Saturday, August 2, 2014

INNOVATION SMACK DOWN: Peter Drucker vs. Milton Friedman

Friedman and Drucker's thinking define 'the management thinking box," for better and worse. These two philosophies do not have to be polar opposites.

Peter Drucker was called “the greatest management thinker of the last century, the creator and inventor of modern management.”.  Indeed, in the 1950s, Drucker’s writings gave managers a handbook for managing the incredibly complex organizations. He was the prolific management guru.  He was known for his belief that organizations should operate morally and ethically within society. Central to his philosophy was the view that people are an organization's most valuable resource, and that a manager's job is to prepare and free people to perform. Milton Friedman, the Nobel prize-winning economist, is well known as well, he was an author of a famous 1970 article in the New York Times Magazine entitled, “The Social Responsibility of Business is to Increase its Profits”. Friedman and Drucker's thinking define 'the management thinking box," for better and worse. Twenty first century innovators will demonstrate what's possible in our new conceptual Age. We need to be fearless in our pursuit of new possibilities and embrace reasonable risks. It's clear there are some early winners in this space.

Friedman-type focus on profit; Druckersque emphasis of workplace ambiance: The fact that these two philosophies do not have to be polar opposites is probably the correct way to look at this. You support your case very well, and who can argue with the best of both worlds? A Friedman-type focus on profit, needed to survive in this hyper-competitive, global market, and a Druckeresque emphasis on workplace ambiance, stimulates innovation. Friedman opined on the inappropriateness of corporations to substitute its standards for its owners and employees. Drucker takes that a step forward and says that the whole notion of "business ethics" is flawed and can't be expressed effectively anyway. Two sides of the same coin. He argues for a context-dependent relationship view of ethics in which does not violate the above principles but can lead to interesting results. 

The entire concept, and discussion is not black or white, but countless shades of grey. Drucker thought that the corporation was one organ in a larger body, with responsibility to the world around it. As high performance teams were empowered, cross-functional employee groups that were given wide latitude in revising the way work got done in order to increase efficiency and performance. Those managers struggled with hi-performance teams back then the same way managers today struggle with innovation. There are some jaw-dropping examples of innovative products and services out there, but for the most part the majority of companies haven’t figured out how to make that happen for them.  There's no such thing as a free lunch. --Milton Friedman

The management philosophy has to be tailored at the different stage of business life cycle: Almost all great places to work fit smoothly into the Drucker model. Management in these companies pays attention to the employees, gives them encouragement, shows appreciation, asks their opinions, and genuinely cares about them as human beings. . Friedman's message as a company should be about what it is about. If it is a profit making company, then it is to make profits. The more complicated an entity becomes, the number of missions that it undertakes, the less accountable management becomes. Effective start ups are somewhat Friedman-esque. They have to be ruthlessly focused on what they are about. That's part of what makes them successful. While Drucker-companies foster a richer network of connections and free information flow. That can make them a good place to foster innovation as well, particularly in the early phases as well.

Ultimately the core of organization is not the economic rationale presented the outcome of its management decisions and goals, but rather the people who make this decisions and aspire to these goal. Assuming innovation continues to grow in importance during the first half of the 21st century, which type of organization would fit an innovative environment better: Friedman-influenced or Drucker-influenced?  Rather than summarize what Friedman said, here are his words, "The political principle that underlies the market mechanism is unanimity. In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are not values, no "social" responsibilities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they voluntarily form." The essence of his argument is that voluntary action is superior to corporate compulsion (BTW, a view shared by Drucker). If an individual seeks to support a particular social goal he or she is free to do so. What is not appropriate in Friedman's view, is to extract funds from stockholders, or employees to support management's favored causes. Or as the Drucker’s quintessential quote well pointed out: Management is doing things right; leadership is doing the right things.


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