Peter Drucker Peers Into the Future of Business
January 1, 1990 -
Peter Drucker, the Austrian-born American author and teacher has been called the "grand old guru of corporate economics." He has spent at least half a century assessing and prescribing (with a confidence that in most others would be perceived as arrogance) the behaviour of corporations.
Drucker's first book, The End of Economic Man, published in 1939, was a thoughtful reflection on the breakdown of European culture in the face of the totalitarian demons: Marxism and Nazism. It contained a chapter on the failure of the churches that is worth pondering. Drucker wrote that a wholly personalized religion does not have the means to oppose and defeat the totalitarian forces of our century. In the preface of a later (1969) edition of The End of Economic Man, Drucker stated his view of Christianity as follows:
...churches, especially Christian churches, can (and should) preach a "social gospel." But they cannot (and should not) substitute politics for Grace, and social science for Redemption. Religion, the critic of any society, cannot accept any society or even any social program, without abandoning its true Kingdom, that of a Soul alone with its God. Therein lies both the strength of the churches as the conscience of society and their incurable weakness as political and social forces in society, (pp. xi-xii)
The End of Economic Man prophetically predicts that the Christian church as a small, persecuted minority in a sea of atheism is able to survive as a strong and vibrant community. When confronted with the hollowness of materialism, the church emerges as the only true alternative. Drucker writes that this happened in the French revolution. He continues: "It might well happen again in Soviet Russia in a generation or two, since the tiny minorities who preserve and reform their church form a real community" (p. 103).
Drucker's first book was followed by a steady stream of at least 20 more dealing with the science of management and a broad range of economic, political and cultural issues. His latest (1989) book, The New Reality, is a typically Druckeresque look at the vast changes that are reshaping politics, business and the corporate world. He explains that the next century is already here.
We do not know the answers. But we do know the issues. The courses of action open to us can be discerned. And so can those which, however popular, will be futile, if not counterproductive. The realities are different from the issues on which politicians, economists, scholars, businessmen, union leaders still fix their attention, still write books, still make speeches. The convincing proof of this is the profound sense of unreality that characterizes so much of today's politics and economics, (p. ix)
The New Realities
In an article published in The Economist of October 21, 1989, Drucker summarizes his ideas about the new realities facing business and corporations. He predicts that in the 1990s five important areas will bring far-reaching changes in the social and economic environment and in the strategies, structure and management of business.
First, he believes that the world economy is moving towards reciprocity as a central principle of international economic integration. By reciprocity he means that economic relations will increasingly be conducted between trading blocs rather than trading countries. Besides the European Community and North America, Drucker foresees an East Asian bloc organized around Japan. He does not really like reciprocity because it can easily degenerate into protectionism, but he believes that reciprocity has emerged as a response of the major Western economic powers to an aggressive non-western society, Japan.
Second, Drucker believes that businesses will increasingly integrate themselves into the world economy through alliances such as minority participations, joint ventures, research and marketing consortia, partnerships in subsidiaries or in special projects, and cross-licensing. Alliances will not only exist between businesses but also with non-businesses such as universities, health-care institutions, and local governments. Other traditions of economic integration (trade and multinational companies) will continue to grow in all likelihood, but the dynamics, Drucker says, are shifting rapidly to partnerships based on neither the commodity of trade nor on the power of ownership by multinationals. Especially the new and complex demands of modern technology and markets will make this new trend logical and inevitable, says Drucker.
Third, businesses will simplify their structures by cutting back on the levels of management. Work will be moved to where the people are, and many activities will be farmed out to other businesses. Drucker thinks that the ability to move ideas and information cheaply makes it possible to decentralize operations. This may well spell the end of the world-wide urban rtdl estate boom. The matter of optimal size has assumed new importance as well as new risks and difficulties.
Fourth, the notion of the self-perpetuating professional management will be fundamentally challenged in the future. This is visible in the hostile takeover battles taking place in the corporate world. One obvious problem with these battles is the preoccupation with short-term gains for shareholders. However, this is a development that cannot and will not be tolerated in the long run because it runs roughshod over the interests of too many people as well as over the true interests of the corporation itself. A balance between short-term and long-term performance is an absolute necessity for the proper functioning of a business, and Drucker asserts that the awareness of this reality has already begun to be evident.
Fifth, Drucker believes that rapid changes in international politics and policies rather than domestic economies will dominate the 1990s. He sees the containment of Russia and of communism as the dominating objective of the past four decades, but this has now become obsolete because of its success. The trouble is that we have not developed any coherent policies to deal with the irreversible breakup of the Soviet empire and the decline of China. Besides, the new challenges are quite different from the traditional ones. They include the following, according to Drucker: the environment, terrorism, Third World integration into the world economy, control or elimination of nuclear, chemical and biological weapons, and control of the world-wide pollution of the arms race. In view of these dramatic shifts on a world scale, Drucker predicts that the next ten years will be marked by political discontinuity. In fact, he does not predict; he concludes that all these changes have already begun, but that in many cases policy makers have yet to realize what they mean.
Concern For Human Beings
Whatever one may think of Drucker's ideas, his writings are undoubtedly imaginative and thought-provoking. Even his earlier writings, because of his profound respect for history and certain religious norms, are still worth reading and reflecting on. One thing is certain, Drucker is not just another technician who provides managers with the tools to be successful in business. He probes below the surface, asks hard questions, and makes people think about the meaning of business and especially about the way business affects all those living within its purview.
To provide one example of Drucker's earlier writings, in his 1946 study of General Motors, Concept of the Corporation, he asserted that the corporation is a human institution that must, to be truly successful, meet the aspirations of all its members. He wrote that if the requirements of corporate life and the basic beliefs and promises of American society would conflict, this conflict would have disastrous consequences for the entire society. He listed the following basic demands that must be satisfied by the corporation, if it is to be socially beneficial:
...the promise that opportunities be equal and rewards be commensurate to abilities and efforts; the promise that each member of society, however humble, be a citizen with the status, function and dignity of a member of society and with a chance of individual fulfillment in his social life; finally, the promise that big and small, rich and poor, powerful and weak be partners in a joint enterprise rather than opponents benefitting by each other's loss. (p. 14)
These words, written more than 40 years ago, have not diminished in importance. In fact, leaders in business and labour would do well to reflect upon the advice of this seasoned and provocative observer of the business corporation.