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What Peter Drucker Can Teach Us About the Church

Peter Drucker (1909-2005) was a world-renowned management consultant, university professor and author of 39 books. Perhaps his most significant work was the book titled Management: Tasks, Responsibilities and Practices (1973). Many years back, when I was studying management – out of a mixture of personal interest and professional desperation (I’d just inherited a software development group to lead) – I read this book.

Now most books we read are, I think, somewhat like ‘intellectual food’ in that we assimilate the ideas and they break down and become internalized with little conscious differentiation after a time. But several key ideas from Drucker have retained their identity for me – they have been that meaningful and useful. And since, for some strange reason, I tend to try and apply everything I’m learning to a church context, they seemed insightful there also. In this essay I would like to explore one of these ideas.

Drucker writes:

“The one basic difference between a service institution and a business is the way the service institution is paid.

Businesses (other than monopolies) are paid for satisfying the customer. They are paid only when they produce what customers want and what they are willing to exchange purchasing power for. Satisfaction of the customers is, therefore, the basis for assuring performance and results in a business.

Service institutions, by contrast, are typically paid out of a budget allocation. This means that they are not paid for what taxpayer and customer mean by results and performance. Their revenues flow from a general revenue stream that depends not on what they are doing but on some sort of tax.”

– pp. 134-135 from the 1977 abridged and revised version of Management: Tasks, Responsibilities, Practices

I hope you are already seeing the connection. When Drucker says ‘service institution’ he is thinking about organizations like state universities (significantly funded by the legislature), organizations within a business (e.g. Human Resources or Information Technology), and yes, also churches. When he says ‘some sort of tax’ it truly is tax dollars for schools, police departments, etc. But for churches it would be tithes and offerings. And ‘customers’ in a church context would be members and possibly potential converts.

Drucker continues:

“The typical service institution … also has monopoly powers. The intended beneficiary has no choice. Most service institutions have power beyond what the most monopolistic business enjoys. …


Efficiency and cost control, however much they are preached, are not really virtues in the budget-based institution. The importance of a budget-based institution is measured essentially by the size of its budget and the size of its staff. To achieve results with a smaller budget or a smaller staff is, therefore, not performance. It might actually endanger the institution.

It becomes dangerous to raise the question as to what the business of the institution should be. The question is always controversial. The controversy is likely to alienate support and is therefore shunned by the budget-based institution.

Finally, being budget-based makes it even more difficult to abandon the wrong things, the old, the obsolete. As a result, service institutions are even more encrusted than businesses with the barnacles of unproductive efforts. No institution likes to abandon anything it does. Business is no exception. An institution paid for its performance and results stands, however, under a performance test. The unproductive, the obsolete, is sooner or later killed off by the customers. In a budget-based institution, no such discipline is enforced. On the contrary, what a service institution does is always virtuous and likely to be considered in the public interest.” (pp. 135-139)

Before proceeding, let me attend to some qualifications and possible initial reactions.

First, I will not try to substantiate Drucker’s assessment, quoted above, nor the idea that a church/denomination is a valid example of a service organization. For this I refer you to the book itself where, in my view, he fairly and adequately supports these positions. Rather, I wish to examine the implications these ideas might have for Adventism.

Second, there is the frequent reaction that the church is not a business – it is God’s people/kingdom on earth. It is a spiritual organization and should not be compared to or evaluated like a business or any human endeavor. Here I would affirm the premise but deny the conclusion. Yes, the church is not a business, but it is also not simply ‘not a business’! You cannot think either/or here without committing the False Dilemma fallacy. A church/denomination is an organization with goals and methods, resources coming in, internal states, and results coming out. And these facets of church certainly can be examined in themselves. As an analogy, you would not consider studying physiology to be invalid just because humans are certainly much more than the sum total of their bodies.

All right. Drucker’s point is that for a service organization (exemplified by a church) productivity problems are inherent in the system due to the significant de-coupling between resources-in and results-out. That is, it is not per se due to competence issues, byzantine politics, etc.

Aristotle makes a distinction that is helpful here. He segregates essential from accidental properties. Essential properties collectively describe the very nature of what is being defined. For humans, perhaps the ability to reflect is an essential property. But accidental properties, while descriptive of particular things, are not essential to the form. Having red hair or being bi-lingual would be accidental properties.

Consider then, the property of competence. It is frequently alleged that the church has productivity problems because it is managed by ministers who might have no formal training for their roles. No doubt there is some truth to this criticism, although it seems to me often overstated. But this is not an essential property, so replacing every church administrator with a world-class manager would still not address Ducker’s point, which concerns structure.

He writes:

“There are three common explanations for the lack of performance in service institutions: their managers aren’t businesslike; the people are not as good as they should be; results are intangible and incapable of definition or measurement. All three are invalid and are pure alibi. The basic problem of the service institution is that it is paid for promises rather than for performance. It is paid out of a budget rather than for … results.” (p. 141)


To help see this, consider a ‘typical’ business. If it sells a well defined product – say canned soup – and the soup doesn’t taste good to the customer, they will not buy it and the business will feel an immediate economic effect. Revenue will fall and the business will either fold or hastily revise the product. But churches have a far different inherent structure. And, please note, they should have. With a church the revenue – tithes and offerings (but we could also extend this to volunteer labor) – provides resources to the organization with a varying but generally weak correlation to performance. Major motivation for tithes and offerings includes: response to Divine authority, gratitude toward God, etc. Giving driven by such reasons would not likely tailspin immediately, if at all, should the organization become dysfunctional (although over time revenue could decrease, perhaps exemplified by tithe diversion).

Now there is no basic structural solution to this problem. Churches aren’t going to move to some tightly coupled fee-for-service model. No turnstiles at the sanctuary door or cash registers at a potluck checkout counter. Drucker’s assessment is not intended to suggest a church try to morph into something it cannot be. The value of his analysis begins with a call for recognizing inherent weakness which, if better understood, could produce vigilance to guard against abuse or neglect of performance, stemming from this structural problem.

To put some ‘flesh’ on to these abstractions, consider an example which would likely be familiar to older Adventists. The Conference and/or Union used to make the circuit of churches providing Sabbath School workshops. Paid church personnel would expend time and incur travel costs. ‘Free’ materials were given to local members who attended. Now was this a good use of resources? People certainly showed up (although pastors were known to beat the bushes), helpful information was transmitted, etc. The workshops went on year after year. Eventually Union and Conference cutbacks diminished or eliminated them (although perhaps there are places where they continue). But I am unaware of any significant analysis – at least in the Pacific Union, where I live – to determine their effectiveness. Back in the ‘80s I was a member of the Pacific Union Conference Committee and was assigned to the budget subcommittee. During one review meeting the Sabbath School director was detailing his request, including a substantial expenditure for printed seminar materials. So I asked him whether this spending could be demonstrably justified as a good use of resources. He was nonplussed, and replied (referring to the materials) ‘well, they keep flying off the shelves’. Now, of course, my question really was unanswerable unless there had been some system-wide evaluation of effectiveness. And I regret asking it. Not because it was invalid, but because the whole idea of a market test was completely off his radar and I only embarrassed him without facilitating anything positive. Such issues cannot be properly attended to except at the highest, strategic, levels of an organization.

So what might a church do to mitigate the serious consequences of this revenue/results disconnect? The first step, of course, is to recognize the problem. This is where Drucker starts to teach. Remediation then begins with a hard-nosed assessment of methodology. There is no easy or non-threatening way to do this. Well-intentioned activity by committed and often talented people is clearly evident. So how does the church determine if and when change is needed? With an uncompetitive soup product the customers would simply stop buying. But for Sabbath School workshops the ‘customers’ (at least for many years) just kept on attending.

Drucker writes:

“effectiveness in the service institution is achievable – though by no means easy. … the service institution managers can do unpopular and highly controversial things if only they face up to the risk-taking decision as to what the business of the institution is, will be, and should be.” (p. 141-142)


He then notes several examples (e.g. Bell Telephone) where, for a time, internal discipline overcame this structural problem. But there is no magic bullet.

“service institutions … need more than programmes, promises, good intentions and hard work, all underwritten by a budget. Wherever possible, they need a system and structure that directs them toward performance. [they] also need the discipline of planned obsolescence and planned abandonment of their policies.” (p. 149)

But to do this we must speak of the dreaded ‘M Word’ – measurement. This is deeply problematic in a church context. Here the concern is with souls, not soup. And the church has had an unfortunate tendency to oversimplify what it does measure, with its emphasis on baptisms sometimes to the exclusion of any other metric. Further, many clearly valuable church activities seem almost unquantifiable and it is also especially difficult to find common measures whereby very different options might be compared.

Perhaps some of these reasons are why there is so frequently such a visceral, negative reaction to measurement within the church-at-large. But nobody said it would be easy. Still, results must be evaluated and scarce resources applied where they can best further the church’s mission or we will drift, be ineffective and consequently be collectively frustrated. Good stewardship demands our best thinking and effort here. And, at least Peter Drucker would argue, it can be done.

Rich Hannon is a software engineer who lives in Salt Lake City. His reading interests focus on philosophy and medieval history.

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