditions and societal needs have forever changed. This means we have to take preemptive measures and innovate, even going so far as to “cannibalize” tried-and-tested products and services. Because if we don't, our competitors will. "The greatest danger in turbulent times is not the turbulence. It's acting with yesterday's logic".
Other recommendations include "systematic or planned abandonment", which is the practice of developing a plan to abandon a strategy before it's even launched. So, if you weren't already engaged in a given activity, or offering a service or product, would you start now? If not, how would you go about either eliminating it or scaling it back?
On managing knowledge workers: “Don’t just manage, lead.”– Peter Drucker
Command and control will no longer work, because knowledge workers now own most of the means of production, i.e., knowledge. These employees cannot be controlled; they must be motivated. They must see a clear purpose more meaningful than just personal profit. A sense of purpose and a set of shared values are key factors for effective collaboration, particularly in a world of increasingly blurred boundaries, within alliances, partnerships, self-conscious business ecosystems and self-organizing networks.
This kind of dynamic calls for a new kind of leadership – transformational leadership – which has a positive impact on organizational performance in that it inspires employees to go the extra mile to achieve a shared vision.
Transformational leadership is a management philosophy that provides self-organized knowledge workers with the resources they need to make decisions and support new approaches to problem solving.
This form of leadership most directly reinforces the organization's capacity for innovation by involving employees in the knowledge management process through the acquisition, transfer, and application of knowledge. Knowledge exchange between operational units fosters communication and collaboration, leading to the creation of new knowledge and improved innovation.
On taking responsibility
Executives and managers should remember that their primary job is to look out for the long-term health of their organizations. That means looking outside their walls at society and taking responsibility for the social well-being of their employees, not just wealth.
On addressing societal problems
When it comes to improving healthcare or education, he would look at entire systems and call on government, businesses, and civil society to cooperate for change.
Furthermore, he would encourage social entrepreneurs to innovate and stimulate voluntary action through non-profit organizations, to build a foundation for hope and prosperity.
Non-profit organizations are essential to the creation of a society in which businesses can thrive.
In light of Peter Drucker's wise words applied to today's context, I would sum up the key takeaways:
Knowledge has now become the primary factor of production, sidelining both capital and labor. That means that knowledge is now seen as the basic economic resource, that needs to be managed. Leaders are responsible for the deployment and optimization of knowledge. Where there is effective management of knowledge, other resources can always be obtained.
People are assets to be empowered, not machines to be commanded.
His philosophy was not blind market rationality, but "right thinking", that must originate from understanding purpose and setting goals based on that purpose.
A clear sense of purpose and a set of common values is what motivates people to work effectively together.