When Peter Drucker uttered these words to a group of IBM executives, new complexities were tripping up the world. It was 1955.

 
In the more than half a century since, of course, the level of complexity has only increased across all of our institutions – political, economic and social. Indeed, as we move further into the 21st century, the complexity curve seems to be growing exponentially. The notion of achieving neatly laid-out objectives through systematic planning has become increasingly questionable. More and more, managers feel overwhelmed by the speed of change and the degree of uncertainty in their environment.

 
All of this makes the theme for the fifth annual Global Peter Drucker Forum – set to be held in Vienna on November 14 and 15, 2013–particular timely. This year, we will gather under the banner “Managing Complexity.”

 
Trying to master complexity is – well, quite complex. While the interconnectedness of the world brings about tremendous benefits such as ubiquitous access to knowledge and borderless communication, it also generates unprecedented risks. Complex global systems – financial markets, energy grids, supply chains that span continents-are by their nature fragile. And thus management failures can have catastrophic consequences, as we have repeatedly witnessed during the past decade.

 
“In any system as complex as the economy of a developed country,” Drucker warned in The New Realities, “the statistically insignificant events, the events at the margin, are likely to be the decisive events. . . By definition they can be neither anticipated nor prevented. They cannot always be identified even after they have had their impact.”

 
Yet most managers still seem to be anchored in command-and-control and cause-and-effect thinking patterns. Organizations continue to be understood as machines (complicated but predictable) rather than as organisms (highly complex, adaptive systems with limited predictability). Meanwhile, linear approaches to problem solving often have the opposite effect of what is intended.

 
How should managers cope with an increasingly complex environment? What does complexity mean for management practice in the 21st century?

 
Do we have to adjust our current management approaches or are we talking about something bigger – that is, fundamental changes or even a new paradigm?

 
What can managers learn from complexity sciences without falling into simplistic analogies between natural systems and social systems? Can we calculate our way out of complexity?

 
What are good practices pointing in the direction of new, more adequate management methods and tools? Are approaches such as design thinking, Agile Software Development and “Antifragility” some of the keys to a better future?

 
What are the consequences of complexity for the management of risks in business and society? Can we simplify complexity as many of us would wish?

 
Since analytic methods alone cannot provide the answers to complex, human systems, what can we learn from the arts and humanities?

 
As we begin to gear up for this year’s Drucker Forum, you are invited to provide your perspectives on these or other questions related to complexity. (They will be published on this blog after review by a small editorial team.) Please join the conversation either by commenting or by sending proposed blog posts to the following address contact[at]druckersociety.eu.

As the British politician Nye Bevan once asked: “Why look into the crystal ball when you can read the book?” Drucker, of course, left dozens of books for us to study. But in spite of his impressive output we seem to have lost sight of some of his timeless ideas. How many meetings that you attend begin with an agenda and the word “objectives” being written up on a flip-chart or other visual aid? And yet, a few (or more) hours later, how often has the discussion strayed far from the path that leaders declared they wanted to follow? “Mismanagement by missing objectives” was not what Drucker had in mind.

Over four decades ago Drucker alerted us to the emergence of something called a “knowledge worker”, who would have to be managed with great care. How good a job are we doing of managing them today? Drucker even suggested that we should think of our employees as, essentially, volunteers. And yet authoritarian corporate regimes continue to suppress initiative and new ideas, driving bright people away while preserving a sterile (and doomed) status quo. We had been warned, but we were not listening carefully enough.

In an age of over-complication and excessive noise Drucker’s voice can still cut through all the distractions. We need some of his lucidity today. We could start, for example, by turning again to his fundamental definition of the central task for any business: to “create” (find) and keep a customer. Is that what you are busy doing in your business? Is most of your energy being directed to meeting that challenge?

We could ask again his three basic questions for leaders: a) what business are you in? b) who are your customers? c) what are you doing for them that is valuable? These deceptively simple questions can force you to confront those under-discussed problems corporate leaders sometimes wish could just go away.

And we could recall perhaps his most important insight of all: that profitability is not in itself a purpose for business, just as breathing is not the purpose of life. Good businesses usually will be profitable, but commercial success comes as a result of doing the right things and operating in the right way.

In 1919 the Irish poet WB Yeats looked at the troubled post-war world and wrote:

“The best lack all conviction, while the worst/Are full of passionate intensity.”

(“The Second Coming”)

A dose of Drucker right now would help the best develop some conviction, and persuade the worst to abandon their destructive “passionate intensity”. We don’t need a new guru. PF Drucker will do.

 AUTHOR:

Stefan Stern, a former FT columnist, is Visiting Professor of management practice at the Cass Business School, London, and director of strategy at Edelman. He has attended all three of the previous Global Drucker Forum events.

Given the importance with which Peter viewed pension funds – essentially as the savior of modern capitalism – it is interesting to ask what he would think about the central role they now play in stock lending worldwide.  Stock lending is somewhat of a murky business.  Any institution that owns a share of stock can lend it out and earn a fee for the providing that service. The value of stocks lent at any given time is open to great debates. The International Securities Lending Association estimated the value of outstanding stock loans as $1 trillion in 2007. Finadium Institutional Investment Manager Survey estimated the size to be $4.7 trillion in 2007 and $2.5 trillion in 2008, and found over 90% of institutions surveyed engaged in stock lending.  So it is a gigantic business and almost all pension fund managers lend stocks, and due to their large size, are almost certainly the largest lenders of stocks.

This begs the question: Who is on the other side?  Who are the borrowers?  The answer is short-selling hedge funds and other proprietary traders.  They need to borrow stock in order to be able to short it.  So they borrow stock, short sell it, hope that it goes down in price, buy it back at the lower price, make a big profit, and return the stock back to the lender.

Let’s consider the systems dynamics of this relationship.  Pension funds are the most long-oriented investors in the entire capital markets.  They have 30, 40, 50 year obligations.  Their only interest is in having stocks increase in value over time to the highest level possible in order to meet their obligations to their pensioners.  In stark contrast, hedge funds have interest in maximum volatility because they make their biggest money on the 20% carried interest that they earn and that carried interest appreciates most with big movements in the securities which they hold. They couldn’t care less whether stocks go up or down. The only thing they care about is that stocks don’t move slowly and steadily; that would be bad for them.  Pension funds put in their hands the capacity to put a $1 trillion+ perpetual short on the world’s stock markets and on top of that, the capacity to jerk markets wildly up and down with how they execute their short positions.

And this is in the interests of pensioners how? It is disgraceful.  Yes, the pension funds can earn fees from stock lending that will measurably increase their annual returns.  But at the same time, it immeasurably reduces their long-term returns.  But since the latter is an opportunity cost not an easily measurable cost like the former, it isn’t counted.

But stock lending by pension funds combined with short selling by hedge funds is a key part of gaming the game of democratic capitalism.  The hedge funds simply trade and toll value.  They don’t care if they are damaging the capital markets on which they depend.  They contribute to volatility in legal and illegal ways.  By far the biggest enabler of this gaming is the pension funds who lend them the stock to engage in short-selling and on top of that, provide them lots of their funding through limited partner investments from their alternative investment portfolios.

Neither is in the interests of pensioners or democratic capitalism.  If we want to protect the good game of democratic capitalism against the gamers who would destroy it, we need to honor Peter Drucker’s memory by preventing pension funds from hurting their pensioners by enabling hedge funds.

AUTHOR:

Roger L. Martin has served as dean of the Rotman School of Management, University of Toronto since 1998.  His research work is in Integrative Thinking, Business Design, Corporate Social Responsibility and Country Competitiveness. He has written 14 Harvard Business Review articles and published seven books. In February 2013, his eighth book, Playing to Win: How Strategy Really Works, co-authored with former P&G CEO AG Lafley, will be released (HBR Press, 2013). In 2011, Roger placed 6th on the Thinkers50 list, a biannual ranking of the most influential global business thinkers. In 2010, he was named one of the 27 most influential designers in the world by BusinessWeek. In 2007 he was named a BusinessWeek ‘B-School All-Star’ for being one of the 10 most influential business professors in the world. BusinessWeek also named him one of seven ‘Innovation Gurus’ in 2005.  Roger received his  MBA from Harvard Business School.

 
As Drucker lays out what this new society should look like, he builds upon another great thinker of Austrian origin, Joseph Schumpeter, who had positioned the entrepreneur at the heart of capitalism – as the life force of a market-based, competitive, dynamic and wealth-creating economy. The question for Europe is: Has this sea change happened? Have we seen enough “creative destruction” to meet Drucker’s vision? Have we seen enough new companies and industries emerging from Europe during the past 50 years and taking leading positions in global markets? Regrettably the answer is a resounding “no.”

 
With an overblown social protection system and a state that has become in a number of countries obese and suffocating, it has become more difficult for entrepreneurs to develop and sustain their businesses. France provides a sad example of a nation that adheres to an anti-business and anti-entrepreneurship attitude, with a president who does not like those who were successful and hence may have made some money; “les riches” are despised and insulted by media and large parts of the public.

In a recent seminar for the Board of the European Institute of Technology and Innovation  -the first broad-based entrepreneurial venture to receive seed funding by the European Commission – the challenges for an entrepreneurial Europe were laid on the table.

Broad consensus appears to have emerged that the way beyond the current financial crisis will not be achievable only with austerity. Something positive and constructive is needed. And this is where entrepreneurial attitudes and capabilities come in, be it starting up new businesses, “intrapreneurship” in large organizations, new ways of independent working such as freelancing and contract work – in short everything where individuals take responsibility for their lives and pursue opportunities to create value.

 
In order to move toward a new paradigm where entrepreneurs are appreciated, celebrated and supported two major areas must be addressed.

 
First, man-made obstacles for entrepreneurial action must be eliminated. Among them: crippling tax regimes, rigid labour markets, absurd laws where bankruptcy is treated as a criminal offence of sorts, excessive red tape and lack of access to finance, again due to mistrust in risk-taking. Interestingly enough, the Eastern part of Europe seems to be showing the way in the right direction while the Western European countries appear to be trapped in the anti-entrepreneurship and anti-business cultures. Remember former U.S. Defence Secretary Donald Rumsfeld talking about “old” and “new” Europe?

 
It’s important to note that entrepreneurialism does not mean abandoning social security. Rather, it requires finding better and more targeted ways to support and protect those who are truly in need.

 
The other fundamental area of change that’s required lies in the field of capacity building. While there may be quite a number of born entrepreneurs, Drucker rightly observed that there are just not enough of them. This is all the more true given that the need for entrepreneurial capabilities is not confined to business; it is just as important for non-profits, for health, education and even for public services. Hence, we need to form and educate entrepreneurs, and we must cultivate a deep and systematic understanding of the discipline of entrepreneurship.

 
As a discipline, entrepreneurship must be taught in the classroom as well as learned from experience and enhanced constantly by research. Colleges and universities—and high schools, too – should make the study of management and entrepreneurship mandatory, and not only for those interested in pursuing careers in business.

 
Dan Shechtman, who won the Nobel Prize in Chemistry in 2011, has been a teacher for technology entrepreneurship over the past 25 years. Like others who studied at Israel’s Technion (Dan received his doctorate in materials engineering from there in 1972), he was exposed throughout his education to a strong entrepreneurial spirit – one of the keys, undoubtedly, to Israel’s innovation miracle. We are proud to have Prof. Shechtman as the opening speaker at the 2012 Global Peter Drucker Forum on November 15 in Vienna.

 
We have lost too many good years to make our European societies future-proof; unfortunately, more pain is on the way. But it is still not too late. We require lighthouses and role models. The EIT, with its focus on the Knowledge Triangle (Education, Research and Business), seems to be a step in the right direction.

 
The huge challenge for European Governments and policy makers at all levels is to “get it.” One of the most important tasks is to enable entrepreneurship as a foundation for innovation,  growth and as a consequence for employment. This is the time to stand for values and principles that may not have the majority in the opinion poll of the day. Are our politicians ready for that?