CHAPTER THREE

Management: A Look Backward and a Look Forward

AMONG THE FORERUNNERS OF management in the nineteenth century was Robert Owen, who is still outstanding in the depth of his insight and the courage of his convictions. He is still, a hundred and fifty years after his model experiment in New Lanark—the bankrupt Scottish textile mill which he turned in a few years into a highly successful business and into a model of human relations and plant organization—one of the most “progressive” managers and well up with the best of them today. But there was also Saint-Simon, the Frenchman, Owen’s contemporary, who first saw the importance of the entrepreneur as the creator of wealth. There were, in the second half of the century, the Japanese. Confronted with the need to excel in the techniques and economics of the West and yet desirous to maintain the social and cultural values of their own old and rich tradition, the Japanese were the first to think seriously about the social responsibility and function of the manager. Finally toward the end of the century, there was an American, Henry Towne, with his emphasis on the wealth-creating contribution of knowledge and on the sharing of managerial experience.

These pioneers were by no means without influence.

Owen, to be sure, was so far ahead of his time as to have no imitators: New Lanark was a sensation; it never became an example. For a few years it was a popular tourist attraction; but, while there were many princes and crowned heads among the sightseers, the author has not heard of a single businessman who went there to find out what Owen was doing.

Saint-Simon, by contrast, was tremendously effective. To this day the basic philosophy and structure of management on the European continent bears his stamp, especially in its emphasis upon the difference between the “entrepreneur,” that is, the bearer of financial risk, and the manager. Indeed, though Saint-Simon’s name is anathema to any good Marxist, Russian industry is organized on his concepts rather than on those of Karl Marx. Similarly Towne had profound influence upon the basic structure of management and enterprise in the United States. He may only have codified what already existed, but certainly the structure of American management to this day mirrors Towne’s concept that the function of business enterprise is to use systematic knowledge in order to create economic value. The Japanese, finally, may have had the most important impact of all the earlier thinkers. By enabling a nonwestern country to become modern and industrial and yet to remain, in essentials, a nonwestern country with its own tradition and culture, they not only broke the western monopoly on economic and technical advance, but also created the foundation for today’s explosion of economic development. In many, and especially in its constructive, aspects, the modern world is their creation.

And yet this is the prehistory of management, rather than its history proper. For there was one thing lacking in all these pioneers, namely, a realization that there was “management” as a distinct field, “managing” as a distinct kind of work, and “managers” as a distinct group and function. When we read their insights today, we are struck by them. But then we know something that their contemporaries did not know; we read something into these works that simply was not in them. Each of these pioneers found a nugget of pure gold but dropped it again, unaware of its value.

The Seven Basic Management Themes

This new insight, this new concept of managing as something specific, suddenly arose around 1910. In the ten years between 1910 and 1920, the decade of the first World War, every single one of the great themes of management is struck. Every single one of the seven basic approaches to the study of managing and management was developed then. And almost anything we have done since then, in theory as well as in practice, is only variation and extension of the themes first heard during that decade.

Management, as a specific discipline, as a specific kind of work, as a specific function in society and economy, was developed, almost entirely, within the past fifty years.

Taylor’s “Principles and Methods of Scientific Management” appeared in 1911. Together with his famous testimony before a Congressional Committee a year later, it converted what had been a technique into an organized, systematic, teachable approach to the study of work and of its rational organization. Almost at the same time Elihu Root, reorganizing the United States Army, and Henri Fayol, reorganizing a French mining company, established the counterpart to Taylor’s study of the individual task within a work force. They established the systematic study of organization to determine what tasks have to be performed. And at roughly the same time the Germans, especially Schmalenbach, developed Betriebswissenschaft; namely, the systematic study of the individual transactions which together make up the total economic results of an enterprise.

These three approaches look at enterprise and its management in isolation. But in the years after 1910, we also developed, for the first time, approaches that looked upon enterprise and management in society and economy. In 1911—at the same time at which Taylor’s “Principles and Methods of Scientific Management” appeared—Schumpeter in Austria published his “Theory of Economic Development” which, for the first time, raised the question of the role of the manager in a modem expanding economy. Such recent “discoveries” as innovation, marketing, or long-range planning were all anticipated in this book. In the years before World War I, Walther Rathenau in Germany first concerned himself with the impact of large organization on modern society and with the responsibility of management in a modern society. His concern was echoed in the United States, in the closing years of World War I, by Henry Gantt.

The question of the individual in the plant community and the industrial organization was the first of the management themes struck—it was Robert Owen’s main concern. It was, however, the last one to be tackled by modern management thinking. It was not raised again until World War I, most effectively perhaps by Elton Mayo, then still in Australia.

These themes have been the major themes of management ever since:

• the systematic study of work;
• the systematic study of organization;
• the systematic study of effort and results;
• managerial and entrepreneurial economics;
• managerial analysis, i.e., managerial accounting;
• the social position and responsibility of management;
• the human relations of an industrial society and the place of the individual in it.

The New Themes

Each of these approaches was developed quite independently. Each has, essentially, remained separate to this day. Each has made great advances, especially during the last decade.

Can these different approaches remain different much longer? Or are we fast reaching the point where we need what, so far, we have not achieved: a unified discipline of management?

There is no doubt that we will have to learn—and learn fast—to consider these different approaches not as different disciplines, not even as different points of view, but simply as different pieces in the same tool box, every one of which is needed to do the job.

And so every manager—and above all, every student who aspires to become a manager—better learn to use all these approaches to management as his tools.

But there are also new tasks for which the tools the pioneers fashioned are not enough and may not even be appropriate. What are these tasks? We might perhaps distinguish them by major categories.

The Problem of Top Management: Beginning to Explore It

First, we find ourselves suddenly confronted with the amazing fact that we have always taken top management for granted, to the point where we know little about it.

Actually the situation with respect to our knowledge of top management, that is, with respect to our knowledge regarding the unifying, determining and deciding organ of enterprise and management, is even more confused. In the traditional approaches which focus on the function of enterprise in economy and society—the Rathenau line of concern with social responsibility or the Schumpeter line of concern with managerial and entrepreneurial economics—top management is the only thing that is seen. The enterprise itself is seen practically as an extension of top management. We know today that things are not so simple. The organization, even in a small business, is a good deal more than the extension of top management. We know, for instance, that the basic problem in the decision-making function of top management is not to make the decision itself. It is not even to get the “facts” about the decision. The basic problem is how to make a decision effective in and through the organization.

But, on the other hand, the approaches which deal with enterprise and management in isolation, the approaches that lead back to Taylor, Fayol, and Schmalenbach, respectively, do not see top management at all. These approaches are static—in the way in which a microscopic slide of cell tissue is static. This, of course, gives them the great analytical power they have. But it means that they are incapable of distinguishing between what is relevant and what is not; incapable, above all, of distinguishing between the decisions that mean life and death for an enterprise, and those that have to do with marginal efficiencies. These approaches quite properly point out that even the healthiest organization can die as a result of malfunction of the smallest, least observed operation. What they completely overlook is that even the healthiest organization in which everything functions properly cannot live, let alone perform, unless it has a different, a separate, and effective governing organ. They do not see top management either, in other words.

The function, organization, and work of the people at the head of an enterprise is the unexplored continent of management.

It is, at the same time, the most crucial question that faces us in practice as well as in theory. That there is reason to be dissatisfied with our present state of knowledge, no one, I think, will doubt. At least I know no top management of a large enterprise anywhere—in the United States, in Europe, or in the East—which is not in a state of continuous reorganization, of continuous questioning, of continuous dissatisfaction with what we know and can do today.

One question in the top management area is of particular importance: The selection of the successors to today’s top management people. It is precisely because of the great success of management that this has become a critical question. For this success has made management of the large company a social and economic resource and power far beyond the individual company. A great deal more than the dividends of the stockholders, the price of the stock, or even the jobs of the company’s employees hinges today on the questions: Who should succeed today’s top management people? By what criterion should they be selected and by whom? In what manner and through what processes? Who will hold them accountable and remove them if they are found wanting? It is doubtful that anyone, whether in management practice or in management theory, can give satisfying answers to these questions.

Internal Problems

The next group of tasks ahead deals with basic internal problems of enterprise and management. First, we are becoming aware of the problem of manageability.

There are, in all likelihood, limits beyond which an enterprise becomes too big to be managed, and particularly too complex to be managed. These limits may well be capable of being pushed outward by such new developments as organized information and decisions systems in the business, systematic business research, and systematic organization of self-governing businesses within the large enterprise. But there is, in all likelihood, a limit even to this.

In addition, there is the question whether every kind of activity and every kind of business really belongs in the large business enterprise.

Business enterprise is only one of the large power centers which have grown up in modern society. Modern government and labor unions have become major centers of power. But business is distinct in that there are both large and small units existing, working, and competing side by side.

This is obviously a unique strength—perhaps as important for the maintenance of a free society as the realization that society need not explode in the inevitable class war between the very many destitute and the very few rich. But it also presupposes some understanding of what kind of activity is best performed within a large business, and what had better be left to the small one. This, too, is a problem of manageability. On this, too, we so far can only ask a question, and cannot, so far, even define it properly, let alone answer it.

Another major area is that of decision making. During the past thirty years this has become a central focus of research and thought. For the first time we believe that decision making can be made rational to some extent. At the very least, we can define the nonrational elements within it.

One problem that is still ahead of us—one that cannot be tackled within any one of the traditional approaches to management—is that of distinguishing between “decision” and “decision.” We do not speak of a “decision” that two and two make four; we call it the “right answer.” In a good deal of modern decision theory, especially as applied to managerial decisions, we talk of “decisions” when there is actually only one right answer. This applies to all problems where the job is to restore or maintain the operation at a preset level. These are the routine decisions—these we understand. But we understand them precisely because they are not decisions.

Then we have a whole group of decisions which I would call managerial in that they deal with the allocation of existing resources, especially people. Here there is no right answer. Here, in other words, there is already risk. But here there is still a range of optimal solutions, each with a definable risk or balance of risks. Here, obviously, belong all the “decisions” on inventory levels and on inventory location which are the favorite exercises of the quantitative “management scientists.” And again these are not really decisions. These also are not, usually, the decisions which make a difference between survival and death of an enterprise.

But as to those last ones, the entrepreneurial decisions, we know very little. Here there is obviously no one right answer. There is not even a range of optima. There is only the ability to take the right risk—the ability, in other words, to innovate and change the trend rather than follow it or anticipate it. This, too, requires strict and rigorous mental discipline. But it is a very different kind of decision, requiring very different kinds of “facts,” and having very different impact from either routine or managerial decisions. Above all in this, the only true critical decision, the aim is not to eliminate risk, indeed not even to minimize it, but to make the enterprise capable of taking bigger risks—but the right ones.

Finally, still within this area of basic internal tasks within the enterprise, we now have to bring together “management science” dealing with things, and “management science” dealing with people. Unless we succeed in integrating into one process of analysis, into one thought concept, into one act of decision, the understanding of objective, impersonal, that is, physical or economic phenomena, and the understanding of and concern with people, their development, their needs and desires, their dignity and personality, we will have no discipline of management. We cannot keep these two apart any longer, we cannot engineer data processing through a computer without thinking through who is to make what use of the data and why. We cannot, conversely, think through the role, function, and position of an individual in the organization without reference to objective, economic, impersonal contribution, and performance. So far we cannot do this—so far these two approaches are still separate, if not even incompatible.

Social and Political Problems

A unified approach is needed for the new great tasks in respect to the social and political problems of enterprise and management.

During the past thirty years Towne’s deep insight of nearly a century ago— that knowledge is the wealth-creating resource—has borne fruit. Everywhere the professionally trained individual is becoming the real “labor force”—in cost as well as in numbers, let alone in contribution. The. “laborer” of yesterday with whom Owen was concerned first and whose work Taylor first analyzed, is rapidly becoming a thing of the past in modern industry. Work is increasingly being done by people with high education, contributing knowledge and working with their minds.

We still tend to think of two classes in industrial society; i.e., “manager” and “workers.” This idea is not only dangerous, it is rapidly becoming completely fallacious. The majorities of a modern industrial society are essentially the professional people who work, as nonmanagers, but also as nonlaborers, who are middle class though employed, and who see themselves as “part of management” without being “managers,” and as “workers” without, in the slightest degree, considering themselves “proletarians” let alone exploited.

This is the social reality of the twentieth century—and its social problem. Economically these people are not a problem. In that sense we can say that we have overcome the nineteenth-century “social question.” We know, at least, that it cannot be solved through any of the nineteenth-century prescriptions. But it can be solved through the unique twentieth-century prescription of economic development based upon high investment in knowledge and in the people who bring knowledge to work.

The position of these people, however, we do not yet fully understand. Nor do we know how to manage them, that is, how to make their knowledge, their efforts, their contribution effective in the performance of the whole. This is a problem which few, if any, of the founding fathers of management could have foreseen, it is a problem that only arose because they were so successful. But as problems of success usually are, this is a more difficult, at least a much more subtle, problem than any they tackled.

There is one more, and an equally important consequence of this tremendous shift in the social structure of industrial society. “Productivity” is beginning to have a different meaning and to require completely different approaches and concepts. We have had, especially in the past fifteen years, a great many “productivity centers” all over the world. What we will need from now on are, increasingly, “effectiveness centers”: that is, organized efforts to make fully effective and productive the new workers, the knowledge worker, the employed middle-class professional.

This, too, is a task for analysis and for careful study of the work. But it is different work. And both the approach and the tools will have to vary. For the manual workers’ productivity consisted in increasing output per hour or per dollar spent by organizing their task and their motion. For the “knowledge workers” the question is less how much they produce than whether they direct their attentions to the right “product.” It is effectiveness rather than efficiency that characterizes their economic contribution. And efficiency itself in the knowledge worker is much less a matter of the individual doing more, as it is a matter of the group doing better. These are new things. So far none of us, whether we be Americans or Russians or Europeans or Japanese, know how to do this.

We are, in respect to the work that is typical, characteristic, and wealth-producing in an industrial society, in exactly the situation we were in in respect to manual work before Taylor. We need a new Taylor—though a very different one, not an engineer looking upon the human being with the analogy of the well-designed mechanical implement in mind, but the “systems thinker” looking upon human beings in a group as living, organic, moving parts of a whole where the whole has to be effective—and where effectiveness above all consists in doing the things that are really important instead of frittering away time and energy in doing things, no matter how well and how “efficiently,” that are not primarily contributing to performance and to results. Here is one of our major frontiers.

The Problem of Management’s Authority

And then there is the great political question of the legitimacy of management. On what ground does management base its authority? That management is not and need not be based on exploitation and force—that, in other words, the Marxist interpretation of history is not “scientific,” let alone “inevitable”—even the Marxists today probably know. But it is not enough for a leading group not to be exploiter and usurper. It needs a ground for its power. It needs a code of responsibility and a focus of accountability.

It is not too relevant whether ownership and control have really split asunder, or whether there is still, substantially, control by ownership in modem industry. The fact of the matter is that management, as a function, has peeled off from the legal title to property ownership. Managing has to be performed, and performed professionally, objectively, and in the interest of the enterprise rather than in that of the owners, no matter whether the business is “owned” by one man, by the government, or by the anonymous multitudes of millions who have a diluted stake in the enterprise through insurance policies or future pension claims. It is also quite irrelevant how much power management really has. For there is no doubt that management has to have a considerable amount of authority to discharge its function, even on the strictest interpretation of managerial authority and responsibility.

And such power always must be anchored in a social value, in an ethical concept and in a rational accountability, to be socially and politically legitimate power. We need management, this we no longer dispute. We also know that management is only one group having power in a modern society—in sharp contrast to the belief, common in managerial circles thirty years ago, that management should or could be the “power elite.”

But we do not know how management’s authority can be rooted, how it can be limited, and where those limits should be drawn. Here is a central task awaiting the student of management—a task, essentially of political theory, but one that cannot be tackled without a great deal of knowledge and understanding of management, its concerns, its functioning, its economics, organization, and philosophy.

The Exploding Management Universe

There is an entirely different and perhaps even more compelling reason why we are at the end of the seventy-year period during which separate approaches to the study of management could, profitably, be pursued. Management has become world-wide. It is needed the most in those countries that do not have a managerial tradition, in the “underdeveloped” countries, primarily of nonwestern tradition and non-European population.

In the West management was a function and an organ which developed fairly late in the process of economic development. Certainly the consciousness of such a function developed very late—and so did the leadership group of “managers.” In the underdeveloped countries, however, management is the central resource of development, and managers the central engine of development.

Management as a supernational function and discipline also goes back a good long time. It is sixty years now since, as a result of World War I, two men founded the International Management Movement: the American, Herbert Hoover, the mining engineer turned statesman, and the Czech, Thomas Masaryk, the philosopher-historian turned statesman.

But essentially, up until recently, management was seen as a phenomenon of the “developed” countries. And, by and large, despite the exception of Japan, this was seen as being confined to the “western” world, that is, essentially to countries peopled by nations of European stock.

Today, as no one needs to be reminded, this is simply no longer so. This is the greatest event, perhaps, in the short history of management. It is also the event that makes the greatest demand on our knowledge of management and on the dedication of managers.

Above all, it demands a unified approach to management as a discipline and to managing as a kind of work. We face today, all over the world, a demand for people capable of doing the work of a manager—in tremendous numbers and possessing ability, knowledge, and integrity of a high order.

These past seventy years were the first seventy years of management, the years during which we developed a recognition of the discipline, the function and the work, and the first approaches toward rational understanding and professional competence. They were also the years during which we developed management education. Indeed, the first school to be called a “School of Business Administration,” the Harvard Business School, will soon celebrate its seventieth birthday.

This, the childhood and adolescence of management, is now at an end. If nothing else, the tremendous challenge of a world engulfed by the rising tide of human expectations demands of us a unified approach to management and the development of something that can be learned, can be taught—and, above all, can be admired and can give inspiration.

“Management” is the catalyst which makes possible rapid economic and social development in freedom and with human dignity. The alternative is no longer the primitive society without development—and perhaps with an occasional brief glimpse of human freedom and dignity. The alternative is rapid economic development through terror, through tyranny, through debasing the person to a nonentity in the inhuman machine of total society.

The world-wide cry for economic development is in large measure the result of the management achievement. But this achievement also transformed management and, above all, the tasks it has to fulfill. What is needed now cannot be satisfied by technical excellence alone, but also not alone by moral responsibility or human relations. From now on “management science” and “scientific management,” “managerial economics,” and “human relations” will have to be made one in the theory as well as in the practice of management.