4 Ways to Implement Peter Drucker’s Theory of Management

What is the Drucker theory of management?

Using his extensive experience as a consultant for companies like IBM, General Motors and Procter & Gamble, Drucker wrote 1954’s The Practice of Management. In it, he presented a holistic approach to organizational operations and introduced a business management discipline — the first in business history. He believed successful managers must understand subjects like psychology, science and religion and be guided by ethical and moral principles.

“Peter Drucker focused his message on the belief that all businesses need and deserve to be managed well and must think about their future no matter how successful they have been,” explained Michael Kelly, executive director of The Drucker Institute.

Drucker encouraged creative rather than bureaucratic management and insisted managers should, above all else, be true leaders. Instead of setting strict hours and discouraging innovation, Drucker favored a more flexible, collaborative approach.

At the core of Drucker’s management theory are the concepts of decentralization, knowledge work (he coined the term “knowledge worker”), management by objectives (MBO), and the SMART goal method:

• Decentralization: Decentralization means managers should empower employees by delegating tasks.
• MBO: MBO involves superiors and subordinates working together to set common goals, identify employees’ areas of expertise and define measurable expected results.
• SMART goals: The SMART method calls for goals to be specific, measurable, achievable, relevant, time-specific and recorded.

Drucker’s theory of management and the origins of CSR

Corporate social responsibility (CSR) is a type of business self-regulation that prioritizes being socially accountable and contributing to the well-being of communities and society. Small businesses can implement CSR in various ways, including the following: 

• Being environmentally conscious
• Establishing a comprehensive diversity, equity and inclusion policy in the workplace
• Treating employees with respect
• Introducing employee volunteerism and charitable initiatives
• Ensuring ethical business decisions

“Corporations are also as much social entities as they are economic ones — which laid the foundation for corporate responsibility externally, where organizations can be a good corporate citizen, and internally by creating a positive company culture,” Kelly noted.

While embracing CSR has become the modern standard for ethical and progressive companies, the concept’s origins go way back. Howard Bowen, an American economist, might be credited with connecting the responsibility of corporations to society in his 1953 book Social Responsibilities of the Businessman. Still, it was Drucker who introduced CSR as an integral part of business strategy and management.

“[Drucker’s] approach is directly related to corporate social responsibility, as it makes businesses responsible not only to shareholders but also to stakeholders, including employees, customers, and the community,” explained Lucas Botzen, HR expert and CEO of Rivermate. “As such, Drucker indicated that businesses must balance profit-making and social good, a concept that appeals to modern CSR movements.”

CSR elements businesses must integrate

In his books, Drucker outlined several aspects of CSR that people-centered companies must acknowledge and integrate to be successful:

• Leaders in every sector are responsible for the community as a whole. Drucker believed business leaders must embrace the “spirit of performance.” As he saw it, that meant displaying high levels of moral and ethical integrity in their actions, focusing on results, empowering employees, and thinking beyond financial obligations to shareholders. Ultimately, Drucker believed business leaders should be serving the common good. According to him, if managers don’t take responsibility for the community, no one else can or will.
• It’s up to the company to create an ethical customer. Just like buyers push modern companies to embrace CSR, companies shape customers’ expectations and ethical buying decisions by promoting ethical business behavior. If your business can prove its sustainable product or positive work environment is better than the alternative, it promotes similar values and preferences in your customers.
• There is an unlimited liability clause. Drucker believed that if an organization takes action — no matter how intentionally socially responsible — it assumes responsibility for that action’s future outcomes. For example, Walmart’s low-price strategy seemingly benefited low-income customers. However, it led to unjust competition that forced many small businesses to close down and the unethical treatment of its employees caused by its cost-saving goals.

How businesses can implement Drucker’s theory of management

If you agree with Drucker’s theory, you can implement it into your management approach in many ways. Here are a few tips for success.

1. Delegate power equitably.

While it might be tempting for a manager to take on all the “important” tasks, knowing how to delegate responsibilities effectively can empower your team and awaken their own sense of responsibility. To achieve the best results, your employees must feel valued and know their opinions matter.

“Drucker urged decentralization, meaning the lowest level of workers in a company should be empowered with decision-making authority,” Botzen noted. “Decentralization of management empowers companies to react more quickly to changes in the market and to foster innovation by endowing the relevant employees with decision-making power close to the issues. This is crucial for speed in modern times.”

When workers are treated as equals, they’re more confident and motivated in their work, which benefits the company as much as it benefits them. Speak to each employee as though their role

2. Encourage collaboration.

Instead of pitting employees against each other or fostering an environment where employees keep to themselves, encourage workplace collaboration by urging team members to work together and share ideas, tips and guidance.

A collaborative environment doesn’t eliminate independent work. Instead, it creates a culture where team members feel comfortable asking for help or inspiration from others. Your staff should feel like a team, and you should serve as their coach. 

3. Increase efficiency using management by objective.

Utilizing the concept of MBO can help your organization boost productivity. This management approach requires balancing your employees’ objectives and your organization’s objectives to achieve optimum output. 

For MBO to succeed, ensure the following parameters are met:

• Your meetings result in defined objectives.
• You monitor the progress of the achievable goals you set.
• Your team members receive daily feedback on their performance.
• You reward high achievers.
• Your key business drivers are growth and development.

Your goals should follow the SMART structure. Set and discuss them with your team to ensure everyone is on the same page and understands their part in the organization’s overall objectives. 

4. Boost innovation.

Innovation is essential to business success. You want your workers to be confident and willing to take risks. Create an innovative atmosphere and lead by example, showing your employees mistakes are not shortcomings.

If your team sees that you’re human — and that effort doesn’t always lead to success — they’ll feel more comfortable risking failure. Be transparent with them, support their ideas and never punish creativity.

Using Drucker’s theory of management for success

Businesses worldwide have implemented Drucker’s ethical approach to management for over 80 years — and for good reason. By applying his principles of decentralization, objective-driven management, just treatment of employees, and socially powered corporate missions, you can improve your team’s performance, foster loyalty, and empower innovation. Ultimately, you can  ensure your company’s success.

“In seeking to apply the ideas that are put across by Drucker, every business owner must work on developing a solid performance management system wherein individual goals are aligned with the corporation’s CSR objectives,” Botzen advised. “[This process] should include systematic training programs, open communication channels, and a bonus system to ensure appropriate remunerations to financial performance and social contribution.”

While the change might not happen overnight, you can start by bringing your team together to identify critical business objectives, holding a workshop with your leadership team to expand on the principles of delegation and decentralization, and determining the best course of CSR action for your company. Fully embracing Drucker’s theory of management will take time, resources and a change in everyone’s mindset, but the eventual rewards are well worth it.

“Drucker’s management theory provides an exhaustive framework that could, if put into practice, further drive business success and positive social change,” Botzen said.

Sammi Caramela contributed to this article.