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Peter Drucker: Management by Objectives

Last week, we looked at the profound influence Peter Drucker had on management.  This week, let’s look at one of his biggest contributions: Management by Objectives (MBO).

Drucker’s biographer asserts that he first heard the term while studying practices at General Motors, during the Second World War.  It certainly seems like a concept that an engineer like GM’s CEO, Alfred Sloane, would have favoured.  Indeed, in more modern times, MBO has been a main stay of corporations like the much-admired Hewlett Packard.  One of its founders, Bill Packard, said of MBO:

‘No operating policy has contributed more to Hewlett-Packard’s success ‘

He went on to describe it as ‘the antithesis of management by control. The latter refers to a tightly controlled system of management of the military type [while] Management by objectives, on the other hand, refers to a system in which overall objectives are clearly stated and agreed upon, and which gives people the flexibility to work toward those goals in ways they determine best for their own areas of responsibility.’

The MBO Cycle


Management by Objectives is often represented as a cycle with five stages:

  1. Review the organisational context.  This is often seen as the weak point of MBO, as this is sometimes poorly understood.  Drucker, himself, has said: ‘Management by objectives works if you know the objectives: 90% of the time you don’t.’
  2. Reflect the organisation’s objectives in those you set to your team members.  Within the context of the objectives they are set, staff become self-directing, hence Packard’s distinction between MBO and control.
  3. Monitor people’s performance against the objectives you have set, and give regular, effective feedback.  Ideally, provide rapid feedback mechanisms, so that each staff member can assess their performance constantly.
  4. Assess performance against objectives, and then be sure to…
  5. Recognise and reward good performance.

‘What gets Measured, gets Managed’

This is another critique of MBO: if you measure the wrong thing, people will manage their performance to achieve it.  Drucker, as ever, was more subtle than simple descriptions of his ideas suggest and so was ahead of us here.  He noted that employees need four powers to do their jobs well:

  1. the freedom to challenge everything
  2. regular training and development
  3. the ability to achieve the objectives they are set, and see the results
  4. understanding of their organisation’s real purpose
This last means that managers and employees can set objectives that lead to the right behaviours being measured – and hence managed and delivered.

The Practice of Management

In last week’s blog, I laudedThe Practice of Management’.  It was the visionary book that kick-started the management book industry.  In it, Peter Drucker identified seven tasks for the manager of tomorrow (writing in 1954).  They all seem very much of the now, except, perhaps, one, which seems a little… pedestrian: ‘manage by objectives’.

Despite its critiques and detractors, maybe we should listen to the man who also advocated, over 50 years ago, in the same book, that we:

  • devolve risk-taking and decision-making down our organisations
  • prioritise strategic thinking
  • integrate teams of diverse members
  • motivate employees, gain their commitment and participation (‘engage’ them) with quick, clear communication
  • see your organisation as a whole
  • see your organisation and its activities in a wide perspective of society

Not a Management Pocketbook

Peter Drucker, 1909-2005I have found Robert Heller’s book on Peter Drucker to be excellent and recommend it to all Pocketblog readers.

For an introduction to Drucker’s thinking, how about The Essential Drucker, and for daily inspiration, how about The Daily Drucker?

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Peter Drucker: The Man who Invented Management


Peter F Drucker is a towering figure among management thinkers.

His thinking, consulting, teaching and writing won him many accolades and his ideas have become so mainstream, that some are considered to be purely ‘received wisdom’.


Drucker is also paradoxical in many way, and perhaps this is why his work is so good: it remains pleasingly simple, whilst it refuses to be simplistic.

Corporate or Individual

Drucker is primarily known for his ideas about how individual managers can work best, but he made his first big mark studying a huge corporation, General Motors.  In 1942, he was invited into the company to study it and report on findings, by the Board.  His observations are captured in a business classic: ‘Concept of the Corporation’.  Ironically, the Board and its CEO, Alfred P Sloane repudiated just about all of Drucker’s findings.

Management as a Science or an Art

Drucker was influenced in his earliest thinking by ideas of ‘scientific management’, but rejected them as too rigid.  Instead, he saw management as an art – and continued to do so for all of his life.  People who met him often commented on his erudition and love of the liberal arts – he was foremost a thinker and intellectual, and a management thinker second.  It was his rejection of scientific approaches to management that caused GM to reject his findings and, many years later, in 1956, Sloane’s own book, ‘My Years with General Motors’ provided a riposte to Drucker’s.

Invention of Management

As the 1950s began, there was almost nothing written explicitly about the practice of management: what a manager should do, day-to-day, to manage. That changed in 1954, when Drucker wrote ‘The Practice of Management.’  Drucker claimed, in 1982, that, with this book, he had invented management.  Perhaps this was hyperbole, but it is fair to suggest that he did invent the management book.  Arguably, without Drucker, no Management Pocketbooks.

To the response, without Drucker, someone else would have come along, the only answer is to acknowledge the truth of this but note that we still revere other innovators like Newton, Darwin, Edison – even though each had competitors doing much the same, at around the same time.

What is in ‘The Practice of Management’?

Using case studies from organisations like IBM, Sears and Ford, Drucker lays out the basics of a fundamental management curriculum:

  • What is management?
  • How to manage staff
  • How to manage a business
  • How to manage managers
  • How to structure management

It is hard to believe that some of his themes are over 50 years old – they remain fresh and relevant today.  the need for managers to:

  • make strategic decisions
  • take risks
  • build integrated teams
  • communicate information effectively
  • see their business in the context of its ecosystem

Drucker’s Influence

Drucker’s influence is huge: ‘The Practice of Management’ sets out for the first time, Management by Objectives, and not as a fluffy catch phrase, but as a robustly developed set of ideas and processes – perhaps his last nod to scientific management.  Since the 50’s he has been the originator of much business thinking that has endured, and predicting the rise of the knowledge worker (that’s me) as early as 1959.

Drucker gave his name to Claremont University’s business school, where he taught for thirty years.  The Drucker Institute’s website has a lot of biographical information about Peter Drucker, and a link to an interesting blog, the Drucker Exchange.

More on Drucker…

in our companion articles:

Management Pocketbooks you Might Enjoy

Drucker’s work has infused so much management thinking, you’ll find it in many of our Pocketbooks.  Here are some you might like:

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