INTERVIEW: THE POST-CAPITALIST EXECUTIVE

An interview with the Harvard Business Review Conducted by T. George Harris

For half a century, Peter F. Drucker has been teacher and adviser to senior managers in business, human service organizations, and government. Sometimes called the godfather of modern management, he combines an acute understanding of socioeconomic forces with practical insights into how leaders can turn turbulence into opportunity. With a rare gift for synthesis, Drucker nourishes his insatiable mind on a full range of intellectual disciplines, from Japanese art to network theory in higher mathematics. Yet he learns most from in-depth conversations with clients and students: a global network of men and women who draw their ideas from action and act on ideas.

Since 1946, when his book Concept of the Corporation redefined employees as a resource rather than a cost, Drucker’s works have become an ever-growing resource for leaders in every major culture, particularly among Japan’s top decision makers in the critical stages of their rise to world business leadership. A goodly share of productive organizations worldwide are led by men and women who consider Drucker their intellectual guide, if not their personal mentor.

Drucker’s most productive insights have often appeared first in the Harvard Business Review. He has written thirty HBR articles, more than any other contributor. In the September–October 1992 issue, he published core concepts for his major new work, Post-Capitalist Society (HarperCollins 1993). HBR editors sent T. George Harris, a Drucker friend for twenty-four years, to the Drucker Management Center at the Claremont Graduate School in California for two days of intensive conversation about recent practical implications for today’s executives.

HBR: Peter, you always bring ideas down to the gut level where people work and live. Now we need to know how managers can operate in the post-capitalist society.

Peter F. Drucker: You have to learn to manage in situations where you don’t have command authority, where you are neither controlled nor controlling. That is the fundamental change. Management textbooks still talk mainly about managing subordinates. But you no longer evaluate an executive in terms of how many people report to him or her. That standard doesn’t mean as much as the complexity of the job, the information it uses and generates, and the different kinds of relationships needed to do the work.

Similarly, business news still refers to managing subsidiaries. But this is the control approach of the 1950s or 1960s. The reality is that the multinational corporation is rapidly becoming an endangered species. Businesses used to grow in one of two ways: from grassroots up or by acquisition. In both cases, the manager had control. Today businesses grow through alliances, all kinds of dangerous liaisons and joint ventures, which, by the way, very few people understand. This new type of growth upsets the traditional manager, who believes he or she must own or control sources and markets.

How will the manager operate in a work environment free of the old hierarchies?

Would you believe that you’re going to work permanently with people who work for you but are not your employees? Increasingly, for instance, you outsource when possible. It is predictable, then, that ten years from now a company will outsource all work that does not have a career ladder up to senior management. To get productivity, you have to outsource activities that have their own senior management. Believe me, the trend toward outsourcing has very little to do with economizing and a great deal to do with quality.

Can you give an example?

Take a hospital. Everybody there knows how important cleanliness is, but doctors and nurses are never going to be very concerned with how you sweep in corners. That’s not part of their value system. They need a hospital maintenance company. One company I got to know in southern California had a cleaning woman who came in as an illiterate Latino immigrant. She is brilliant. She figured out how to split a bed sheet so that the bed of a very sick patient, no matter how heavy, could be changed. Using her method, you have to move the patient about only six inches, and she cut the bed-making time from twelve minutes to two. Now she’s in charge of the cleaning operations, but she is not an employee of the hospital. The hospital can’t give her one single order. It can only say, “We don’t like this; we’ll work it out.”

The point is, managers still talk about the people who “report” to them, but that word should be stricken from management vocabulary. Information is replacing authority. A company treasurer with outsourced information technology, IT, may have only two assistants and a receptionist, but his decisions in foreign exchange can lose or make more money in a day than the rest of the company makes all year. A scientist decides which research not to do in a big company lab. He doesn’t even have a secretary or a title, but his track record means that he is not apt to be overruled. He may have more effect than the CEO. In the military, a lieutenant colonel used to command a battalion, but today he may have only a receptionist and be in charge of liaisons with a major foreign country.

Amidst these new circumstances, everybody is trying to build the ideal organization, generally flat with few layers of bosses and driven directly by consumer satisfaction. But how do managers gear up their lives for this new world?

More than anything else, the individual has to take more responsibility for himself or herself, rather than depend on the company In this country, and increasingly in Europe and even Japan, you can’t expect that if you’ve worked for a company for five years you’ll be there when you retire forty years from now. Nor can you expect that you will be able to do what you want to do at the company in forty years’ time. In fact, if you make a wager on any big company, the chances of it being split within the next ten years are better than the chances of it remaining the way it is.

This is a new trend. Big corporations became stable factors before World War I and in the 1920s were almost frozen. Many survived the Depression without change. Then there were thirty or forty years when additional stories were built onto skyscrapers or more wings added onto corporate centers. But now they’re not going to build corporate skyscrapers. In fact, within the past ten years, the proportion of the workforce employed by Fortune 500 companies has fallen from 30 percent to 13 percent.

Corporations once built to last like pyramids are now more like tents. Tomorrow they’re gone or in turmoil. And this is true not only of companies in the headlines like Sears or GM or IBM. Technology is changing very quickly, as are markets and structures. You can’t design your life around a temporary organization. Let me give you a simple example of the way assumptions are changing. Most men and women in the executive program I teach are about forty-five years old and just below senior management in a big organization or running a mid-size one. When we began fifteen or twenty years ago, people at this stage were asking, “How can we prepare ourselves for the next promotion?” Now they say, “What do I need to learn so that I can decide where to go next?”

If a young man in a gray flannel suit represented the lifelong corporate type, what’s today’s image?

Taking individual responsibility and not depending on any particular company. Equally important is managing your own career. The stepladder is gone, and there’s not even the implied structure of an industry’s rope ladder. It’s more like vines, and you bring your own machete. You don’t know what you’ll be doing next, or whether you’ll work in a private office or one big amphitheater or even out of your home. You have to take responsibility for knowing yourself, so you can find the right jobs as you develop and as your family becomes a factor in your values and choices.

That’s a significant departure from what managers could expect in the past.

Well, the changes in the manager’s work are appearing everywhere, though on different timetables. For instance, I see more career confusion among the many Japanese students I’ve had over the years. They’re totally bewildered. Though the Japanese are more structured than we ever were, suddenly they are halfway between being totally managed and having to take responsibility for themselves. What frightens them is that titles don’t mean what they used to mean. Whether you were in India or France, if you were an assistant director of market research, everybody used to know what you were doing. That’s not true anymore, as we found in one multinational. A woman who had just completed a management course told me not long ago that in five years she would be an assistant vice president of her bank. I’m afraid I had to tell her that she might indeed get the title, but it would no longer have the meaning she thought it did.

Another rung in the ladder?

Yes. The big company mentality. Most people expect the personnel department to be Papa or Ma Bell. When the AT&T personnel department was at its high point thirty years ago, it was the power behind the scenes. With all their testing and career planning, they’d know that a particular twenty-seven-year-old would be, by age forty-five, an assistant operating manager and no more. They didn’t know whether he’d be in Nebraska or Florida. But unless he did something quite extraordinary, his career path until retirement was set.

Times have certainly changed. And, in fact, the Bell people have done better than most, because they could see that change coming in the antitrust decision. They couldn’t ignore it. But most people still have a big-company mentality buried in their assumptions. If they lose a job with Sears, they hunt for one with Kmart, unaware that small companies create most of the new jobs and are about as secure as big companies.

Even today, remarkably few Americans are prepared to select jobs for themselves. When you ask, “Do you know what you are good at? Do you know your limitations?” they look at you with a blank stare. Or they often respond in terms of subject knowledge, which is the wrong answer. When they prepare their resumes, they still try to list positions like steps up a ladder. It is time to give up thinking of jobs or career paths as we once did and think in terms of taking on assignments one after the other.

How does one prepare for this new kind of managerial career?

Being an educated person is no longer adequate, not even educated in management. One hears that the government is doing research on new job descriptions based on subject knowledge. But I think that we probably have to leap right over the search for objective criteria and get into the subjective what I call competencies. Do you really like pressure? Can you be steady when things are rough and confused? Do you absorb information better by reading, talking, or looking at graphs and numbers? I asked one executive the other day, “When you sit down with a person, a subordinate, do you know what to say?” Empathy is a practical competence. I have been urging this kind of self-knowledge for years, but now it is essential for survival.

People, especially the young, think that they want all the freedom they can get, but it is very demanding, very difficult to think through who you are and what you do best. In helping people learn how to be responsible, our educational system is more and more counterproductive. The longer you stay in school, the fewer decisions you have to make. For instance, the decision whether to take French II or Art History is really based on whether one likes to get up early in the morning. And graduate school is much worse.

Do you know why most people start with big companies? Because most graduates have not figured out where to place themselves, and companies send in the recruiters. But as soon as the recruits get through training and into a job, they have to start making decisions about the future. Nobody’s going to do it for them.

And once they start making decisions, many of the best move to mid-size companies in three to five years, because there they can break through to top management. With less emphasis on seniority, a person can go upstairs and say, “I’ve been in accounting for three years, and I’m ready to go into marketing.” Each year I phone a list of my old students to see what’s happening with them. The second job used to be with another big company, often because people were beginning to have families and wanted security. But with two-career families, a different problem emerges. At a smaller organization, you can often work out arrangements for both the man and the woman to move to new jobs in the same city.

Some of the psychological tests being developed now are getting better at helping people figure out their competencies. But if the world economy is shifting from a command model to a knowledge model, why shouldn’t education determine who gets each job?

Because of the enormous danger that we would not value the person in terms of performance, but in terms of credentials. Strange as it may seem, a knowledge economy’s greatest pitfall is in becoming a mandarin meritocracy. You see creeping credentialism all around. Why should people find it necessary to tell me so-and-so is really a good researcher even though he or she doesn’t have a PhD? It’s easy to fall into the trap, because degrees are black-and-white. But it takes judgment to weigh a person’s contribution.

The problem is becoming more serious in information-based organizations. As Michael Hammer pointed out three years ago in HBR, when an organization reengineers itself around information, the majority of management layers becomes redundant. Most turn out to have been just information relays. Now, each layer has much more information responsibility. Most large companies have cut the number of layers by fifty percent, even in Japan. Toyota came down from twenty-odd to eleven. GM has streamlined from twenty-eight to maybe nineteen, and even that number is decreasing rapidly. Organizations will become fatter and fatter. As a result, there’s real panic in Japan, because it’s a vertical society based on subtle layers of status. Everybody wants to become a kachõ, a supervisor or section manager. Still, the United States doesn’t have the answer either. We don’t know how to use rewards and recognition to move the competent people into the management positions that remain. I don’t care for the popular theory that a generation of entrepreneurs can solve our problems. Entrepreneurs are monomaniacs. Managers are synthesizers who bring resources together and have that ability to “smell” opportunity and timing. Today perceptiveness is more important than analysis. In the new society of organizations, you need to be able to recognize patterns to see what is there rather than what you expect to see. You need the invaluable listener who says, “I hear us all trying to kill the new product to protect the old one.”

How do you find these people?

One way is to use small companies as farm clubs, as in baseball. One of my ablest friends is buying minority stakes in small companies within his industry. When I said it didn’t make sense, he said, “I’m buying farm teams. I’m putting my bright young people in these companies so they have their own commands. They have to do everything a CEO does in a big company.”

And do you know the biggest thing these young executives have to learn in their new positions? My friend continued, “We have more PhD’s in biology and chemistry than we have janitors, and they have to learn that their customers aren’t PhD’s, and the people who do the work aren’t.” In other words, they must learn to speak English instead of putting formulas on the blackboard. They must learn to listen to somebody who does not know what a regression analysis is. Basically, they have to learn the meaning and importance of respect.

A difficult thing to learn, let alone teach.

You have to focus on a person’s performance. The individual must shoulder the burden of denying what his or her own contribution will be. We have to demand—and “demand” is the word, nothing permissive—that people think through what constitutes the greatest contribution that they can make to the company in the next eighteen months or two years. Then they have to make sure that contribution is accepted and understood by the people they work with and for.

Most people don’t ask themselves this question, however obvious and essential it seems. When I ask people what they contribute to an organization, they blossom and love to answer. And when I follow with, “Have you told other people about it?” the answer often is “No, that would be silly, because they know.” But of course “they” don’t. We are one hundred years past the simple economy in which most people knew what others did at work. Farmers knew what most farmers did, and industrial workers knew what other factory workers did. Domestic servants understood each other’s work, as did the fourth major group in that economy: small tradesmen. No one needed to explain. But now nobody knows what others do, even within the same organization. Everybody you work with needs to know your priorities. If you don’t ask and don’t tell, your peers and subordinates will guess incorrectly.

What’s the result of this lack of communication?

When you don’t communicate, you don’t get to do the things you are good at. Let me give you an example. The engineers in my class, without exception, say they spend more than half their time editing and polishing reports—in other words, what they are least qualified to do. They don’t even know that you have to write and rewrite and rewrite again. But there are any number of English majors around for that assignment. People seldom pay attention to their strengths. For example, after thinking for a long time, an engineer told me he’s really good at the first design, at the basic idea, but not at filling in the details for the final product. Until then, he’d never told anybody, not even himself.

You’re not advocating self-analysis alone, are you?

No. Not only do you have to understand your own competencies, but you also have to learn the strengths of the men and women to whom you assign duties, as well as those of your peers and boss. Too many managers still go by averages. They still talk about “our engineers.” And I say, “Brother, you don’t have ‘engineers.’ You have Joe and Mary and Jim and Bob, and each is different.” You can no longer manage a workforce. You manage individuals. You have to know them so well you can go and say, “Mary, you think you ought to move up to this next job. Well, then you have to learn not to have that chip on your shoulder. you are a woman; you are an engineer. And you have to be a little considerate. Do not come in at ten minutes to five one afternoon to tell people they have to work overtime when you knew it at nine a.m.”

The key to the productivity of knowledge workers is to make them concentrate on the real assignment. Do you know why most promotions now fail? One-third are outright disasters, in my experience, while another third are a nagging backache. Not more than one in three works out. No fit. The standard case, of course, is the star salesman promoted to sales manager. That job can be any one of four things—a manager of salespeople, a market manager, a brand manager, or a super salesman who opens up an entire new area. But nobody figures out what it is, so the man or woman who got the promotion just tries to do more of whatever led to the promotion. That’s the surest way to be wrong.

Expand on your idea of information responsibility and how it fits into post-capitalist society.

Far too many managers think computer specialists know what information they need to do their job and what information they owe to whom. Computer information tends to focus too much on inside information, not the outside sources and customers that count. In today’s organization, you have to take responsibility for information because it is your main tool. But most don’t know how to use it. Few are information-literate. They can play “Mary Had a Little Lamb” but not Beethoven.

I heard today about a brand manager in a major OTC drug company who tried to get the scientific papers on the product he markets. But the corporate librarian complained to his superior. Under her rules, she gives hard science only to the company’s scientists and lawyers. He had to get a consultant to go outside and use a computer database to pull up about twenty journal articles on his product, so he’d know how to develop honest advertising copy. The point of the story is that this brand manager is way ahead of the parade: ninety-nine out of a hundred brand managers don’t know they need that kind of information for today’s consumers and haven’t a clue how to get it. The first step is to say, “I need it.”

And many people don’t recognize the importance of this step. I work with an information manager at a large financial institution that has invested $1.5 billion in information. He and I talked all morning with his department’s eight women and ten men. Very intelligent, but not one began to think seriously about what information they need in order to serve their customers. When I pointed this out, they said, “Isn’t the boss going to tell us?” We finally had to agree to meet a month later so that they could go through the hard work of figuring out what information they need and, more important, what they do not need.

So a manager begins the road to information responsibility first by identifying gaps in knowledge.

Exactly. To be information-literate, you begin with learning what it is you need to know. Too much talk focuses on the technology; even worse, on the speed of the gadget always faster, faster. This kind of “techie” fixation causes us to lose track of the fundamental nature of information in today’s organization. To organize the way work is done, you have to begin with the specific job, then the information input, and finally the human relationships needed to get the job done.

The current emphasis on reengineering essentially means changing an organization from the flow of things to the flow of information. The computer is merely a tool in the process. If you go to the hardware store to buy a hammer, you do not ask if you should do upholstery or fix the door. To put it in editorial terms, knowing how a typewriter works does not make you a writer. Now that knowledge is taking the place of capital as the driving force in organizations worldwide, it is all too easy to confuse data with knowledge and information technology with information.

What’s the worst problem in managing knowledge specialists?

One of the most degenerative tendencies of the last forty years is the belief that if you are understandable, you are vulgar. When I was growing up, it was taken for granted that economists, physicists, psychologists—leaders in any discipline—would make themselves understood. Einstein spent years with three different collaborators to make his theory of relativity accessible to the layman. Even John Maynard Keynes tried hard to make his economics accessible. But just the other day, I heard a senior scholar seriously reject a younger colleague’s work because more than five people could understand what he’s doing. Literally.

We cannot afford such arrogance. Knowledge is power, which is why people who had it in the past often tried to make a secret of it. In post-capitalism, power comes from transmitting information to make it productive, not from hiding it. That means you have to be intolerant of intellectual arrogance.

And I mean intolerant. At whatever level, knowledge people must make themselves understood, and whatever field the manager comes from, he or she must be eager to understand others. This may be the main job of the manager of technical people. He or she must not only be an interpreter but also work out a balance between specialization and exposure.

Exposure is an important technique. For an exotic example, look at weather forecasting, where meteorologists and mathematicians and other specialists now work with teams of experts on satellite data. Europeans, on the one hand, have tried to connect these different disciplines entirely through information managers. On the other hand, Americans rotate people at an early stage. Suppose you put a PhD in meteorology on a team that is to work on the new mathematical model of hurricanes for three years. He isn’t a mathematician, but he gets exposed to what mathematicians assume, what they eliminate, what their limitations are. With the combination of exposure and translation, the American approach yields forecasts that are about three times more accurate than the European, I’m told. And the exposure concept is useful in managing any group of specialists.

Is the fact that some teams provide exposure as well as interpreters a reason why the team has become such a hot topic?

There’s a lot of nonsense in team talk, as if teams were something new. We have always worked in teams, and while sports give us hundreds of team styles, there are only a few basic models to choose from. The critical decision is to select the right kind for the job. You can’t mix soccer and doubles tennis. It’s predictable that in a few years, the most traditional team will come back in fashion, the one that does research first, then passes the idea to engineering to develop, and then on to manufacturing to make. It’s like a baseball team, and you may know I have done a little work with baseball-team management.

The great strength of baseball teams is that you can concentrate. You take Joe, who is a batter, and you work on batting. There is almost no interaction, nothing at all like the soccer team or the jazz combo, the implicit model of many teams today. The soccer team moves in unison but everyone holds the same relative position. The jazz combo has incredible flexibility because everyone knows each other so well that they all sense when the trumpet is about to solo. The combo model takes great discipline and may eventually fall out of favor, especially in Japanese car manufacturing, because we do not need to create new car models as fast as we have been.

I know several German companies that follow the baseball-team model, whether they know it or not. Their strength is clear: they are fantastic at exploiting and developing old knowledge, and Germany’s mid-size companies may be better than their big ones simply because they concentrate better. On the other hand, when it comes to the new, from electronics to biotech, German scientists may do fine work, but their famous apprenticeship system discourages innovation.

So, beyond all the hype, teams can help the executive navigate a postcapitalist society?

Thinking about teams helps us highlight the more general problem of how to manage knowledge. In the production of fundamental new knowledge, the British groups I run into are way ahead of anybody. But they have never done much with their expertise, in part because many British companies don’t value the technically oriented person enough. I don’t know of a single engineer in top management there. My Japanese friends are just the opposite. While they still do not specialize in scientific advances, they take knowledge and make it productive very fast. In this country, on the other hand, we have not improved that much in existing industries. The automobile business, until recently, was perfectly satisfied doing what it did in 1939. But as we are discovering in computers and in biotech, we may be at our very best when it comes to groundbreaking technology.

Where is the lesson in all this for the manager?

The lesson is that the productivity of knowledge has both a qualitative and a quantitative dimension. Though we know very little about it, we do realize executives must be both managers of specialists and synthesizers of different fields of knowledge—really of knowledges, plural. This situation is as threatening to the traditional manager, who worries about highfalutin highbrows, as it is to the intellectual, who worries about being too commercial to earn respect in his or her discipline. But in the post-capitalist world, the highbrow and the lowbrow have to play on the same team.

That sounds pretty democratic. Does a post-capitalist society based more on knowledge than capital become egalitarian?

No. Both of these words miss the point. Democratic bespeaks a narrow political and legal organization. Nor do I use the buzzword participative. Worse yet is the empowerment concept. It is not a great step forward to take power out at the top and put it in at the bottom. It’s still power. To build achieving organizations, you must replace power with responsibility.

And while we’re on the subject of words, I’m not comfortable with the word manager anymore, because it implies subordinates. I find myself using executive more, because it implies responsibility for an area, not necessarily dominion over people. The word boss, which emerged in World War I, is helpful in that it can be used to suggest a mentor’s role, someone who can back you up on a decision. The new organizations need to go beyond senior–junior polarities to a blend with sponsor and mentor relations. In the traditional organization—the organization of the last one hundred years—the skeleton, or internal structure, was a combination of rank and power. In the emerging organization, it has to be mutual understanding and responsibility.

1993