Concept of the Corporation [ペーパーバック]

REVIEW: This book has had a tremendous impact on management thinking and practice worldwide. As the first book to take an analytical study of a business corporation (GM) from the inside, many consider it to be the catalyst of the management boom that followed. It is certainly the first book to examine the business corporation as a social structure that brings together human beings for economic and social needs. The book is also a sort of bridge from Drucker's more political and social writings in "The End of Economic Man" and "The Future of Industrial Man" to his later more managerial writings. It is credited with having established management of organizations as a discipline and a distinct field of study. However, as a book originally published in 1946, is it still relevent and worth reading today? Yes, but not for everyone.

Drucker raised many new issues and concepts basic to organizations. For example, he touched upon: dignity and status of the worker, corporate purpose, corporate contribution to and harmonization with community, management compensation and succession, worker training and development, workers as resources not costs, etc. Since new ideas will tend to seep into the popular consciousness over time, many of the ideas he introduced have long since become popularized and accepted (e.g. the benefits of decentralization, suggestion plans, and reengineering). However, there are also a number the concepts which are not fully appreciated today or which we tend to just give lip service. For example, the basic concept of corporations as both economic and social institutions is still not fully appreciated or understood (neither by those on the "right" or the "left"). For me, the book was worth the read for these insights alone. In summary, I very much recommend this book if you've read some of Drucker's other writings and are interested in reading Drucker's founding writings on the corporation as both an economic and social organization. One option you may want to consider is to skip Part II which mostly discusses GM decentralization as a model.

STRENGTHS: Great thinking and understanding from Drucker on corporations as social structures. First thorough analytical look at a business corporation from the inside. Important economic concepts explained too (e.g. monopoly, profit motive).

WEAKNESSES: Some parts are rambling and others more concise. Part II of the book (more specific to 1940s GM and decentralization) is more outdated. Never a graph or equation to help understanding.

WHO SHOULD READ THIS BOOK: Those interested in understanding corporations as both economic and social organizations.

FOR SIMILAR/RELATED TOPICS, CONSIDER: Any of Peter Drucker's other books still in print. "My Years with General Motors" by Alfred Sloan. "Maslow on Management" by Abraham Maslow. "First Break All the Rules" by M. Buckingham & C. Coffman.

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Peter F. Drucker was born in 1911 and is the Grandmaster in the field of management. He is the most influential thinker on this subject of the 20st century and has published mountains of books and articles. (In short, he is "the man"!) This book, which is based on 18 months of research and study of the General Motors Corporation, was originally published in 1946. It consists of 4 parts (`chapters'), each consisting of 1-to-5 chapters (which Drucker gives numbers and titles.)

This `Transaction' edition includes an additional 1993-introduction and an additional 1983-preface, in which Drucker discusses the impact of this landmark-book. "Concept of the Corporation is credited with having established management as a discipline and as a field of study." However, the does not completely agree: "It established organization as a distinct entity, and its study as a discipline. ... And Concept of the Corporation thus became the first attempt to show how an organization really works and what its challenges, problems, principles are." He also discusses the fact that his book was not well received by the people of General Motors, which was at the time of the original publication the undisputed worldwide leader in the automobile industry and the world's biggest manufacturing company: "And a main reason, I now realize, was precisely that I treated General Motors (GM) as a prototype, as an `organization', and its problems therefore as problems of structure, if not of principle, rather than as the way GM does things."

The first part of this book - Capitalism in One Country - consists only of 1 chapter and sets the background scene for his study. It discusses the belief of the American people in a free-enterprise economic system, the interrelationship between industrial society and "Big Business" (which Drucker terms `corporation'), whereby in the early 20th century the large corporation had become America's representative social institution, and the social and political analysis of an institution. This analysis has to take place at three levels: The corporation has to "be organized in such as way as to be able itself to function and to survive as an institution, as to enable society to realize its basic promises and beliefs, and as to enable society to function and to survive."

The second part of the book - The Corporation as Human Effort - consists of 5 chapters and discusses GM's relatively modern organization model. In the first chapter the first law of the corporation/institution is detailed, which is "to produce goods with the maximum economic return." But Drucker is quick to emphasize that the essence of the corporation is social, that is human, organization: "... modern production ... is based on principles - organization not of machines but of human beings." He continues with the consequences of this fact, the dependence on the solution of the three interdependent problems: "The distribution of power and responsibility, the formulation of general and objective criteria of policy and action, the selection and training of leaders - these are the central questions of corporate organization." In the second chapter GM's basic and universally valid concept of decentralization is described. So how well does decentralization work? This is discussed in the third chapter, whereby the conclusion is mostly positive. The fourth chapter is a very unusual one, it discusses the relationship between big business (GM in this instance) and its small business partner (the automobile dealer). Drucker realizes that GM has very well established principles, which are primarily based on the resolution of conflicts in harmony. However, with respect to the big-small business relationships, there is still a lot of work left to do in other branches of America's economy. In the final chapter, the question is asked whether decentralization can be used as a model. In GM decentralization is not seen as a technique of top management, but as a basic principle of the industrial order.

The third part of the book - The Corporation as a Social Institution - consists of 3 chapters. The first chapter starts off with a discussion on American beliefs in which, Drucker believes, the corporation plays a large role. "It is characteristic of the American tradition that its political philosophy sees social institutions as a means to an end which is beyond society." He explains the impact this (the promise of justice or of equal opportunities and the promise of status and function as an individual) has on the corporation, which was still a relatively new phenomenon in the 1940s. He discusses opportunities, dignity and status, assembly line "monotony", unionism. The second chapter describes the new industrial middle class of "foreman" who, through the introduction of big business, now lacks equal opportunities as well as status and function. In the third chapter Drucker emphasizes that the bad relations between labor and management in the automobile industry provide the perfect example to discuss "the absence of a workable solution of the twin problems of equal opportunities and of status and function of the worker". This study took place during war and post-war years and the differences in the relationship between labor and management during these 2 periods are extremely well exposed. There are some great comments with respect to labor relations and the so-called "wage issue".

The final part of the book - Economic Policy in an Industrial Society - consists of 3 chapters. The first chapter has the strange title of The "Curse of Bigness". First the relationship between corporation and society is discussed. "Whatever the terminology, the large corporation is a tool and organ of society" and "modern industrial society must organize its economy in the large units of Big Business." It is important to note that Drucker in 1946 already recognizes that "bigness" in itself is not in conflict with the requirements of social stability and social functioning. The second chapter also has a strange title - Production for "Use" or for "Profit" - which sounds like both a contradiction and a conflict in one sentence. Drucker notes that "Production for Profit" is the principle of rationality and efficiency on which the corporation must base itself and that the demand "production for use" thus asserts a conflict between the needs of society and those of the corporation. He discusses the profit motive, the lust of power, and the market before turning to social needs and the individual wants. The final chapter covers the touchstone of America's economic system and the focus of economic policy, which full employment, and touches upon some of the greatest challenges to government and business. "The first problem of a full-employment policy is to generate capital-goods production during a cyclical depression." In the short section on the employment fund Drucker really that he is almost 50 years ahead of his time. There is also a magical piece on the "five pillars on which an economic policy for a free-enterprise society rests."

This edition also includes a 1983 epilogue, which discusses the impact of this book. "Concept of the Corporation had an immediate impact on American business, on public service institutions, on government agencies - and none on General Motors!" It explains the main reasons for why the book was totally unacceptable to most GM executives, and above all to Alfred Sloan. Drucker mentions the accompanying letter, in which he urges for "serious reconsideration of a number of other GM policies, precisely because they had been successful for twenty years." I would like to see the accompanying letter included in future versions of this book.

I find it incredibly difficult to review books by Peter Drucker, you always feel that you let the `Master' down. This book is a true classic and I am happy that I finally made time to read it. (Yes, yes, I should have done years ago.) I believe that it gives a great insight of the position of Big Business in society, whereby General Motors' policies, which was at the time the world's largest manufacturing company, are used as an example. However, readers interested in just GM itself are better served by Alfred P. Sloan's autobiography `My Years with General Motors'. Even 60 years after its original publication date the book is still very relevant and Drucker shows his credentials as visionary. The book is not just relevant for business people; it is also useful for people involved in government and policy-setting. (This book deserves six-stars, fantastic!)

Business primarily functions to make a profit. However, due to the permanent and integral role that the corporation plays in modern industrial society, there exists a corresponding level of duty and responsibility toward society at large. Peter Drucker's goal is to articulate the management practices that made General Motors so successful. In this manner GM's efforts could be communicated and duplicated to ensure continued success for American industry and capitalism in general.

After World War II capitalism and communism began to compete for the hearts and minds of the world. This placed an onerous burden on capitalist countries. This burden largely fell upon America. America must demonstrate that capitalism is in fact the best economic system in terms of both efficiency and social equity. Drucker also realized that only an objective yardstick for measuring success would prove the intrinsic worth of capitalism. Conceding that perfection is unattainable, Peter Drucker nonetheless maintains that the harmonious integration of the corporation into the social fabric depends at the very least on its ability "to realize society's promises and society's beliefs" (117).

In America, this means that the corporation must appeal to and in some degree satisfy the basic American beliefs in individuality and opportunity. Those duel beliefs later served and were substantiated by historian John Kindgon. For the capitalist system to succeed it is imperative for the corporation to parallel these beliefs by promoting the role of justice as the means for recognizing equality of opportunity. This notion differs from communism's belief in equality of rewards.

The economic growth experienced during the early 20th century became possible only through improvements in business organization modeled after Henry Ford's assembly line, which efficiently organized and combined the efforts of different specialists into one cohesive effort. The general message was that the whole was in fact worth more than the sum of its parts. This accomplishment was primarily attributable to improvements in organization and marshalling talent and resources. Drucker describes the new decentralized model of corporate success, "The teamwork organization of management, the assistance rendered by the service staffs, and the constant check against base price, market quota, and consumer's opinion make it possible for ordinary human beings to run this enormous machine" (79). This approach necessarily focuses on the preeminence of human capital, and the need for greater social organization to maximize profits.

Drucker believes that business is ultimately about people, not resources, and managing people so that they give forth their greatest potential effort. Promotion should be based on performance, ability, and character. Management may use price elasticity to determine what proportion of profits should be divided into wage increases or decreases in pricing. Drucker believes that leadership must be cultivated from within the corporation, and whose facilitation should include early testing and training glued together with a cultural espirit. Most importantly, imagination and a great understanding of the big picture in regards to the corporation's functioning must be taught. Finding common grounds for self-interest and building from that best solves conflict, such as that between management and worker's unions.

In conclusion, Drucker believes that the corporation is here to stay in the service of mankind, "The central problem of all modern society is not whether we want Big Business but what we want of it, and what organization of Big Business and of the society it serves is best equipped to realize our wishes and demands" (18). Drucker's uniqueness stems from his belief that the social and political components of modern industrial society are just as important than the much-touted economic component. The responsibility placed on modern industrial society is to create harmony by correlating our political beliefs with what is best for the corporation and the individual. The corporation's role to play is big, as it is the "representative institution of American society." Ultimately, government must create policy that encourages capital expenditure, rather than consumer consumption, resulting in a harmonious balance between increased corporate profits and maximum social good through high employment.