Over the past century management has revolutionised both the experience of work and its productivity. But it remains the least understood of our social institutions. For many people, one of the most positive aspects of the "new economy" is its promise to do away with management and traditional organisations altogether. In this view, self-organising work teams will replace managerial hierarchies, leadership will be everyone's responsibility, and free agency will be the norm. There is enough reality in this scenario to make it seductive.

But as long as the world continues to become more complex and specialised, the discipline of management will play a growing role in our lives. Drucker's work remains the best guide to that discipline.

When Peter Drucker decided in 1943 to spend two years studying General Motors from the inside, he put his career at risk. Back then, no academic in his right mind would study something as mundane as a profit-making corporation. But this professor had once been a finance reporter, and he never lost his journalist's eye for the big story. Recovery from the war would shift the focus of power towards companies like GM. Making sense of modern society, Drucker saw, would mean making sense of management and then explaining it, both to the public and to managers themselves.

Drucker understood that if management could be made a discipline then it could be taught and widely disseminated, enabling ordinary people to achieve better-than-ordinary results. The discipline of management has made possible a world in which organisations are so integral to the fabric of our lives that we take them for granted. Before 1900 hardly anyone but soldiers, clergy and teachers worked for organised institutions.

Most people laboured alone or in small groups, and much work still centered on the home. At the turn of the century four-fifths of the US population worked with their hands in farming, domestic service and blue-collar work. Today the largest single occupational group consists of knowledge workers engaged in a myriad of technical and professional specialities.

For the first time in history, large numbers of highly educated, skilled people can come together in organisations of all sorts to achieve purposes that no individual could achieve on his own. Management makes that possible by articulating an organisation's purpose and translating it into performance. As a nation of investors, we are more likely than ever to think that the purpose of a business is to generate profits. But Drucker teaches us that organisations perform only when their purpose is clearly defined and that profit is not a purpose but a result.

Before Peter Drucker, most people thought about their businesses with a manufacturing mindset, defining a business based on what it produced. Today, the marketing mindset prevails. It was Drucker's critical insight that instead of buying a "product" the customer buys the satisfaction of a need. Home Depot would not have reached $30 billion in sales in 21 years if it had defined its business as selling hardware and building supplies.

Instead, its management asked who its customers are and what they value. It understood that inexperienced do-it-yourselfers don't want tools per se; they want affordable home improvements. So Home Depot delivers advice and instruction along with the products it sells, helping amateurs develop confidence and know-how.

Drucker is famous for a series of questions: What is our business? Who is the customer? What does the customer value? The answers to those questions, asked by generations of managers around the globe, became known as "the theory of the business." The most distinctive hallmark of the managerial mindset is that it operates from that theory. Major decisions and initiatives all become tests of the theory. Profits are important in part because they tell you whether your theory is working.

If you fail to achieve the results you expected, you re-examine your model. It is the managerial equivalent of the scientific method, starting with hypotheses which are then tested in action, and revised when necessary. It is a stunning experience to reread the Drucker of the 1950s, 1960s and 1970s and to recognise one seminal idea after another. Few major developments in management escaped his observation. He laid out the basics of competitive strategy years before the word strategy could be used intelligibly in a business context. He has always been a decade or two ahead on subjects as wide-ranging as organisational design, cost accounting, entrepreneurship and managing information. In a field often derided for its faddishness, his insights endure.

Equally remarkable, at age 90 he continues to look forward. His latest book is called "Management Challenges for the 21st Century." No one lays out more clearly the new economy's defining challenge: raising the productivity of knowledge work. By the same token, while the world fixates on e-business, Drucker points towards management's truly new frontier, the non-profit social sector, where "systematic, principled, theory-based management can yield the greatest results the fastest."

Drucker's insights about "knowledge work," a phrase he coined decades ago, grow out of his broad understanding of work as a human activity and management as a liberal art. He has always understood that people are deeply-and rightly-resistant to being "managed." This point is especially relevant for knowledge workers, who know more about their jobs than their bosses do. For them, supervision is a special kind of hell. This is why good managers help people manage themselves by focusing consistently on performance and results and by teaching them, often by example, to think about what they are good at, how they learn, what they value. Such self-knowledge is essential to performance.

As we ride the current economic boom, we face a paradox: At a time when the reputation of business has never been higher, the reputation of management has never been lower. Talented young people want to be entrepreneurs, consultants, venture capitalists - but can you remember the last time you heard one say he wanted to be a manager? Yet as Peter Drucker helps us to see, the quality of our lives and of our society depends on the quality of the organisatins we build, that is, on the discipline of management.

Magretta is the editor of "Managing in the New Economy", Harvard Business School Press, 1999. Stone, a former editor of Harvard Business Review, is the executive editor of the Peter F Drucker Archive and Institute.