Universität Salzburg VP Projekt Management SS Univ Prof Dr

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Universität Salzburg VP Projekt Management SS Univ Prof Dr Powered By Docstoc
              VP Projekt-Management / SS 2004

                  Univ.-Prof. Dr. Wolfgang Pree

                   The Essential Drucker
                         Summary of Chapter 5

                        Erik Laubbichler

                      Alfons Zimmerebner


              Chapter 5: Social Impacts and Social Problems                                                                               2
                Social Responsibilities . . . . . . . . . . . . . .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   2
                Responsibility for Impacts . . . . . . . . . . . .    .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   2
                How to Deal with Impacts . . . . . . . . . . . .      .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   3
                Social Problems as Business Opportunities . . .       .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   3
                The Limits of Social Responsibility . . . . . . .     .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   4
                The Limits of Authority . . . . . . . . . . . . .     .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   4
                The Ethics of Responsibility . . . . . . . . . . .    .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   5
                Not Knowingly to Do Harm . . . . . . . . . . .        .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   .   5

              The Essential Drucker                                                                                                       1

              Chapter 5: Social Impacts and Social

              This is a summary of chapter 5 that is titled “Social Impacts and Social Problems“.
              This chapter was taken from the book called ”Management, Tasks, Responsibilities,
              Practices”written in 1974.

              Social Responsibilities
              Social responsibilities may emerge out of the social impacts of the institution, or they
              arise as problems of the society itself. Indeed both are dependent on the management,
              but the two areas are different.

              The first deals with what an institution does to society: For example there are side-
              effects during the manufacturing of industrial products like environmental pollution or
              the creation of noise. Exploitation of employees could be another effect that can be ob-
              served even today.

              The second point is what an institution can do for society: For example an institu-
              tion could create jobs leading to full employment, wealth and also technical progress.

              Management has a self-interest in a healthy society, because a healthy institution cannot
              exist in a sick society.

              Responsibility for Impacts
              In connection with the Chapter “Responsibility for Impacts“, Peter Drucker formulates
              the first rule: One is responsible for one’s impacts, whether they are intended or not.
              That means management is responsible for social impacts, even more its managements
              business. The first job of management is, therefore to identify and to anticipate impacts.

              In this context Peter Drucker presents an example of the automobile company Ford:

              In the late 40s the company tried to make driving more safety, so they introduced cars
              with seat belts. Nowadays we would say, that this was a good idea, but the sales plum-
              meted, so the company had to withdraw this idea. 15 years later the public seemed to

              The Essential Drucker                                                                  2
              be more aware of the potential dangers and the car manufactures were attacked for their
Universität   “total lack of concern with safety“.
              What we can see by this example, is that the question is not: Is what we do right?
              It is: Is what we do what society and the customer pay us for?

              How to Deal with Impacts
              The first job of management is to identify impacts, but how should management deal with
              them? The objective is clear: impacts on society, economy and the community should
              be kept to a minimum. By preference the impacts should be removed altogether. Peter
              Drucker also says, that wherever an impact can be eliminated by dropping the activity
              that causes it, this is the best course.

              Of course that is not always possible, but management could look for improvements.
              It should always be attempted to make elimination of such impacts into a business op-
              portunity. But in many cases this is also impossible and so removal is combined with
              increasing the costs. This therefore could lead to a competitive disadvantage. To prevent
              this disadvantage regulation is in interest of responsible business, and it is the job of the
              management to design an appropriate regulation.

              In America the traditional attitude has always been “no regulation is best regulation“,
              but this only applies when business can be made out of such an impact. Therefore
              managements business is the promotion of the best regulation solution towards the gov-
              ernment and the public.

              Social Problems as Business Opportunities
              Peter Drucker describes social problems as dysfunctions or ills of society. But for the
              management of an institution it is a challenge. The management needs to look for busi-
              ness opportunities out of a social problem. That means to convert change into innovation
              that could possibly lead to new business. Although innovation doesn’t always refer to
              technology. Social change and social innovation is as important as technology, so business
              opportunities may lie in solving the social problem.

              In this context Peter Drucker mentioned another example from Ford:

              In 1913 in the United States unemployment among workers was very high and hourly
              wages for skilled men were very low. At that time sixty thousand men had to be hired by
              Ford to employ roughly ten thousand workers. That’s why Ford’s general manager chose
              to guarantee a five-dollar wage per day. This was two to three times more than the usual
              pay. Of course the consequence of this step was doubling the wage bill, but the resulting
              savings were great. Therefore Ford could produce and sell their cars at a lower price and
              make a larger profit per car. Reasons were the decrease of labourer turnover and the

              The Essential Drucker                                                                      3
              transformation of the American industrial society ⇒ workingmen became middle class.
 Salzburg     We can see, as mentioned before: A healthy business and a sick society are hardly com-

              The Limits of Social Responsibility
              The manager is a servant of his institution. In the first place he is responsible for the
              performance of his institution and this is a social responsibility, because a bankrupt
              business is not a desirable employer, nor will create capital for tomorrow’s jobs. Also
              making decisions only with the “profit motive“ in mind is not the best solution, because
              management is then unable to make decisions with respect to social responsibility.

              Furthermore often a manager has to take unpopular decisions, but he is being paid
              for performance and responsibility and not to be a hero to the popular press.

              Another essential point in this chapter was, that the management needs to know what
              it and its institution are incompetent for. Because of that an institution can avoid such
              areas and in further result social impacts.

              The Limits of Authority
              The most important limitation on social responsibility is the limitation of authority.
              Assumption of responsibility is not possible without the authority to do so and in turn
              claim of authority leads to the responsibility of properly executing this authority. Who-
              ever is in the position of accepting responsibility must be aware that the execution of
              the authority that comes with it is certain to have an impact on society be it intended
              or not. Therefore the key question when assuming responsibility is the question whether
              it is legetimate for one to do so.

              Some (e.g. Ralph Nader) have the opinion that responsibilities of businesses go beyond
              providing products and services such as using their influence to tackle social problems for
              the public good which would mean assumption of responsibilities that are by nature the
              duty of other institutions. But even companies that do not act beyond their productive
              scope may find themselves facing accusations of “interference and domination“ and of
              executing illegitimate authority for the simple reason that they exist in the form of a
              major employer and financial power. (such as DuPont in Delaware).


              No organisation should accept responsibility beyond its competence.

              The Essential Drucker                                                                   4
              The Ethics of Responsibility
 Salzburg     Accepting responsibility raises the question of the ethics of responsibility. According to
              Webster’s New World Dictionary ethics is “the system or code of morals of a particular
              person, religion, group, profession, etc“.

              Mr. Drucker explicitly states that “no separate ethics of business exists or is required“
              other than the usual standards and morals. (Interestingly there are organisations today
              that make “business ethics“ their main focus such as the European Business Ethics net-
              work. It is also a sad but true fact that companies that have a rather loose grasp on ethics
              when it comes to topics such as environmental impacts or labourer wellbeing have lower
              production overhead and therefore competitive advantage.) Wrongdoers against these
              standards must be punished severly in order to preserve morals in business. Responsibil-
              ity towards society is not care of the individual manager (whether he chooses to accept
              such responsibility is entirely his own concern) but that of the “leadership group“ the
              manager is part of. But managers, besides being obliged to the ethics of society, stand
              under the demand of “professional ethics“ - the demands of an ethic of responsibility.

              Not Knowingly to Do Harm
              Every professional, even if he cannot guarantee success must do his best and if he is
              aware that something is harmful he must abstain from doing it. In his actions a profes-
              sional must be autonomous from his client in order to prevent wrongful influence. The
              foundation of this autonomy is the consciousness of the professional of being afflicted
              with the public interest.

              But the welfare of clients sets limits to professional ethics, sometimes doing harm is
              necessary in order to achieve desired results. Not doing something essential but possibly
              uncomfortable or harmful (including communicating certain facts to the public) - volun-
              tarily or not - may lead to even greater harm. So even if it seems logical “not knowingly
              to do harm“ this rule is not easy to live up to in business.

              The Essential Drucker                                                                     5