What Is Peter Drucker's Management Theory? (2023)

  • Peter Drucker revolutionized the approach to business management by suggesting that successful leaders should put people and ethics first rather than focusing entirely on profits and rigid rules and work structures.
  • The pillars of Drucker’s theory of management are decentralization, prioritization of knowledge work, management by objectives, and SMART goals.
  • By implementing Drucker’s approach, managers can empower their employees, improve the company’s culture, encourage innovation, increase efficiency, create a nurturing and ethical work environment, and ultimately boost the business’s success.
  • This article is for small business owners and managers who are looking to improve their management techniques with an ethical, people-centered approach.

Peter Drucker is an influential Austrian-American author, mentor and consultant who is considered the father of modern business management. His innovative thinking has revolutionized today’s theory of business and transformed it into an actionable and ethical discipline used by progressive business leaders worldwide. At the core of his approach to management lies the idea that, to succeed, businesses need to put the development and well-being of their people (rather than just the bottom line) first.

By implementing Drucker’s people-centered management theory, business owners and managers can build a sustainable and nourishing work environment that benefits the company’s long-term development, goals and growth. This article will give you the practical tools to implement his management theory.

What is the Drucker theory of management?

Using his extensive experience as a consultant at the companies like IBM, General Motors, and Procter & Gamble, Drucker wrote 1954’s The Practice of Management, where he presented a holistic approach to operating an organization and introduced a discipline of business management – the first in business history. He believed that a successful manager needs to understand subjects like psychology, science, and religion, and be guided by ethical and moral principles.

Drucker encouraged creative rather than bureaucratic management and insisted that managers should, above all else, be leaders. Rather than setting strict hours and discouraging innovation, he opted for a more flexible, collaborative approach.

At the core of Drucker’s management theory lie the concepts of decentralization, knowledge work (in fact, he coined the term “knowledge worker”), management by objectives (MBO), and the SMART goal method.

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  • Decentralization means that managers should empower employees by delegating tasks.
  • MBO involves superiors and their subordinates working together to set common goals, identify employees’ areas of expertise and define measurable expected results.
  • The SMART method means that those goals need to be specific, measurable, achievable, relevant, time-specific and recorded.

Drucker’s theory of management and the origins of CSR

Corporate social responsibility is a type of business self-regulation to be socially accountable and contribute to the well-being of communities and society as a whole. Small businesses can implement CSR in a variety of ways, including being environmentally conscious; establishing a comprehensive diversity, equity and inclusion policy in the workplace; treating employees with respect; introducing volunteering and charitable initiatives; and ensuring ethical business decisions.

While embracing CSR has become the modern standard for ethical and progressive companies, the concept’s origin goes way back. Howard Bowen, an American economist, might be credited with connecting the responsibility of corporations to society in his 1953 book Social Responsibilities of the Businessman, but it was Drucker who introduced CSR as an integral part of business strategy and management.

In his books, Drucker outlined several aspects of CSR that need to be acknowledged and integrated by people-centered companies to be successful.

Leaders in every sector are responsible for the community as a whole.

Drucker believed that business leaders need to embrace the “spirit of performance” by displaying high levels of moral and ethical integrity in their actions, focusing on results, empowering employees, going beyond financial obligations to shareholders, and ultimately serving the common good. According to him, if managers don’t take responsibility for the community, no one else can or will.

It’s up to the company to create an ethical customer.

Just like buyers push modern companies to embrace CSR, by promoting ethical business behavior, companies shape customers’ expectations and ethical buying decisions. If your business can prove that its sustainable product or positive work environment is better than the alternative, it promotes similar values and preferences in your customers.

(Video) 4 Essential Principles Of Management by Peter Drucker | Insights From The Essential Drucker

There is an unlimited liability clause.

Drucker believed that if an organization takes an action – no matter how intentionally socially responsible – it assumes the responsibility for its outcome in the future. As an example, Walmart’s low-price strategy that seemingly benefited low-income customers led to unjust competition that forced many small businesses to close down and the unethical treatment of its employees caused by the cost-saving goals.

Applying the Drucker theory of management to SMBs

Small business owners and managers can take several key lessons from Drucker’s theory of management:

Delegate power equitably.

While it might be tempting to take on all the “important” tasks as a manager, knowing how to delegate responsibility can empower your team and awaken their own sense of responsibility. To achieve the best results, your employees need to feel valued and know that their opinions matter.

When workers are treated as equals, they’re more confident and motivated in their work, which benefits the company as much as it benefits them. Talk to each employee as though their role is as necessary as yours (because it is), and remind them that they have a say in the organization.

What Is Peter Drucker's Management Theory? (1)Tip: Give your team members an avenue to share their ideas, whether it’s during staff meetings or one-on-ones.

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Encourage collaboration.

Rather than pitting employees against each other or fostering an environment where employees keep to themselves, urge them to work together by sharing ideas, tips and guidance.

This doesn’t mean your employees shouldn’t work individually, but they shouldn’t feel like they can’t ask for help or inspiration from others. Your staff should feel like a team, and you should serve as their coach. You can use these tools for small business collaboration to get started.

Increase efficiency.

To ensure you’re continuing to prioritize productivity, utilize the concept of MBO, a management approach that requires a balance between the objectives of employees and the objectives of your company. For MBO to succeed, make sure that:

  1. Your meetings result in defined objectives.
  2. You monitor the progress of your set goals.
  3. Your team members receive daily feedback on their performance.
  4. You reward high achievers.
  5. Your key business drivers are growth and development.

Make sure that your set goals follow the SMART structure, and discuss them with your team to ensure everyone is on the same page and understands their part in the organization’s overall objectives. Better yet, involve your employees in setting the goals.

What Is Peter Drucker's Management Theory? (2)Key takeaway: To increase efficiency, set goals that are specific, measurable, achievable, relevant, time-specific and recorded.


Boost innovation.

Innovation is essential to business success. You want your workers to be confident and willing to take risks. Create an innovative atmosphere and lead by example, showing your employees that mistakes are not shortcomings.

If your team sees that you’re human, that effort does not always lead to success, they’ll feel more comfortable risking failure. Be transparent with them, support their ideas and never punish creativity.

Using Drucker’s theory of management for success

Drucker’s ethical approach to management has been used by businesses worldwide for the last 80 years, and for a good reason. By applying his principles of decentralization, objective-driven management, just treatment of employees, and socially powered corporate mission, you can improve your team’s performance, foster loyalty, empower innovation, and ultimately ensure your company’s success.

While the change might not happen overnight, you can start by bringing your team together to identify key business objectives (you can use our guide to setting achievable business goals to get started), holding a workshop with your leadership team to expand on the principles of delegation and decentralization, and determining the best course of CSR action for your company. Fully embracing Drucker’s theory of management will take time, resources, and a change in everyone’s mindset, but the eventual rewards are well worth it.

Sammi Caramela contributed to the writing and research in this article.

(Video) Management Theories by Peter Drucker


What is Peter Drucker's management theory? ›

At the core of Drucker's management theory lie the concepts of decentralization, knowledge work (in fact, he coined the term “knowledge worker”), management by objectives (MBO), and the SMART goal method. Decentralization means that managers should empower employees by delegating tasks.

What did Peter Drucker argue? ›

Drucker stated that there was only one valid purpose for the existence of a business: to create a customer. He argued that an organisation is kept afloat not by internal structure, controls, organisation and procedures, but rather by the customer, who pays, and decides what is important.

Why is Peter Drucker important to the field of management? ›

He was one of the first people to foresee our society's shift to a knowledge society. In his 1954 book “The Practice of Management”, Peter Drucker coined the term “management by objectives” or MBO. MBO compares the performance of employees to the typical standards required for that position.

What did Peter Drucker say the most important factor of production is? ›

PETER DRUCKER: International economic theory is obsolete. The traditional factors of production - land, labor, and capital - are becoming restraints rather than driving forces. Knowledge is becoming the one critical factor of production.

What does Peter Drucker say is the purpose of business? ›

Long ago Peter Drucker, the father of business consulting, made a very profound observation that has been lost in the sands of time: "Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation.

What is the Drucker decision making process? ›

Drucker recommended that management decisions be based on four fundamentals: knowledge, self-knowledge, wisdom, and leadership.

What are the Drucker's five guiding principles of management? ›

Peter Drucker's secrets of managing effectively
  • setting objectives.
  • organising the group.
  • motivating and communicating.
  • measuring performance.
  • developing people.

Where did Peter Drucker say management is doing things right? ›

People and Performance (1959), p. 120. “Management is doing things right; leadership is doing the right things.”

What is the best management theory? ›

Take scientific management — best known as Taylorism — arguably the most enduring management theory of them all. It suggests that a manager's job is to increase efficiency in a production system.

What are the three requirements of a organization structure according to Drucker? ›

Drucker (1998) suggests three criteria for effective organisations:
  • They must be organised for business performance.
  • Their structure should contain the least number of management levels.
  • Organisational structure should facilitate training and testing of future organisation leaders.

What does Peter Drucker suggest is the first responsibility of strategies? ›

55) According to Peter Drucker, developing a clear business vision and mission is the first responsibility of strategists. Objective: 2.01 Describe the nature and role of vision and mission statements in strategic management.

What would Peter Drucker say? ›

Knowledge has to be improved, challenged, and increased constantly, or it vanishes.” “Management is doing things right; leadership is doing the right things.” “The most important thing in communication is to hear what isn't being said.”

What is Drucker's 7 sources of innovation? ›

They go out looking for innovation opportunities in seven key areas:
  • Unexpected occurrences. These often include failures. ...
  • Incongruities. ...
  • Process needs. ...
  • Industry and market changes. ...
  • Demographic changes. ...
  • Changes in perception. ...
  • New knowledge.

What are the 4 major management theories? ›

' Understanding organizations comes from understanding management theory, and Kimani outlines four major management theories for the basis of organizations: bureaucratic theory, scientific management theory, behavioural management theory, and human relations theory.


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