1. Running Head: THEORY OF BUSINESS 1
Theory of Business
Emmalie Beaman
Medaille College
Author Note
This paper was prepared on 22 September 2015 for MGT510
MOL018RA taught by Professor Ann Horn-Jeddy

2. THEORY OF BUSINESS 2
Abstract
Peter Drucker revolutionized management by insisting that managers become more active and
less passive (Kiechel, 2012). Drucker (1994) believes that all organizations have a theory of
business and have certain assumptions; these assumptions must fit into specific specifications in
order to be successful. Russell Ackoff propelled this notion further by asserting that it is not
about the actions of each part but the interactions of the parts together that determine the
successful nature of an organization (Allio, 2003). A car cannot properly serve its purpose unless
all the instruments are included and working together. Ackoff further postulates that even if
every car model was available to a set of engineers and they were told to take the best part from
each car it would not fit properly together, it is impossible (Brant, 2010). St John’s healthcare
exemplifies the importance of parts interacting in order to produce the intended results. Through
embracing the Eden Alternative and setting expectations in the form of values, each employee
lives the slogan of St. John’s to “Embrace Living”.

3. THEORY OF BUSINESS 3
Theory of Business
Introduction
Peter Drucker is renowned as one of the innovators of the contemporary style of
management. Drucker has contributed to the theory of changing the vocabulary from “boss” and
“worker” to “management” and “employee”, these connotations are meant to provide a
framework for working as a team, “power with” rather than “power over” (Kiechel, 2012).
Drucker proposed that management is both psychological and sociological. This was a large
deviation from the typical “scientific management” view of his predecessors, who mainly
focused on assembly line and factory work. Drucker proposed that all organizations, rather they
are conscious of it or not, have a theory of business. This theory of business includes three parts,
three assumptions including: environment, specific mission, and core competencies (Drucker,
1994). These assumptions are exemplified in my current organization of employment, St John’s
Meadows. Along with these assumptions Drucker adds four specifications of a valid theory of
business that instructs the three assumptions, which will also be elaborated on and compared to
St. John’s. Drucker’s specifications for a theory of a business mold a system of understanding
that defines the complex intricacies in any organization.
St. John’s in its entirety is devoted to multi-level care for elders. St John’s Home for the
Aging started as an institutional style hospital setting for nursing care that has evolved into a
neighborhood style, patient centered care facility. Fifteen years ago St. John’s Meadows was
built to supply the community with independent living with amenities for older adults fifty five
years and older. Shortly after the current building in which I love working The Hawthorne,
enhanced living was created. Currently, The Hawthorne is in the rigorous process of becoming
officially licensed as an Enhanced “Assisted” Living Home by the New York State Department
of health, but for the purpose of this paper, it will hereto for be referred to as assisted living since

4. THEORY OF BUSINESS 4
it is a more familiar term and The Hawthorne does serve the functions of assisted living. St
John’s assumptions about the environment is quite accurate, the Baby Boomers will soon
becoming of the age to require assistance and need a place to live that will facilitate a balance of
needs and the independence that is ingrained in their generation, this relates to Drucker’s (1994)
specification that assumptions about the environment must fit reality. Dr. Bill Thomas, the
founder of the patient centered Eden Alternative believes that most facilities for the aging do not
consider this large population that will soon be retiring and in need of services. In the past, an
elder would stay in their house as long as possible and then go directly to a nursing home that
operated like a hospital. This gave nursing homes a bad name and as a Geriatrician Dr. Bill
Thomas saw the need for more social and emotional support for aging seniors. Dr. Thomas
remembers the very moment he had this epiphany, he was administrating medicine to an elderly
woman and inquired about how she was feeling, the woman responded “[Do you have anything
for loneliness?]”. From then on he made it his mission to start a crusade to “abolish nursing
homes” (I remember all of this from his many lectures I have attended because it had touched me
so deeply). St. John’s has joined this crusade and turned their mission to creating care that
nurtures mind, body, and spirit of the elders that live in their communities.
I have had the pleasure to work for St. John’s Meadows for a little over a year and
believe that it is headed in the right direction toward a more active and less passive management
style as Drucker has postulated. The second assumption according to Drucker (1994) is related to
the specific mission of the organization. The mission of St. John’s is patient centered care.
Instead of overmedicating elders and leaving them in a hospital bed to live out their final years,
St John’s provides opportunities for activities, interactions, and only hires staff that exemplifies
the values of the Eden Alternative. The values include being friendly, respectful, responsive,

5. THEORY OF BUSINESS 5
compassionate, innovative, and fun. This assumption is thoroughly important in a health care
organization such as St. John’s and the specification by Drucker (1994) that the theory must be
understood throughout the organization. These values are clearly displayed as expectations for
all employees at any level and in any position. The reality that these values satisfies is that older
adults are living longer and staying independent longer, they are more educated than any other
generation and will require stimulating activities and emotional support.
St John’s Nursing Home has embraced deinstitutionalizing their property by making each
floor a “neighborhood”. This neighborhood approach exemplifies Russell Ackoff’s astute theory
of interactions of parts instead of the actions of parts separately (Brant, 2010). Instead of the
typical model of fixing one department, St John’s has integrated each department onto each
floor. For example, instead of one office of social workers located on the ground floor, there is a
social worker for each neighborhood. This provides a more personal feeling with each resident
that resides there. Each neighborhood also has their own therapeutic recreation person, the same
group of nurses and certified nursing assistants and so on. Instead of each department acting on
issues or implementing processes, they interact with elders all day. The aim is make the elders
feel less like patients and more like residents. This style of management that St. John’s has
undertaken demonstrates Ackoff’s vision of dismantling the “silo management” style. The
system of the present St. John’s beckons to Ackoff’s example of a car. An automobile cannot
function unless all parts are interacting together, a steering wheel does nothing on its own but a
car cannot be driven without it (Brant, 2010). At St John’s a CNA cannot dispense medicine
without a prescription from the doctor, and administration by an RN. If this particular
prescription related to dementia, for example Aricept, which slows the progression of
Alzheimer’s disease the example can go much deeper and reach through all departments in the

6. THEORY OF BUSINESS 6
neighborhood; For instance, let’s assume the resident participated in an outing with the
Therapeutic Recreation individual, and on this outing the resident exhibited an unusual amount
of confusion then is typical of elder, the Recreation specialist would then report this incident to
the social worker of that specific neighborhood, the social worker can now perform an evaluation
on the elder and report results to the doctor who will diagnose the elder, write the prescription,
and so on. The important part of this is that since these employees work closely with this elder
every day they can more closely monitor changes that can result in a better quality of life for the
elder. Instead of elder issues trickling down to the ground floor of a group of each individual
department where there can be four hundred residents in the entire building and little personal
contact, they can now get to know the resident in their neighborhood and thus interact and
provide patient centered care. This system of neighborhoods satisfies Drucker’s (1994)
specification that the theory of the business must be understood throughout the organization, if it
were not understood then no care would ever truly be given. The Eden Alternative in of itself
shows that the theory of the business was being tested constantly and needed to proactively
advance into patient centered care and become deinstitutionalized. The Eden Alternative is
monitored and tested through constant training and programs for teambuilding and an annual
“Best Practice Review” required for all employees.
St. John’s core competencies, as part of Drucker’s (1994) assumptions overlap into the
other two assumptions regarding environment and specific mission; St. John’s core competency
needed to accomplish the organizations mission or patient centered care is to hire and develop
staff that embody that of caretakers and friends instead of the traditional view of healthcare
workers. St John’s is attempting to forge a new path into creating a home like atmosphere in their
skilled nursing facility that they have practiced from the beginning in their independent and

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supportive living campuses. The challenge to turn a building that was built in the traditional
institution “hospital” structure is similar to Russell Ackoff’s example of how an architect
operates. An architect is presented with specifications from a consumer on what they would like
included for their house (how many rooms, how large, the materials, etc.) the architect then takes
on the task of drawing a blueprint for the customer to approve. Rather than draw each room
individually and try to form it into a home, the architect draws the larger picture of the house
then through various trial and errors and measurement creates the rooms within (Brant, 2010). St
John’s Skilled Nursing Facility has always been located on Highland Ave, and due to this being
the elders home the only way to change it is to change the interactions and practices within. It
would be inconceivable to displace the elders that live there and to dismantle the building and
rebuild. St John’s instead decided they could renovate and separate individuals from their
respected department’s offices and create the neighborhood experience from what they already
had. St John’s decided their core competency would be to provide the Eden Alternative and they
certainly fit Drucker’s (1994) specification that all three assumptions fit each other and they will
continue to revolutionize management and their mission.
I am very proud to be employed by St. John’s. I know I was selected as a
concierge at the Hawthorne Enhanced Living building because the values and mission were seen
in me by managers. The concierge the first impression of any person that walks through the door
and I take that very seriously. The knowledge and personality of the concierge represents that of
the St. John’s community. At any time a potential resident could walk through the door and the
concierge is the micro chasm of the entire organization. I share the same assumptions of the
theory of the business that St. John’s holds, this is why I sought out and chose to work for them.
I previously worked at an assisted living community that did not have similar values and morals

8. THEORY OF BUSINESS 8
as I had and it was not a good fit, so I intentionally fought to work at St. John’s. I was aware of
mission, vision, and values because I had taken seminar classes with the elders through Nazareth
College. I assume that St. John’s will continue to strive to provide the best care through all facets
of the human experience, not just health, but mind, body, and spirit.

9. THEORY OF BUSINESS 9
References
Allio, R.J. (2003). Russell L. Ackoff, iconoclastic management authority, advocates a
“systematic” approach to innovation. Strategy & Leadership, 31(3), 19-26. doi:
10.1108/10878570310472728.
Brant, S. (Producer). (2010). Russell Ackoff - systems-based improvement Pt 1&2 [Video clip].
Available from https://www.youtube.com/watch?v=k8g6ZoobDV4.
Drucker, P.F. (1994). The theory of the business. Harvard Business Review. Retrieved from:
https://cb.hbsp.harvard.edu/cbmp/content/40320121.
Kiechel III, W. (2012). The management century. Harvard Business Review. Retrieved from:
https://cb.hbsp.harvard.edu/cbmp/content/40320141.