Advanced Praise for The Drucker Lectures

“Peter Drucker shined a light in a dark and chaotic world, and his words remain as relevant today as when he first spoke them. Drucker’s lectures and thoughts deserve to be considered by every person of responsibility, now, tomorrow, ten years from now, fifty, and a hundred.”

—Jim Collins, author of Good to Greatand How the Mighty Fall

“Rick Wartzman has brought Peter Drucker alive again, and vividly so, in his own words. These samples of his talks and lectures, because they were spoken not written, will be new to almost all of us. A great and un-expected treat.”

—Charles Handy, author of Myself and Other More Important Matters

“Peter Drucker’s ideas continue to resonate powerfully today. His lectures on effectiveness, innovation, the social sector, education and so much more provide fresh insights that extend beyond his other writings and provide lessons for us all. This book is a gem.”

—Wendy Kopp, CEO and founder of Teach for America

“Rick Wartzman has performed a great service in pulling together The Drucker Lectures. The collection is as far-ranging as Drucker’s thinking and writing. If you have sampled Drucker before, you will find things you haven’t seen. Peter’s ideas live on. You will be energized by reading them anew.”

—Paul O’Neill, former U.S. Secretary of the Treasury

“Peter Drucker inspires awe. From the 1940s until his death a few years ago, he displayed a combination of insight, prescience, and productivity that few will ever match. This superbly edited collection captures both the range of Drucker’s thinking and the sweep of history that informed it. The Drucker Lectures is a riveting read that reveals the depth and subtlety of one of America’s most remarkable minds.”

—Daniel H. Pink, author of A Whole New Mind and Drive

“Rick Wartzman really has brought Peter to life in The Drucker Lectures.Reading this book, I practically felt as though I were seated in the audi-ence, listening to my friend and hero, Peter Drucker—truly one of the great geniuses of management. These lectures are as vital today as they were when Peter delivered them. They cover significant territory, from the importance of faith and the individual to the rise of the global economy. It’s a classic collection that belongs on every manager’s bookshelf.”

—Ken Blanchard, coauthor of The One Minute Manager®

and Leading at a Higher Level

“Thank you, Rick Wartzman, for the pleasure of learning from the witty, informal Peter Drucker as his ideas unfold and his remarkable mind grap-ples with challenges of management that are still with us today.”

—Rosabeth Moss Kanter, Harvard Business School Professor

and author of Confidence and SuperCorp: How Vanguard Companies Create Innovation,

Profits, Growth, and Social Good

The

DRUCKERLECTURES

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The

DruckerLectures

essentiaL Lessons on

ManageMent, society, and econoMy

Peter F. DruckerEdited and with an Introduction by

Rick Wartzman

New York Chicago San Francisco Lisbon LondonMadrid Mexico City Milan New Delhi San Juan Seoul

Singapore Sydney Toronto

Copyright © 2010 by The Drucker Institute. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

ISBN: 978-0-07-175950-2MHID: 0-07-175950-6

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v

CONTENTS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix

Part I1940s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1. How Is Human Existence Possible? (1943) . . . . . . . . . . . . . . . . . . 3

2. The Myth of the State (1947) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Part II1950s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

3. The Problems of Maintaining Continuous and Full Employment (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Part III1960s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

4. The First Technological Revolution and Its Lessons (1965) . . . . . 29

5. Management in the Big Organizations (1967) . . . . . . . . . . . . . . . 37

Part IV1970s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

6. Politics and Economics of the Environment (1971). . . . . . . . . . . . 49

7. What We Already Know about American Education Tomorrow (1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

vi Contents

8. Claremont Address (1974). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

9. Structural Changes in the World Economy and Society as They Affect American Business (1977) . . . . . . . . . . . . . . . . . . 73

Part V1980s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

10. Managing the Increasing Complexity of Large Organizations (1981). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

11. The Information-Based Organization (1987) . . . . . . . . . . . . . . . . 91

12. Knowledge Lecture I (1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

13. Knowledge Lecture II ((1989) . . . . . . . . . . . . . . . . . . . . . . . . . . 105

14. Knowledge Lecture III (1989). . . . . . . . . . . . . . . . . . . . . . . . . . . 113

15. Knowledge Lecture IV (1989). . . . . . . . . . . . . . . . . . . . . . . . . . . 119

16. Knowledge Lecture V (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Part VI1990s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

17. The New Priorities (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

18. Do You Know Where You Belong? (1992) . . . . . . . . . . . . . . . . . . 143

19. The Era of the Social Sector (1994) . . . . . . . . . . . . . . . . . . . . . . 149

20. The Knowledge Worker and the Knowledge Society (1994) . . . . . 157

21. Reinventing Government: The Next Phase (1994) . . . . . . . . . . . 165

22. Manage Yourself and Then Your Company (1996) . . . . . . . . . . . 173

Contents vii

23. On Health Care (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

24. The Changing World Economy (1997). . . . . . . . . . . . . . . . . . . . . 185

25. Deregulation and the Japanese Economy (1998) . . . . . . . . . . . . 193

26. Managing Oneself (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

27. From Teaching to Learning (1999) . . . . . . . . . . . . . . . . . . . . . . . 205

Part VII2000s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

28. On Globalization (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

29. Managing the Nonprofit Organization (2001) . . . . . . . . . . . . . . . 221

30. The Future of the Corporation I (2003) . . . . . . . . . . . . . . . . . . . 229

31. The Future of the Corporation II (2003) . . . . . . . . . . . . . . . . . . . 235

32. The Future of the Corporation III (2003) . . . . . . . . . . . . . . . . . . 241

33. The Future of the Corporation IV (2003) . . . . . . . . . . . . . . . . . . 245

About Peter F. Drucker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

Books by Peter F. Drucker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

173

22

Manage Yourself and

Then Your Company

1996

All management books, including those I have written, focus on managing other people. But you cannot manage other

people unless you manage yourself first. The most crucial and vital resource you have as an executive

and as a manager is yourself; your organization is not going to do better than you do yourself. So the first thing to say about a country like yours or companies like those represented in this room today is: development. That is a very general term. De-velopment is, foremost, dependent on how much you get out of the one resource that is truly under your own command and control—namely, yourself.

When I look at all the organizations I have worked with over a long life, there is a difference between the successful ones and the great majority that are, at best, mediocre. The difference is that the people who are running the successful ones manage themselves. They know their strengths—and it is amazing how few people really know what they are good at.

Most of the people I know who have done an outstanding job—and the number is not very large—have systematically or-ganized finding out what they are really good at. You do it, by the way, by using a very old method that has nothing to do with mod-

174 The Drucker Lectures

ern management and that goes back thousands of years. When-ever you do something of significance, whenever you are making an important decision, and especially whenever you are making a decision about people (that is your most important decision), you write down what you expect the results will be. Then, nine months later or a year later, you look at it. And then you will see very, very soon what you are good at. You will see very, very soon what you need to learn, where you need to improve. And you can also see very, very soon where you are simply not gifted.

There are no universal geniuses, but a person can be very good. For instance, I have seen people who can just look at a market and understand it. They do not need any tools or re-search. But they are very often hopeless when it comes to man-aging people. So find out what you are really good at and then make sure you place yourself where your strengths can produce results. Yes, one has to work at overcoming weaknesses. But even if you work very hard and you manage to become reasonably competent in an area in which you really are not gifted, you are not going to be a top producer. You will be a top producer if you put yourself where your strengths are and if you work on devel-oping your strengths.

The second thing to pay a great deal of attention to is how and where you place other people. Again, place people where their strengths can produce results. When you look at an or-ganization, everybody has access to the same money. Money is totally impersonal; everybody has access to the same materials. What differentiates a successful organization from most oth-ers is the way they place their people. It is not only that they keep on developing their people, but they first place them where the strengths of the people can produce results and where their weaknesses are irrelevant.

One cannot stress it enough in a country like yours—which is trying to catch up and does not have too much time—that the

Manage Yourself and Then Your Company 175

people at the top set the example. Your company may be very small, quite unimportant. But within that small company you, the executive, are exceedingly visible. Most management is by example. And whenever you look at truly outstanding organiza-tions there is one person, or maybe two or three people, who set an example. And that also is tremendously convincing. Here is a top executive who performs, and then other people know that they can do it, too. This is especially important in a country like yours, which has to do so many things at the same time because you have to catch up with most of the history of this century.

The most crucial area of all, meanwhile, may well be per-sonal behavior, the area of ethics. I am always asked what I mean by that. The answer is a very, very old one; it goes back to the ancient Greeks. I call it the mirror test. Every morning when you look in the mirror, when you shave or when you put on your lipstick, you ask the question: Is the person you see in the mir-ror the person you want to see? Do you want to be the kind of person you see? Maybe “ashamed” is too strong. Are you uneasy because you cut corners, because you break your promises, be-cause you bribe, because you do something for immediate short-term benefits? Are you that kind of a person? Do you want to see, in the mirror, what you actually see? That is the mirror test, and it is vital simply because you may be able to fool people out-side your organization, but you cannot fool people inside your organization. As you behave, they will too. You will corrupt the whole organization.

The next thing to remember is to spend enough time and effort on the outside of your business. A great danger in an or-ganization, and not only a big one, is that you disappear in it. It absorbs you, so that you spend all your time, energy, and ability on internal problems.

The results of any organization, and especially of a business, are on the outside. This is not only where the customers are but

176 The Drucker Lectures

also where the noncustomers are. Even if you are the dominant business in your field, you very rarely have more than one-third of the market, which means that two-thirds of potential customers do not buy from you. You should make sure that you have enough time to look at these noncustomers. Why do they not buy from you? What are their values? What are their expectations?

Change practically always starts with the noncustomers. To-day, almost all of the industries that dominated the industrial landscape in the developed countries in the 1950s and 1960s—the automobile industry, the commercial banks, and the big steel companies—are on the defensive, and in every single case the change started on the outside among the noncustomers. The department stores in the United States and Japan are in terrible trouble, whereas 40 years ago they dominated retail distribution. The change there also started with noncustomers. The basic the-ory of the department store is that the husband is at work, the children are at school, and so the wife can spend a lot of time there and get a feeling that she is doing something for the family, for herself. Suddenly, women—first in the United States and now increasingly all over the developed world—have jobs and they do not have the time. But these educated women were never depart-ment store customers in the first place. And so the department stores, which of all our businesses probably have the best statistics on their customers, did not even realize that the next generation did not shop in their stores until they suddenly lost the market.

So the first thing to do is make sure you are close enough to the outside that you do not have to depend on reports. The best example I know: Many years ago a man built one of the world’s major businesses, the first business that really took advantage of the great change in medicine when the practice shifted from the individual practitioner to the hospital. (That happened af-ter the Second World War in the developed countries.) And he had a simple rule: Every executive in that company, from the

Manage Yourself and Then Your Company 177

time it was very small to when it became a huge multinational, spent four weeks a year outside the company. Whenever a sales-man went on vacation, an executive took his or her place for two weeks, twice a year, and called on customers and sold to custom-ers and introduced new products into the hospital market. As a result, that company understood the rapidly changing market.

Another thing you need to understand is what we now call the “core competencies” of your organization. What are we re-ally good at? What do our customers pay us for? Why do they buy from us? In a competitive, nonmonopolistic market—and that is what the world has become—there is absolutely no reason why a customer should buy from you rather from your competi-tor. None. He pays you because you give him something that is of value to him. What is it that we get paid for? You may think this is a simple question. It is not.

I have been working with some of the world’s biggest man-ufacturers, producers, and distributors of packaged consumer goods. All of you use their products, even in Slovenia. They have two kinds of customers. One, of course, is the retailer. The other is the housewife. What do they pay for? I have been asking this question for a year now. I do not know how many companies in the world make soap, but there are a great many. And I can’t tell the difference between one kind of soap or the other. And why does the buyer have a preference—and a strong one, by the way? What does it do for her? Why is she willing to buy from one manufacturer when on the same shelves in the United States or in Japan or in Germany they are soaps from other companies? She usually does not even look at them. She reaches out for that one soap. Why? What does she see? What does she want? Try to work on this.

Incidentally, the best way to find out is to ask customers not by questionnaire but by sitting down with them and finding out. The most successful retailer I know in the world is not one of the

178 The Drucker Lectures

big retail chains. It is somebody in Ireland, a small country about the size of Slovenia. This particular company is next door to Great Britain with its very powerful supermarkets, and all of them are also in Ireland. And yet this little company has maybe 60 percent of the sandwich market. What do they do? Well, the answer is that the boss spends two days each week in one of his stores serv-ing customers, from the meat counter to the checkout counter, and is the one who puts stuff into bags and carries it out to the shop-pers’ automobiles. He knows what the customers pay for.

But let me go back to the beginning: The place to start man-aging is not in the plant, and it is not in the office. You start with managing yourself by finding out your own strengths, by placing yourself where your strengths can produce results and making sure that you set the right example (which is basically what eth-ics is all about), and by placing your people where their strengths can produce results.

From a talk delivered to the International Executive Development Center in Slovenia.