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Peter Drucker: Management by objectives (MbO)

Peter Drucker is one of the most influential writers on management and is considered as the founder of modern management approaches. Unlike earlier management theorists like Fayol, Drucker saw people as a resource, not a cost, and believed that the workforce should be empowered to create better motivation and customer satisfaction. His research was prolific and he published 33 management books during his working life. His early books made a significant contribution to establishing what constitutes management practice. His later books concentrated on the complexities of management and on themes of change, uncertainty and turbulence post 1980.

Part of Drucker's success was his ability to identify and write about business trends before others recognised them and to make accurate forecasts about organisational change. For example, in Managing in Turbulent Times (1980), Drucker analysed the rise of the 'knowledge worker' who should be allowed freedom by managers to develop their skills and expertise. He wrote

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In the knowledge organisation the 'supervisor' has to become an 'assistant', a 'resource' and a 'teacher'.

The Practice of Management was Drucker's second book on management and it established his reputation as a great management thinker. In the book, Drucker states that there is only one valid purpose for the existence of management: that is to create a customer. It is the customer who pays and decides what is important. The book, later updated, identified key tasks of management. The manager must be able to:

  • manage by objectives
  • allow risk taking at all levels of the organisation
  • make strategic decisions and organise tasks and people
  • build teams and measure performance against organisational objectives
  • communicate information quickly and clearly and motivate employees to gain participation and commitment
  • see the business as a whole and integrate his or her function within it
  • to relate the product and industry to the external environment and see economic, political and social developments on a global scale

The Practice of Management is probably best remembered for setting out the principles of 'management by objectives and self control' based on Drucker's work at General Electric. Management by Objectives (MBO) refers to the process of managers and employees agreeing on objectives for the organisation, which Drucker considered to be the only effective way of delegating authority in a large organisation. Drucker urged that targets should be agreed after discussion, not imposed from above. This ensures employees understand and are committed to the organisation's objectives.

Drucker argued that a business survives on profit and that corporate goals should be built according to this. He thought that the work of Taylor played a seminal role, identifying, as it did, that work could be broken down, measured and improved. Drucker's belief that targets for performance must be specific and quantifiable led him to develop the concept of SMART objectives.

SMART objectives

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