DEVELOPMENT OF MANAGEMENT THOUGHTS CONTRIBUTIONS BY: PETER DRUCKER MICHAEL PORTER ELTON MAYO
ASSIGNMENT SUBMITTED BY K.S.SUGANYA 07BIT51
PETER DRUCKER What are the contributions of Peter Drucker to management thought?
Drucker was a genius whose ideas can help you be a better money manager, businessman and citizen. Investors who followed Drucker's wise advice avoided Japan as an investment (now, Japan is making a comeback after a 15-year slump). Below, we 'll find three more bits of Peter Drucker's wisdom you can apply to your own investing strategies today… 1. Invest Like Peter Drucker by Investing in Entrepreneurial Companies
Invest in companies that are entrepreneurial, and avoid companies that are too bureaucratic. Drucker, an Austrian economist, was a big believer in entrepreneurship, innovation and capital formation. He favored companies that took big risks and spent lots of capital on R&D. He hated companies that had nothing better to do than repurchase their stock, or pay out big dividends. He was born in Austria in 1909, and his roots stayed with him all his life. His favorite economist was fellow Austrian Joseph Schumpeter, a believer in entrepreneurship and a dynamic model of capitalism ("creative destruction").Drucker would probably love our top three candidates for the new "Benny" award - Steve Jobs at Apple Computers; Pierre Omidyar, founder of eBay; and John Mackey, CEO of Whole Foods Markets. 2. Spend Less, Save, and Invest More
You can never save and invest too much. Drucker disliked big spenders, heavy borrowers and governments that couldn't balance budgets. The smart investor always lives within his means, and uses his savings productively - either in expanding his business, or investing in other people's successful businesses (i.e., buying quality stocks). He blamed Keynesian economics for an unhealthy anti-saving mythology, causing "under-saving on a massive scale" in the West, both by individuals and government. Government, Drucker said, is only good at three things: Inflation, taxation and making war! He once bluntly told a U.S. president, "government is obese, muscle-bound and senile." Yet he wasn't against government, pe r se. He wanted a strong, healthy, vigorous government. To accomplish this goal, he recommended privatization of many state services.
In fact, Peter Drucker and Robert Poole (founder of Reason magazine) invented the term "privatization." Drucker was a longtime supporter of privatizing pension plans, both by government and corporations (he preferred defined-contribution plans like 401k's and IRA's, rather than defined-benefit plans such as Social Security and corporate pensions). 3. Be an Optimist - Look for Bull Markets Around the Worl d
Be an optimist. Drucker was encouraged by the collapse of the Soviet Marxist model in the early 1990s, which helped developing countries privatize, denationalize and open up their domestic economies to foreign capital. He recommended investing in emerging market economies. Not surprisingly, stock markets have boomed in Russia, Eastern Europe, Asia and Latin America. In the U.S., he was a big supporter of tax cuts, especially tax breaks for capital investment and entrepreneurship. The corporate income tax, said Drucker, is the "most asinine of taxes" and should be abolished. Business According to Peter Drucker: the Ideal "Social Institution"
Finally, he felt that the private sector - major corporations and nonprofit institutions - was the only "free, non-revolutionary way" to a stable, prosperous society. Business and private charities provided a superior alternative to socialism and big government. According to Drucker, only business could assume the social responsibilities such as job security, training and educational opportunities, and social benefits such as health care, retirement, paid vacation, etc.When he first suggested the private sector as the ideal "social institution" after World War II, Peter Drucker was considered a renegade. (Even General Motors thought he was nuts.) But once again, he was proven right.
ELTON MAYO: George Elton Mayo (26 December 1880 - 7 September 1949) was an Australian psychologist, sociologist and organization theorist.Mayo is known as the founder of the Human Relations Movement, and is known for his research including the Hawthorne Studies and his book The Human Problems of an Industrialized Civilization (1933). The research he conducted under the Hawthorne Studies of the 1930s showed the importance of groups in affecting the behavior of individuals at work. Mayo's employees, Roethlisberger and Dickinson, conducted the practical experiments. This enabled him to make certain deductions about how managers should behave. He carried out a number of investigations to look at ways of improving productivity, for example changing lighting conditions in the workplace. What he found however was that work satisfaction depended to a large extent on the informal social pattern of the work group. Where norms of cooperation and higher output were established because of a feeling of importance, physical conditions or financial incentives had little motivational value. People will form work groups and this can be used by management to benefit the organization.
He concluded that people's work performance is dependent on both social issues and job content. He suggested a tension between workers' 'logic of sentiment' and managers' 'logic of cost and efficiency' which could lead to conflict within organizations. Disagreement regarding his employees' procedure while condu cting the studies: •
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The members of the groups whose behavior has been studied were allowed to choose themselves. Two women have been replaced since they were chatting during their work. They were later identified as members of a leftist movement. One Italian member was working above average since she had to care for her family alone. Thus she affected the group's performance in an above average way.
Summary of Mayo's Beliefs: •
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Individual workers cannot be treated in isolation, but must be seen as members of a group. Monetary incentives and good working conditions are less important to the individual than the need to belong to a group. Informal or unofficial groups formed at work have a strong influence on the behavior of those workers in a group. Managers must be aware of these 'social needs' and cater for them to ensure that employees collaborate with the official organization rather than work against it. Mayo's simple instructions to industrial interviewers set a template and remain influential to this day i.e. A. The simple rules of interviewing:- 1. Give your full attention to the person interviewed, and make it evident that you are doing so. 2. Listen - don't talk. 3. Never argue; never give advice. 4. Listen to: what he wants to say; what he does not want to say; what he can not say without help. 5. As you listen, plot out tentatively and for subsequent correction the pattern that is being set before you. To test, summarize what has been said and present for comment. Always do this with caution - that is, clarify but don' t add or twist.
MICHAEL PORTER : Michael Porter has founded three major non-profit organizations: Initiative for a Competitive Inner City - ICIC in 1994, which addresses economic development in distressed urban communities; the Center for Effective Philanthropy, which creates rigorous tools for measuring foundation effectiveness; and FSG-Social Impact Advisors, a leading non-profit strategy firm serving NGOs, corporations, and foundations in the area of creating social value. He also currently serves on the Board of Trustees of Princeton University.His main academic objectives focus on how a firm or a region can build a competitive advantage and develop competitive strategy. He is also a Fellow Member of the Strategic Management Society. One of his most significant contributions is the five forces. Porter's strategic system consists primarily of: •
Competitive advantage
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Porter's Five Forces Analysis strategic groups (also called strategic sets) the value chain the generic strategies of cost leadership, product differentiation, and focus the market positioning strategies of variety based, needs based, and access based market positions global strategy Porter's clusters of competence for regional economic development Diamond model
His contributions:The Five Forces
The threat of the entry of new competitors
Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards zero ( perfect competition). •
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The existence of barriers to entry ( patents[1], rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily. Economies of product differences Brand equity Switching costs or sunk costs Capital requirements Access to distribution Customer loyalty to established brands Absolute cost advantages Learning curve advantages Expected retaliation by incumbents Government policies Industry profitability; the more profitable the industry the more attractive it will be to new competitors
The intensity of competitive rivalry
For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. • •
Sustainable competitive advantage through innovation Competition between online and offline companies; click-and-mortar -v- slags on a bridge
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Level of advertising expense Powerful competitive strategy The visibility of proprietary items on the Web[1]
[2] used by a company which can intensify competitive pressures on their rivals. How will competition react to a certain behavior by another firm? Competitive rivalry is likely to be based on dimensions such as price, quality, and innovation. Technological advances protect companies from competition. This applies to products and services. Companies that are successful with introducing new technology, are able to charge higher prices and achieve higher profits, until competitors imitate them. Examples of recent technology advantage in have been mp3 players and mobile telephones. Vertical integration is a strategy to reduce a business' own cost and thereby intensify pressure on its rival. The threat of substitute products or services
The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives: • • • • • •
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Buyer propensity to substitute Relative price performance of substitute Buyer switching costs Perceived level of product differentiation Number of substitute products available in the market Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product. Substandard product Quality depreciation
The bargaining power of customers (buyers)
The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. • • • • • • • • • • •
Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer volume Buyer switching costs relative to firm switching costs Buyer information availability Ability to backward integrate Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products RFM Analysis
The bargaining power of suppliers
The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources. • • • • • • •
Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost or differentiation Presence of substitute inputs Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition - ability to forward vertically integrate and cut out the buyer
Ex. If you are making cookies and there is only one person who sells flour, you have no alternative but to buy it from him.
