I have just come across a very sad news. Peter Drucker has passed away at the age of 95. I got the news through Nova Spivack, Peter Drucker's grandson. For those who don't know Peter Drucker yet, Nova's post on his grandfather reveals the great scholar and man Peter Drucker was. Although I never had the chance to meet him in person, I remember receiving a signed copy of one of his book from his publisher. Sadly enough I lent the book to somebody who never returned it to me.
As a tribute to the "Renaissance man" Peter Drucker was, allow me to re-publish with some editing a post that I devoted to Peter Drucker:
Peter Drucker's intellectual production is amazing by any standard. He is a gifted observer of organizations and one of the most prolific writer on management. In a recent issue of the Wall Street Journal (Download Drucker_on_CEOs.pdf), he embraces the task of "Defining the Duties of the American CEO." Tough task indeed as the acronym these days can not only stand for "Chief Executive Officer" but also for "Chief Everything Officer", "Chief Enabling Officer" or "Chief Everything Oracle" etc...
Drucker proposes a definition of the CEO: "The CEO is the link between the Inside, i.e., "the organization", and the Outside -- society, the economy, technology, markets, customers, the media, public opinion." He then proceeds to explain what he means by Inside and Outside. "Inside, there are only costs. Results are only on the Outside." Somehow, and other things being equal, a very Coasian view of the world.
Drucker assigns the CEO the first task of defining the Meaningful Outside, which, he admits, is not an easy one. My pinch of salt here is that Drucker seems to take the set of Outsides as a given among which the CEO has to choose. Nothing in my view is less sure. Indeed, as University of Chicago Luigi Zingales has it, "the boundaries of the firm are in constant flux" (see in_search.pdf ). The economic definition of the firm differs more and more from its legal counterpart. This observation has given rise to a whole literature dealing with the firm as a nexus of contracts, implicit contracts (think of suppliers...) and corporate governance. Even the answer to the "what business are we in?" question is not enough. It is a good start but it does not tell you much about the boundaries of the firm. Drucker's view on the Inside/Outside delineation seems to be very much predicated on what IMF Raghuram G. Rajan and Luigi Zingales call the "old corporate framework":
- Rigidity: The firm was rigidly defined by the legal ownership of a large set o unique assets,
- Heavy outside ownership: The firm has to rely on outside investors to finance sizeable assets and to bear risks,
- Top-Down Management: Concentration of power at the top and legal claims over assets are the most important source of power.
But, the good old days (were they really?) are over. Now, with the paramount importance of human capital (high mobility), the financial revolution (easier access to financial means) and the technology revolution (allowing us to do things that were in the past only allowed/affordable to the Robbing Barons), power has shifted away from the top of the organization. The world is becoming more horizontal, less vertical and this has drastic implications on the way organizations are to be managed and even more importantly on the way they are going to reshape themselves.
Sadly enough we won't hear the wise comments from Peter Drucker the sage anymore. I do hope Nova has some yet to be published material from his cherished grandfather and that he will share this with us.