January 23, 2019

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 weillbeing. 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 thow 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 sutain 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 diagreed 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.

Stephen P. Waring, "Peter Drucker, MBO, and the Corporatist Critique of Scientific Management" in
A mental revolution: scientific management since Taylor, Nelson, Daniel

Joint article for Management Revision of the day: Business Conceptualization - Management Insights from Economics, Engineering Economics, Managerial Economics, Industrial Economics

January Month Management Knowledge Revision Plan

MBA Core Management Knowledge - One Year Revision Schedule

Updated 24 Jan 2019, 22 Jan 2016, 28 Nov 2011

Business Firm and Society - The External Environment, Social Responsibility and Ethics - Review Notes

Koontz and O'Donnell - Principles of Management Book Chapter

Managers of business firms or organizations in other walks of life are operating in pluralistic societies in which many groups represent various interests.

Enterprises do not live unto themselves alone. They are interlocking institutions that man has found it beneficial to organize to serve his needs. The family came into existence, then tribe, government, army, education, religion etc. slowly came into existence. The proliferation of institutions and enterprises has proceeded down to our day, where they often exist in bewildering confusion.

No ideal situation exists. People or individuals vary from stupid to the genius, from the passive to the  aggressive, from kind to the cruel, from the slothful to the energetic, from the cunning to the artless, from the humble to the proud. In an ideal society, the individuals would in concert determine when and which institutions and enterprises they would create to better serve themselves. But in practice many institutions and enterprises which have been created to serve them are the products of aggressive leaders-the few who care for many. They may not create always with care motive, they may do it for self-aggrandizement also.

The Historical Function of Business

Koontz and O'Donnell cite the explanation by economists. Economics conceives a business to be any activity that is concerned with the production (or purchase) for sale of scarce goods and services.The purpose of economic activity is always the same: it is to employ human and natural resources, and the man made capital equipment and components in the production of goods and services which the ultimate consumers want. Thus the purpose of business is to satisfy the economic wants of people, and since resources are scarce, their efficient use is a moral requirement.

Economic Organization of the Society or Country

The typical organizational patterns include free enterprise, socialism, communism, and the welfare state.

The Business of Business

There is no doubt whatever that the function of business is to make economic goods and services available for consumption. But it is not enough to produce economic goods; the first duty of business is to produce them efficiently.

Efficiency in resource employment is undoubtedly best achieved through free enterprise. It is the business of state to make sure through legislation and regulation that the private economy does not fail in its function to efficiently utilize resources to maximize the satisfaction of consumer wants for economic goods and services. The states are not able to do it by means of a monolithic bureaucracy as per the available experience.

External Environment and Stakeholders



Price Levels

Government policies

The term technology refers to the sum total of the knowledge we have of ways to do things.



Social attitudes, beliefs, and values

Business Ethics

The practice of ethics is one of the social responsibilities of business. Unethical conduct is highly publicized whenever it is found, but most of the "sharp practices" remain hidden within the organizations or their networks.

Morals are customs with a high degree of social acceptance.

Business and professional codes

Koontz and O'Donnell note that widespread tendency of business groups and professional people to adopt codes of conduct has scope to further ethical practices and development of science of ethics. Examples of codes of conduct include those of medical, legal and accounting professions.

Purpose of declaring codes of conduct

The usual reasons are two. In the first place, it is considered that the publication of a code of ethics will improve the confidence of the customer, client, patient, or voter in the quality of service he may expect. A second reason is to assure standard practices in the relationships between members themselves. McGuire pointed out two additional reasons. They can be used as a crutch by the weak to refuse to do unethical acts. They also help in detection of unethical behavior in competitors and employees.

Businessmen have an obligation to all others in society to use scarce resources efficiently and, in so doing, to make certain that every decision stands firmly upon the applicable moral customs and any generally accepted ethical principles.

Sentences from Harold Koontz and Cyril O'Donnell,  Principles of Management, Fourth Edition, McGraw-Hill, New York, 1968, on Efficiency.

p. 742

The goal of all managers in all enterprises must be the effective accomplishment of purpose (whatever it is) with the most efficient utilization of resources-human and material-at their disposal.

The purpose of business is to satisfy the economic wants of people, and, since resources are scarce, their efficient use is a moral requirement.

p. 744
It is not enough to produce economic goods; the first duty of business is to produce them efficiently.

Since businessmen obtain control scarce resources by the purchase or lease of land and capital and hire human services, they have a moral responsibility for using them efficiently in the production

It is the business of the state to make sure through legislation and regulation that the private economy does not fail in its function to efficiently utilize resources to maximize the satisfaction of consumer wants for economic goods and services.

Updated 24 January 2019, 29 Jan 2015, 12 December 2011

Part of

January - Management Knowledge Revision


January - Industrial Engineering Knowledge Revision Plan


January 14, 2019

January - Management Knowledge Revision


 Management News

To take care of holidays during December - January revision articles are specified from third week only.

Frederick Taylor
Picture Source:

January 3rd Week  15th to 19th 

Development of Management Subject. Theory of Management developed over a long a period of time with periodic quantum jumps in thinking.
Scientific Management/Shop Management - F.W. Taylor Introduction

Principles of Industrial Engineering - Taylor - Narayana Rao - Derived from Principles of Scientific Management by F.W. Taylor



Taylor - Narayana Rao Principles of Industrial Engineering

Industrial Management and General Management - Henri Fayol
Importance of Human Relations in Management - Elton Mayo and Rothelisberger (Insights from Psychology)

Organization as a Social Group (Insights of Sociologists)
Mathematical Models and Their Optimization

Control of Variation in Inputs and Outputs (Insights from Statistics)
Systems Approach in Management

Business Conceptualization (Insights from Economics, Engineering Economics, Managerial Economics, Industrial Economics)
Peter Drucker - Business Organization - Economic Function - Social Responsibility

January 4th Week   22 to 26,  

Global and Comparative Management
Management: Definition and Process

Process and Functions of Management -

The Nature and Purpose of Planning - Review Notes
Objectives and Goals - Review Notes

Strategies, Policies, and Planning Premises - Review Notes
Business Firm and Society - The External Environment, Social Responsibility and Ethics - Review Notes

Decision Making - Review Notes  -
Summary - Principles of Planning

February Month Management  Knowledge Revision

One Year MBA Knowledge Revision Plan

Month                 Subjects

January      (Principles of Management)
February    (P.of M & Marketing Management ) 
March        (Mktg. Mgmt. & Operations Management)
April          (Supply Chain Management and Financial & Cost Accounting)

May          (Management Accounting & Organizational Behavior)
June          (Innovation, Industrial Engineering and Economics)
July           (Economics, Engineering Economics, & Managerial Ethics)
August      (Statistics, Quality and Six Sigma, OR & BRM)

September (HRM, Mentoring, Training, Project Management, Maintenance, Energy & Environment Management)
October     (Information Technology and Management Information Systems, Warehousing and Transport)
November (Strategic Management & Financial Management)
December (Business Laws, Negotiation, Taxes and Government Relations)

Industrial Engineers support Engineers and Managers in Efficiency Improvement of Products, Processes and Systems

Industrial Engineering - January Knowledge Revision

Updated 15 January 2019,  4 January 2018,   26 December 2016,  4 December 2016, 26 January 2016