THE DAILY DRUCKER: The Federal Principle

Federalism relieves top management from operating duties and sets it free to devote itself to its proper functions.

What the enterprise needs is principle that gives both the centre and the parts genuine managerial functions and powers. This principle is federalism, in which the whole of the enterprise is conceived as made up of autonomous units. The federal enterprise and all its units are in the same business. The same economic factors determine the future of the whole as well as of all units; the same basic decisions have to be made for all of them; the same kind and type of executive is needed. Hence the whole requires unified management in charge of the basic functions: the decision what business the enterprise is in, the organization of the human resources, and the selection, training, and testing of future leaders.
At the same time, each unit is business by itself. It produces its own products for distinct market. Each unit must, therefore, have wide autonomy within limits set by the general decisions of the management of the whole. Each unit has to have its own management. The local management will be primarily an operating management; it will be concerned mainly with the present and immediate future rather than with basic policy. But within limited scope it will have also to discharge real top-management functions.

Action point: Make maximum use of the federal principle.

The New Society

Extracted from Peter Drucker’s book The Daily Drucker.

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