The Management Theory of Peter Drucker

The management theory of Peter Drucker

Peter Drucker, a multi-published author, is often referred to as the Father of Modern Management, with his ideas and principles profoundly impacting the way organizations are managed and led.

“Drucker felt that all businesses need and deserve to be managed well,” said Drucker disciple Bruce Rosenstein, author of two books about the management guru and his theories: Create Your Future the Peter Drucker Way and Living in More Than One World: How Peter Drucker’s Wisdom Can Inspire and Transform Your Life. “Part of that, he believed, was thinking about the future.… He recognized that even if you’re really successful now, you will fail later if you’re not thinking about the future.”

Rita McGrath, an author and academic director in executive education at Columbia Business School, echoed that sentiment, saying one of Drucker’s most famous management theories is that the modern business has only two functions: innovation and marketing. 

“If you get either of those wrong, you’re out of business,” she said.

Drucker’s beliefs are especially relevant to small businesses, emphasizing the need for organizations to be flexible, innovative and customer-focused. At the same time, they should recognize the importance of keeping employees engaged and instilling strong leadership. 

Management theory takeaways

The biggest takeaways from Drucker’s management theory are to focus on results and learn and adapt.

1. Focus on results. Managers should be concerned primarily with achieving outcomes and creating value for customers and stakeholders, according to Drucker. That entails setting clear objectives, measuring performance against those objectives and continuously improving processes to enhance productivity and efficiency.
2. Learn and adapt. Drucker believed organizations should be proactive in anticipating and responding to changes in the external environment. Managers must scan the business landscape constantly, gather information and adjust strategies accordingly. Learning and innovation should be ingrained in a business’s culture.

Key terms in Drucker’s management theory

In Drucker’s own words: “Management is doing things right; leadership is doing the right things.” Drucker’s management theory embodies many modern concepts, including:

• Management by objectives (MBO): One central aspect of Drucker’s theory is the concept of management by objectives. He proposed that managers and employees should establish mutually agreed upon goals that align individual objectives with overall organizational ones. Regular feedback and performance evaluations should be conducted to track progress and provide guidance. 
• SMART method: For organizations and individuals, Drucker believed in fellow management consultant George T. Doran’s concept of SMART goals — goals that are specific, measurable, achievable, realistic and time-bound. The SMART method is a means of making sure an objective is valid.
• Decentralization: Drucker focused on decentralizing — or democratizing — workplace management. He wanted businesses to empower their staff so all employees would feel valued and know their contributions and voices mattered. He believed in assigning tasks that inspire workers, rewarding front-line workers with responsibility and accountability, and uniting supervisors and their subordinates to achieve shared organizational goals.
• Knowledge work: Knowledge workers, such as engineers and analysts, are white-collar employees whose jobs require handling or using information. Drucker — who foresaw the knowledge-based economy years before the rise of computing and the internet — placed a high value on workers who solved problems and thought creatively, Rosenstein said. He wanted to foster a culture of employees who could provide insights and ideas as well as labor.
• Workforce development: Drucker felt strongly that managers should improve and develop themselves and their team members, Rosenstein said. Investing in employee training is intrinsic to Drucker’s philosophy. He believed, for example, that external development — via participation in industry trade groups and conferences — is especially valuable.
• Corporate social responsibility: Rosenstein said Drucker was a holistic thinker. Instead of looking at businesses as discrete entities, he saw them as components of a larger social system. In that context, he argued that businesses should see themselves as part of a community and make decisions in that regard — with equal respect for their external and internal impact. Drucker even viewed profits through a social lens: A company is responsible for being profitable, he argued, so it can create jobs and wealth for society.
• Organizational culture: Companies have always had cultures, whether they’re positive or negative, helpful or harmful. But Drucker was among the first to suggest that managers could — and should — shape and change workplace culture. “The spirit of an organization is created from the top,” he said in his book Management: Tasks, Responsibilities, Practices. “If an organization is great in spirit, it is because the spirit of its top people is great. If it decays, it does so because the top rots.… No one should ever be appointed to a senior position unless top management is willing to have his or her character serve as a model for subordinates.”
• Customer experience: According to the Drucker Society of Austria, steward of Drucker’s philosophy in his home country, Drucker insisted that businesses have only one real purpose: to create customers. By viewing business operations and opportunities through that lens — the customer, not the business, decides what’s important — he established a predicate for customer-focused companies such as Apple, Zappos and countless others that prioritize a great customer experience.

How Drucker’s theory applies to SMBs

Drucker’s management theory is highly applicable to small and midsize businesses (SMBs), and it can provide valuable tools for their effective management and growth. Drucker’s principles can be tailored and implemented in the following ways.

Adopt a results-oriented approach.

Drucker’s focus on achieving results is particularly relevant because SMBs often operate in resource-constrained environments and need to optimize performance. SMBs can benefit from setting clear objectives and tracking progress toward those goals regularly. 

“[Drucker’s theory requires] a sense of where you’re going, what good results look like and how you’re going to achieve them,” Rosenstein said. “You have to think in a very concrete way about what you want to accomplish so that you can get there, and help other people get there.”

By measuring performance against objectives, SMBs can identify areas for improvement and take necessary actions to enhance productivity and profitability.

Consider decentralization and empowerment.

SMBs often have flatter organizational structures, which makes it easier to distribute decision-making authority. By involving employees in the decision-making processes and encouraging their input, SMB owners and managers can empower and engage their employees. 

Drew Yancey, founder of Teleios Strategy, emphasized the value of this approach and recommended viewing employees as “partners in creating value” rather than merely resources to manage. 

“When leaders shift their mindset from controlling to enabling, they unlock tremendous potential,” Yancey said. “This plays out in practical ways — from involving team members in strategic decisions to creating autonomous work teams that can respond quickly to customer needs.”

Prioritize continuous learning and adaptation.

SMBs operate in dynamic and competitive markets. Drucker’s emphasis on continuous learning and adaptation could be crucial to their success. SMBs should foster a culture of learning that encourages employees to develop new skills, explore innovative approaches and adapt to changes in the market. Drucker’s principles encourage SMBs to regularly scan the external environment, gather market intelligence and make strategic adjustments as needed.

“Drucker wrote about ‘the future that has already happened,’” Rosenstein said. “Think about self-driving cars, or blockchain, or artificial intelligence. These are things that have already happened but whose full social impact hasn’t yet been realized. Drucker would have argued that your business needs to be thinking now about what those things are going to mean for your business down the road.… His advice is timeless. It will still apply years from now — whatever the current trends and technologies are.”

Lead effectively.

Drucker’s insights on leadership are particularly relevant for SMBs, where leaders often play multiple roles. SMB owners and managers should provide clear direction, create a positive work environment and inspire their teams. They should invest in developing their employees, fostering teamwork and nurturing a culture of open communication and collaboration.

By focusing on specific areas of management, SMBs can improve their performance, engage employees, adapt to market changes and foster a culture of innovation. Drucker’s principles, along with those of other renowned theorists, provide valuable guidance for SMB owners and managers to effectively manage and grow their businesses in a competitive landscape.

Alternatives to Drucker’s management theory

Drucker’s management theory may work well for your business, but it’s important to explore other theories, because different situations and team dynamics may call for alternative approaches. 

“[Adjusting one’s leadership style to the situation] requires managers to be knowledgeable about different management theories and styles so they [can best choose] one to employ, depending on the context and people in play,” said Shwetank Dixit, the founder of Voohy, a platform for leadership and career skills training. 

Here are some other popular management theories to consider that can help support your team. 

Contingency management theory explained

Fred Fiedler’s contingency management theory emphasizes that there is no one-size-fits-all approach to managing a business — different internal and external factors call for varying solutions. The theory highlights the importance of adaptability, self-awareness and objectivity. It also holds that successful managers need to employ a natural leadership style and situational favorableness to best meet the needs of their team. 

>> Learn more: The Management Theory of Contingency

Covey management theory explained

Stephen Covey’s management theory advocates for becoming better leaders by changing from within. His book, The 7 Habits of Highly Effective People, suggests that leaders must implement certain practices for success: being proactive, envisioning the future, prioritizing, considering others’ needs, actively listening and understanding, encouraging creative cooperation through synergizing, and practicing self-care. 

>> Learn more: The Management Theory of Stephen Covey

Follett management theory explained

Renowned for her influence on classical management theory, Mary Parker Follett developed Follett’s management theory, which emphasizes “powering with” — instead of “powering over” — employees. The theory uses four coordination principles: direct communication between managers and employees, mastering coordination early, fostering reciprocal responsibilities among employees, and maintaining continuous coordination. 

>> Learn more: The Management Theory of Mary Parker Follett

Fayol management theory explained

According to Henri Fayol’s management theory, the way leaders approach employee management and interaction sets the tone for their organization. The theory highlights the importance of maintaining control as a leader through planning, organizing, commanding, coordinating and controlling teams. 

>> Learn more: The Management Theory of Henri Fayol

Juran management theory explained

Joseph Juran’s management theory uses a structured approach called the Juran Trilogy (or the Quality Trilogy) to improve an organization and achieve quality from the top down. The approach consists of three key stages: quality planning, quality control and quality improvement. 

>> Learn more: The Management Theory of Joseph Juran

Kanter management theory explained

Rosabeth Moss Kanter’s management theory focuses on making positive organizational improvements through a business’s operations and leadership. The Harvard professor’s theory emphasizes six steps for organizations to promote positive change: showing up, speaking up, looking up, teaming up, never giving up and lifting others up. 

>> Learn more: The Management Theory of Rosabeth Moss Kanter

Mayo management theory explained

As the founder of the human relations movement, George Elton Mayo set out to disprove that money is the main driver for employee motivation and productivity. The Mayo management theory highlights that, emphasizing that employees are more motivated by relational factors, such as teamwork or recognition, than by monetary benefits or their environment.

>> Learn more: The Management Theory of Elton Mayo

Mintzberg management theory explained

Henry Mintzberg’s management theory emphasizes that management skills aren’t taught in school; they’re developed through real-life experiences. The Canadian management expert believes companies should adopt one of five organizational structures — adhocracy, machine organization, professional organization, entrepreneurial organization or divisional organization — depending on factors such as their industry, history and goals. 

>> Learn more: The Management Theory of Henry Mintzberg

Schein management theory explained

Edgar Schein’s management theory highlights how a business’s culture impacts — and can sometimes hinder — organizational change. By understanding and working with three levels of culture — artifacts, espoused values and basic assumptions — leaders can improve their organizational culture to promote positive change. 

>> Learn more: The Management Theory of Edgar Schein

Weber management theory explained

German sociologist Max Weber’s management theory, otherwise known as the bureaucratic theory, emphasizes the importance of adhering to strict rules and regulations. The theory advocates taking a bureaucratic approach to management, ensuring equal treatment and work distribution based on skill sets and qualifications, rather than relying on personal connections.

>> Learn more: The Management Theory of Max Weber

Skye Schooley contributed to this article. Source interviews were conducted for a previous version of this article.