What are the contributions of Peter Drucker to management thought?

Answer 1

Business Guru Peter Drucker Investment U E-Letter: Issue # 487

Thursday, November 17, 2005 Business Guru Peter Drucker: Three Lessons and His Contributions to the Marketplace

by Mark Skousen, Chairman, Investment U

A giant has died. Peter Drucker, the world's #1 financial guru, passed away last Friday at his home in California at the glorious age of 95 (in keeping with Lin Yutang's favorite question, "What is your glorious age?").

Drucker was a genius whose ideas can help you be a better money manager, businessman and citizen.

I met and interviewed Peter Drucker for Forbes in the early 1990s. For years, he refused me an interview. He was known to be feisty and stubborn. Then one day, he suddenly changed his mind.

When I arrived at his home in Claremont, CA, I was surprised by his modesty. For a man who made millions consulting with CEOs of multinational corporations, I was shocked to see him living in a modest and unpretentious home. He had no secretary, and never did.

Peter Drucker could be unpredictable and cantankerous. When I asked him a question, he said, "Who cares? Ask me a better question!" Finally, I said, "Well, what do you want to talk about?" He then started talking about Japan, and warned that the Japanese were headed for trouble and a long slump because they had become too bureaucratic and arrogant. He was right, as he was on many of his predictions.

Investors who followed Drucker's wise advice avoided Japan as an investment (now, Japan is making a comeback after a 15-year slump). Below, you'll find three more bits of Peter Drucker's wisdom you can apply to your own investing strategies today… 1. Invest Like Peter Drucker by Investing in Entrepreneurial Companies

Invest in companies that are entrepreneurial, and avoid companies that are too bureaucratic.

Drucker, an Austrian economist, was a big believer in entrepreneurship, innovation and capital formation. He favored companies that took big risks and spent lots of capital on R&D. He hated companies that had nothing better to do than repurchase their stock, or pay out big dividends.

He was born in Austria in 1909, and his roots stayed with him all his life. His favorite economist was fellow Austrian Joseph Schumpeter, a believer in entrepreneurship and a dynamic model of capitalism ("creative destruction"). Drucker would probably love our top three candidates for the new "Benny" award - Steve Jobs at Apple Computers; Pierre Omidyar, founder of eBay; and John Mackey, CEO of Whole Foods Markets.

2. Spend Less, Save, and Invest More

You can never save and invest too much. Drucker disliked big spenders, heavy borrowers and governments that couldn't balance budgets. The smart investor always lives within his means, and uses his savings productively - either in expanding his business, or investing in other people's successful businesses (i.e., buying quality stocks).

He blamed Keynesian economics for an unhealthy anti-saving mythology, causing "under-saving on a massive scale" in the West, both by individuals and government.

Government, Drucker said, is only good at three things: Inflation, taxation and making war! He once bluntly told a U.S. president, "government is obese, muscle-bound and senile." Yet he wasn't against government, per se. He wanted a strong, healthy, vigorous government. To accomplish this goal, he recommended privatization of many state services. In fact, Peter Drucker and Robert Poole (founder of Reason magazine) invented the term "privatization." Drucker was a longtime supporter of privatizing pension plans, both by government and corporations (he preferred defined-contribution plans like 401k's and IRA's, rather than defined-benefit plans such as Social Security and corporate pensions).

3. Be an Optimist - Look for Bull Markets Around the World

Be an optimist. Drucker was encouraged by the collapse of the Soviet Marxist model in the early 1990s, which helped developing countries privatize, denationalize and open up their domestic economies to foreign capital. He recommended investing in emerging market economies. Not surprisingly, stock markets have boomed in Russia, Eastern Europe, Asia and Latin America.

In the U.S., he was a big supporter of tax cuts, especially tax breaks for capital investment and entrepreneurship. The corporate income tax, said Drucker, is the "most asinine of taxes" and should be abolished.

Business According to Peter Drucker: the Ideal "Social Institution"

Finally, he felt that the private sector - major corporations and nonprofit institutions - was the only "free, non-revolutionary way" to a stable, prosperous society. Business and private charities provided a superior alternative to socialism and big government. According to Drucker, only business could assume the social responsibilities such as job security, training and educational opportunities, and social benefits such as health care, retirement, paid vacation, etc. When he first suggested the private sector as the ideal "social institution" after World War II, Peter Drucker was considered a renegade. (Even General Motors thought he was nuts.) But once again, he was proven right.

Answer 2

Peter Drucker invented the theory of Management By Objectives. It is the idea that you can improve employee's performance by giving them objectives to achieve.