Peter Drucker: Administration and Entrepreneurship

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

The manager need to administer – manage and improve what already exists and is known. He also has to to be an entrepreneur – redirect resources from area of low or diminishing results to areas of higher or increasing results. Optimizing should focus on effectiveness – to produce revenues, to create markets, to do things better, to achieve extraordinary results. Economists often speak of efficiency, which shouldn’t be neglected, but effectiveness is primary. Efficiency is concerned with doing things right. Effectiveness is doing the right things. The most efficient business cannot survive, let alone succeed, if it is efficient at doing the wrong things.

Effectiveness starts with the realization that in business, or any other social organism, 10- 15% of the phenomena – such as products, orders, customers, markets, or people – produce 80-90% of the results. The other 85-90% of the phenomena, now matter how efficiently handled, produce only costs, or busy-ness.

The first administrative job of the manager is to make effective the small core of worthwhile activities which is capable of being effective. At the same time, he neutralizes the large penumbra of other things that don’t yield extraordinary results.

The second administrative job of the manager is to bring the business all the time a little bit closer to the full realization of its potential.

“The perpetuation of a business is a central entrepreneurial task – and ability to do so may well be the most trenchant and definitive test of management” (MTRP 45-47).

The individual entrepreneur does not need to explain his business to others. One person is thinker, analyst and executor. Unlike the single entrepreneur, business enterprise requires continuity beyond the life span of one man. It commits resources to a longer future and typically to multiple products or services. Insofar has the literature of management and economics has given a theory, it has dealt mostly with the man at the top. He alone knows what the business is about and makes entrepreneurial decisions. This may have been adequate for the 19th century, but no longer. Today’s businesses (also, hospitals and governments) brings together a great many men of high knowledge and skill. Business decisions affecting the entire business are made at all levels. Middle managers have become largely decision-makers rather than just executors of higher-level decisions (MTRP 74-76).