CHAPTER EIGHT
From Middle Management to Knowledge Organization
IN THE EARLY FIFTIES when computer and automation were the headline makers, the imminent demise of middle management was widely predicted. By 1980, we were told by a number of experts, middle management would have disappeared. All decisions would be made by the computer or by top management on the basis of a “total information system.”
Very few predictions have been disproven so fast and so completely. At the very time the predictions were being widely publicized, the middle-management boom began. And it kept going for twenty years. Indeed, the fifties and the sixties might have been called the era of middle management. No other group in the work force, in all developed countries, has been growing as fast.
Here are some examples from manufacturing, that is, from the economic sector where automation has been most widely applied and where computers have become as commonplace, at least in big companies, as smokestacks were a few generations ago. One of the large American automobile companies recently built a major manufacturing plant to turn out the entire production of a new model. It was the company’s first major automotive plant since 1949, when a similar plant, designed for a similar production volume, was opened. The number of rank-and-file employees, both blue-collar and clerical, is almost one-third less than that of the earlier plant—the result, however, of normal increases in productivity rather than of a shift of the process to automation. The top-management group in the new plant is about the same size. But the middle-management group, that is, the group that is paid more than a general supervisor and less than the plant’s general manager, is almost five times the size of the middle-management group in the 1949 plant.
Another manufacturing company—a producer of a wide range of industrial components—grew between 1950 and 1970 from a sales volume of $10 million to one of $100 million. In terms of units the growth was fivefold. During this period of rapid expansion, the top-management group grew from three men to five. Rank-and-file employment grew from 1,000 to 4,000. The middle-management ranks, again defined by salary, grew from 14 to 235—that is, almost seventeen times—and this does not include sales personnel.
These examples actually understate the growth rate of middle management. During the period in which middle management was expected to disappear, the center of economic gravity and growth shifted to industries that have a much higher ratio of middle managers in their employ than have the industries which dominated the business scene in 1950. The symbol of economic dynamism in the United States economy of 1970 was no longer General Motors. It was IBM. And at IBM, or at any other computer manufacturer, the middle group is far bigger than in traditional manufacturing industries such as automobile or steel. The same is true of the pharmaceutical companies which grew so rapidly in the twenty years between 1950 and 1970.
Outside of manufacturing industries the growth has been even more rapid. It has been particularly pronounced in the nonbusiness service institutions. The prototype is the hospital.
Top management in the hospital—however one defines it—has not grown. There is still the hospital administrator, perhaps with an assistant, in the larger hospital. In the community hospitals there are trustees and a medical director. Rank-and-file employment in terms of number of employees per patient day has gone down rather than up. It is in the kitchen, in maintenance, and in the other rank-and-file areas that hospitals have become somewhat less labor-intensive. But the middle ranks—technicians, engineers, accountants, psychologists, and social workers—have exploded. They have grown at least fourfold—in some big teaching hospitals even faster.
The Needed Correction
Growth at fast rates always overshoots the target. It is bound to be disorderly and wasteful. There is overstaffing because it is the fashion to go in for this or that activity whether needed or not. There is overstaffing because times are good and it is easier to accede to a demand for more people than to fight it. And in such a period of explosive growth no one pays much attention to the organization of the work. Yet expansion of such magnitude is always qualitative change rather than mere additional quantity. If the work and its organization are not studied and changed, waste, duplication of effort, and organizational obesity follow.
The middle-management boom therefore had to lead, like any other boom, to a “middle-management depression.” At the first significant economic setback there had to be a sharp correction. This came in the United States with the 1970/71 recession, although the reaction was mild: it consisted of a sharp two-year curtailment of college recruiting for management and professional positions, with very few layoffs of middle-management people already on the payroll (except in the particularly distressed aerospace and defense industries).
Such a reaction, however painful, is fundamentally healthy. It always goes too far, of course. But at least it forces management to think through what the work is and what it needs. Such thinking is particularly important with respect to middle-management work. There are few areas where overstaffing does as much damage as in the middle-management group. It costs a great deal more than money. It costs performance and motivation.
The Danger of Overstaffing
Knowledge work—that is, the specific work of middle managers—should always be demanding. It should be lean, and err, if at all, on the side of understaffing. An overstaffed middle-management organization destroys motivation. It destroys accomplishment, achievement, and satisfaction. In the end, it destroys performance.
The middle-management boom and the resulting overstaffing, especially in larger companies, did indeed undermine morale and motivation. Overstaffing is a main reason for the dissatisfaction and disenchantment of so many of the young middle-rank people, managers and career professionals, whom business, governments, school systems, and hospitals recruited in such large numbers during the fifties and sixties. They are well paid and well treated; but there is not enough for them to do, not enough challenge, not enough contribution, not enough accomplishment, and too much sheer busyness. There are too many bodies busily “interacting” with each other rather than doing their own work. When the able young educated people, e.g., the brightest graduates of the leading American business schools, are asked to explain their growing preference for a job in a small company or in the medium-sized city administration, they always say, “At least I’ll have something to do.”
The first lesson is to keep the middle ranks lean. “What really needs to be done?” is the first question. And the second and equally important one is “What no longer needs to be done and should be cut back or cut out?” The first lesson is the need for weight control.
In particular this means that a new middle-management activity should, as a rule, be sanctioned only if an old one is sloughed off or, at least, pruned back. The middle-management budget needs to be constantly watched to make sure that good, performing people are allocated to opportunities, to results, and to making the future rather than wasted on problems, busyness, and on defending the past.
What needs even more thought and attention is, however, the work of middle management and its organization: The expansion of the middle ranks not only produced a qualitative change—it was itself produced by a change in the nature of the middle-management function.
Middle management will, it is safe to predict, continue to expand. But future growth will have to be directed, controlled, managed. It will have to be based on an understanding of the changing nature of middle management and of the resulting need for change in function, relationship, and structure.
Where the Growth Occurred
The middle management of forty years ago has not disappeared. Rather it has grown, and quite substantially. There are today proportionately more plant managers around, more district sales managers, and more branch managers in banks than there were before World War II.
But the real growth of middle-rank people in management jobs has been in manufacturing engineers and process specialists; in tax accountants and market analysts; in product and market managers; in advertising and promotion specialists. It has been in a host of functions which, a generation ago, were hardly known. The new middle managers are the knowledge professionals.
The traditional middle manager is essentially a commander of men and women. The new middle manager is essentially a supplier of knowledge. The traditional middle manager has authority downward, over subordinates. The new middle manager essentially has responsibility sideways and upward, that is, to people over whom he or she exercises no command authority.
Above all, the job of traditional middle managers was largely routine. They did not make decisions. They carried them out. At the most, they implemented the decisions and adapted them to local conditions. Their job was to keep running a system that they had neither designed nor were expected to alter.
This underlay, of course, the traditional definition of a manager as someone who is responsible for the work of others rather than responsible for his or her own work. It also underlay the traditional social structure of management outside the U.S. and Japan, especially in Europe.
In the United States and Japan top management has traditionally been recruited from middle management, that is, from people who worked their way up in the business. In European countries this was not the pattern. In England there was—and to some extent still is—a tremendous gulf between managers and “the board,” that is, top management. Even in large companies the board was until recently recruited from people who had never discharged operating management functions, if not from people who had never worked in a business, such as distinguished former public servants. In Holland top management, even in the large and professionally managed companies, rarely comes out of operations. In the large French company all positions in top and senior management are typically held by graduates of the Grandes Ecoles. Most of them, especially top-management people, make their careers in government and then move directly into senior management jobs in business. Operating managers who come up in the business are normally considered unfit for top jobs, even if they are university graduates. The Germans tend to draw a sharp line between Führung, i.e., top management, and Leitung, operating management.
The Decision Impact of the New Middle Manager
But as the new middle people are knowledge professionals, their actions and decisions are intended to have direct and major impact on the business, its ability to perform, and its direction.
Here are some fairly typical examples.
The product manager in companies such as Procter & Gamble’s soap and detergent business, in Unilever’s food business, or in the radio and TV business of Philips of Holland, is definitely middle management by rank and compensation. The product manager has no command authority. The work is being carried out by people who report to their respective functional bosses, the manufacturing manager, the sales manager, the head of the chemical and development laboratories, and so on. But the product manager is held responsible for the development, the introduction, and the performance of a product in the marketplace. The product manager also: decides very largely whether a new product should indeed be developed; decides what its specifications should be; determines its price; decides where and how to test-market it; and decides the sales goals. The product manager does not have any direct command authority and cannot issue an order, but does directly control a major determinant of performance and success for a branded consumer product, the advertising and promotion budget.
The quality control engineer in a machine tool company also has no command authority and no subordinates. But the quality control engineer decides the design and structure of the manufacturing process by setting quality control standards which largely decide the costs of the manufacturing process and the performance of the manufacturing plant. The manufacturing manager or the plant manager does indeed make the decisions. But the quality control engineer can veto them.
The tax accountant also has no command, can give no orders, and often has no subordinates except a secretary. Yet, in effect, the tax accountant has a veto power over even top-management decisions by rendering opinions on the tax consequences of a course of action which often determine both what a company can do and how it must do it.
The product manager of Procter & Gamble, the quality engineer, and the tax accountant are not “line” managers. But neither are they “staff.” Their function is not advice and teaching. They do “operating” work. Yet they have top-management impacts even though they are not top management in rank, compensation, or function.
To be sure, they cannot make some of the key decisions—what our business is and. what it should be; what its objectives are; what the priorities are and should be; where to allocate key resources of capital and people. But even with respect to these decisions they contribute the essential knowledge without which the key decisions cannot be made, at least not effectively. And the key decisions cannot become effective unless these new middle managers build them into their own knowledge and work on their own responsibility and on their own authority. Earlier it was argued that knowledge professionals are managers even though no one reports to them. Now we see that in their impacts and responsibilities they are top management even though they may be five or six organizational levels down.
The Knowledge Organization
Middle management has not disappeared, as was predicted. Indeed not even the traditional middle manager has disappeared. But yesterday’s middle management is being transformed into tomorrow’s knowledge organization.
This requires restructuring individual jobs, but also restructuring the organization and its design. In the knowledge organization the job, all the way down to the lowest professional or managerial level, has to focus on the company’s objectives. It has to focus on contribution, which means that it has to have its own objectives. It has to be organized according to assignment. It has to be thought through and structured according to the flow of information both to and from the individual position. And it has to be placed into the decision structure. It can no longer be designed, as was the traditional middle-management job, in terms of downward authority alone. It has to be recognized instead as multidimensional.
Traditionally, middle-management jobs have been designed narrowly. The first concern has been with the limits on a middle manager’s authority. In the knowledge organization we will instead have to ask, “What is the greatest possible contribution this job can make?” The focus will have to shift from concern with authority to stress on responsibility.
The Need for Clear Decision Authority
The knowledge organization demands clear decision authority. It demands clear thinking through what decision belongs where. The knowledge organization is far more complex than the simple “line” organization it is replacing. Unless decision authority is clearly spelled out, the knowledge organization will tend to become confused.
The knowledge organization is also designed to take greater risks. Operating no longer is a “routine” in which the norms are clear. It is a decision-making organization rather than one that has no other function than to keep the machinery running at a known speed and for known results. Things, therefore, will go wrong, and in unexpected ways. And unless authority to change the decision is built into the decision itself, malfunction is bound to result.
A major pharmaceutical company decided to introduce seven new products in one year—twice as many as the company had ever introduced before in a single year. An elaborate multinational strategy was worked out in year-long sessions of task forces assembled from all functions, all levels, and all major territories. Some products were to be introduced first into European markets, some into the American market, some first with general practitioners of medicine, others with specialists or in hospitals. When the products were brought out, however, the two which had been considered the weakest unexpectedly developed into best sellers. But the two supposedly strongest products ran into unforeseen troubles which sharply slowed down their growth. In working out the strategy, no one had asked, “If things do not work out as planned, who is going to be responsible for changing the plan?” As a result, there were endless reports, endless studies, endless meetings—and no action. In the end, the company lost much of the benefit of its accomplishments. The two products that had shown unexpected success did not receive the support needed to exploit their acceptance by the medical profession. Competitors who moved in with near-imitations were therefore able to reap most of the harvest. Clinical testing and marketing efforts on the two products that had run into unexpected difficulties should either have been cut back sharply or should have been raised sharply. Everyone saw that; but no one had the authority to make the decision.
In the knowledge organization of the new middle management any program, any project, and any plan will have to ask and answer the question “Who has the authority to change the plan?” And this will lead to far greater devolution of authority to middle people than even the American middle management tradition ever envisaged. Even line managers will need more rather than less authority in the knowledge organization. Line managers must also be part of the decision and understand what it implies. They must be given authority commensurate to their responsibility—and this is not knowledge authority, but command authority. Or, if in any area they cannot be given command authority which their task—and their people—require, it must be perfectly clear, above all to line managers, where the command authority lies.
Top Management’s Role in the Knowledge Organization
In the knowledge organization, top management can no longer assume that the “operating people” do as they are being told. It has to accept that the middle ranks make genuine decisions. But the operating organization can also no longer assume that it can do its job in isolation from top management. It must understand the top-management decisions. Indeed middle management in the knowledge organization must take responsibility for “educating” top management. Top management must understand what the knowledge organization tries to do, what it is capable of doing, and where it sees the major opportunities, the major needs, the major challenges to the enterprise. Finally, middle management must insist that top management make decisions on what the business is and what it should be, on objectives, strategies, and priorities. Otherwise the middle ranks cannot do their own job.
Top management needs to know the knowledge organization and to understand it. It needs to establish communication with it. The traditional assumption that the people in top management know the middle manager’s job because they have been through it is no longer going to be valid. Even the people who have risen into top management through the middle-management organization can no longer expect to have been exposed directly to more than a small sample of the functional work of the knowledge organization. And some of the most important areas of middle management will no longer prepare and test a person for top-management positions.
Indeed the most capable men and women in such areas will not even want to get into top-management work but will prefer to stay in their specialty. The computer specialist wants, as a rule, to stay within that specialization and work on information and information technology. Equally, most researchers want to stay in research, whether in physical and technical fields, in research on people, or in economic research.
Middle managers in knowledge organizations can no longer be taken for granted and be treated with condescension as people who, after all, do only routine tasks and only carry out and implement top-management decisions and orders. If it wants to be effective, top management therefore needs to establish team work with, and communications from and to, the knowledge organization.
The most important “public” in the knowledge organization for top management—and the one that most needs a relationship to top management— are the younger and highly specialized knowledge workers. They are least likely to understand what top management is trying to do, least likely to see the business whole, least likely to focus themselves on company objectives and performance. Yet they are likely, because of their knowledge, to have impact early in their careers. In any business of any size or complexity the top-management group needs to organize its relationship to these younger knowledge professionals.
Each member of the top-management team might sit down a few times a year with a group of younger knowledge people and say to them, “I have no agenda. I have nothing I want to tell you. I am here to listen. It is your job to tell me what you think we in top management need to know about your work and how you think we can make it most productive. It is your job to tell me where you see the problems and opportunities for this company and to tell me what we in top management do to help you in your job and what we do that hampers you. I shall insist on only one thing: that you have done your homework and that you take seriously your responsibility to inform and to educate.”
But altogether in the knowledge organization it becomes a top-management job to mobilize, to organize, to place, and to direct knowledge. Knowledge people—and that means managers and career professionals in today’s organization—cannot be seen and treated as inferiors. They are middle in rank, pay, authority. But they are juniors and colleagues rather than subordinates.
“Management” means, in the last analysis, the substitution of thought for brawn and muscle, of knowledge for folkways and superstition, and of cooperation for force. It means the substitution of responsibility for obedience to rank, and of authority of performance for authority of power. The knowledge organization, therefore, is what management theory, management thinking, management aspirations have been about, all along. But now the knowledge organization is becoming accomplished fact. The tremendous expansion of managerial employment since World War II converted the middle ranks into knowledge professionals—that is, people paid for putting knowledge to work and to make decisions based on their knowledge which have impact on performance capacity, results, and future directions of the whole enterprise. The task of making these new knowledge people in the middle ranks truly effective and achieving has barely begun. It is a central task in managing managers.