6 Major Contributions of Peter Drucker to Management

Some of the major contributions of Peter Drucker are as follows: 1. Nature of Management 2.
Management Functions 3. Organisation Structure 4. Federalism 5. Management by Objectives 6.
Organizational Changes.

Among the contemporary management thinkers, Peter Drucker outshines all. He has varied
experience and background which include psychology, sociology, law, and journalism. Through his
consultancy assignments, he has developed solutions to number of managerial problems. Therefore,
his contributions cover various approaches of management. He has written many books and papers.

The more important books are; Practice of Management (1954), Managing by Results (1964), The
Effective Executive (1967), The Age of Discontinuity (1969), Management: Tasks, Responsibilities
and Practices (1974), and Management Challenges for 2Century (1999),

1. Nature of Management:

Drucker is against bureaucratic management and has emphasised management with creative and
innovative characteristics. The basic objective of management is to read towards innovation. The
concept of innovation is quite broad. It may include development of new ideas, combining of old
and new ideas, adaptation of ideas from other fields or even to act as a catalyst and encouraging
others to carry out innovation.

He has treated management as a discipline as well as profession. As a discipline, management has

its own tools, skills, techniques and approaches. However, management is more a practice rather
than a science. Thus, Drucker may be placed in ’empirical school of management’.

While taking management as a profession. Drucker does not advocate to treat management as a
strict profession but only a liberal profession which places more emphasis that managers should not
only have skills and techniques but should have right perspective putting the things into practice.
They should be good practitioners so that they can understand the social and cultural requirements
of various organisations and countries.

2. Management Functions:

According to Drucker, management is the organ of its institution. It has no functions in itself, and
no existence in itself. He sees management through its tasks. Accordingly, there are three basic
functions of a manager which he must perform to enable the institution to make its contribution for:

(i) the specific purpose and mission of the institution whether business, hospital or university;

(ii) making work productive and the worker achieving; and

(iii) managing social impacts and social responsibilities.

All these three functions are performed simultaneously within the same managerial action. A
manager has to act as administrator where he has to improve upon what already exists and s already
known. He has to act as an entrepreneur in redirecting the resources from seas of tow or
diminishing results to areas of high or increasing results.

Thus, a manager has to perform several functions: setting of objectives, making, organising and
motivating. Drucker has attached great importance to the objective setting function and has
specified eight areas where clear objective setting is required. These are: market standing,
innovation, productivity, physical and financial resources, profitability, managerial performance
and development, worker performance and attitude, and public responsibility.

3. Organisation Structure:

Drucker has decried bureaucratic structure because of its too many dysfunctional effects. Therefore,
it should be replaced. He has emphasised three basic characteristics of an effective organisation
structure. These are:

(i) Enterprise should be organised for performance;

(ii) it should contain the least possible number of managerial levels;

(iii) it must make possible the training and testing of tomorrow’s top managers—responsibility to a
manager while still he is young.

He has identified three basic aspects in organising activity analysis, decision analysis, and relation
analysis. An activity analysis shows what work has to be performed, what kind of work should be
put together, and what emphasis is to be given to each activity in the organisation structure.
Decision analysis takes into account the four aspects of a decision: the degree of futurity In the
decision, the impact of decision over other functions, number of qualitative factors that enter into it,
and whether the decision is periodically recurrent or rare. Such an analysis will determine the level
at which the decision can be made. Relation analysis helps in defining the structure and also to give
guidance in manning the structure.

4. Federalism:

Drucker has advocated the concept of federalism. Federalism refers to centralised control in
decentralised structure Decentralised structure goes far beyond the delegation of authority. It
creates a new constitution and new ordering principle. He has emphasised the close links between
the decisions adopted by the top management on the one hand and by the autonomous unit on the
other.

This is just like a relationship between federal government and state governments. In a federal
organisation, local managements should participate in the decision that set the limits of their own
authority. Federalism has certain positive values over other methods of organising.

These are as follows:

(i) It sets the top management free to devote itself to its proper functions;
(ii) It defines the functions and responsibilities of the operating people;

(iii) It creates a yardstick to measure their success and effectiveness in operating jobs; and

(iv) It helps to resolve the problem of continuity through giving the managers of various units
education in top management problems and functions while in an operating position.

5. Management by Objectives:

Management by objectives (MBO) is regarded as one of the important contributions of Drucker to

the discipline of management. He introduced this concept in 1954. MBO has further been modified
by Schleh which has been termed as management by results’. MBO includes method of planning,
setting standards, performance appraisal, and motivation.

According to Drucker, MBO is not only a technique of management but it is a philosophy of

managing. It transforms the basic assumptions of managing from exercising cattalo to self-control.
Therefore, in order to practice MBO, the organisation must change itself MBO has become such a
popular way of managing that today t is regarded as He most modern management approach. In
fact, it has revolutionalised the management process.

6. Organizational Changes:

Drucker has visualised rapid changes in the society because of rapid technological development.
Though he is not resistant to change, he feels concerned for the rapid changes and their impact on
human life. Normally, some changes can be absorbed by the organisation but not the rapid changes.

Since rapid changes are occurring in the society, human beings should develop philosophy to face
the changes and take them as challenges for making the society better. This can be done by
developing dynamic organizations which are able to absorb changes much faster than static ones.
Drucker’s contributions have made tremendous impact on the management practices. His
contributions have been recognised even by the management thinkers of Socialist Bloc.

McGregor Theory X and Theory Y

In 1960, Douglas McGregor formulated Theory X and Theory Y suggesting two aspects of human
behaviour at work, or in other words, two different views of individuals (employees): one of which
is negative, called as Theory X and the other is positive, so called as Theory Y. According to
McGregor, the perception of managers on the nature of individuals is based on various
assumptions.

Assumptions of Theory X

 An average employee intrinsically does not like work and tries to escape it whenever
possible.
 Since the employee does not want to work, he must be persuaded, compelled, or warned with
punishment so as to achieve organizational goals. A close supervision is required on part of
managers. The managers adopt a more dictatorial style.
  Many employees rank job security on top, and they have little or no aspiration/ ambition.
 Employees generally dislike responsibilities.
 Employees resist change.
 An average employee needs formal direction.

Assumptions of Theory Y

 Employees can perceive their job as relaxing and normal. They exercise their physical and
mental efforts in an inherent manner in their jobs.
 Employees may not require only threat, external control and coercion to work, but they can
use self-direction and self-control if they are dedicated and sincere to achieve the
organizational objectives.
 If the job is rewarding and satisfying, then it will result in employees’ loyalty and
commitment to organization.
 An average employee can learn to admit and recognize the responsibility. In fact, he can
even learn to obtain responsibility.
 The employees have skills and capabilities. Their logical capabilities should be fully utilized.
In other words, the creativity, resourcefulness and innovative potentiality of the employees
can be utilized to solve organizational problems.

Thus, we can say that Theory X presents a pessimistic view of employees’ nature and behaviour at
work, while Theory Y presents an optimistic view of the employees’ nature and behaviour at work.
If correlate it with Maslow’s theory, we can say that Theory X is based on the assumption that the
employees emphasize on the physiological needs and the safety needs; while Theory X is based on
the assumption that the social needs, esteem needs and the self-actualization needs dominate the
employees.

McGregor views Theory Y to be more valid and reasonable than Theory X. Thus, he encouraged
cordial team relations, responsible and stimulating jobs, and participation of all in decision-making
process.

Implications of Theory X and Theory Y

Quite a few organizations use Theory X today. Theory X encourages use of tight
control and supervision. It implies that employees are reluctant to organizational
changes. Thus, it does not encourage innovation.

Many organizations are using Theory Y techniques. Theory Y implies that the
managers should create and encourage a work environment which provides
opportunities to employees to take initiative and self-direction. Employees should be
given opportunities to contribute to organizational well-being. Theory Y encourages
decentralization of authority, teamwork and participative decision making in an
organization. Theory Y searches and discovers the ways in which an employee can
make significant contributions in an organization. It harmonizes and matches
employees’ needs & aspirations with organizational needs & aspirations.
STAR model of organization design

Organizational design is not simply about structure and the resulting organizational chart. It is
about the relationships between people, work, formal structures and informal practices and
behaviors. It is about the way in which an organization structures and coordinates its people and
process so it can benefit from its unique capabilities over the long-term. It determines who makes
decisions and how those decisions will be made. It changes the role of the leaders as they become
less decision makers and more decision shapers. Through organizational design, leaders become the
shapers of the organization’s decision-making process. Organizational design and the resulting
capabilities are the last sustainable sources of competitive advantage.

Star Model of Organizational Design is a well-known model that has been used for decades to
identify the key elements of an organization and focus on the issue of strategy and strategy
implementation. Developed by Jay Galbraith, an American consultant and manager in the 1970s,
Star Model of Organizational Design looks at how an organization’s framework can be used to
guide decision-making and behavior. The star model is a widely accepted organizational design
model because of the strategy approach that seamlessly links competitive advantage to strategy to
structure, people, lateral processes and reward mechanisms.

1. Strategy: Determine direction through goals, objectives, values and mission. The strategy
specifically delineates the products or services to be provided, the markets to be served, and
the value to be offered to the customer. It also specifies sources of competitive advantage. It
also defines the criteria for selecting an organizational structure (for example functional or
matrix). The strategy defines the ways of making the best trade-off between
alternatives. Strategy dictates which activities are most necessary, thereby providing the
basis for making the best trade-offs in the organization design.
2. Structure: Determines the location of decision making power. Structure policies can be
subdivided into: specialization: type and number of job specialties; shape: the span of control
at each level in the hierarchy; distribution of power: the level of centralization versus
decentralization; departmentalization: the basis to form departments (function, product,
process, market or geography). In many respects, because these decisions are the
fundamental building blocks of an organization, they must be closely articulated with
strategy.
 3. Processes: The flow of information and decision processes across the proposed
organization’s structure. Processes can be either vertical or horizontal. Vertical processes are
usually business planning and budgeting processes. The needs of different departments are
centrally collected, and priorities are decided for the budgeting and allocation of the
resources to capital, research and development, training etc. Horizontal – also known as
lateral – processes are designed around the workflow, such as new product development or
the entry and fulfillment of a customer order.
4. Reward Systems: Influence the motivation of organization members to align employee
goals with the organization’s objectives. Managers should use rewards to motivate and
provide incentives for the desired behavior of employees. The organization’s reward system
defines policies regulating salaries, promotions, bonuses, profit sharing, stock options, and
so forth. The reward system must be congruent with the structure and processes to influence
the strategic direction. Reward systems are effective only when they form a consistent
package in combination with the other design choices.
5. People and Policies: Influence and define employee’s mindsets and skills through
recruitment, promotion, rotation, training and development. Human resource policies – in the
appropriate combinations – produce the talent required by the strategy and structure of the
organization, generating the skills and mind-sets necessary to implement the chosen
direction. Like the policy choices in the other areas, these policies work best when they are
consistent with the other connecting design areas. Human resource policies also build the
organizational capabilities to execute the strategic directions. Flexible organizations require
flexible people. Cross-functional teams require people who are generalists and who can
cooperate with each other.

The above five factors must be internally consistent to enable effective behavior. Fortunately, a
design sequence exists whose starting point is the strategy definition. Strategy drives organisational
structure. Processes are based on the organisation’s Structure. Structure and Processes define the
implementation of reward systems and people policies.

When you take into account the interconnections in the Galbraith’s Star Model of Organizational
Design, it becomes obvious that if you wish to make a significant change in an organization’s
performance, all of the five elements must be examined and possibly changed, because a change in
one element of the organization has implications for the rest. The challenge is to develop an
approach to organizing that considers all five of the elements and how they fit together to create an
organization with the strategy, competencies, and capabilities it needs to succeed.

An important principle of Galbraith’s Star Model of Organizational Design has been that
organizational effectiveness is greatest when there is a fit among the points of the star. In particular,
the emphasis has been designing processes, reward systems, structures, and people systems that
produce the capabilities that are required for the implementation of the strategy. Fit is important
according to the Star Model because it is required in order to produce the kind of capabilities that
provide for competitive advantage. It occurs when all the points on the star are aligned in a way
that support each other and in combination, support a particular business strategy.