Peter Drucker and the New World of Economics, Society and the Individual

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The following was first posted ten years ago today, November 19, 2008. It looks at some of the work of Peter Drucker. His prescient ability to see global change should draw us back to his writings as insightful for our time. 

Reflecting on what I wrote ten years ago, I am more convinced than ever that our past, whether capitalist or socialist, is inadequate to the task of informing us as to what our future will be. We are at a transition point in human history that is unprecedented because there is an opportunity to create new institutions and new ways of functioning as a global society. 

What does this future look like? I cannot say with any confidence. However, my conviction is that the political and economic systems that have been dominant for the past one hundred years have reached a point of exhaustion and growing impotence. What follows? That is the question that should be the center of our conversations going forward. The writings of Peter Drucker would be a good place to start this conversation.

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A couple days ago, I was compelled to pull off my book shelf a couple of books that I read in the early 1990's by Peter Drucker.  I wanted to see what he had to say about economics, globalism and entrepreneurialism that may be relevant to what has been taking place recently.

Peter Drucker, who died at the age of 95 in 2005, was an Austrian born journalist, lawyer, and academic, who came to America in the late 1930's and became known as the father of modern management. His writings on leadership and management helped to frame how we understand business and a changing global social context. The impetus to start my own business came from reading his Innovation and Entrepreneurship in the mid-1980's. To get a good idea of the range and power of Peter Drucker's mind, download his 1994 The Atlantic Monthly article, The Age of Social Transformation.  I'm indebted to Peter Drucker as one of my intellectual mentors. I hope you will find insight and inspiration in these selections of his writing.

Two books I pulled off the shelf to revisit are The New Realities (1989) and The Post-Capitalist Society (1993). I'l quote from the books and then comment.  

Keynes, the post-Keynesians, and the neoclassicists alike cast the economy in a model in which a few constants drive the entire machinery. The model we now need would have to see the economy as "ecology," "environment," "configuration," and as composed of several interacting spheres: a "microeconomy of individuals and firms, especially transnational ones; a "macroeconomy" of national governments; and a world economy.  Every earlier economic theory postulated that one such economy totally controls; all others are dependent and "functions."  In the marginal-utility world of the neoclassicists, the microeconomy of individuals and firms controls the macroeconomy of government.  In the Keynesian and post-Keynesian worlds, the macroeconomy of national money and credit controls the microeconomy of individuals and firms.  But economic reality now is one of three such economies. And soon the economic region (as in the European Economic Community), may become a fourth semi-dependent economy. Each, to use a mathematician's term, is a partially dependent variable. None totally controls the other three; none is totally controlled by the others . Yet none is fully independent from the others, either.  Such complexity can barely be described.  It cannot be analyzed since it allows of no prediction.

To give us a functioning economic theory, we thus need a new synthesis that simplifies - but so far there is no sign of it. And if no such synthesis emerges, we may be at the end of economic theory. There may then be only economic theorems, that is formulae and formulations that describe or explain this or that phenomenon and solve this or that problem rather than presenting economics as a coherent system.  But there also then would be no "economic policy" as the term is now understood, that is, no foundation for governmental action to manage the business cycle and economic conditions altogether.

Economic policy requires that lay people such as politicians understand the key concepts of economic theory, but economic reality is much too complex for that.  It is already difficult, if not impossible, to give answers understandable to a lay person to the simplest economic question.  If there is not again a simple economic theory - or at least one capable of simplification - then there can be only "economic policies" aimed at a specific problem, such as an inadequate savings rate.  There can be only what might be called "economic hygiene" or "preventive economics." These would aim at strengthening the basic health of an economy so that it could resist even severe bouts of economic crisis rather than at curing a crisis or managing it.  (The New Realities, 156-158.)

Those words were written during 1986-87, over twenty years ago, and well describe the economic situation that we now find ourselves in today. A complex global economic environment that does not yield to simple, completely integrated theories. And yet, these different spheres of economic activity - the individual, the firm, the nation-state, the transnational or global corporation and the economic region - are integrated in such a way that a failed bank in the US or a natural disaster in eastern Europe can impact an Indian entrepreneur or a Japanese merchant.

A half decade later, Drucker wrote.

Only a few short decades ago, everybody "knew" that a post-capitalist society would surely be a Marxist one.  Now we all know that a Marxist society is the one thing that the next society is not going to be.  But most us also know - or at least sense - that developed countries are moving out of anything that could be called "capitalism." The market will surely remain the effective integrator of economic activity. But as a society, the developed countries have also already moved into post-capitalism. It is fast becoming a society of new "classes," with a new central resource at its core. ... the real, controlling resource and the absolutely decisive "factor of production" is now neither capital nor land nor labor.  It is knowledge.  Instead of capitalists and proletarians, the classes of the post-capitalist society are knowledge workers and service workers. (Post-Capitalist Society, 5-6.)

Political and social theory, since Plato and Aristotle, has focused on power.  But responsibility must be the principle which informs and organizes the post-capitalist society. The society of organizations, the knowledge society, demands a responsibility-based organization.

Organizations must take responsibility for the limit of their power, that is, for the point at which exercising their function ceases to be legitimate.

Organizations have to take "social responsibility."  There is no one else around in the society of organizations to take care of society itself.  Yet they must do so responsibly, within the limits of their competence, and without endangering their performance capacity.

Organizations, in order to function, have to have considerable power. What is legitimate power? What are its limits? What should they be?

Finally, organizations themselves must be on responsibility from within, rather than on power or on command and control. (Post-Capitalist Society, 97.)


As I have tried to understand the political and economic developments of the past two months, I've talked with many people about what they think and are experiencing.  The one constant is the sense of having no power or control over their circumstances. They feel at the mercy of forces beyond their reach. This certainly means that we have fully arrived at the world Peter Drucker saw forming twenty plus years ago.

What are we to do?  I believe we need a shift in perspective about who we are individually, about the nature and responsibility of the leadership of organizations, and what is within our power to achieve in a realistic sense.

First, we need to think of ourselves as personally responsible for our lives, even if we feel that we've lost control of the environment of our lives. Only by accepting responsibility for our lives will we make the necessary changes to create the climate in which we can succeed. A decade ago, Daniel Pink wrote a provocative article in FastCompany magazine, followed by a book, called Free Agent Nation. His singular idea is that regardless of what we do, who we work for or with, that we must think of ourselves as "free agents" responsible for our vocational lives.  We must take charge of our life situation, and not transfer authority and responsibility for it over to some other person or organization. Only by taking personal responsibility will we find solutions to our immediate problems. This requires that we must become more open to new possibilities, new relationships, new directions and new challenges to meet.

More than ever this means that each of us must become learners. If you are bored by reading, try one of the books that offers short selections by Drucker. Stimulate your mind to think about ideas and their application. Begin to write down your thoughts in response to what you read. Think of reading as a conversation with an author. Find someone to share you thoughts, or better, share them on a weblog. It is not enough to read widely, but to think widely by learning to express what we feel in our hearts about what we read and see.

To prepare ourselves to lead in this new world that Drucker describes, we must discipline ourselves to begin to ask questions that lead us to people who can help us learn. If you need help, go to your local community college, sign up for continuing education courses, work on a new degree, learn a whole new field of knowledge, before you need it.  No one is going to come invite you to read and expand your education, even though I am doing that very thing at this moment. We must take responsibility to do it for ourselves. As President Eisenhower said, "Not all readers are leaders, but all leaders are readers." Learn to be an effective reader. If you need advice, just ask.

Ultimately this leads to the conclusion that I've been writing about for many years, that leadership begins with personal initiative. It is the initiative of taking personal responsibility for the environment you are in. Whether you are a CEO, a manager, a sales person, or a line worker, leadership emerges from the initiative of the individual to do what is needed to make a difference right now for the right reasons and in the right way.

Second, I suggest that each of us begin to think of ourselves as knowledge workers. Again, here's Peter Drucker.

Post-Capitalist Society deals with the environment in which human beings live and work and learn.  It does not deal with the person.  But in the knowledge society into which we are moving, individuals are central.  Knowledge is not impersonal, like money.  Knowledge does not reside in a book, a database, a software program; they contain only information. Knowledge is always embodied in a person; applied by a person; taught and passed on by a person; used or misused by a person. The shift to the knowledge society there puts the person in the center.  In so doing it raises new challenges, new issues, new and quite unprecedented questions about the knowledge society representative, the educated person. (Post-Capitalist Society, 210.)


This means that we have to understand what we know and its value in the context of where we live and work.  These are the assets that each of us can develop and use to great effect in organizations and our communities.

Lastly, we need to think of economics as not only the complex set of interconnected spheres, but also as a bottom-up phenomenon driven by entrepreneurs who create new enterprises that form the economic foundation of communities.

Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service. It is capable of being presented as a discipline, capable of being learned, capable of being practiced. Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicated opportunities for successful innovation. And they need to know and to apply the principles of successful innovation.


But everyone who can face up to decision making can learn to be an entrepreneur and to behave entrepreneurially. Entrepreneurship, then, is behavior rather than personality trait. And its foundation lies in concept and theory rather than in intuition.

Every practice rests on theory, even if the practitioners themselves are unaware of it. Entrepreneurship rests on a theory of economy and society. The theory sees change as normal and indeed as healthy. And it sees the major task in society – and especially in the economy – as doing something different rather than doing better what is already being done.

Entrepreneurs see change as the norm and as healthy. Usually, they do not bring about the change themselves. But – and this defines entrepreneur and entrepreneurship – the entrepreneur always searches for change, responds to it, and exploits it as an opportunity.

Entrepreneurs innovate. Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth. Innovation, indeed, creates a resource. There is not such thing as a “resource” until man finds a use for something in nature and thus endows it with economic value.

Entrepreneurs will have to learn to practice systematic innovation. Successful entrepreneurs do not wait until “the Muse kisses them” and gives them a “bright idea”; they go to work. Altogether, they do not look for the “biggie,” the innovation that will “revolutionize the industry, “ create a “billion–dollar business,” or “make one rich overnight.” Those entrepreneurs who start out with the idea that they’ll make it big – and in a hurry – can be guaranteed failure. They are almost bound to do the wrong things. An innovation that looks very big may turn out to be nothing but technical virtuosity; and innovations with a modest intellectual pretensions ... may turn into gigantic, highly
profitable businesses. The same applies to nonbusiness, public–service innovations.

Systematic innovation therefore consists in the purposeful and organized search for changes, and in the systematic analysis of the opportunities such changes might offer for economic or social innovation. (Innovation and Entrepreneurship, 19, 26, 27,30, 34-35.)


At the heart of my own perspective of leadership is this notion of the entrepreneur. Most of us are "leading from the middle" and are caught in the vise of expectations that are all around us. The only way to "escape" and thrive in an environment like this is to take responsibility for our own development, know our value in the marketplace of organizations, and develop the disciplines of innovation and entrepreneurship that enable us to be effective people of impact in any and every situation.

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Peter Drucker describes a future that elevates the individual in society to a level of responsibility and influence that has not been known in our life times. He calls us knowledge workers. This insight is a foundation perspective for my Circle of Impact model of leadership. Today, because of these changes, and the emergence of technologies that very few could have anticipated when Drucker wrote, the opportunity for individuals to make a difference in the world is greater than every before. The challenge that is now before us is one where the structures of the world are stuck in seeking to sustain their past into the future, as their performance declines, and their organization become increasingly starved for leadership of the kind that Peter Drucker describes. This is part of what I mean when I say, "We are ALL in transition."


Change: No Lines, No Waiting - A Personal View

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Last spring, when I was plunged head first into the bottom of the recession, I thought I understood what change was about. I did and I didn't.

Let me put it another way.

When we enter an unknown territory, we tend to rely on past experience to guide us through.

Take the above picture for example. You are walking up this hill for the first time. You may assume that what is on the other side is just like this side, but it isn't.

What if the other side looked like this.

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If it was, you would be ill-prepared to face it. For many people this is what they have experienced with this recession. Increasing, but manageable hardship, then, boom, the bottom drops out, and you have to descend in order to reach the bottom so you can begin to move up.

I'm beginning to think that very little of my past experience prepared me for what I've experienced. The degree and kind of change required of me was not what I expected.

I thought change was about looking for new markets as I "re-invented myself." In retrospect, what my best efforts did was delay the inevitable. We think that change is about markets, programs, branding, and organizational structure. Those are just tactics that follow something else.

What I discovered is that I had to change as a person.

Even saying that doesn't capture what I've learned. It doesn't because it isn't about me.

Whether you are 25, 50 or 75, dealing with change isn't about who you are or what you do. It is rather about putting yourself in the position to make a difference, to make a contribution, to create impact. This idea has been part of my methodology, embedded in my Circle of Impact materials, for over five years. But how I dealt with change was too abstract, logical, rational. It didn't deal with reality.

I'm been thinking about the speed of change.

A lot of people want to slow change down. They want time to adapt to it. I've become convinced that we need to speed up change. We do because it forces us to simplify our life and work. Squeeze out the non-essentials and a higher level of productivity results.

I know. It is all very counter-intuitive. The faster you change, the slower life becomes. I know it sounds like something out of the Matrix. But, it is true.

Therefore, here's my recommendation. Ask the following questions. Write down your answers.

1. What do I do right now that has the greatest impact upon other people?

How do I make a difference that matters?

Now, increase the amount of time that you spend doing that.

 

2. What am I doing right now that seems like nothing more than an obligation?

Begin to plan now for ending it as soon as possible.

 

3. Pay off as much debt as soon as possible.

Build your cash reserves so that you'll have the freedom to stop and start again.

 

4. Create a list of the assumptions upon which you make your major decisions. Write them down.

Be skeptical of each assumption.

Make sure that each is valid, not simply a good sounding idea.

 

5. Be patient, persistent, and light-hearted.

I call this Resourceful Optimism.

Practice it and you'll get through.

Change is going to happen regardless of what happens. it is best be prepared for it when it comes.


The Speed of Change

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In 2010, I wrote a post, Change: No Lines, No Waiting, where I stated the following.

Whether you are 25, 50 or 75, dealing with change isn't about who you are or what you do. It is rather about putting yourself in the position to make a difference, to make a contribution, to create impact. ... (I learned that) how I dealt with change was too abstract, logical, rational. It didn't deal with reality.

I'm been thinking about the speed of change.

A lot of people want to slow change down. They want time to adapt to it. I've become convinced that we need to speed up change. We do because it forces us to simplify our life and work. Squeeze out the non-essentials and a higher level of productivity results.

I know. It is all very counter-intuitive. The faster you change, the slower life becomes. I know it sounds like something out of the Matrix. But, it is true.

As I edited and republished that post last night, I began to think about the "speed of change" phrase.

Two images come to mind.

Image One.

Change is like a wave.

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A large wave. It comes at you, and if you are standing still it hits you - Whappp! - then drags you in its wake until it has moved on, and you are left gasping for air. Then the next wave of change comes along, hits you, and instead of being the master of change, you are hanging on for survival.

Instead of standing still and being hit each time by change, you have to climb on top of it and ride it until it begins to run out of steam, you curl off of it, to prepare for the next wave.

This is the kind of change we are all in today.

I'm no different than the rest of those who have been run over by a wave of change that came out of nowhere, doesn't even have a name, and is gone.

I am fast coming to the conclusion that what we once thought of as stability, consistency, and continuity in life was just our experience of the slowness of change. There has always been change, but it just never reached the level of a hurricane storm surge. Until now.

What is it about us as human beings that we want to remain where we are?

Why is change what we resist instead of boredom and unfulfillment?

Why are we willing to make our world small and confined just so we can feel in control?

If it sounds like I'm calling for us to give up on our commitments and do whatever is before us, that would be wrong. That is not the point, at all. Instead, it is questioning what we mean by commitment, focus and staying the course through to the end. It is questioning what we think it means to be effective and successful.

Life today is not a placid pond where we can gently float through our days.

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Instead, life has become an endless series of big waves, roaring down a mountain river full of rocks, whirlpools, massive amounts of water in your face, with no place to escape, it seems.

One after another we are seeing changes happening in our world that are totally disruptive to everything we have told ourselves is the way the world is.

Change forces us to simplify. We simplify by being clear about our values, and clear about the impact we want to have. Too many of us are more committed to the processes of our work than we are to the impact. When process takes precedence, we become disconnected from the outcome of the process. I know I live in a world where process is everything, and hardly anyone can say what the outcome of our work is.

The speed of change magnifies the problem because an overly process-centric organization cannot maintain former process levels when things speed up. The wave of change crushes processes. Instead, we need to know how to trim back the process, and move to knowing how to create impact in the moment as the opportunity presents itself. That is how to ride the wave of change.

Image Two.

Change is a door, a threshold, to what is next.

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Showing you a door is misleading. It suggests that we enter, and we stay awhile, but that doesn't get at the real issue at the heart of the speed of change.

Instead, let's see change as a series of doors in an endless progression, coming at us an increasingly level of speed.

Between each door, we enter a specific context or situation that demands that we perform at our best. As I was thinking about this, this scene from Monsters, Inc came to mind.

This is what change is like. Moving from one context to the next, without continuity, and, at a pace that does not allow us time to think through every single possible option.

The speed of change requires us to think fast, decide fast, act fast and move on fast. 

It means that we need to have more than tactical skills for change, and, more than a long range strategy for impact. It means we have to be prepared to be the person who can walk into the room and know what we have to offer to whomever is there.

This means that we have to simplify our lives, become more clear about who we are, who we are not, and, what we want from the life and work that gets offered to us on the other side of every door.

Even this picture doesn't fully get at the real issue we face with the increasing speed of change. There is something deeper, more personal at work in this context of change.

The modern world has robbed most of us of the confidence that former eras had from doing, making, creating and crafting things. Today, we are manipulators of objects, processes, financial resources and people. We do one thing, but we rarely see the outcome of that one act of work. The result is a vague sense of accomplishment, or, none at all.

Today, we find our confidence in our affinity towards ideas or symbols. For example, most people I know who are die hard Democrats or Republicans find it easier to tell you why they are not members of the other party, than their own. Their affinity is not to the outcome of the party's policies, but to the culture of symbols that the party claims as their distinctive value.

Same with sports teams. I have been a Boston Red Sox fan all my life. Not because they won, but because I started following them as a kid, and still do. People follow the Dallas Cowboys, America's Team, because they symbolize something specifically American in the minds of many fans. 

The confidence that we find in these associations is not the kind of confidence that makes it easy for us to deal with an increasing speed of change. We look for strength and security in our affinity associations. It is why fans are fickle, faithful until a rainy day spoils the parade to the championship or election.

To gain the confidence that we need, we have to be able to quickly move into a new space, and, know what our contribution can be.

This is what I mean by having a story that we tell ourselves.

We enter a room. We don't know these people. They may be Yankee fans or hate football. There's no affinity. Yet, we have to deal with the situation as it is presented to us. The story we tell ourselves is of the impact that I can have with at least one person. Just one person is enough. Maybe two is better, but one is enough. Because one can lead to more.

We are not thinking about how to fit in the group. We are thinking about how I can connect with these people so I can make a difference in their lives right now. Making that connection is essential to finding what it is that we can do to create some good in the moment that we are there.

There are three things we need to recognize every time we pass through a new door.

Context: We need to be able to see the social, relational, cultural and organizational context quickly.

We need to be able to assess what is going on, so we can move into action. We cannot assume that what is on the other side of the next door will be the same as the last two or ten doors. We must develop the capacity to understand what is going on as quickly as possible so we can move to begin to make a difference.

Content: We need to have something to offer people.

This is the content of our thoughts and character as a person. We enter into these situations confident that we have the substance to make a contribution that means something to someone or the group.

This content is best presented as a story. It isn't the story I'm telling myself, but the one that I've prepared to tell others. To not have a story is a lack of confidence. To have a story is not egocentric or arrogant. It is rather being prepared to connect with people at a deeper level than is typically happening at the moment of introduction.

Connection: We establish connections with the people because it will be these relationships that move with us through the change we experience.

As we encounter the speed of change, we need to move more quickly than we have in the past. We will find when we do, that much of what we are now doing is adapting to changing circumstances. The quicker we do so, the better off we will be.

This is what I've learned. I no longer fret over change. If anything, when I see change that needs to be made, I'll become more impatient, ready to move through the door and catch the wave as it moves forward.

Resistance to change has as much to do with our lack of confidence as it does with the change itself. Fight the resistance. Be clear about what you stand for as a person. Keep telling yourself your story.

Look for the opportunities to make a difference, do it, and move on. What we'll find is a new set of patterns in our life and work will emerge. This is the truth I have found, and so can each of you.

Many thanks to David Pu'u for the wave pictures. Check out his pictures, videos and blog at www.davidpuu.com.