How valid do you find main assumptions of Drucker’s “Theory of the Business”?
According to Drucker (1994), instead of the “how to”-s of business, companies should be focusing on market assumptions. (p. 96). He talks about companies considered to be successful on their own marketplace, because they had a “theory”. The author mentions GM and IBM as an example.
Would you agree with a statement that small assumptions have big power?
According to him, small assumptions that create the “theory of business” have a big impact on the performance of the company. Drucker (1994. p. 99.) also concludes that there are three parts of assumptions building up the theory if business, relating to; the environment of organization the mission of the company and the competencies needed.
Has his “theory” changed significantly in the last two decades?
Indeed, Drucker’s theory of business is applied today by many leading companies and is proven to be valid. The significance of company mission statements, business philosophy has increased in the past decades, In the following chapter, the authors would like to review the example of a current leading company to see how they apply the above three assumptions in their theory of business.
Dell’s Theory of Business and Assumptions
Dell faced a huge challenge in the late 90-s, when the competition on the PC market has increased. As the company was unable to compete on the price, they focused on cheaper and more popular products. The company needed to realize that they had to move towards portable devices and compete on a large market already bringing in similar products. Customers wanted faster and more reliable products, as well as lightweight devices.
In order to be able to provide customers with leading technology and the best quality, the company needed to build competencies on the support, research and development fields.
Apple’s Theory of Business
Apple’s big breakthrough started when the company leadership realized a new market opening related to portable devices. The challenge was that as a non-Microsoft compatible device, the Apple computer slowly lost its popularity. Apple focused on the growing market and listened to customers. The aim was to create products Steve Jobs would have wanted for himself. (Lussier and Aucha, 2009, p. 25)
The new generation growing up on technological inventions was targeted and served by the company.
The competencies needed for delivering the promises in mission statement were also in the research and development. This is the example of the 21st Century entrepreneurship Drucker mentions. (Drucker, 1988, p. 12.)
Decision Making and Purposes
According to Drucker, the purpose and objectives of business are determined by their own purposes. (1988,p. 26.) And a business is clearly defined by customers. The picture in the head of the Dell or Apple brand-aware shopper is what makes or breaks the company. Therefore, the social assumptions of the business theory have an even higher significance in the 21st Century than ever before, thanks to the increased speed of communication.
Drucker, P. F. (1994) Theory of the Business. Harvard Business Review. Sep.-Oct. 1994 p. 96- 104.
Drucker, P. F. (2001) Essential Drucker. Articles: Management as Social Function and Liberal Art (1988) The Purpose and objectives of a Business (1988)
Lussier, R., Achua, C. (2009) Leadership: Theory, Application, & Skill Development. Cengage Learning.