Title: Concept of the Corporation
 
Author: Peter F. Drucker
 
Backstory: This is the book that put Peter Drucker on the map. In the early 1940s, G.M. asked Drucker, then a professor at Bennington College, to record its management practices for future company leaders. Drucker compiled his observations into book form to better focus his thoughts. When his 18-month study was published in 1946, no one expected it would turn into a bestseller, spawn an entire genre of management books, and elevate Drucker to guru status in the business world. In many ways, Drucker’s thesis—that corporations in modern America function as regulatory social institutions—revolutionized American business. More than 60 years later, businessmen, including JetBlue C.E.O. David Barger, still swear by this management tome.
 
Total reading time: 495 minutes
 
First published: 1946

Key passages: “To make it possible for this social institution to function efficiently and productively, to realize its economic and social potential and to resolve its economic and social problems, is our most urgent task and our most challenging opportunity.” (pg. 208)

“It is not routine and monotony which produce dissatisfaction but the absence of recognition, of meaning, of relation of one’s own work to society.” (pg. 157)

“Efficient and cheap production can always be reached, given the human abilities and the human organization. But without able, responsible, and enterprising leadership, willing and capable of taking the initiative, the most efficient institution cannot maintain its efficiency, let alone increase it.” (pg. 128)

“No institution can possibly survive if it needs geniuses or supermen to manage it. It must be organized in such a way as to be able to get along under a leadership composed of average human beings.” (pg. 26)

Synopsis: Instead of observing the company in a vacuum, Drucker, a refugee from Nazi Germany writing in the aftermath of World War II and the American depression, used General Motors as a case study to examine the ability of a free-market capitalist society to survive, thrive, and meet the needs of its constituents. He approached G.M., and by extension every large American corporation, not just as a powerful moneymaking concern, but also as a primary social institution in a capitalist society. The future of freedom, he argued, rested on the ability of corporations not only to make a profit, but to meet the demands of workers throughout their ranks for professional fulfillment and advancement.

At the time, G.M. was a conglomerate of divisions, located throughout the U.S., which produced a wide range of automotive products, from fully assembled Pontiacs and Cadillacs to small parts such as spark plugs.

Drucker spends the first part of the book describing how G.M. overcame the impersonal nature of employment in a corporate behemoth—and gained the ability to respond to problems with the speed of a smaller concern—by creating a decentralized corporate structure. While many companies of the day left operating decisions to a single business guru, G.M. worried that a cult of personality wouldn’t survive a change in leadership. So central management delegated authority to division heads and granted them decision-making latitude. Division heads then delegated to subordinates and so on, and in some cases, decision-making authority extended all the way down to the foreman level. Decentralization at G.M., Drucker explains, was “not a mere technique of management but an outline of a social order.”

Despite this effort, the company still faced challenges, and in the second half of the book, Drucker focuses on the biggest one: managing the large class of workers on the assembly line, who were increasingly organizing in unions. To succeed, corporate America needed to fulfill its promise as America’s prime social institution, Drucker argues. Conventional wisdom held that the monotony of the assembly line—or low pay—was responsible for low worker productivity. Drucker saw the real problem as a lack of recognition for, and meaning in, the work. Disputes over wages and benefits were merely symbolic of what the worker actually craved: respect and opportunity.

Approvingly, Drucker cites an anecdote from wartime production in which workers came in contact with the greater goal of the work they were doing: At one G.M. division, the Army brought in a big bomber for which the division was producing small parts. The visit created “the most intense excitement amongst the workers.” Pilots talked of bomber exploits, and the maintenance crew explained to the workers for the first time the function of the parts they were producing. The result? An “unbelievable increase in morale and productive efficiency,” which, Drucker writes, surprised the managers who were present.

Seeking a way to keep employees motivated, G.M. began searching for peacetime strategies, such as rewarding workers for making useful suggestions. They also began to provide opportunities for advancement through job training and education, helping fulfill a promise of the American Dream.

Drucker’s analysis of G.M. was largely positive. But Donaldson Brown, the company’s chief financial officer, and Alfred Sloan, the C.E.O., didn’t intend for G.M. to be examined as a social institution. They gave the book a cool reception. Nevertheless, the lessons outlined by Drucker are still studied by management and business school students today, and the book remains required reading at some of the largest corporations.