When Peter Drucker started out as a management consultant in the 1940s, he had precious little to guide him. Much to his frustration, he could find books on individual aspects of running a business—finance, for example, or human resources. But there was nothing that pieced it all together.
What was out there “reminded me of a book on human anatomy that would discuss one joint in the body—the elbow, for instance—without even mentioning the arm, let alone the skeleton and musculature,” Drucker later recalled.
When it comes to measuring corporate performance, we seem to have learned little over the past 75 years. Most metrics assess a single aspect of how a company is doing, with relatively little regard to how different dimensions of performance fit together.
There are a few exceptions, like ESG metrics. By definition, they take into account a variety of factors, from a company’s carbon footprint to its safety record to the diversity of its board.
Yet even then, one could argue that ESG is a rather narrow gauge—an examination of only the heart, if you will.
The Drucker Index, developed over the past several years by the Drucker Institute, a part of Claremont Graduate University, looks at the entire corporate anatomy. In a world of specialists—and often hyper-specialists—the Drucker Index offers the insights of the general practitioner.
It does this by measuring overall corporate effectiveness through the assessment of more than 40 different pieces of firm-level data,* which fall into five categories: customer satisfaction, employee engagement and development, innovation, financial performance and social responsibility. We define “effectiveness” as Drucker did: “doing the right things well.”
Underlying our five categories are specific Drucker principles drawn from his 39 books. For example, there’s this: “To satisfy the customer is the mission and purpose of every business.” And this: “Developing talent is business’ most important task.” And this: “One is responsible for one’s impacts, whether they are intended or not.” And so forth and so on—to the tune of 15 different principles in all, spread across our five dimensions.
Currently, the Drucker Index measures a universe of 732 corporations (including the S&P 500, the publicly traded firms in the Fortune 500 and a group of large-cap companies with market values of $2 billion or more that aren’t on either of those other lists).
From this group of companies, we have been able to:
- Establish with a high degree of statistical validity that there is a fundamental construct, which Drucker called “effectiveness,” that ties together and explains many performance indicators that are more typically viewed in isolation. Indeed, we can show that across our universe of companies, all five dimensions of effectiveness—each of which is based on multiple empirical inputs—are correlated to a significant degree.
Although the idea that each of these five areas would be highly correlated might seem obvious to those who have a "stakeholder" view of the way that corporations should work, we know of few tools that have actually demonstrated—in a rigorous, scientific way—that this is so.
- Dig into the effectiveness of individual companies, and shed light on their relative performance.
- Begin assessing historical data for our universe of companies, through which we will be able to examine, among other things, how stable each of the five different dimensions is over time; how quickly a change in top corporate leadership can alter overall effectiveness; and, perhaps most important, how these five dimensions interrelate—that is, what drives what.
“Broadly contextual, logical, holistic, Drucker’s play of thought—his real contribution to the discipline of management—enacts a kind of ongoing drama of perspective,” Alan Kantrow wrote in Harvard Business Review in 1980.
Through the lens of the Drucker Index, we hope to now share Drucker’s singular perspective—but in a whole new quantitative way.
- Key data providers include PayScale and the Supply Chain Resource Cooperative. Other sources of data include the American Customer Satisfaction Index, Bloomberg, Clarivate, CSRHub, Glassdoor, HIP Investor, Institutional Shareholder Services, Satmetrix, Sustainalytics, Temkin Ratings and wRatings. Alice Korngold helped to develop the methodology for the Social Responsibility portion of the Drucker Index.