Management Challenges for the 21st Century
by Peter Drucker — his other books
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Amazon Link: Management Challenges for the 21st Century
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Tomorrow's Hot topics
Where, readers may ask, is the discussion of COMPETITIVE STRATEGY, of LEADERSHIP, of CREATIVITY, of TEAMWORK, of TECHNOLOGY in a book on MANAGEMENT CHALLENGES?
Where are the "HOT" ISSUES OF TODAY?
But this is the very reason why they are not in this book.
It deals exclusively with TOMORROWS "Hot" Issues—the crucial, central, life-and-death issues that are certain to be the major challenges of tomorrow.
CERTAIN? Yes. For this is not a book of PREDICTIONS, not a book about the FUTURE.
The challenges and issues discussed in it are already with us in every one of the developed countries and in most of the emerging ones (e.g., Korea or Turkey).
They can already be identified, discussed, analyzed and prescribed for.
Some people, someplace, are already working on them …
Management's new paradigms
Why assumptions matter
Assumptions that have outlived their usefulness
Management is business management
The one right organization
The right way to manage people
Technologies and end-uses are fixed and given
Management’s scope is legally defined
Management’s scope is politically defined
The inside is management’s domain
Conclusion: The center of modern society, economy, community is the managed institution as the organ of society to produce results.
And management is the specific tool, the specific function, the specific instrument to make institutions capable of producing results.
Strategy: The new certainties
The Change Leader #PDF
The new information revolution
From the T to the I in IT
The information enterprises need
From cost accounting to results control
From legal fiction to economic reality
Information for wealth creation
Where the results are
The information executives need for their work
Knowledge worker productivity. See chapters 18 and19 in Management, Revised Edition and these notes
The productivity of the manual worker
What we know about knowledge worker productivity
Knowledge worker as capital asset
Knowledge work as a system
The governance of the corporation
A revolution in human affairs
The Future of Society
Why assumptions matter
BASIC ASSUMPTIONS ABOUT REALITY are the PARADIGMS of a social science, such as management.
They are usually held subconsciously by the scholars, the writers, the teachers, the practitioners in the field.
Yet those assumptions largely determine what the discipline—scholars, writers, teachers, practitioners assumes to be REALITY.
The discipline’s basic assumptions about reality determine what it focuses on.
They determine what a discipline considers “facts,” and indeed what it considers the discipline itself to be all about.
The assumptions also largely determine what is being disregarded in a discipline or is being pushed aside as an “annoying exception.”
They decide both what in a given discipline is being paid attention to and what is neglected or ignored.
A good example is what happened to the most insightful of the earlier management scholars: Mary Parker Follett (1868-1933).
On this see my introduction to Mary Parker Follett, Prophet of Management (Boston: Harvard Business School Press, 1995).
Because her assumptions did not fit the realities which the budding discipline of management assumed in the 1930s and 1940s, she became a “nonperson” even before her death in 1932, with her work practically forgotten for twenty-five years or more.
And yet we now know that her basic assumptions regarding society, people and management were far closer to reality than those on which the management people then based themselves—and still largely base themselves today.
Yet, despite their importance, the assumptions are rarely analyzed, rarely studied, rarely challenged indeed rarely even made explicit.
For a social discipline such as management the assumptions are actually a good deal more important than are the paradigms for a natural science.
The paradigm—that is, the prevailing general theory—has no impact on the natural universe.
Whether the paradigm states that the sun rotates around the earth or that, on the contrary, the earth rotates around the sun has no effect on sun and earth.
A natural science deals with the behavior of OBJECTS.
But a social discipline such as management deals with the behavior of PEOPLE and HUMAN INSTITUTIONS.
Practitioners will therefore tend to act and to behave as the discipline’s assumptions tell them to.
Even more important, the reality of a natural science, the physical universe and its laws, do not change (or if they do only over eons rather than over centuries, let alone over decades).
The social universe has no “natural laws” of this kind.
It is thus subject to continuous change.
And this means that assumptions that were valid yesterday can become invalid and, indeed, totally misleading in no time at all.
… snip, snip …
For most of this period—at least until the early 1980s—all but the first of these assumptions were close enough to reality to be operational, whether for research, for writing, for teaching or for practicing management.
By now all of them have outlived their usefulness.
They are close to being caricatures.
They are now so far removed from actual reality that they are becoming obstacles to the Theory and even more serious obstacles to the Practice of management.
Indeed, reality is fast becoming the very opposite of what these assumptions claim it to be.
It is high time therefore to think through these assumptions and to try to formulate the NEW ASSUMPTIONS that now have to inform both the study and the practice of management.
Technologies and End-Users Are Fixed and Given
Four major assumptions, as said above, have been underlying the PRACTICE of Management all along—in fact for much longer than there has been a DISCIPLINE of Management.
The assumptions about technology and end-users to a very large extent underlie the rise of modern business and of the modern economy altogether.
They go back to the very early days of the Industrial Revolution.
When the textile industry first developed out of what had been cottage industries it was assumed—and with complete validity—that the textile industry had its own unique technology.
The same was true in respect to coal mining, and of any of the other industries that arose in the late 18th century and the first half of the 19th century.
The first one to understand this and to base a major enterprise on it was also one of the first men to develop what we would today call a modern business, the German Werner Siemens (1816-1892).
It led him in 1869 to hire the first university-trained scientist to start a modern research lab—devoted exclusively to what we would now call electronics, and based on a clear understanding that electronics (in those days called “low-voltage”) was distinct and separate from all other industries, and had its distinct and separate technology.
Out of this insight grew not only Siemens’s own company with its own research lab, but also the German chemical industry, which assumed worldwide leadership because it based itself on the assumption that chemistry—and especially organic chemistry—had its own unique technology.
Out of it then grew all the other major leading companies the world over, whether the American electrical and chemical companies, the automobile companies, the telephone companies and so on.
Out of this insight then grew what may well be the most successful invention of the 19th century, the research laboratory—the last one almost a century after Siemens’s, the 1950 lab of IBM—and at around the same time the research labs of the major pharmaceutical companies as they emerged as a worldwide industry after World War II.
By now these assumptions have become untenable.
The best example is of course the pharmaceutical industry, which increasingly has come to depend on technologies that are fundamentally different from the technologies on which the pharmaceutical research lab is based: genetics, for instance, microbiology, molecular biology, medical electronics and so on.
But the same thing has happened in the automobile industry, which increasingly has become dependent on electronics, and on the computer.
It has happened to the steel industry, which increasingly has become dependent on materials sciences of which the original steel companies were totally ignorant—and largely still are.
It has happened to the paper industry—the list could be continued indefinitely.
In the 19th century and throughout the first half of the 20th century, it could be taken for granted that technologies outside one’s own industry had no, or at least only minimal, impact on the industry.
Now the assumption to start with is that the technologies that are likely to have the greatest impact on a company and an industry are technologies outside its own field.
The original assumption was of course that one’s own research lab would and could produce everything the company or the company’s industry needed.
And in turn the assumption was that everything that this research lab produced would be used in and by the industry that it served.
This, for instance, was the clear foundation of what was probably the most successful of all the great research labs of the last hundred years, the Bell Labs of the American telephone system.
Founded in the early 1920s, the Bell Labs until the late 1960s did indeed produce practically every new knowledge and every new technology the telephone industry needed.
And in turn practically everything the Bell Labs scientists produced found its main use in the telephone system.
This changed drastically with what was probably the Bell Labs’s greatest scientific achievement: the transistor.
The telephone company itself did become a heavy user of the transistor.
But the main uses of the transistor were outside the telephone system.
This was so unexpected that the Bell Telephone Company, when the transistor was first developed, virtually gave it away—it did not see enough use for it within the telephone system.
But it also did not see any use for it outside it.
And so what was the most revolutionary development that came out of the Bell Labs—and certainly the most valuable one—was sold freely to all comers for the paltry sum of $25,000.
It is on this total failure of the Bell Labs to understand the significance of its own achievement that practically all modern electronic companies outside of the telephone are based.
Conversely, the things that have revolutionized the telephone system—such as digital switching or the fiberglass cable—did not come out of the Bell Labs.
They came out of technologies that were foreign to telephone technology.
And this has been typical altogether of the last thirty to fifty years—and it is increasingly becoming more typical of every industry.
Technologies, unlike the 19th-century technologies, no longer run in parallel.
They constantly crisscross.
Constantly, something in a technology of which people in a given industry have barely heard (just as the people in the pharmaceutical industry had never heard of genetics, let alone of medical electronics) revolutionizes an industry and its technology.
Constantly, such outside technologies force an industry to learn, to acquire, to adapt, to change its very mindset, let alone its technical knowledge.
The basic assumptions of genetics are alien to a pharmacologist—and yet genetics is rapidly revolutionizing the pharmaceutical industry.
And the mindset of the geneticist is so different that so far, no major pharmaceutical company has been able to integrate genetics successfully into its own research program.
It can only get access to genetics by alliances with outsiders, whether through minority participation in a genetics company or through an agreement with a university genetics department.
Equally important to the rise of 19th- and early-20th-century industry and companies was a second assumption: End-uses are fixed and given.
For a certain end-use, for example, to put beer into containers, there may have been extreme competition between various suppliers of containers.
But all of them, until recently, were glass companies, and there was only one way of putting beer into containers, a glass bottle.
Similarly, as soon as steel became available, that is, beginning in the last decades of the 19th century, rails for railroads were to be made from steel and from nothing else.
As soon as electricity began to be transmitted over any distance, the wire had to be made from copper.
And the same assumption applied to services.
The credit needs of a business could only be supplied by a commercial loan from a commercial bank.
The post office had a “natural monopoly” on transporting and delivering written and printed communications.
There were two ways of getting fed: cooking for oneself at home or going out to a restaurant.
This was accepted as obvious not only by business, industry and the consumer, but by governments as well.
The American regulation of business rests on the assumptions that to every industry pertains a unique technology and that to every end-use pertains a specific and unique product or service.
These are the assumptions on which AntiTrust was based.
And to this day Anti-Trust concerns itself with the domination of the market in glass bottles and pays little attention to the fact that beer increasingly is not put into glass bottles but into cans (or, vice versa, AntiTrust concerns itself exclusively with the concentration of supply in respect to metal containers for beer, paying no attention to the fact that beer is still being put into glass bottles, but also increasingly into plastic cans).
As late as the mid-twenties the U.S. Supreme Court decided that there were two and only two mutually exclusive and noncompetitive ways for telecommunication—the spoken word went via telephone and the written word went via telegraph.
And ten years later during the Depression, the Congress of the United States separated investment banking from commercial banking, each to be set up in separate institutions and each having its own exclusive end-use.
But since WWII end-uses are not uniquely tied any more to a certain product or service.
The plastics of course were the first major exception to the rule.
But by now it is clear that it is not just one material moving in on what was considered the “turf” of another one.
Increasingly the same want is being satisfied by very different means.
It is the want that is unique, and not the means to satisfy it.
As late as the beginning of WWII, news was basically the monopoly of the newspaper—an 18th-century invention that saw its biggest growth in the early years of the 20th century.
By now there are several competing ways to deliver news: still the printed newspaper, increasingly the same newspaper delivered on-line through the Internet, radio, television, separate news organizations that use only electronics—as is increasingly the case with economic and business news—and quite a few additional ones.
The U.S. Glass-Steagall Act of the Depression years not only attempted to prevent commercial banks from doing business in the investment market, it also tried to prevent investment bankers from doing commercial banking business and thus tried to give banks a monopoly on lending.
One paradoxical result was that this act, intended to establish the monopoly position of the bank in the commercial market, has given the commercial market to the investment bankers.
By a quirk of American law (a Supreme Court decision of the 1920s) “commercial paper” (the American equivalent to the European Bill of Exchange) was classified as a “security.”
This then enabled the investment bankers after 1960 to become the dominant force in the commercial banking business, that is, to replace increasingly the banks’ commercial loan with the investment bankers’ “commercial paper.”
But increasingly in all developed countries the fastest growing source of commercial credit is neither the commercial bank nor the investment bank.
It is the credit card in its various forms.
A still fairly small but rapidly growing number of credit card customers have multiple credit cards—some as many as twenty-five or thirty.
They use these cards to obtain and to maintain a level of credit far beyond their creditworthiness.
That the interest rate is very high does not seem to bother them, since they do not have any intention anyhow of paying off the loans.
They manipulate them by shifting the outstanding balance from one card to the other so that they are never forced to pay more than very small, minimum amounts.
The credit card has thus become what used to be called “legal tender.”
Nobody knows how big this new form of money has become—but it is clearly a new form of money.
And it has already become so big as to make almost meaningless the figures for money in circulation, whether M1 or M2 or M3, on which central banks and economists base their theories and their forecasts.
And then there is the new “basic resource” information.
It differs radically from all other commodities in that it does not stand under the scarcity theorem.
On the contrary, it stands under an abundance theorem.
If I sell a thing—for example, a book—I no longer have the book.
If I impart information, I still have it.
And in fact, information becomes more valuable the more people have it.
What this means for economics is well beyond the scope of this book—though it is clear that it will force us radically to revise basic economic theory.
But it also means a good deal for management.
Increasingly basic assumptions will have to be changed.
Information does not pertain to any industry or to any business.
Information also does not have any one end-use, nor does any end-use require a particular kind of information or depend on one particular kind of information.
Management therefore now has to start out with the assumption that there is no one technology that pertains to any industry and that, on the contrary, all technologies are capable—and indeed likely—to be of major importance to any industry and to have impact on any industry.
Management similarly has to start with the assumption that there is no one given end-use for any product or service and that, conversely, no end-use is going to be linked to any one product or service.
Some implications of this are that increasingly the noncustomers of an enterprise—whether a business, a university, a church, a hospital—are as important as the customers, if not more important.
Even the biggest enterprise (other than a government monopoly) has many more noncustomers than it has customers.
There are very few institutions that supply as large a percentage of a market as 30 percent.
There are therefore few institutions where the noncustomers do not amount to at least 70 percent of the potential market.
And yet very few institutions know anything about the noncustomers—very few of them even know that they exist, let alone know who they are.
And even fewer know why they are not customers.
Yet it is with the noncustomers that changes always start.
Another critical implication is that the starting point for management can no longer be its own product or service, and not even its known market and its known end-uses for its products and services.
The starting point has to be what customers consider value.
The starting point has to be the assumption—an assumption amply proven by all our experience—that the customer never buys what the supplier sells.
What is value to the customer is always something quite different from what is value or quality to the supplier.
This applies as much to a business as to a university or to a hospital.
One example is the pastoral mega-churches that have been growing so very fast in the United States since 1980, and that are surely the most important social phenomenon in American society in the last thirty years.
Almost unknown thirty years ago—there were no more than a thousand churches then that had a congregation exceeding two thousand people—there are now some twenty thousand of them.
And while all the traditional denominations have steadily declined, the mega-churches have exploded.
They have done so because they asked, “What is value?” to a non-churchgoer.
And they have found that it is different from what churches traditionally thought they were supplying.
The greatest value to the thousands who now throng the megachurches—and do so weekdays and Sundays—is a spiritual experience rather than a ritual, and equally management responsibility for volunteer service, whether in the church itself or, through the church, in the community.
Management, in other words, will increasingly have to be based on the assumption that neither technology nor end use is a foundation for management policy.
They are limitations.
The foundations have to be customer values and customer decisions on the distribution of their disposable income.
It is with those that management policy and management strategy increasingly will have to start.
The Distribution of Income
Shifts in the shares of disposable income are just as important as shifts in population, but usually even less attention is paid to them.
… snip, snip …
Shares in disposable income are the foundation of all economic information.
… snip, snip …
They are usually impervious even to the business cycle.
But for that reason, there are few more important changes for an institution than a change in the trend.
And equally important is a change within the trend, that is, a switch from one kind of product or service within a category to another product or service within the same category.
And within the first decades of the 21st century there will be both changes in the trends and changes within the trend.
Yet neither executives nor economists pay much attention to the distribution of the shares of disposable income.
In fact, most are totally ignorant of them.
Practically all economists and the great majority of business executives believe, for instance, that the great economic expansion of the 20th century was driven by economic forces.
It was not; on the contrary, the share of disposable income allocated to economic satisfaction has steadily dropped during this century in all developed countries.
… snip, snip …
Industries, whether businesses or nonbusinesses, have to be managed differently depending on whether they are growth industries, mature industries or declining industries.
A growth industry that can count on demand for its products or services growing faster than economy or population manages to create the future.
It needs to take the lead in innovation and needs to be willing to take risks.
A mature industry needs to be managed to have a leadership position in a few, a very few, but crucial areas, and especially in areas where the demand can be satisfied at substantially lower cost by advanced technology or advanced quality.
And it needs to be managed for flexibility and rapid change.
A mature industry shifts from one way of satisfying wants to another.
A mature industry therefore needs to be managed for alliances, partnerships and joint ventures to adapt rapidly to such shifts.
One example is the pharmaceutical industry.
Until very recently—since the invention of the sulfa drugs and the antibiotics just before World War II—it was a leading growth industry.
In the 1990s it became a mature industry.
This means with high probability that there will be fast and sudden shifts to new ways of satisfying the old demands, for example, from chemical drugs to genetics, molecular biology, medical electronics, or even to “alternative medicine.”
In a declining industry one has to manage, above all, for steady, systematic, purposeful cost reduction and for steady improvement in quality and service, that is, for strengthening the company’s position within the industry, rather than for growth in volume—which one can only take away from somebody else.
For in a declining industry it is more and more difficult to establish meaningful product differentiation.
Products in a declining industry tend to become “commodities”—as is rapidly happening with passenger automobiles (except so far for a few luxury cars).
In conclusion, institutions—businesses as well as nonbusinesses—will have to learn to base their strategy on their knowledge of, and adaptation to, the trends in the distribution of disposable income and, above all, to any shifts in this distribution.
And they need both quantitative information and qualitative analysis
The Change Leader
One cannot manage change
“One can only be ahead of it.
We do not hear much anymore about “overcoming resistance to change,” which ten or fifteen years ago was one of the most popular topics of management books and management seminars.
Everybody has accepted by now that “change is unavoidable.”
But this still implies that change is like “death and taxes”: It should be postponed as long as possible, and no change would be vastly preferable.
But in a period of upheavals, such as the one we are living in, change is the norm.
To be sure, it is painful and risky, and above all it requires a great deal of very hard work.
But unless it is seen as the task of the organization to lead change, the organization whether business, university, hospital and so on will not survive.
In a period of rapid structural change, the only ones who survive are the Change Leaders.
It is therefore a central 21st-century challenge for management that its organization become a change leader.
A change leader sees change as opportunity.
A change leader looks for change, knows how to find the right changes and knows how to make them effective both outside the organization and inside ”
Reports and meetings ::: staffing opportunities
The last policy for the change leader to build into the enterprise is a systematic policy of INNOVATION, that is, a policy to create change.
It is the area to which most attention is being given today.
It may, however, not be the most important one—organized abandonment, improvement, exploiting success may be more productive for a good many enterprises.
And without these policies—abandonment, improvement, exploitation—no organization can hope to be a successful innovator.
But to be a successful change leader an enterprise has to have a policy of systematic innovation.
And the main reason may not even be that change leaders need to innovate—though they do.
The main reason is that a policy of systematic innovation produces the mindset for an organization to be a change leader.
It makes the entire organization see change as an opportunity.
Windows of opportunity
- Unexpected successes ::: unexpected failures ::: unexpected events
- Process needs
- Changes in industry and market structures
- Changes in demographics
- Changes in meaning and perception
- New knowledge
This requires a systematic policy to look, every six to twelve months, for changes that might be opportunities
The unexpected success was Drucker’s favorite
… but if innovation is based on exploiting what has already happened—in the enterprise itself, in its markets, in knowledge, in society, in demographics and so on—it is far less risky
And this work should be organized as a regular part of every unit within the enterprise, and of every level of management.
Important to harvest and apply Dense reading and Dense listening and Thinking broad and Thinking detailed
What not to do
The change leader’s two budgets
Change and continuity
Making the future
One thing is certain for developed countries—and probably for the entire world:
We face long years of profound changes.
The changes are not primarily economic changes.
They are not even primarily technological changes.
They are changes in demographics, in politics, in society, in philosophy and, above all, in worldview.
Economic theory and economic policy are unlikely to be effective by themselves in such a period.
And there is no social theory for such a period either.
Only when such a period is over, decades later, are theories likely to be developed to explain what has happened.
But a few things are certain in such a period.
It is futile, for instance, to try to ignore the changes and to pretend that tomorrow will be like yesterday, only more so.
This, however, is the position that existing institutions tend to adopt in such a period—businesses as well as nonbusinesses.
It is, above all, the policy likely to be adopted by the institutions that were most successful in the earlier period before the changes.
They are most likely to suffer from the delusion that tomorrow will be like yesterday, only more so.
Thus it can be confidently predicted that a large number of today’s leaders in all areas, whether business, education or health care, are unlikely still to be around thirty years hence, and certainly not in their present form.
But to try to anticipate the changes is equally unlikely to be successful.
These changes are not predictable.
The only policy likely to succeed is to try to make the future.
Changes of course have to fit the Certainties (which this book attempted to outline in the preceding chapter).
Within these restraints, however, the future is still malleable.
It can still be created.
To try to make the future is highly risky.
It is less risky, however, than not to try to make it.
A goodly proportion of those attempting to do what this chapter discusses will surely not succeed.
But, predictably, no one else will.
See creativity in Management, Revised Edition and ↓
Conditions for survival
The next policy that the change leader needs to develop is the exploitation of success.
It is only seventy or eighty years since the “monthly report” was invented and introduced in most business organizations.
By now it is routine and standard practically everywhere.
Almost without exception this report, on its first page, presents the areas in which results fall below expectations, or in which expenditures exceed budget.
It focuses on problems.
In the monthly operating committee meeting, which also has become routine and standard in practically all enterprises—and by no means only in businesses—it is this report on the problems that is being discussed, and nothing else.
Problems cannot be ignored.
And serious problems have to be taken care of.
But to be change leaders, enterprises have to focus on opportunities.
They have to starve problems and feed opportunities.
This requires a small but fundamental procedural change: an additional “first page” to the monthly report, and one that should precede the page that shows the problems.
It requires a page that focuses on where results are better than expected, whether in terms of sales, revenues, profits or volume.
As much time then should be spent on this new first page as has traditionally been spent on the problem page.
In some organizations that have successfully organized themselves to be change leaders, the opportunity page is given its own full morning or its own full day, with a second full morning or full day then devoted to the problems.
Enterprises that succeed in being change leaders make sure that they staff the opportunities.
The way to do this is to list the opportunities on one page, and then to list the organization’s performing and capable people on another page.
Then one allocates the ablest and most performing people to the top opportunities.
This implies that the first—and usually the best—opportunity for successful change is to exploit one’s own successes and to build on them.
The best example, perhaps, is the Japanese company Sony.
It has built itself into one of the world’s leaders in a number of major businesses by systematically exploiting one success after the other—big or small.
All of Sony’s consumer electronics—the business in which it is the world leader and best known—are based on a product that was not even invented by Sony: the tape recorder.
One success of a Sony product based on the tape recorder is used to design the next product and then another product based on the success of that product and so on.
No step was a big one.
And not all of them were successful.
But by exploiting success, each of these additional new products carried very little risk—so that even when it did not succeed there was not too much damage.
And enough of them were successful to make Sony into one of the world’s largest, but also one of the world’s most consistently successful, enterprises.
Another example is the medical electronics group of the American General Electric Company.
In a highly competitive field it has emerged as the largest and most successful manufacturer, but also as a change leader.
It has done so apparently by exploiting its successes, and by building on each success another product—often with only a fairly minor change, but one that presents a significant improvement for physician or hospital.
As in a continuous improvement, exploitation will, sooner or later, lead to genuine innovation.
There comes a point when the small steps of exploitation result in a major, fundamental change, that is, in something that is genuinely new and different.
What Not to Do
There are Three Traps to avoid into which change leaders fall again and again.
1. The first trap is an innovation opportunity that is not in tune with the strategic realities discussed in Chapter Two of this book.
It is most unlikely to work.
The only innovation likely to succeed is one that fits these major realities of demographics, of the changes in the distribution of income, of the way the institution itself and its customers define “performance,” of global competitiveness or of political and economic realities.
But the “misfit” opportunity often looks very tempting—precisely because it looks truly “innovative.”
But even if not resulting in failure—as it usually does—it always requires extraordinarily wasteful amounts of effort, money and time.
2. The second trap is to confuse “novelty” with “innovation.”
The test of an innovation is that it creates value.
A novelty only creates amusement.
Yet, again and again, managements decide to innovate for no other reason than that they are bored doing the same thing or making the same product day in and day out.
The test of an innovation—as is also the test of “quality”—is not: “Do we like it”?
It is: “Do customers want it and will they pay for it?”
3. And the third trap: confusing motion with action.
Typically when a product, service or process no longer produces results and should be abandoned or changed radically, management “reorganizes.”
To be sure, reorganization is often needed.
But it comes after the action, that is, after the “what” and the “how” have been faced up to.
By itself reorganization is just “motion” and no substitute for action.
These three traps are so attractive that every change leader can expect to fall into one of them—or into all three—again and again.
There is only one way to avoid them, or to extricate oneself if one has stumbled into them: to organize the Introduction of Change, that is, to PILOT.
Enterprises of all kinds increasingly use all kinds of market research and customer research to limit, if not eliminate, the risks of change.
But one cannot market research the truly new.
But also nothing new is right the first time.
Invariably, problems crop up that nobody even thought of.
Invariably, problems that loom very large to the originator turn out to be trivial or not to exist at all.
Above all, the way to do the job invariably turns out to be different from what is originally designed.
It is almost a “law of nature” that anything that is truly new, whether product or service or technology, finds its major market and its major application not where the innovator and entrepreneur expected, and not for the use for which the innovator or entrepreneur has designed the product, service or technology.
And that, no market or customer research can possibly discover.
The best example is an early one.
The improved steam engine that James Watt (1736-1819) designed and patented in 1776 is the event which, for most people, signifies the advent of the Industrial Revolution.
Actually, Watt until his death saw only one use for the steam engine: to pump water out of coal mines.
That was the use for which he had designed it.
And he sold it only to coal mines.
It was his partner Matthew Boulton (1728-1809) who is the real father of the Industrial Revolution.
Boulton saw that the improved steam engine could be used in what was then England’s premier industry, textiles, and especially in the spinning and weaving of cotton.
Within ten or fifteen years after Boulton had sold his first steam engine to a cotton mill, the price of cotton textiles had fallen by 70 percent.
And this created both the first mass market and the first factory—and together modern capitalism and the modern economy altogether.
Neither studies nor market research nor computer modeling are a substitute for the test of reality.
Everything improved or new needs therefore first to be tested on a small scale, that is, it needs to be PILOTED.
The way to do this is to find somebody within the enterprise who really wants the new.
As said before, everything new gets into trouble.
And then it needs a champion.
It needs somebody who says: “I am going to make this succeed,” and who then goes to work on it.
And this person needs to be somebody whom the organization respects.
This need not even be somebody within the organization.
A good way to pilot a new product or new service is often to find a customer who really wants the new, and who is willing to work with the producer on making truly successful the new product or the new service.
If the pilot test is successful—if it finds the problems nobody anticipated but also finds the opportunities that nobody anticipated, whether in terms of design, of market, of service—the risk of change is usually quite small.
And it is usually also quite clear where to introduce the change, and how to introduce it, that is, what entrepreneurial strategy to employ.
Change and Continuity
The traditional institution is designed for continuity.
All existing institutions, whether businesses, universities, hospitals or churches, therefore have to make special efforts to be receptive to change and to be able to change.
It also explains why existing institutions face resistance to change.
Change for the traditional institution is, so to speak, a contradiction in terms.
Change leaders are, however, designed for change.
And yet they still require continuity.
People need to know where they stand.
They need to know the people with whom they work.
They need to know what they can expect.
They need to know the values and the rules of the organization.
They do not function if the environment is not predictable, not understandable, not known.
But continuity is equally needed outside the enterprise.
In fact, we are learning increasingly the importance of long-term relationships.
To be able to change rapidly, one needs close and continuous relationships with suppliers and distributors.
But the enterprise also has to have a “personality” that identifies it among its customers and in its markets—and again this is true as much of nonbusinesses as of businesses.
Change and continuity are thus poles rather than opposites.
The more an institution is organized to be a change leader, the more it will need to establish continuity internally and externally, the more it will need to balance rapid change and continuity.
This balance will predictably be one of the major concerns of tomorrow’s management—both of the practitioners and of the scholars and writers on management.
But we do know already a good deal about how to create it.
Some institutions already are change leaders and have tackled the problem—though not always solved it.
One way is to make partnership in change the basis of continuing relationships.
This is what the Japanese “Keiretsu” has done with respect to the relationship between supplier and manufacturer, and what is now adopted fast in American business through “Economic-Chain Accounting” (discussed in the next chapter of this book).
We are developing similar partnerships in change as the basis of continuing relationships between manufacturer and distributor, for example, between Procter & Gamble, the world’s largest producer of household needs, and large retailers such as Wal-Mart.
But relationships within the enterprise (as discussed earlier in Chapter One) are also increasingly going to be partnerships—with employees of the organization, with people who work for an outsourcing firm but who are actually members of the enterprise’s own working teams, or with outside, independent contractors.
And again, these relations need increasingly to be organized as long-term partnerships in the process of change.
Balancing change and continuity requires continuous work on information.
Nothing disrupts continuity and corrupts relationships more than poor or unreliable information (except, perhaps, deliberate misinformation).
It has to become routine for any enterprise to ask at any change, even the most minor one: “Who needs to be informed of this?”
And this will become more and more important as people no longer necessarily work next door to one another and see one another half a dozen times a day.
The more enterprises come to rely on people working together without actually working together—that is, on people using the new technologies of information—the more important it will become to make sure that they are fully informed.
At the same time, it will also become more and more important for these people to get together and actually meet one another and work with one another on an organized, systematic, scheduled basis.
Long-distance information does not replace face-to-face relationships.
It makes them actually more important.
It makes it more important for people to know what to expect of one another.
It makes it more important for people to know how the other person actually behaves.
It makes it more important to have trust in one another.
And this means both systematic information—and especially information about any change—and organized face-to-face relationships, that is, opportunities to get to know one another and to understand one another.
Information is particularly important when the change is not a mere improvement, but something truly new.
It has to be a firm rule in any enterprise that wants to be successful as a change leader, that there are no surprises.
From computer literacy to information literacy
Executive responsibilities: communication
In an information based society …
Six Frames For Thinking about Information
Above all, there is need for continuity in respect to the fundamentals of the enterprise: its mission, its values, its definition of performance and results.
Precisely because change is a constant in the change leader’s enterprise, the foundations have to be extra strong.
Finally, the balance between change and continuity has to be built into compensation, recognition and rewards.
We long ago learned that an organization will not innovate unless innovators are properly rewarded.
We long ago learned that a business in which successful innovators do not make it into senior management, let alone into top management, will not innovate.
We will have to learn, similarly, that an organization will have to reward continuity—by considering, for instance, people who deliver continuing improvement to be as valuable to the organization, and as deserving of recognition and reward, as the genuine innovator.
Related topics in Managing in the Next Society and here
A Revolution in Human Affairs
The changes and challenges of Managing Oneself may seem obvious, if not elementary, compared to the changes and challenges discussed in the earlier chapters.
And the answers may seem to be self-evident to the point of appearing naïve.
To be sure, many topics in the earlier chapters—for example, Being a Change Leader or some of the Information Challenges—are far more complex and require more advanced and more difficult policies, technologies, methodologies.
But most of the new behavior—the new policies, technologies, methodologies—called for in these earlier chapters can be considered EVOLUTIONS.
Managing Oneself is a REVOLUTION in human affairs.
It requires new and unprecedented things from the individual, and especially from the knowledge worker.
For in effect it demands that each knowledge worker THINK and BEHAVE as a Chief Executive Officer.
It also requires an almost 180-degree change in the knowledge workers’ thoughts and actions from what most of us—even of the younger generation—still take for granted as the way to think and the way to act.
Knowledge workers, after all, first came into being in any substantial numbers a generation ago.
(I coined the term “knowledge worker,” but only thirty years ago, in my 1969 book The Age of Discontinuity.)
But also the shift from manual workers who do as they are being told—either by the task or by the boss to knowledge workers who have to manage themselves profoundly challenges social structure.
For every existing society, even the most “individualist” one, takes two things for granted, if only subconsciously: Organizations outlive workers, and most people stay put.
Managing Oneself is based on the very opposite realities: Workers are likely to outlive organizations, and the knowledge worker has mobility.
In the United States MOBILITY is accepted.
But even in the United States, workers outliving organizations—and with it the need to be prepared for a Second and Different Half of One’s Life—is a revolution for which practically no one is prepared.
Nor is any existing institution, for example, the present retirement system.
In the rest of the developed world, however, immobility is expected and accepted.
It is “stability.”
In Germany, for instance, mobility—until very recently came to an end with the individual’s reaching age ten or, at the latest, age sixteen.
If a child did not enter Gymnasium at age ten, he or she had lost any chance ever to go to the university.
And the apprenticeship that the great majority who did not go to the Gymnasium entered at age fifteen or sixteen as a mechanic, a bank clerk, a cook—irrevocably and irreversibly—decided what work the person was going to do the rest of his or her life.
Moving from the occupation of one’s apprenticeship into another occupation was simply not done even when not actually forbidden.
The developed society that faces the greatest challenge and will have to make the most difficult changes is the society that has been most successful in the last fifty years: Japan.
Japan’s success and there is no precedent for it in history—very largely rested on organized immobility—the immobility of “lifetime employment.”
In lifetime employment it is the organization that manages the individual.
And it does so, of course, on the assumption that the individual has no choice.
The individual is being managed.
I very much hope that Japan will find a solution that preserves the social stability, the community—and the social harmony that lifetime employment provided, and yet creates the mobility that knowledge work and knowledge workers must have.
Far more is at stake than Japan’s own society and civic harmony.
A Japanese solution would provide a model—for in every country a functioning society does require cohesion.
Still, a successful Japan will be a very different Japan.
But so will be every other developed country.
The emergence of the knowledge worker who both can and must manage himself or herself is transforming every society.
This book has intentionally confined itself to MANAGEMENT CHALLENGES.
Even in this last chapter, it has talked about the individual, that is, the knowledge worker.
But the changes discussed in this book go way beyond management.
They go way beyond the individual and his or her career.
What this book actually dealt with is:
THE FUTURE OF SOCIETY
The Information Executives Need for Their Work
A great deal of the new technology has been data processing equipment for the individual.
But as far as information goes, the attention has been mainly on information for the enterprise—as it has been so far in this chapter.
But information for executives—and indeed, for all knowledge workers—for their own work may be a great deal more important.
For the knowledge worker in general, and especially for executives, information is their key resource.
Information increasingly creates the link to their fellow workers and to the organization, and their “network.”
It is information, in other words, that enables knowledge workers to do their job.
By now it is clear that no one can provide the information that knowledge workers and especially executives need, except knowledge workers and executives themselves.
But few executives so far have made much of an effort to decide what they need, and even less, how to organize it.
They have tended to rely on the producers of data—IT people and accountants—to make these decisions for them.
But the producers of data cannot possibly know what data the users need so that they become information.
Only individual knowledge workers, and especially individual executives, can convert data into information.
And only individual knowledge workers, and especially individual executives, can decide how to organize their information so that it becomes their key to effective action.
To produce the information executives need for their work, they have to begin with two questions:
“What information do I owe to the people with whom I work and on whom I depend?
In what form?
And in what time frame?”
“What information do I need myself?
In what form?
And in what time frame?”
These two questions are closely connected.
But they are different.
What I owe comes first because it establishes communications.
And unless that has been established, there will be no information flow back to the executive.
We have known this since Chester I. Barnard (1886-1961) published his pioneering book The Functions of the Executive, in 1938, over sixty years ago.
Yet, while Barnard’s book is universally praised, it has had little practical impact.
Communication for Barnard was vague and general.
It was human relationships, and personal.
However, what makes communications effective at the workplace is that they are focused on something outside the person.
They have to be focused on a common task and on a common challenge.
They have to be focused on the work.
And by asking: “To whom do I owe information, so that they can do their work?”
communications are being focused on the common task and the common work.
They become effective.
The first question therefore (as in any effective relationship), is not: “What do I want and need?”
It is: “What do other people need from me?”
and “Who are these other people?”
Only then can the question be asked: “What information do I need?
In what form?
In what time frame?”
Executives who ask these questions will soon find that little of the information they need comes out of their own company’s information system.
Some comes out of accounting—though in many cases the accounting data has to be rethought, reformulated, rearranged to apply to the executive’s own work.
But a good deal of the information executives need for their own work will come, as said already, from the outside and will have to be organized quite separately and distinctly from the inside information system.
The only one who can answer the question:
“What do I owe by way of information?
In what form?”
is the other person.
The first step in obtaining the information that executives need for their own work is, therefore, to go to everyone with whom they work, everyone on whom they depend, everyone who needs to know what they themselves are doing, and ask them.
But before one asks, one has to be prepared to answer.
For the other person will—and should—come back and ask:
“And what information do you need from me?”
Hence, executives need first to think through both questions—but then they start out by going to the other people and ask them first to tell them: “What do I owe you?”
Both questions, “What do I owe?”
and “What do I need?”
sound deceptively simple.
But everyone who has asked them has soon found out that it takes a lot of thought, a lot of experimentation, a lot of hard work, to answer them.
And the answers are not forever.
In fact, these questions have to be asked again, every eighteen months or so.
They also have to be asked every time there is a real change, for example, a change in the enterprise’s theory of the business, in the individual’s own job and assignment, or in the jobs and assignments of the other people.
But if individuals ask these questions seriously, they will soon come to understand both what they need and what they owe.
And then they can set about organizing both.
Unless organized, information is still data.
To be meaningful it has to be organized.
It is, however, not clear at all in what form certain kinds of information are meaningful, and especially in what form of organization they are meaningful for one’s own job.
And the same information may have to be organized in different ways for different purposes.
Here is one example.
Since Jack Welch took over as CEO in 1981, the General Electric Company (GE) has created more wealth than any other company in the world.
One of the main factors in this success was that GE organized the same information about the performance of every one of its business units differently for different purposes.
It kept traditional financial and marketing reporting, the way most companies appraise their businesses every year or so.
But the same data were also organized for long-range strategy, that is, to show unexpected successes and unexpected failures, but also to show where actual events differed substantially from what was expected.
A third way to organize the same data was to focus on the innovative performance of the business—which became a major factor in determining compensation and bonuses of the general manager and of the senior management people of a business unit.
Finally, the same data were organized to show how the business unit and its management treated and developed people—which then became a key factor in deciding on the promotion of an executive, and especially of the general manager of a business unit.
No two executives, in my experience, organize the same information the same way.
And information has to be organized the way individual executives work.
But there are some basic methodologies to organize information.
One is the Key Event.
Which events—for it is usually more than one—are the “hinges” on which the rest of my performance primarily depends?
The key event may be technological—the success of a research project.
It may have to do with people and their development.
It may have to do with establishing a new product or a new service with certain key customers.
It may be to obtain new customers.
What is a key event is very much the executive’s individual decision.
It is, however, a decision that needs to be discussed with the people on whom the executive depends.
It is perhaps the most important thing anybody in an organization has to get across to the people with whom one works, and especially to one’s own superior.
Another key methodological concept comes out of modern Probability Theory—it is the concept on which, for instance, Total Quality Management is based.
It is the difference between normal fluctuations within the range of normal probability distribution and the exceptional event.
As long as fluctuations stay within the normal distribution of probability for a given type of event (e.g., for quality in a manufacturing process), no action is taken.
Such fluctuations are data and not information.
But the exception, which falls outside the accepted probability distribution, is information.
It calls for action.
Another basic methodology for organizing information comes out of the theory of the Threshold Phenomenon—the theory that underlies Perception Psychology.
It was a German physicist, Gustav Fechner (1801-1887), who first realized that we do not feel a sensation—for example, a pin-prick until it reaches a certain intensity, that is, until it passes a perception threshold.
A great many phenomena follow the same law.
They are not actually “phenomena.”
They are data until they reach a certain intensity, and pass the perception threshold.
For many events, both in one’s work and in one’s personal life, this theory applies and enables one to organize data into information.
When we speak of a “recession” in the economy, we speak of a threshold phenomenon—a down turn in sales and profits is a recession when it passes a certain threshold, for example, when it continues beyond a certain length of time.
Similarly, a disease becomes an “epidemic’,, when, in a certain population, it passes and exceeds a certain threshold.
This concept is particularly useful to organize information about personnel events.
Such events as accidents, turnover, grievances, and so on become significant when they pass a certain threshold.
But the same is true of innovative performance in a company—except that there the perception threshold is the point below which a drop in innovative performance becomes relevant and calls for action.
The threshold concept is altogether one of the most useful concepts to determine when a sequence of events becomes a “trend,” and requires attention and probably action, and when events, even though they may look spectacular, are by themselves not particularly meaningful.
Finally, a good many executives have found that the one way of organizing information effectively is simply to organize one’s being informed about the unusual.
One example is the “manager’s letter.”
The people who work with a manager write a monthly letter to him or her, reporting on anything unusual and unexpected within their own sphere of work and action.
Most of these “unusual” things can safely be disregarded.
But again, and again, there is an “exceptional” event, one that is outside the normal range of probability distribution.
Again and again, there is a concatenation of events—insignificant in each reporter’s area, but significant if added together.
Again and again, the management letters bring out a pattern to which to pay attention.
Again and again, they convey information.
No system designed by knowledge workers, and especially by executives, to give them the information they need for their work will ever be perfect.
But, over the years, they steadily improve.
And the ultimate test of an information system is that there are no surprises.
Before events become significant, executives have already adjusted to them, analyzed them, understood them and taken appropriate action.
One example are the three or four—very few indeed American financial institutions that, in the late 1990s were not surprised by the collapse of mainland Asia.
They had thought through what “information” means in respect to Asian economies and Asian currencies.
They had gradually eliminated all the information they got from within their own subsidiaries and affiliates in these countries—these, they had begun to realize, were just “data.”
Instead, they had begun to organize their information about such things as the ratio between fixed investment and portfolio investment in these countries, and the ratio between portfolio investment (i.e., short-term borrowing) and the country’s balance of payments and with it the amount available to service foreign short-term debt.
Long before these ratios turned so unfavorable as to make a panic in mainland Asia inevitable, these executives had realized that it was coming.
They realized that they had to decide whether to pull out of these countries for short-term growth, or to stay for very long-term-and very risky-strategies.
They had, in other words, realized what economic data are meaningful in respect to emerging countries, had organized them, had analyzed them and had interpreted them.
They had turned the data into information—and had decided what action to take long before that action became necessary.
By contrast, the overwhelming majority of American, European and Asian companies doing business on mainland Asia and/or investing in it relied on what their own people in these countries reported to them.
This turned out not to be information at all—in fact it turned out to be misinformation.
But only those executives who had spent several years asking the question
“What information is meaningful in respect to our doing business in Thailand or Indonesia?”
And far too often the mere quantity of data is taken to mean information—as if the heft of a big-city telephone book were to make it unnecessary to know whom one wants to reach, what his or her name or business is, and why one wants to talk to the person.
Executives have to learn two things: to ELIMINATE data that do not pertain to the information they need; and to organize the data, to analyze, to interpret and then to focus the resulting information on ACTION.
For the purpose of information is not knowledge.
It is being able to take the right action.
Going Outside (also see)
The example of the companies from the developed countries being surprised by the collapse of the emerging economies of mainland Asia underline the importance of obtaining meaningful outside information.
For the executive there is, in the end, only one way to get it: that is to go, personally, on the outside.
No matter how good the reports, no matter how good the economic or financial theory underlying them, nothing beats personal, direct observation, and in a form in which it is truly outside observation.
English supermarket chains have again and again tried to establish themselves in neighboring Ireland with very little success.
The leading supermarket chain in Ireland is Super-Quinn, started and run by Fergal Quinn.
His secret is not better merchandise or lower prices.
His secret is that he and all of his company’s executives have to spend two days a week outside their offices.
One day is spent actually doing a job in a supermarket, for example, by serving at a checkout counter or as manager for perishable foods.
And one day is spent in competitors stores watching, listening, talking to the competitors’ employees and the competitors’ customers.
The largest hospital supply company in the United States was built by a chief executive officer who himself spent four weeks a year—two weeks twice a year—taking the place of a salesman on vacation.
He demanded that all the company’s senior executives do the same.
When the regular salesman came back, the customer—for example, the nun who purchases supplies for the Catholic hospital—always said, “What dumb cluck took your place?
He always asked why I buy things from other suppliers rather than from you.
He never was particularly interested in getting an order for what you sell.”
But this was precisely the point of the exercise.
And it is a very old observation that few things improve the performance of a physician as much as being a hospital patient for two weeks.
Market research, focus groups and the like are highly valued, and rightfully so.
But still, they always focus on the company’s products.
They never focus on what the customer buys and is interested in.
Only by being a customer oneself, a salesman oneself, a patient oneself, can one get true information about the outside.
And even that information is of course still limited to one’s customers and one’s noncustomers.
What other information about the outside do executives need, however, to do their work?
And how can they get it?
This is one reason, by the way, why being a volunteer in a nonprofit agency—as discussed in Chapter Six—important not only for preparing oneself for the second half of one’s life.
It is equally important as a way to get outside information—which is information on how other people, with other jobs, other backgrounds, other knowledges, other values and other points of view see the world, act and react, and make their decisions.
For this reason also, the continuing education of already successful adults will be increasingly important.
For in that university course, the forty-five-year-old, successful knowledge worker—business executive, lawyer, university president, minister of a church and so on—is forced to work with people of different backgrounds, and different values.
It is one way not only to update one’s knowledge but to obtain what executives need: information about the outside.
In the long run, information about the outside may be the most important information executives need to do their work.
At the same time, it is the one that still has to be organized.
This information is not only the foundation for right action.
It is equally the foundation for the challenges discussed in the next two chapters: the challenge of Knowledge-Worker Productivity and the challenge of Managing Oneself.
Both rely heavily on the executives knowing what information they need for their work and what information they owe to others, and on systematically developing the methods that turn the chaos of data in the universe into organized and focused information for the executive’s own work and job.
See Management, Revised Edition which has "digested" some of the above along with some of the contents of Managing in the Next Society
Also see "Planning for Uncertainty"