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“Management Challenges for the 21st Century” by Peter Drucker Research Paper

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Updated: Jul 11th, 2020

Introduction

Peter Drucker has put forward issues that a manager must consider “tomorrow” or in the future. These concepts are very contrary to the norms being observed currently in management circles. Experts may even declare the concepts are controversial however Drucker insists the concepts are crucial for the business survival in the future. These concepts are on strategy, change, workers, information technology as follows:

Business assumptions

The assumptions in business are rarely criticized or analysed, they are taken to be the reality yet they are not. They should be challenged and criticized. The assumption that management is “business management” is faulty. There is management in non-profit organisations such as churches and sport organisations. The second assumption is that there is “one right organisation” causing managers to look continuously for the elusive right structure of the organisation. There is no exclusive form of business structure. There are many kinds of organisational structure that a business can adopt that will still function well.

All that needs to be maintained is the final reporting authority and transparency. Another assumption that managers should discarded is that there is “one right way to manage people”. The common belief is that the employees are unskilled subordinates working full-time for the organisation and totally dependent on the employer for their livelihood and career growth. This has changed since most workers are now skilled and known as knowledge workers.

Secondly they are not dependent as they have the capacity to change jobs. Some of the people work for outsourcing companies while others work part-time. These employees cannot be treated in the same manner. They have to be treated differently depending on who they are. Knowledge workers should be treated as partners or associates. Another assumption is that “technology and end-users are fixed and given”. This is not true since the technologies outside a business industry have impact on the business and may be used by the business to create a competitive edge.

Additionally, there is no specific end use of a product and there is no particular end-use that can be tied to one product or service. Another concept to dismiss is “management is legally and politically defined”. It is faulty as business is conducted based on the economic advantages rather than political or legal environments. There are mergers and partnerships between companies in different legal and political environments. There are also mergers between companies in different industries. Lastly management and entrepreneurship are closely related and a manager should be innovative. The management is not just concerned with the internal aspects of the business but the changes and dynamics outside the organisation.

Strategy

There are five certainties each business will face in the future while formulating and implementing strategy. The first one is the collapsing birth rate in the developed world. In Italy, Japan, Western and Northern Europe the population will drastically reduce. The US population is only increasing due to the inflow of immigrants. Furthermore, they are the first generation immigrants who generally maintain high birth rates but the succeeding generations will not maintain the same rates. The structure of the population will also be different as the older people will be more than the young population. The retirement age may have to be increased. The company has to know how to deal with the older workforce and the dynamics involved. Will they continue earning the higher income older people generally earn or not?

The political environment of the countries will be affected and unstable. Secondly businesses will need to know and monitor the share of disposable income spent by consumers on their goods and services and the trends or changes therein. In the future the four factors that will influence the distribution of income will be the government, education, leisure and healthcare.

The business should know whether it is a growth, mature or declining industry. A growth industry can count on the demand on its products so it needs to be innovative and take risks. The mature company needs to have leadership in the crucial areas to lower costs by using advanced technology or producing quality products and services. It can also get into alliances, partnerships and joint ventures in order to adapt to the business environment. A declining industry should aim for cost reduction and improvement in quality to get a strong position in the industry.

At this age it may not be able to engage in product differentiation. Currently most businesses are owned by pension companies. Satisfactory performance of the company and its survival will have to be for more than forty years so that the pensioners benefit from the company. It will not just be good enough to satisfy the shareholders of the company. The company will have to satisfy the skilled workers of the company and create value for them to generate commitment from them. The business should measure itself globally comparing itself to the industry leaders in the world. Protecting industries nationally will not work. Relying on cheap labour sources will not work either since the productivity of labour will also decrease worldwide.

The world economy will become more and more global and a business will no longer define its territory regionally or nationally. However the political boundaries will still remain in force and not merge. The business should therefore be careful to prevent politics from influencing or bribing them into making economic decisions. The business should find a way to operate in the two realities concerning economic and political issues. Changes in currency rates will be highly volatile so the business should adequately prepare itself to deal with foreign exchange risk exposure.

Change Leaders

In considering change, the organisation should not endeavour to manage change but to be a change leader. It means looking for change and introducing the right changes to the organisation effectively. The organisation should commit itself to abandoning the practices of yesterday that do not help but instead tie up the scarce and valuable resources of the company. Every process the company does should be put on trial for its continual use. Those products or services that are experiencing declining markets should be abandoned as they are sacrificing the new and growing product or service.

There should be organized abandonment. The performance of the company should also be defined and continuous improvement carried out. The leaders need to minimise focusing on the problems and focus on the opportunities. The business should consider its successes and exploit on them. Exploiting on the success by creating new and slightly different products helps in innovation and growth. The organization should have a system of systematic innovation in order to create a mindset in the staff to embrace change as opportunities. The main issue is not to be innovative but to have a system of systematic innovation in place.

The system should lead the leaders to look for changes such as successes, failures, incongruence in the processes, changes in demographics, changes in industry and markets and changes in perception and new knowledge. Market research will not help in eliminating risks especially for the new products. The unexpected will always occur. The innovation should be piloted by first testing it on small scale. The leader needs two budgets, an operational budget for the present business and a budget for the future that remains stable throughout. There should be expenses in the second budget for exploiting success (Drucker 41).

The organisation in implementing change also needs to have continuity within and without the organisation. The employees need to understand who they work for, what to expect and the values of the organisation. The environment to a certain extent should be predictable and understandable. Outside the organisation the company may enter into partnerships with the suppliers and distributors. To balance change and continuity leaders require information that is reliable, rich and correct. The people who are innovators should also be rewarded through compensation and recognition.

Information challenges

Accountants will be relied on to provide information to senior management where IT specialists through traditional accounting methods have been providing data. The IT and MIS staff will be supporting staff for this revolution that is taking place. The revolution is not based on computers but on print information that will provide information on the outside world. In accounting, activity based costing focuses on finding out the costs of not doing an activity, machine downtime and waiting for delivery of materials while traditional system shows the cost of doing an activity.

Sometimes not doing an activity is costlier than doing an activity therefore activity based costing is better and more suited for the service industries. The concepts in traditional accounting are also obsolete. They state that costs are either fixed or variable and capital can be substituted for labor. Activity based costing breaks these concepts by recognizing that all costs are fixed to an extent. Activity based costing is therefore able to provide cost information and control. The method helps the service industry to know the costs of attracting and retaining customers.

The businesses must learn how to calculate the cost of the total economic processes such as the supplier and distributor costs and not just its costs alone. The companies will rely on price-led costing where the price the consumer is willing to pay determines the allowable costs rather than cost-led costing where the profit mark-up is added to the cost of producing the product to get the selling price. The norm will also be alliances, joint ventures and outsourcing rather than ownership of subsidiaries. To create wealth the business will need four kinds of information.

The first type of information is foundational information where the balance sheet shows the worst case scenario for creditors and the liquidity of business. In getting productivity information, profit will be analyzed but the profit in excess of its costs of capital to get genuine data. The business should benchmark and compare itself to the best company for global competitiveness. To acquire competence information the company should measure its core competency in innovation by looking at innovations in the market and which they were responsible for and why?

The last cost information is resource allocation where the company’s allocation of people and capital is scrutinized to see if there were successes and failures. The company should also get cost information on the outside markets, non-customers and customers.

Knowledge worker productivity

The business most valuable assets right now are production equipment however in the future it will be the productivity of the knowledge worker. The focus for years has been on the productivity of the manual worker which came to be known as scientific management with great insights from Fredrick Taylor. However the concepts will now only apply in the third world countries as they have many workers with little education. In the developed countries there will be higher numbers of knowledge workers. Business survival will depend on how the leaders treat them.

Experts look at factors such as continuous learning, teaching and innovation, individual responsibility and quality of the work. The worker should also be treated as an asset rather than a cost. Costs in a business should be reduced or controlled while assets need to be grown. A manual worker is considered the same as any other worker. The manual worker may need the job however the knowledge worker can get a better job so the relationship is symbiotic, the knowledge worker and company need each other. This greatly affects the personnel policies of the organization. For the knowledge worker it should be about looking at the optimum quality and not the minimum quality required. This means quality has to be defined.

While for manual work the question is “how should the work be done?” for the knowledge worker the question should be “what is the task at hand?” The knowledge worker should focus on the tasks and eliminate all distractions. The company has technologists, knowledge workers who do manual work. Businesses should strive to increase the knowledge of the technologists. The changes proposed should be piloted by implementing in small scale initially. The knowledge workers will also affect the corporate governance of the company since the leaders will also be accountable to knowledge workers on business performance.

Managing Oneself

The workers will have to manage themselves by knowing their contribution in the company and working towards it. It is a question of “what should I contribute?”The worker should not ask “what have I been told is my contribution?” or “what do I want to contribute?” The individual should concentrate on his strengths and work to improve them. He should work also on the bad habits that affect performance. Concentration should be on improvement of the high competence areas.

One should be interested in how he or she performs and whether it is effective? Does he work best when in a team, as a subordinate, leader, coach or follower? Where does he belong? This is another question an individual should ask himself. Is it working for a big organization or a small organization? A person should understand whether they are listeners or readers so as to be able to handle questions and tasks given. It is crucial that one understands how they learn.

Is it by discussing, talking to oneself, writing or sketching? The individual should also know their values since they may contradict with the organization’s policies and procedures. It helps one to know where they belong to avoid frustration. The individual should accept other people as individuals that work and perform in the way that is comfortable for them. The knowledge worker will still want to continue working after thirty or forty years so one needs to evaluate the second half of their life. They may go back to school and enter different careers or have a parallel career where while working they are also active in sports on church organizations.

Works Cited

Drucker, Peter. Management Challenges for the 21st Century. New York: HarperCollins Publishers.1999. Print.

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IvyPanda. ""Management Challenges for the 21st Century" by Peter Drucker." July 11, 2020. https://ivypanda.com/essays/management-challenges-for-the-21st-century-by-peter-drucker/.

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IvyPanda. 2020. ""Management Challenges for the 21st Century" by Peter Drucker." July 11, 2020. https://ivypanda.com/essays/management-challenges-for-the-21st-century-by-peter-drucker/.

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