The Concept of the Corporation (Paperback)

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 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!)