Management Theory Review: Peter Drucker - Business Organization - Economic Function

January 18, 2022

Peter Drucker - Business Organization - Economic Function - Social Responsibility

In the book, In The End of Economic Man, published in 1939, Drucker explained what had happened when central European managers had failed to meet social responsibilities. The managers had valued people only for their labor and treated them as factors of production. As they were treated like things, people had felt isolated and governed by irrational, "demonic forces" that do not think of their wellbeing. Society had ceased to be a community of individuals bound together by a common purpose in various institutions.

In a desperate situation, some were drawn to Marxism, which in turn undercut traditional values and institutions and paved the way for Fascist dictatorships. Both Fascism and Marxism, as Drucker saw them, were escapist; they could throw out established order using existing discontent as leverage but never fulfill human needs.

People need a society that could provide freedom, "status," and "function," and it is the task of business managers to help create such a society by shaping the workforce into the industrial citizens and the company into a community.

In subsequent works, particularly in The Future of Industrial Man (1942), Concept of the Corporation (1946), and The New Society (1949), Drucker emphasized that only satisfying work could fulfill the needs of individuals for autonomy, security, dignity, usefulness, belonging, and peer respect. Work was needed as much to provide "status and function" as income. People will be frustrated when managers valued labor only as a commodity. Through responsible acts of "citizenship" by manager and worker alike, the social and the economic needs of the individual, could be brought into "harmony" and thus fulfilled in the business organization.

In the case of managerial goals, Drucker acknowledged that economic goals must come before social ones. If the firm went bankrupt, managers would be unable to sustain the corporate community. Corporate "survival" depended on making a profit that not only covered costs but provided insurance against future risks. To make such a profit, managers must "create" customers by providing them with useful products and services.

The primacy of economic performance, however, should not obscure the thought that the business corporation was "as much a social organization, a community and society" as it was "an economic organ." In the "new society," which was an employee society, the firm had a responsibility to realize social values and fulfill individual needs.

Drucker expanded his ideas in later years by insisting that managers select socially responsible goals for the enterprise. He rejected the power of the market and the notion that a "hidden-hand" in the marketplace naturally converted "private vices" into "public virtues." He had never believed that competition automatically solved social problems. He disagreed with Milton Friedman's argument that businessmen should stick to "business" and should refrain from appointing themselves guardians of the common good. According to Drucker, business men were running social organizations that could help society and realize "social values." Like anyone else, they also had "a self-interest in a healthy society," and so they should follow normal ethical imperatives. Moreover, for Drucker, managers were the only true "leadership group" in modern society. If they did not "take responsibility for the common good," then no one else could or would.

Reference
Stephen P. Waring, "Peter Drucker, MBO, and the Corporatist Critique of Scientific Management" in
A mental revolution: scientific management since Taylor, Nelson, Daniel
https://kb.osu.edu/handle/1811/6191

Peter Drucker The End of Economic Man,
https://books.google.co.in/books?id=jKs0DwAAQBAJ