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Management Challenges for the Twenty-First Century

The Problem with GM’s UAW Deal

In 1946, Peter Drucker’s intimate, multiyear examination of General Motors, Concept of the Corporation, was published. GM hated it. Drucker’s take—that the then-wildly-successful automaker might want to reexamine a host of long-standing policies on customer relations, dealer relations, employee relations, and more—was viewed from inside the corporation as hypercritical. GM’s revered chairman, Alfred Sloan, was so upset about the book that he “simply treated it as if it did not exist,” Drucker later recalled, “never mentioning it and never allowing it to be mentioned in his presence.”

The United Auto Workers didn’t exactly embrace Drucker’s thinking either. Among his specific recommendations was for GM’s hourly workers to assume more direct responsibility for what they did, adopting a “managerial aptitude” and operating within a “self-governing plant community.” The UAW’s powerful president, Walter Reuther, greeted that notion this way: “Managers manage and workers work, and to demand of workers that they take responsibility for what is management’s job imposes an intolerable burden on the working man.”

Six decades later, were Drucker alive to set down the latest chapter in the GM saga, my guess is that, once again, neither the company nor the union would care much for what he’d have to say. At the least, Drucker would surely be skeptical of how transformational the four-year contract reached last week between GM and the UAW really is.

Obsolete Industrial Model

Yes, the restructuring of GM’s massive obligations for UAW retiree health care, along with wage and benefit concessions made by the union, promise to bring the company’s cost structure more in line with that of its Asian rivals. That may well allow GM to become consistently profitable, which is no small thing.

Yet on some level, the agreement clings to an industrial model that is already obsolete. And it runs counter to GM Chief Executive Rick Wagoner’s previously articulated strategy of designing new vehicles so they can be put together anywhere across the globe.

In particular, according to news reports, GM has pledged to invest billions of dollars to keep making certain cars, trucks, and engines in the U.S., providing a boost to facilities in Wisconsin, Michigan, and Indiana and, the UAW hopes, a measure of job security for its 74,000 unionized workers. As the company characterized the contract, it “paves the way for GM to significantly improve its manufacturing competitiveness” while simultaneously “strengthening its core manufacturing base in the U.S.”

Shifting Away from Manufacturing

But these two principles—preparing for the future while locking into a made-in-America mind-set—are fundamentally at odds.

As Drucker saw it, huge economic and demographic forces have set the U.S. and other developed nations on a course in which manufacturing jobs are destined to play a lesser and lesser role. Much of this work, he said, will invariably keep moving offshore.

To try to thwart this change through what amounts to bargaining-table protectionism is folly. The twenty-first-century shift from traditional lines of manufacturing to what Drucker called “knowledge work”—laboratory analysis, software design, and so on—is as inexorable as the twentieth-century transition from agriculture to manufacturing.

After World War II, about one in three U.S. workers was employed in manufacturing. Today that figure stands at about 1 in 10 (although manufacturing output, as a share of total economic output, has remained steady, thanks largely to rising productivity).

Education Over Apprenticeship

“Most people continue to believe that when manufacturing jobs decline, the country’s manufacturing base is threatened and has to be protected,” Drucker wrote in 2001, four years before he died. “They have great difficulty in accepting that, for the first time in history, society and economy are no longer dominated by manual work, and a country can feed, house, and clothe itself with only a small minority of its population engaged in such work.”

Drucker didn’t mean that people would cease using their hands altogether; in fact, in many cases, they might use them more. But their work will be “based on theoretical knowledge that can be acquired only through formal education,” he explained, “not through apprenticeship.”

All of this suggests that whatever investment GM is making in solidifying its manufacturing presence in the U.S. would be better spent on launching programs to retrain and redeploy its younger workers for a fate that, ultimately, many of them won’t be able to escape.

The End of the Assembly Line

This must not be some halfway initiative, either. Indeed, imagine a major corporation creating a lifelong learning curriculum that had as much energy and talent and financial strength behind it as the building of a battery of new factories. Imagine a retraining effort so robust and path-breaking that the union could never dismiss it as some corporate sop.

In 1983, in a new epilogue to Concept of the Corporation, Drucker wrote: “GM may, within a decade, develop into a true transnational company that integrates markets of the developed world and their purchasing power with the labor resources of the Third World.

“And while it is much too early even to guess what GM’s labor relations will look like,” he added, “the assembly line, that symbol of industry during the first half of the century, will, by the year 1990 or the year 2000, probably have faded into history.”

Drucker was, obviously, a little off in terms of timing. But there’s no denying the trend—even for those who’d like to pretend, as Alfred Sloan once did, that it just isn’t there.

September 30, 2007

Drucker and the Complexities of Race

Long before so much of the nation became fixated on what was being preached inside black churches on Sunday mornings, Peter Drucker would go on occasion and listen for himself.

It was the late 1930s, and Drucker had just landed in New York, having fled the Nazis. Whenever he happened to spend the weekend in Washington, Drucker recalled years later, he would sneak into Rankin Chapel to be “shaken and moved” by Howard Thurman, the chaplain at Howard University. His was the kind of voice, said Drucker, that “reached the inner core of one’s being.”

Thurman’s soul-stirring oratory, as well as relationships Drucker forged with other black intellectuals of the era, left quite an impression on him. After all, he always viewed the importance of management as transcending the corporate arena to reach into all segments of society.

Indeed, Drucker found the racial discrimination that permeated his adopted country so disturbing, he once turned down “the most attractive academic job” that ever came his way—a deanship at Emory University in Atlanta. “It was offered to me in the late 1940s, when the South was still fully segregated, and I had to say no,” Drucker recounted in his autobiography, Adventures of a Bystander.

Obama Resonates

It is impossible to know which candidate, if any, Drucker would have supported in the 2008 Presidential race; he was tough to pin down politically. Not long before he died in 2005 at age 95, he praised a Democrat (Harry Truman) and a Republican (Ronald Reagan) as the two most effective Presidents of the previous 100 years.

But I imagine Drucker would have felt a strong connection with Senator Barack Obama’s (D-Ill.) speech this month on “the complexities of race in this country that we’ve never really worked through.” Drucker would have understood Obama’s take, that the incendiary language used by his former pastor, the Rev. Jeremiah Wright—while, on some level, “simply inexcusable”—was fueled by a real and powerful anger with roots that run deep.

“Slavery was not a mistake, but a sin—and the fruits of the father’s sins are borne by the sons for seven generations,” Drucker said in a 1991 speech at the Economic Club of Washington. “We are now in the fourth generation,” he added, alluding to the need for at least another six decades to overcome this shameful legacy.

Knowledge and Work

At the same time, Drucker would have surely admired Obama’s frankness in asserting that, too often, African Americans have failed to face up to “our own complicity in our condition.” As Drucker saw things, this failure was particularly severe in terms of the most sweeping economic development of the last half-century: the move from manual, blue-collar jobs to “knowledge work,” in which people are called upon to use their heads more than their hands.

By the early 1990s, Drucker declared, this transition to knowledge work was well on its way to completion in the U.S.—and, with it, there had emerged the realization that education is “the center of the knowledge society, and schooling its key institution.” This new reality, said Drucker, has “largely been accepted (except in the black community) as appropriate or, at least, as inevitable.”

Needless to say, a lot of thinking went into that parenthetical clause.

“In the 50 years since the Second World War, the economic position of African Americans in America has improved faster than that of any other group in American social history—or in the social history of any country,” Drucker wrote in a 1994 article for the Atlantic Monthly. “Three-fifths of America’s blacks rose into middle-class incomes; before the Second World War the figure was one-twentieth.

“But half that group rose into middle-class incomes and not into middle-class jobs,” Drucker continued. “Since the Second World War more and more blacks have moved into blue-collar, unionized, mass-production industry—that is, into jobs paying middle-class and upper-middle-class wages while requiring neither education nor skill. These are precisely the jobs, however, that are disappearing the fastest.”

Shifting Economic Status

This path—so tempting but, ultimately, so tenuous—helps explain why the overall economic status of blacks today measures just 56 percent of that of whites, according to the National Urban League.

“The economically rational thing for a young black in postwar America was not to stay in school and learn; it was to leave school as early as possible and get one of the plentiful mass-production jobs,” Drucker concluded. “As a result, the fall of the industrial worker has hit America’s blacks disproportionately hard—quantitatively, but qualitatively even more. It has blunted what was the most potent role model in the black community in America: the well-paid industrial worker with job security, health insurance, and a guaranteed retirement pension—yet possessing neither skill nor much education.”

The obvious remedy is to improve high-quality educational opportunities for black children and adults alike. But, again, the past has complicated the present. In the 1950s and 1960s, schools were integrated—an act that Drucker appreciated deeply. “Racial discrimination had to be corrected, had to be expiated,” he said. But in doing so, many schools wound up “putting social ends ahead of the goal of learning,” Drucker wrote in 1993’s Post-Capitalist Society. The upshot was that the education system actually undermined many of the very children it had set out to help.

The way forward, Drucker implored, is to create a new culture “in which the most disadvantaged children learn because it is expected of them and demanded of them”—an audacious cry for hope, if there ever was one.

March 27, 2008

Leveraging the Strengths of the Disabled

When the House passed legislation in late June that expanded protections for disabled people, it marked an important step forward on an important issue. But what the workplace needs, even more than a new law, is an old insight—one first offered by Peter Drucker more than 40 years ago.

“To make strength productive is the unique purpose of organization,” Drucker wrote in his 1967 classic, The Effective Executive. “It cannot, of course, overcome the weaknesses with which each of us is abundantly endowed. But it can make them irrelevant.”

This holds true for everyone, of course. As Drucker noted, “Strong people always have strong weaknesses too. Where there are peaks, there are valleys. And no one is strong in many areas. Measured against the universe of human knowledge, experience, and abilities, even the greatest genius would have to be rated a total failure. There is no such thing as a ‘good man.’ Good for what? is the question.”

The Barrier of Workplace Attitudes

But this perspective has particular resonance for the disabled—a substantial and growing population. Across the globe, the U.N. estimates, some 650 million people live with disabilities. In the U.S., the Census Bureau counts more than 50 million people with some level of disability.

And many of these folks find themselves struggling to land a job, even though they have skills to offer and are hungry to work. The Disability Funders Network, a nonprofit group, reports the unemployment rate for people with disabilities is 10 times higher than for the nation as a whole. A 2003 study by researchers at Cornell University leaves little doubt as to why that is: “Workplace attitudes,” it concluded, “are a continuing barrier to the hiring and retention of people with disabilities.”

The bill that just passed the House, after months of negotiations between business lobbyists and advocates for the disabled, should help. Upset that the Supreme Court had eroded the original intent of the 1990 landmark Americans with Disabilities Act, lawmakers made plain that people with epilepsy, diabetes, cancer, multiple sclerosis, cerebral palsy, and other ailments should be afforded antidiscrimination protection under the ADA, even if they control their conditions with medication or are in remission. The Senate is expected to pass a similar measure.

Channeling Unique Talents

But what’s required most of all is a fundamental shift in thinking among employers. Too often they are preoccupied with what they see as a disabled person’s limitations. Instead, the focus should be “How do you leverage the person’s strengths?” says Jonathan Kaufman, president of Disability-Works, a New York consulting firm that counsels public- and private-sector clients. “Drucker’s concept,” he adds, “is critical.”

Kaufman, who was born with cerebral palsy, says he knows of disabled people who possess all sorts of amazing talents that would be a boon to the right company—individuals with Asperger’s syndrome, for example, who are capable of “multiplying 12 or 15 digits in their head, faster than a calculator. The question is how you channel this, how you manage it.”

In his autobiography, Copy This!, Kinko’s founder Paul Orfalea recounts how being dyslexic made certain things difficult for him, including reading and writing. But he also discovered he had a natural advantage over his copy-shop rivals.

Human Diversity

“Dyslexics are extraordinarily empathic,” he explained. “Perhaps dyslexics are so empathetic because, as kids, so many of us became accustomed to not being listened to. They suffer and pick up on the suffering of others. That was the case with me. I became a good listener to cope.” Years later, Orfalea realized that this made him unusually attuned to “understanding and attending to our customers’ and workers’ emotional needs.”

Kaufman believes companies can reap other benefits from signing up, retaining, and advancing the careers of the disabled. For one thing, such an approach can help provide “the human diversity” that Drucker believed was vital to the well-being of every organization.

What’s more, hiring the disabled can engender customer loyalty among the employee’s friends and relatives—a potentially huge market when you consider that of the 70 million families in the U.S., more than 20 million have at least one member with a disability. The ranks of the disabled constitute an enormous market in their own right, boasting more than $1 trillion in aggregate annual income.

The end result, says Kaufman, is that if a company learns to value the disabled, it can “affect the bottom line” in a positive way, while at the same time, “it can have a real social impact”—Drucker’s favorite one-two punch.

Viewed this way, the disabled aren’t a liability; they’re an opportunity.

Stubbornly Unconvinced

Some businesses get it. Virginia Commonwealth University has developed 20 case studies, including sketches of Alaska Airlines, Bank of America, and Hyatt, that highlight “corporate models of success” for dealing with the disabled. Of the 485 workers at a Walgreens’ distribution center in South Carolina, more than 35 percent are disabled. And the drugstore chain is now recruiting disabled workers for a new distribution facility in Connecticut.

“In fact,” the company says in its outreach material, “we are actively seeking qualified people including those with cognitive and intellectual disabilities. Why make an extra effort to hire workers with cognitive and intellectual disabilities? Because this is a group that is seldom offered real jobs. We want to change that. We think we can.”

Still, many businesses remain obstinate. They say they worry about the possibility of increased costs, safety issues, the specter of legal liability, and how colleagues and customers will react.

But all of these things are simply excuses for shoddy management. Drawing on the parable of the Talents from the Bible, Drucker points out that the manager’s task couldn’t be clearer: It’s to “multiply performance capacity of the whole by putting to use whatever strength, whatever health, whatever aspiration there is in individuals.”

July 3, 2008

When 2008 Feels Like 1968

It’s been a bummer of a summer, hasn’t it? At the gas station the other night, I found myself staring in disbelief—as I have for weeks—while the numbers on the pump kept spiraling higher and higher. The total: $67.83 to fill my Passat. I hopped back in my car and flipped on the radio, figuring a little music might take my mind off the lightness of my wallet, but the news came on instead: Fannie Mae and Freddie Mac were reeling. Nervous depositors had stormed IndyMac Bancorp, looking to pull their money. General Motors was poised for another round of cuts.

Sigh. You don’t have to be much of a sourpuss to feel like things are falling apart these days—much of it the result of terrible management across a wide range of institutions. We’ve been undermined by corrupt mortgage brokers and bankers, lax financial regulators, myopic auto executives, and visionless politicians. Lord knows, there is plenty of blame to go around.

Yet it’s worth considering that these problems—the mortgage crisis, $4-plus gasoline, the ongoing struggles of an American icon like GM—reflect more than deep failure. They also say a lot about our future: “the future,” as Peter Drucker put it, “that has already happened.”

Looked at this way, we may be mired less in the Summer of Our Discontent than we are still coming to grips with what Drucker called The Age of Discontinuity.

It was 40 years ago when Drucker used that phrase as the title of his tenth book. It foretold an era, then just dawning, that promised to bring “a period of change—in technology and in economic policy, in industry structures and in economic theory, in the knowledge needed to govern and to manage.”

Shifting Foundations

This time of transformation—which we remain in the middle of—stands in stark contrast to the one that came before it. During the previous period, which Drucker marked from the end of World War I to the mid- 1960s, trends in production and income across the globe had been altered so slightly that a “Rip Van Winkle economist” who fell asleep in 1914 and woke up 50 years later would have been stunned to discover how much had stayed on track. Fewer major modifications in the economic landscape occurred during this span, Drucker said, than at any time in the preceding 300 years.

“Every single area that is today a major industrial power was already well along the road to industrial leadership in 1913,” he explained. “No major new industrial country has joined the club since.” Similarly, “most industrial technology” in the 1960s was merely “an extension and modification of the inventions and technologies” that had blossomed during the half-century after the Civil War.

But all this calm, all this stability, Drucker knew, was about to end. “The foundations,” he wrote, “have shifted under our feet.”

Among the most profound changes Drucker saw unfolding was the move away from a traditional “international economy”—one characterized by individual nations acting as disparate units, each with “its own economic values and preferences, its own markets, and its own largely self-contained information.” What had suddenly emerged in its place, he said, was a true “world economy” in which “the differences no longer lie in what people have or want, but in how much of the same things they have and can afford to buy.”

We see aspects of this playing out now at the gasoline pump. Although speculation and manipulation may have had some hand in the recent runup in prices, it’s escalating petroleum demand by developing countries that will keep them high. The International Energy Agency tells us that China and India are on pace to import a combined 19 million barrels of oil a day by 2030, up from about 5 million in 2006. Nevertheless, we have no concrete national energy policy to deal with the pressure this will invariably put on supplies.

Season of Gloom?

Meanwhile, the mortgage meltdown—which continues to be felt not only in the U.S. but also in Europe and Asia—underscores the world’s interconnectedness, as well as our failure to adequately manage the system. “There is greater need . . . to regulate the global international financial markets,” Joseph Stiglitz, a Columbia University professor and former chief economist of the World Bank, told a conference in Frankfurt earlier this year. “But we have neither the institutions, nor the mind-sets, with which to do this effectively and democratically.” We are still acting as if this were 1968, not 2008.

As for GM, its plans to accelerate the closure of some truck and SUV factories and shed thousands more blue-collar jobs is, in the largest sense, a sign of another monumental change that Drucker explored in The Age of Discontinuity: “On the eve of World War II,” he wrote, “semiskilled machine operators, the men on the assembly line, were the center of the American workforce. Today the center is the knowledge worker, the man or woman who applies to productive work ideas, concepts, and information rather than manual skill or brawn.”

This is all the more true now, of course. Once again, though, we’re not behaving accordingly. Between 1940 and 2000, the proportion of those 25 years and older in the U.S. with at least a college diploma swelled from less than 5 percent to more than 25 percent. But in the last few years, the Peter G. Peterson Institute for International Economics has shown, this growth has stagnated. What’s more, the U.S. is set to experience a decline in the number of workers holding master’s, professional, and doctoral degrees. Is this really how we want to prepare ourselves to succeed in a knowledge-based economy?

It has been a full four decades since The Age of Discontinuity appeared. We better start absorbing its lessons, lest the summer turn into a season of gloom that never ends.

July 17, 2008

No Magic Bullet for the Economic Crisis

With the economy sputtering and the future unclear, managers everywhere are looking for answers. Or, more precisely, many are bent on finding the answer—the single strategy that will allow them to weather these turbulent times.

Is this the moment to scale back? Or is this an opportunity to swallow up assets on the cheap? Should the organization stay the course? Or should it tack in a new direction? To Peter Drucker, the answer to such questions could always be summed up in three words: It all depends.

That may sound dreadfully wishy-washy, especially during a period when so many are groping for a bit of certainty that they can hang on to. But for Drucker, determining what a business should do next was something that only the business itself could figure out through a continuous, “systematic analysis of all existing products, services, processes, markets, end uses, and distribution channels.”

When scrutinizing all these dimensions of the operation, one has to ask, “Are they still viable?” Drucker wrote in his 1973 masterpiece, Management: Tasks, Responsibilities, Practices. “Are they likely to remain viable? Do they still give value to the customer? And are they likely to do so tomorrow? Do they still fit the realities of population and markets, of technology and economy? And if not, how can we best abandon them—or at least stop pouring in further resources and efforts?”

Think Carefully

With things so shaky in the world today, companies should be working methodically through these complex issues. The tendency, however, is to do just the opposite. As Drucker remarked in a 1997 interview, whenever people are “caught in a period of very rapid change . . . the feeling is that there must be a right answer” that everyone can easily turn to.

This feeling stems in part from peer pressure. “If a fellow CEO on the golf course says, ‘We are using this, and we wouldn’t do without it,’ you have to do it too,” Drucker observed.

Drucker hastened to add that it isn’t only executives who fall victim to this sort of lazy thinking. “When I was growing up in Vienna, everybody felt the need to be psychoanalyzed,” he recalled. “And there was a time when every child older than four years had to have his tonsils out. . . . The search for the one quick fix is a universal human failing.”

In the realm of business, it is a failing that manifests itself in a ceaseless succession of management fads and fashions offered up by a parade of self-styled gurus. “Each evangelist,” Drucker asserted, “is quite sure that his own patent medicine cures everything. And it’s very hard to get management to ask, ‘Is this for us?’”

“Bandwagon Psychology”

But in truth, there is no panacea. “The stuff that is good for my arthritis,” Drucker said, “would not help me at all with a broken leg, even though it’s in the same general area.”

Notably, it’s this “bandwagon psychology,” as Drucker called it, which contributed to the crisis in which we’re now mired. Rather than diligently tackle the tough questions Drucker suggested—Is what we’re doing viable? Does it fit reality?—far too many banking executives were happy to ignore the risks and plunge into the subprime cesspool. The reason for this was obvious: It seemed like a way to get rich fast. And, besides, everybody else was doing it.

Well, not quite everybody. William Taylor, coauthor of the book Mavericks at Work, pointed out recently that online banker ING Direct “managed to avoid the march of folly in its industry” by sticking to “plain-vanilla mortgages rather than exotic instruments that sounded too good to be true (and were).” According to Taylor, ING has generated 100,000 mortgages worth $26 billion, while suffering a mere 15 foreclosures.

ING Direct’s Chairman and CEO Arkadi Kuhlmann takes pride in being a recusant, building his business on inexpensive, no-frills services and high interest rates. Still, he conceded to Taylor that following the crowd has a definite appeal sometimes. “Every person who tries to do real innovation is going to be tempted by money, greed, acceptance, being in the middle of the action,” Kuhlmann said. “But at the core,” he explained, “there is one fundamental difference: I know why I’m here. I want to make a difference.”

As Taylor sees it—and surely Drucker would have agreed—this is one of the most important and courageous things a manager can do: “resisting an innovation that takes hold in your field when that innovation, no matter how popular with your rivals, is at odds with your long-term point of view.”

So what’s a manager to do amid such a fragile economy? Take a hard look at your business and in the context of your mission—and nobody else’s—decide what is ripe to pursue and what makes sense to give up. In the end, maybe you’ll zig. Maybe you’ll zag. Or maybe you’ll just stand pat.

“Nine times out of 10,” said Drucker, “when you make the diagnosis, you don’t operate. You just wait”—and let the bandwagon roll by.

October 24, 2008

Auto Bailout: What Drucker Would Have Said

In the mid-1970s, Peter Drucker stood before a group of executives at New York University and listened to one of them gripe about his struggles in a difficult economy. Drucker offered a bit of advice, but the executive evidently was not persuaded.

“I don’t think that will work for me,” the man said in an exchange recounted in John Tarrant’s book Drucker: The Man Who Invented the Corporate Society.

“Then you had better go out of business,” Drucker replied. “There is no law that says a company must last forever.”

I imagine Drucker would have said pretty much the same thing had he been able to spend a few minutes with the CEOs of the Big Three automakers as they trekked to Capitol Hill this week to plead for $25 billion in federal relief.

He wouldn’t have done this cavalierly, mind you. For Drucker understood all too well the personal pain and social dislocation that can result when an industry implodes.

Six decades ago, he watched the mechanical cotton picker begin to sweep across the South, obviating the need for labor in the fields. “No doubt,” he wrote, “the replacement of the economically most inefficient sharecropper by the efficient machine should eventually result in a higher income for all, including the displaced sharecroppers or their descendants.”

Lessons from Cotton

“But where will the 5 or 8 million sharecroppers go, and what will they do?” Drucker went on. “And what about the social and economic fabric of the South of which they have been the warp? Surely a sudden displacement of sharecroppers would be a social and political catastrophe not only for the South but for the whole country.”

And yet Drucker also recognized that trying to stand in the way of the machine—in the way of the future—by implementing some sort of industrial policy would “result eventually in even worse catastrophe; with every year, the adjustment will become more difficult, the status quo less tenable.”

The analogy between cotton and cars is far from perfect. But the painful conclusion is inescapably the same: Giving a crutch to a group of companies that can’t compete on their own will only delay the inevitable and make it tougher to adjust down the road.

Drucker’s relationship with the auto industry was long and at times quite strained. His words of warning about the Cotton South, in fact, were penned as part of his 1946 book Concept of the Corporation, which was first and foremost a study of the most troubled of the automakers today, General Motors.

Advice Anathema to GM Brass

At the time GM sat atop the world, and Concept of the Corporation was more than respectful. “Most reviewers,” Drucker would later remember, “considered the book to be strongly pro-GM.” But among the company’s senior managers, it became anathema immediately upon publication.

Drucker’s work was reviled, he explained, because he’d had the temerity to say that GM might want to review some of its core policies and strategies, especially those that had been in place for 20 years or more. The fact that these approaches had been so successful, he added, made it all the more urgent that they be reevaluated.

“It was not so much my specific suggestions for changes that upset the GM executives, but my suggesting that policies must be considered as temporary and subject to obsolescence,” said Drucker. “To the GM executives, policies were ‘principles’ and were valid forever, or at least for very long periods.”

By the 1990s, Drucker took another look at GM and concluded that, on some level, not much had really changed—although now, instead of being highly profitable and widely admired, the company was faltering badly (especially against its Japanese rival, Toyota, which had welcomed many of Drucker’s ideas, particularly in the area of human relations). The Detroit giant, as Drucker saw it, was as slow-footed and resistant to fresh thinking as ever.

The reasons for GM’s “inability to pull itself out of the mire,” Drucker wrote in a new introduction to Concept of the Corporation, “are largely the problems . . . pointed out 50 years ago.”

The question today is: Why would anybody think anything’s suddenly going to be different because of a $25 billion infusion?

Invest in Job Training

Still, just saying no to the automakers’ bailout bid isn’t responsible, either. Behind every Hummer, after all, stand the humans who’ve built it. So instead of $25 billion in aid for the companies, why not a $25 billion investment in those autoworkers and others who may be displaced as abruptly as the sharecroppers of the old South?

The federal government currently spends about $20 billion on all its various job-training programs combined, according to the Workforce Strategy Center, a New York–based think tank. It’s the right time for a big boost in that budget, especially with millions of green jobs expected to be created over the next 30 years.

“Protecting aging industries does not work,” Drucker asserted in his 2002 book, Managing in the Next Society. “That is the clear lesson of 70 years of farm subsidies.” Whatever is being spent on propping up failing enterprises, he wrote, “should instead go to subsidizing the incomes of older laid-off workers and to retraining and redeploying younger ones.”

Money won’t solve everything: Many workforce development initiatives are poorly managed and need to be overhauled. But there are some promising models out there, and the general thrust is pure Drucker: providing access to increased knowledge while putting the past in the rear-view mirror.

November 21, 2008

The Old College Buy

Hundreds of students rallied at the University of Washington last week in opposition of a proposed tuition increase. Had he been around, you can bet that Peter Drucker would have grabbed a megaphone and joined in.

For decades, Drucker decried the escalating cost of going to college in this country. “The financing of higher education affects everybody’s pocketbook,” he wrote in Harper’s Magazine in 1956. “It is the central problem of American education.”

Some 40 years later, Drucker was voicing the very same concern. “Such totally uncontrollable expenditures,” he told Forbes in 1997, “means that the system is rapidly becoming untenable. Higher education is in deep crisis.”

By all rights, most universities should have priced themselves out of existence long ago. That they haven’t points to something else that Drucker recognized and also worried about: the unparalleled clout they wield as “gatekeepers” to people’s futures. It is a role that has allowed many a school to get away with the kinds of sins that would sink almost any other organization.

The cost of a college diploma has been soaring at about twice the rate of inflation for years; that’s a faster pace than what we’re shelling out for medical care. Middle-income families now pay 25 percent of their earnings to send a kid to a four-year state school, according to the National Center for Public Policy & Higher Education. And that’s after taking into account any financial aid the student receives.

Education Quality Not Climbing Like Tuition

Meanwhile, it’s hard to argue that the customer is getting a lot of additional benefit for the extra dough. There are, to be sure, many wonderful programs and professors out there. But “all in all, it is difficult to say if, in any meaningful sense, the quality of the undergraduate experience has improved all that much” as prices have skyrocketed, economist Richard Vedder asserts in his book Going Broke by Degree. It “certainly has not done so any more than goods and services generally.”

Drucker, who started teaching at Sarah Lawrence College in the 1930s and commanded a classroom at Claremont Graduate University as late as 2002, suggested that, if anything, today’s colleges were slipping badly by turning out “highly schooled and very poorly educated” young adults.

Toward the end of the nineteenth century, “when my father graduated . . . he was as nontechnical, nonscientific a person as you could imagine,” Drucker recalled. “And yet he and educated people of his generation were expected not to understand the contents of physics, but what physics is, what physics deals with. . . . It didn’t mean being able to do surgery, but it meant being able to understand medicine. It didn’t mean to be able to do linguistics, but it meant to be able to understand what linguists are up to. And in the last 100 years we have lost that faculty.

“It isn’t only that our kids don’t learn to read and write,” Drucker added. “It is that our engineers know designing and machine tools, but they don’t know anything about the world in which they live. They don’t know anything about the areas of information outside of their own.”

Innovative University Model Awaits

But despite these huge flaws—break-the-bank pricing and a questionable-at-best value proposition—it’s hard to get past two facts: Most universities continue to deliver their product pretty much the same way that they have for centuries, on sprawling campuses with students sitting in lecture halls. And despite all the grumbling about the cost and the real hardships faced by a growing number of families, there is no shortage of people clamoring for what’s being sold.

“The old model persists not only because it’s time-tested but because there’s little relationship between price and demand,” says Zach First, my colleague at the Drucker Institute, who is serving as the principal investigator for a study of innovation in higher education funded by the Spencer Foundation.

A handful of entrepreneurial ventures, such as Capella University with its online curriculum, have burst on the scene. But these efforts remain, in the scheme of things, largely at the fringes.

One can imagine, First says, that should a major research university figure out how to “deliver high quality with half the faculty or through some other big breakthrough—so that it can shed costs and reduce tuition—it’s going to be in a very strong position.” But for now, he explains, there is little incentive to even try. This year, despite the deep recession, school after school will spurn two-thirds or more of their applicants. How many other businesses get to do that?

Knowledge Economy

The reason for this, of course, is that we’re living in the very age that Drucker, beginning in the late 1950s, foresaw and helped define: one built on knowledge. It isn’t news that a college degree is absolutely essential now for advancement in the workplace—no matter the failings of the system that produces the sheepskin.

All of this has left our institutions of higher education with what Drucker described as a “social monopoly.” “Few organizations in history have been granted the amount of power that today’s university has,” he wrote in his 1993 book, Post-Capitalist Society. “Refusal to admit or grant the diploma is tantamount to debarring a person from access to a career.”

As long as this is the case—and I say this as the weary parent of an eleventh-grader who has just started looking at colleges—it’s tough to see anything changing. We’ll keep on complaining and arguing, as we have for 50 years, that the mounting cost of an education is unsustainable. And those of us who are lucky enough to find a way will keep on paying regardless.

April 17, 2009

Brand Velocity’s Knowledge-Worker Innovation

Brand Velocity may well be the smartest company you’ve never heard of. Jack Bergstrand, who used to oversee information technology at Coca-Cola, launched the consulting firm five years ago with a goal of more than just making money. He wanted to take on what Peter Drucker identified as the single greatest business challenge of our day: enhancing knowledge-worker productivity.

“The most important, and indeed the truly unique, contribution of management in the twentieth century was the fiftyfold increase in the productivity of the manual worker in manufacturing,” Drucker declared in 1999. “The most important contribution management needs to make in the twenty-first century is similarly to increase the productivity of knowledge work and the knowledge worker.”

But figuring out how to lift the output of those who use their brains more than their brawn—a group that now accounts for at least one-quarter, and perhaps as much as half, of all employees in the U.S. and other developed nations—is no easy feat. Most organizations, even as they engage in knowledge work, continue to rely on processes that come straight out of Frederick Taylor’s “scientific management” principles of the early 1900s.

It’s an awful fit. “The underlying system that made manual work successful is the very same system that constrains our ability to move forward faster in the Knowledge Age,” Bergstrand writes in his newly published book, Reinvent Your Enterprise. (Full disclosure: Bergstrand is donating a portion of book sales to the Drucker Institute, the nonprofit think tank that I run.) In fact, the differences between old-line manufacturing and knowledge work are stark: Manual work is highly visible; knowledge work is largely invisible—it happens between people’s ears. Manual work is highly specialized; knowledge work is, as Bergstrand points out, much more “holistic.”

Manual work tends to be stable; knowledge work is ever-changing. Manual work focuses on the right answers; knowledge work must zero in on the right questions. Manual work involves a lot of structure with relatively few decisions; knowledge work emphasizes less structure with more decisions.

But this isn’t to say there’s no structure at a firm like Brand Velocity. Far from it. Bergstrand and his colleagues have taken “a clean sheet of paper,” as he describes it, and methodically thought through everything they do: how and where and under what conditions they hold meetings; how they buy equipment, from PCs to paper clips; how they compensate employees; and much more.

Brand Velocity is based in Atlanta, but in some sense that’s an illusion. It has no fixed assets. Headquarters is little more than a mailing address and a secure 64-square-foot space it leases to store sensitive documents.

When someone from Brand Velocity gets together with a client—the firm provides counsel on giant IT projects—they rent out a conference room for a couple of hours from Regus, which operates a string of posh business centers around the world. Many of those who are ushered into the appointed meeting place by a receptionist never realize that they’re not actually at a Brand Velocity facility. Bergstrand calls this setup “traditionally virtual.”

The underlying idea here—and the same holds true for functions such as payroll and legal affairs and data storage, all of which are outsourced—is that rather than own and manage buildings, Brand Velocity is left to concentrate on what it does well. Having no central office also gives knowledge workers the mobility and flexibility they crave. Many at Brand Velocity plug in from home.

Supplies are also handled in an unusual fashion. Every quarter, the 10 Brand Velocity employees are each given $6,000 to buy what they need, from new computers to pens. If they spend more, it comes out of their pocket. If they spend less, they keep the difference as part of their income. (One can’t help but wonder whether Merrill Lynch’s John Thain would have purchased a $1,400 trash can under such circumstances.) Besides reducing paperwork—at Brand Velocity, you file only four expense reports a year—the point is to give workers exactly the tools they need to do their jobs. You perform best on a PC, but I prefer a Mac? No problem. We each get what we want, and the company doesn’t find itself struggling (and paying a fortune) to standardize everything.

Brand Velocity offers employees a base salary. But much of their remuneration is determined by a points system, with points awarded for three—and only three—things: selling great work, delivering great work, and recruiting and developing great talent. Under this arrangement, says Berg-strand, “highly productive knowledge workers don’t need to be a partner to be compensated like one. At the same time, the most senior people aren’t guaranteed the highest compensation.” This is more than a theory. Though he’s the CEO, Bergstrand himself often doesn’t make the most dough.

If this all seems a little freewheeling, it’s not. Bergstrand and his team are rigorous in the way they do most everything, including reaching decisions. On any given project, they solicit lots of input throughout the organization but leave no doubt who the final decision maker is. That person then acts—and acts quickly.

“The pursuit of consensus becomes the Anaconda snake of large enterprises,” Bergstrand maintains. “The Anaconda doesn’t bite. It kills its prey through suffocation.”

The bottom line: Brand Velocity is profitable and growing. It claims that its costs run 20 percent less than the industry average. And most notably, it says it delivers to clients the same high-quality results they would get from much larger consulting firms—but in half the time and with less than half the manpower, resulting in huge customer savings.

The real question is how big Brand Velocity can get. It’s one thing to do this at the firm’s current size and quite another to pull this off with a staff of thousands.

Bergstrand says that, having generated about $15 million in business to this point, Brand Velocity is ready now to move beyond the “prototype” stage. He has hired top executives from major corporations—Kimberly-Clark and Ernst & Young, among them—so that as Brand Velocity has tested various knowledge-worker productivity concepts, “we could factor in the need for scalability.”

The effort certainly bears watching. If Brand Velocity thrives—and teaches others along the way—the implications could be nothing short of revolutionary.

May 1, 2009

Japan: Rethinking Lifetime Employment

The Democratic Party of Japan rode to victory in a landmark election last week by advancing an ambitious agenda, which includes reassessing Tokyo’s relationship with Washington and playing a greater role in international climate talks. But there is one particular plank in its platform that managers—and not just those in Japan—would be wise to reflect upon, just as Peter Drucker did.

Among the DPJ’s aims is banning the hiring of temporary workers on factory floors—a nod to the unease that many people in Japan are feeling as the country’s decades-old model of “lifetime employment” continues to dissolve (and its labor practices look more and more like those of the U.S.).

Exactly how many Japanese ever really enjoyed the reliability and comfort of lifetime employment is difficult to say. Slicing the statistics and interpreting a series of changes to Japanese employment law in different ways, scholars have come up with figures as low as 20 percent of the workforce and as high as 80 percent. What is indisputable, though, is that the long-term employment security enjoyed by many in Japan (many men, that is) has been a cornerstone of the country’s corporate culture and a symbol of its cohesion as a society.

“Japan’s success—and there is no precedent for it in history—very largely rested on organized immobility—the immobility of ‘lifetime employment,’” asserted Drucker, who first visited Japan in 1959 and was among the earliest observers to predict the nation’s rise as a world economic power.

Promoting Teamwork

Indeed, the old approach certainly has its virtues, including the fostering of allegiance among employees—not a bad thing when you’re trying to promote teamwork throughout the organization. Edward Lincoln, a professor at New York University and director of its Center for Japan–U.S. Business & Economic Studies, believes that Japanese workers may also have eagerly embraced technological change over the years because they didn’t worry about a machine casting them to the streets. “They knew they’d get moved into another job elsewhere in the company,” he says.

Drucker, too, thought that there was much to learn from the Japanese. In a seminal 1971 piece in Harvard Business Review, he praised the country’s managers for the deliberate manner in which they puzzled through decisions, lauded their commitment to continuous worker training, and found lessons in the way they mentored younger employees.

Drucker also touted the concept of lifetime employment, which he deemed far less rigid than many assumed. That was in part, he pointed out, because Japanese workers faced mandatory retirement (then at age 55), making “lifetime” something of a misnomer.

What’s more, Drucker wrote, companies in Japan never hesitated to lay off people when business got bad. “Yet they can do so in such a fashion that the employees who need incomes the most are fully protected,” he explained. “The burden of adjustment is taken by those who can afford it and who have alternate incomes to fall back on.”

Looking Beyond Tradition

Still, despite all this, Drucker over time reached the same conclusion that many Japanese executives have: Thriving in today’s global economy requires more flexibility in hiring people and letting them go than the traditional system has allowed.

And so it is that, since the late 1990s, most big Japanese corporations have restructured themselves, moving from “unwieldy goliaths to nimble competitors,” in the words of the University of California at San Diego’s Ulrike Schaede. Among the steps they’ve taken has been to increase the use of low-cost part-timers, contract workers, and temporary staff. This group now makes up more than a third of Japan’s labor force.

The trend isn’t being driven by industry alone. As more people shift from manual work to knowledge work, some employees have come to relish the ability to bounce from job to job (presumably snatching ever better offers along the way). In the U.S., author Bruce Tulgan has dubbed this phenomenon “just-in-time loyalty.”

But what worried Drucker—and what the Japanese election underscores—is that the flip side of mobility is instability, especially for those workers lacking the skills and education to be in high demand. In these cases, Drucker suggested, employers have a special obligation to help those they dismiss find their way through the dislocation and land new positions.

Helping “Redundant” Workers

This “requires active and energetic attempts at retraining for specific new job opportunities,” Drucker wrote. “It requires that the employer takes responsibility for placing redundant employees in new jobs.” This was advice, Drucker noted, that he dispensed both in Japan and in the U.S.

“I very much hope,” he added, “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.”

It’s far from clear that the DPJ has found the right answer. But it has touched on a subject—the proper shape of the social contract between employer and employee in the twenty-first century—that merits considerably more attention, regardless of which side of the Pacific we happen to be on.

September 4, 2009

Women and the Knowledge-Work Trend

The news this month that women now outnumber men on the nation’s payrolls generated less heat than a burning bra. Relatively few major media outlets took note of the milestone, which was tucked amid the Labor Department’s employment report for January. And some of the analysts who did bother to pay attention pointed out that it wasn’t based on the government’s most reliable or robust set of statistics. Others focused on the fact that women reached this mark only because men have been losing jobs faster than their female counterparts during the economic downturn.

But Peter Drucker, I believe, would have viewed the figure—that women held 50.3 percent of the nation’s nonfarm payroll jobs last month, according to seasonally unadjusted data—with a strong appreciation for both its historic import and for the kinds of changes it portends across the corporate world.

Indeed, in Drucker’s eyes, the number would surely serve as the latest evidence of the momentous movement to the kinds of jobs—ones in which brains beat brawn—that have dramatically altered the traditional relationship between the sexes.

“Equally Accessible” Jobs

For centuries, Drucker explained in his 1995 book, Managing in a Time of Great Change, “men and women did the same work only when it was menial. Men and women both dug ditches. . . . Men and women both picked cotton in the fields.

“But any work involving skill, and any work conferring social status or providing income above minimum subsistence, was segregated by sex,” Drucker continued. Telephone operators were almost universally women, for example, while telephone installers were practically all men.

Knowledge work, however, is different. Such occupations—which Drucker first identified in the late 1950s and now, according to various estimates, account for anywhere from a quarter to a half of all jobs in this country—are “equally accessible to both sexes,” as Drucker put it.

“The higher up the ladder we go in knowledge work, the more likely it is that men and women are doing the same work,” Drucker wrote. “Being a secretary in an American bank still means being a woman, but a vice president in the same bank may be a man or a woman.”

This unprecedented flow of women into the same lines of work as men shows no signs of abating, either. If anything, it is poised to accelerate, given that women now earn about 60 percent of the university degrees awarded in the U.S.

Manager Material

For companies—more and more of which are finding that knowledge has replaced land, labor, and capital as “the one critical factor of production,” in Drucker’s words—this trend represents a tremendous opportunity.

Generalizing about any group of people is boneheaded and bound to get you into trouble; and when you’re talking about half the human species, you’re certain to find countless exceptions to any rule you come up with.

Nonetheless, a host of compelling studies—by researchers at INSEAD, McKinsey & Co., and elsewhere—suggest that women outshine men when it comes to team building, displaying emotional intelligence, setting clear expectations, and exhibiting other traits often associated with effective knowledge work. Having cited some of these findings at a conference last year, Avivah Wittenberg-Cox, CEO of the Paris-based consultancy 20-First, couldn’t help but ask: “Are women the managers Drucker was waiting for?”

Drucker himself seemed to think so. Many of today’s jobs, he told an audience in 1986, depend on a person’s “willingness to work with other people.” Then Drucker added, “Let’s face it, women are usually better at that than men.”

Corporate Attitude Shift

Yet to fully capitalize, many corporations have to overhaul the way they approach women as workers. This goes beyond simply promoting more women to top corporate jobs and board positions, or closing the still-yawning wage gap between male and female employees, or offering a more flexible, family-friendly environment—though all of these things are terribly necessary.

For many organizations, taking advantage of this rich talent pool will depend on a fundamental shift in attitude—the realization that men and women tend to have different strengths and that the smartest strategy is to achieve a balance among them.

“Many employers have long believed that the best way to integrate women is to treat everyone in the same way,” Wittenberg-Cox writes in her book Why Women Mean Business, coauthored with Alison Maitland. “This approach was reinforced over decades by equal-opportunity legislation and by women themselves demanding equal treatment. The only problem was that in pursuing fairness and equality, companies resolutely ignored differences between women and the male employees on whom they had previously relied. They dealt with the arrival of women en masse by requiring them to fit in—and to adapt to male career models and leadership styles.”

Wittenberg-Cox counsels executives to become “gender-bilingual”—that is, “fluent in the language and culture of both men and women” so that they can get the best out of both.

A final point (for the record): Feminists didn’t actually burn their bras in the 1960s; that’s a myth. But the need for companies to recognize, as Drucker did, that “knowledge is gender-neutral” without homogenizing men and women in the workplace couldn’t be more real.

February 19, 2010

The Service Sector Snag

Whenever I am in Seoul, as I was earlier this week, I find myself marveling at the place: its top-flight airport, its shimmering skyscrapers, its ubiquitous high-tech gadgetry—all of these outward signs of an economic transformation achieved largely in a single generation. It’s no wonder that Peter Drucker called South Korea “undoubtedly” the most entrepreneurial nation on earth.

And yet if there is a weak spot to be found in Korea—and in many other countries around the world—it is one that Drucker also understood well: a huge service sector that is struggling to be productive.

Earlier this month, the South Korean government announced that it would invest 300 billion won (or $260 million) in research and development aimed at enhancing service-provider productivity. “Korean industries took it for granted to invest in R&D for products but questioned the same necessity in services,” one official explained. Now the plan is to promote technology that can spur advances in health-care delivery, advertising, design, business services, and more.

The Koreans are being driven, in part, by statistics showing that the nation’s service sector is only half as productive as that of the U.S. But some wonder whether the strides the U.S. has made in this area over the last 15 years are more illusion than reality. Economist Paul Krugman, for one, has pointed out that much of the U.S.’s productivity prowess has supposedly been in financial services. “Given recent events,” he asks, “are we even sure that the expansion of the financial system was doing anything productive at all?”

Wage Gap

In any case, what we do know for sure is that wages for many service workers continue to lag badly—and this is what most concerned Drucker. In fact, with the ranks of service firms growing rapidly, he warned of “the prospect of social tensions unmatched since the early decades of the Industrial Revolution.”

The service sector is varied and vast. In the U.S. today, more than 80 percent of jobs are to be found in services; in Korea, that number stands at about 70 percent. Drucker, for his part, tended to divide this giant universe into two different categories: knowledge work and unskilled or semiskilled positions.

The former group is, of course, in relatively good shape—especially those who have been able to obtain high levels of education. In the U.S., for instance, those with a college degree earn on average two-thirds more than those who’ve finished high school, according to the Goldman Sachs Global Markets Institute. And those with professional degrees boast incomes nearly twice as large as those with just a college diploma.

But the unskilled or semiskilled—janitors and waitresses, retail clerks and nursing-home attendants—are in a much tougher spot. “In their social position,” Drucker wrote in a 1991 piece in Harvard Business Review, “such people are comparable to the proletarians of years ago: the poorly educated . . . masses who thronged the exploding industrial cities and streamed into their factories.”

Targeting Productivity

For these workers to get ahead, Drucker believed that there was only one remedy: increasing their productivity (or output per hour of work). “The less productive an economy,” Drucker asserted, “the greater the inequality of incomes. The more productive, the less the inequality.”

Over the years, some experts have maintained that by its very nature, service work is labor-intensive and not conducive to productivity gains—a phenomenon known as “Baumol’s disease” (so named for William Baumol, the economist who first described it).

But Drucker was convinced that it’s possible to make significant leaps in service-sector productivity—though they won’t typically come through the adaptation of new technologies, as the Koreans are hoping. Rather, Drucker said, the way to get there is to hark back to what Frederick Taylor, the “scientific management” pioneer, prescribed long ago: “working smarter.”

Specifically, Drucker maintained that companies with proven success in this arena:

• “have defined the task” at hand;

• made certain that work is focused on that particular task, instead of running off in different directions;

• “defined performance”;

• engaged every employee as “a partner in productivity improvement and the first source of ideas for it”; and

• “built continuous learning” into each job.

“As a result,” Drucker added, these enterprises “have raised productivity substantially—in some cases even doubled it—which has allowed them to raise wages. Equally important, this process has also greatly raised the workers’ self-respect and pride.”

How Soon?

The question is how soon any of this may actually happen on a scale big enough to narrow the wage gap between knowledge workers and their unschooled, unskilled service-worker cousins.

“Even in the most settled and stable societies, people will be left behind in the shift to knowledge work,” Drucker acknowledged. “It takes a generation or two before a society and its population catch up with radical changes in the composition of the workforce and in the demands for skills and knowledge. It takes some time—the best part of a generation, judging by historical experience—before the productivity of service workers can be raised sufficiently to provide them with a ‘middle-class’ standard of living.”

All of which suggests that, in addition to the sort of investment the Koreans are attempting or the kinds of management techniques that Drucker advocated, nations may need something else if they hope to lift the fortunes of those with service jobs: a little patience.

March 19, 2010

When Retirement Is Not an Option

In 2001, in a series of essays for The Economist, Peter Drucker pointed to a demographic transformation unfolding across the developed world while, poetically, he found himself at the leading edge of the trend.

“The dominant factor in the Next Society will be something to which most people are only just beginning to pay attention: the rapid growth of the older population and the rapid shrinking of the younger generation,” Drucker asserted. “Politicians still promise to save the existing pensions system, but they—and their constituents—know perfectly well that in another 25 years people will have to keep working until their mid-70s, health permitting.”

At the time, Drucker was fast approaching his ninety-second birthday and still writing, teaching, and consulting. Only the most blessed among us can hope to be going so strong at that age. But there’s no denying the general phenomenon that Drucker identified as well as the important implications it holds for those leading corporations and nonprofits alike.

“Tectonic Shift”

Indeed, just last month, RAND, a nonprofit research institution in Santa Monica, Calif., issued a study showing that more and more Americans are delaying retirement. The study also predicted that this “tectonic shift” in the workplace is bound “to continue and even accelerate over the next two decades.”

After declining for more than a century, according to RAND, the number of older men and women in the workforce began to rise modestly during the 1990s. While about 17 percent of Americans aged 65 to 75 were employed in 1990, that figure is expected to rise to 25 percent this year. RAND believes the pattern will persist until at least 2030—longer than other experts have forecast.

For government policymakers trying to ensure the health of Social Security and Medicare, the ramifications of this swing are quite substantial. But individual enterprises need to pay close attention, too.

“Employing organizations—and by no means only businesses—should start as soon as possible to experiment with new work relationships with older people and especially with older knowledge workers,” Drucker wrote in his 1999 book, Management Challenges for the 21st Century. “The organization that first succeeds in attracting and holding knowledge workers past traditional retirement age, and makes them fully productive, will have a tremendous competitive advantage.”

“New Ways of Working”

To get there, Drucker said, employers must learn to be more flexible. As baby boomers hit their 50s and 60s, he suggested, many of them are likely to want to serve as part-timers and consultants or to take on special assignments. “New ways of working with people at arm’s length will increasingly become the central management issue” at many different organizations, Drucker wrote.

Compared with their younger colleagues, he added, older workers with sufficient education and talent “will have much more choice and will be able to combine traditional jobs, nonconventional jobs, and leisure in whatever proportion suits them best.”

Part of the reason this group now finds itself in such a strong position boils down to supply and demand. Another recent study, released by the MetLife Foundation and the San Francisco think tank Civic Ventures, predicts that over the next eight years there could be as many as 5 million job vacancies in the U.S.—and workers 55 and older will be crucial to closing the gap.

“Not only will there be jobs for . . . experienced workers to fill,” says Northeastern University economist Barry Bluestone, the study’s author, “but the nation will absolutely need older workers to step up and take them.”

Achieving Social Purpose

Bluestone projects that nearly half the labor shortages (2.4 million jobs) will be in four fields: education, health care, government, and the nonprofit arena. All of these stand to provide what many baby boomers, in particular, are looking for: a chance not only to stay active but also to make a meaningful contribution.

More than a decade ago, Drucker spotted this growing desire among knowledge workers to achieve some social purpose during the second half of their lives. “These people have substantial skills,” Drucker wrote. “They know how to work. They need a community. . . . They need the income, too. But above all, they need the challenge.”

To help them along, Civic Ventures launched a program last year in which Silicon Valley executives are given fellowships at area nonprofits. The idea is not only to bring these organizations much-needed expertise in marketing, finance, and human resources, but also to have the executives prepare for their eventual transition to an “encore career” in the social sector.

The irony, of course, is that all this activity and insight by Civic Ventures and RAND comes amid a brutally weak job market, especially for those 55 and older. Last month, the Pew Fiscal Analysis Initiative reported that about 30 percent of those in this age bracket have been unemployed for a year or more. “Another generation of U.S. workers, at least significant numbers of them, [is] being forced into retirement sooner than expected and without ceremony, by the bust,” economics writer David Warsh noted earlier this week.

But smart organizations are aware that every bust is invariably followed by a boom. And the next one could well be a boom driven, in large part, by a bunch of aging boomers.

May 21, 2010

Wal-Mart’s Blended Learning Plan

In his provocative book, The Retail Revolution: How Wal-Mart Created a Brave New World of Business, Nelson Lichtenstein invokes Peter Drucker’s pioneering exploration of General Motors in describing how every era has its “industry of industries.”

When Drucker published Concept of the Corporation in 1946, Lichtenstein notes, automobile makers were dominant, and GM was the king of kings. Today, he explains, it’s “the retailers, Wal-Mart above all,” that have “set the standard for a new stage in the history of corporate capitalism.”

It is precisely because Wal-Mart occupies this prominent, if not preeminent, place that its announcement this month about providing assistance for its workers to receive college degrees struck me—and surely would have struck Drucker—as potentially of great significance. Just how great remains to be seen.

On-the-Job Learning

At a glance, it’s actually tempting to dismiss this effort, for which Wal-Mart says it will spend $50 million in tuition assistance and other related items over the next three years, as less than ideal. Under the arrangements the Bentonville (Ark.) company has made with American Public University, employees can receive course credit, equivalent to as much as 45 percent of what it takes to earn a degree, for Wal-Mart training and “on-the-job learning.” By 2012, 70 percent of Wal-Mart’s 1.4 million U.S. workers will have had their jobs reviewed for “college credit eligibility.”

Some will certainly see this as a strange way to promote learning. Why, after all, give credit for training and tasks that a Wal-Mart worker was going to be doing anyway?

Others are bound to attack this aspect of the Wal-Mart program as an attempt by the company to make a huge PR splash with relatively little investment. Although Wal-Mart embraced health-care reform and has become widely praised for its environmental practices, the low-price purveyor remains a polarizing force.

“Over the last few years, we’ve built a model for making a big difference on big issues,” Wal-Mart’s chief executive, Mike Duke, said recently. “We are well into this journey now. No one can doubt our sincerity.” Actually, many do doubt the company’s sincerity, continuing to see it, in Lichtenstein’s words, as the leading example of a group of corporations that “churn their workforce, whipsaw their vendors, and have turned retirement pay and health provision into a financial lottery for millions of workers.”

Promise of the Internet

But at least in terms of this latest educational initiative, I think Drucker would have been open to Wal-Mart’s approach. For starters, he probably would have liked Wal-Mart’s decision to link up with American Public, an online education company in West Virginia, instead of a better-known academic partner.

Drucker never much cared for the hauteur exhibited by elite colleges and universities, and he saw tremendous promise in teaching over the Internet. “The college won’t survive as a residential institution,” Drucker predicted in the late 1990s. “Today’s buildings are . . . totally unneeded.” In Wal-Mart’s own survey of employees, more than two-thirds told the company they preferred an online university to a traditional campus.

Yet most intriguing to Drucker, I believe, would have been this notion of marrying corporate training and people’s regular work routines with more formal instruction from American Public.

Wal-Mart says that the advantage to employees of racking up credits in such subjects as retail inventory management and customer relations while on the job is that it will put them “on a faster track to earning a college degree, reducing their length of time in school, and making the overall cost more affordable.”

But that is missing the larger opportunity here. If coursework and regular work are integrated in a smart and thoughtful manner, each stands to reinforce the other, helping Wal-Mart’s employees learn from both in new ways.

The Intellectual vs. the Manager

Too often, we consider learning to be something done stiffly, in a classroom. But that’s silly. “Learning is a continuing biological process,” Drucker said. “It begins at conception and ends only at death. We further know that learning is not an activity of one specific learning organ—the mind or the intellect. It is a process in which the whole person is engaged: the hand, the eye, the nervous system, the brain.”

Being able to use all of these assets, Drucker suggested, will increasingly come to define “the educated person.” More and more, he wrote in his 1993 book, Post-Capitalist Society, we are going to “have to be prepared to live and work simultaneously in two cultures—that of ‘the intellectual,’ who focuses on words and ideas, and that of the ‘manager,’ who focuses on people and work.

“The intellectual’s world, unless counterbalanced by the manager, becomes one in which everybody ‘does his own thing’ but nobody achieves anything. The manager’s world, unless counterbalanced by the intellectual, becomes the stultifying bureaucracy of the ‘Organization Man.’ But if the two balance each other, there can be creativity and order, fulfillment and mission.”

Whether Wal-Mart succeeds will depend not simply on how many of its workers become college graduates, but on whether it has found a way to blend education for a new age—one in which doers must also be thinkers, and vice versa.

June 18, 2010

Cloud Computing and Peter Drucker

One of the most amusing photographs I’ve ever seen of Peter Drucker shows him sitting in front of a boxy Compaq computer. He awkwardly holds a mouse in his right hand, while his left hand stretches stiffly to the keyboard. The quizzical look on his face says, “Get me out of here.”

None of this is terribly surprising for a man who was so ill at ease on a PC that, while ruminating on how the Web was changing the world at the start of the twenty-first century, he chose to write the last of his books on a Brother typewriter. As for the computer, Drucker once remarked, “I treat it just like a big adding machine.”

Beyond his personal discomfort, Drucker worried that managers have a tendency to become overly enamored of the latest gizmo. As a result, they forget that technology is not an end in itself and that for certain decisions—those requiring intuition, for example—humans will always have an advantage over machines. “All a computer can handle are abstractions,” Drucker wrote. “And abstractions can be relied on only if they are constantly checked against the concrete.”

Like Electricity Through the Grid

Still, for all his wariness, even Drucker would have been taken with an essay written by a young economist named Florian Ramseger, who asserts that “we are at the doorstep of a new era” due to the advent of “cloud computing.” This is the Internet-based system in which shared resources, software, and information are provided to devices on demand, much the way that electricity moves across the grid. Indeed, as Ramseger sees things, it is an era that Drucker himself helped define.

“Cloud computing has the great potential to put in place the three main elements of Drucker’s knowledge society,” writes Ramseger, 29, a German native who just joined the World Economic Forum in Geneva as a research analyst. His composition on the topic was recently picked as the winner of the Peter Drucker Challenge, a contest that drew more than 200 entries from around the globe; participants could be no older than 35. (The competition was sponsored by the Drucker Society of Austria, an affiliate of the Drucker Institute, which I run.)

The first element, according to Ramseger, is enhanced connectivity. This is crucial because in a knowledge society, workers tend to take on highly specialized tasks. But “by itself,” Drucker explained in his 1995 book, Managing in a Time of Great Change, this “specialized knowledge yields no performance.” To produce meaningful results, groups of people boasting different areas of expertise must often come together and contribute to a common goal. Cloud computing promises to make this increasingly easy, Ramseger writes, because it will “create many new platforms of exchange for knowledge workers to engage in.”

Leverage for Workers

The second element, he says, is a shift in “the balance in employer-employee relations.” In his 2002 book, Managing in the Next Society, Drucker advised corporations to recognize that they need knowledge workers more than knowledge workers need them. Unlike laborers of the past, Drucker wrote, “they know they can leave” most any time for other opportunities. Ramseger suggests that with cloud computing, this trend toward mobility will only accelerate. “Workers will no longer need to be deskbound,” he says. “Instead, by being able to plug into the cloud anytime and anywhere, they will finally be able to own their work tools: a netbook and some server space.”

The third element, Ramseger writes, is “flatter hierarchies.” Drucker believed that knowledge workers respond only to sound objectives, not the whims of their bosses. “They require a performance-oriented organization rather than an authority-oriented organization,” he wrote. Cloud computing, Ramseger says, should help further “liberate the workforce” by encouraging “constant coordination” among all sorts of people, with no reference to their corporate rank or social standing. All that matters is the quality of the knowledge.

Others see the same trend unfolding. A couple of weeks ago, at the second annual Drucker Forum in Vienna, where Ramseger was honored for his winning essay, the London Business School’s Lynda Gratton mused about what the planet might be like in 2020 if, as some predict, 5 billion people are then connected through their handheld devices. “The cloud has huge implications for work,” Gratton said, because “anyone anywhere will be able to download anything at a cost that’s near nil.”

Missing the Point

Not everyone is so enthusiastic. Some say the cloud is overhyped, or they dismiss it as a mere fad. Others are focused on security or technical challenges. For his part, Ramseger acknowledges that “there remain many countries with poor Internet infrastructure,” which may keep their residents from accessing the cloud. Still others have reduced all discussion of cloud computing to a high-tech horse race, as they handicap which company will emerge as the long-term leader in the field: Amazon, Salesforce.com, Google, Microsoft, or IBM. Or they characterize it simply as a way to ramp up IT outsourcing and thereby save money.

But all of this misses the point. Perhaps more than any technology out there, the cloud stands, in Ramseger’s words, to “revolutionize the way we work,” if not the way we live. It is a vision so tantalizing, it’s hard to imagine that Peter Drucker, if he were still alive today, wouldn’t be writing about it himself, mulling the possibilities on his Brother Correctronic.

December 3, 2010

Accelerating UAW’s Buy-In at GM

In the mid-1940s, with Peter Drucker serving as a consultant on employee relations, General Motors President Charlie Wilson became convinced that the automaker needed a new approach to dealing with its workers. He designed an early version of “quality circles” in which the rank and file could, as Drucker put it, “identify themselves with product and company,” as well as “be held responsible for quality and performance.”

The initiative never even got into first gear. To most of GM’s executives, the plan “represented the abdication of management’s responsibility,” Drucker later recalled. The United Auto Workers, Drucker said, also stood “in violent opposition” to the concept—for much the same reason. Walter Reuther, the union’s president, didn’t want his members performing what he perceived as a manager’s job. In fact, Drucker added, Reuther was leery of anything that created a “common center of interest between employer and employee.”

I couldn’t help but remember Reuther’s adamancy this week when I read of the far-more-collaborative spirit advanced by Bob King, the current UAW president. King—who this year faces negotiations with GM, Ford, and Chrysler and is also determined to organize workers at the U.S. factories of foreign companies, including Toyota and Volkswagen—sounds almost like Reuther in reverse.

“We’re really committed to the success of companies where we represent workers,” King declared in an interview with Bloomberg News. At another point he advocated having his members sit on corporate boards, saying: “The more meaningful voice workers have in all aspects of their employment, the more successful the employer will be.”

Partnership in the Employer’s Mission

Meanwhile, a set of 11 negotiating principles issued by the union explicitly calls for “partnership in the mission of the employer.” It states: “The UAW embraces a performance-based and participatory culture where the union contributes to continual improvement of processes and shared responsibility for quality, innovation, flexibility, and value.”

In some respects, we’ve heard this before. Beginning in the 1970s, unions and companies entered into a range of labor-management participation programs with all sorts of labels: “Total Quality Management,” “Employee Involvement,” “Quality of Work Life,” and so on. The automakers and UAW engaged in more than their fair share of these efforts while experimenting with other forms of teamwork, such as those undertaken at GM’s Saturn operation.

But King’s vision seems to extend far beyond anything tried before. Earlier attempts at cooperation “were circumscribed by an overall relationship that was more adversarial,” says Harley Shaiken, a professor at the University of California–Berkeley who has closely followed the labor scene for many years. King’s willingness to have his members weigh in on matters related to productivity—a subject the union has traditionally ignored—is especially noteworthy, according to Shaiken. “We’re in new waters going forward,” he says.

King is no pushover. He has made clear that the prosperity enjoyed recently by Detroit’s automakers needs to flow to those in the UAW, which granted deep concessions to the Big Three to help them cheat their own colossal mismanagement and survive. “We want our membership to share in a very meaningful way in the upside of these companies,” asserted King, who was elected union boss last June.

Wealth of Worker Skill and Experience

Still, right alongside this issue of “social justice,” Shaiken says, is a companion view that “the UAW in the twenty-first century means working with the automakers to have successful, competitive firms globally.” He notes that Detroit’s aging workforce, often seen as a negative, offers a wealth of skill and experience for the companies to draw on.

There are lots of reasons to doubt that King’s stance will make any real difference. Many smart people believe that the UAW, whose membership has plunged from a high of 1.5 million in 1979 to about 355,000 today, is ultimately headed for extinction.

Richard Block, a professor at the School of Human Resources and Labor Relations at Michigan State University, sees King’s platform as merely the latest in a long line of overtures from the UAW. And he suggests that the best thing to come from any of these labor-management alliances is the union’s ability to help coordinate the industry’s massive downsizing and “cushion the blow” by ensuring that its members aren’t involuntarily laid off and receive buyouts instead. When a business is in serious decline, he says, a kind of “industrial-relations hospice may be the best its workers can hope for.”

Yet perhaps—just perhaps—King can beat the odds. In his 1989 book, The New Realities, Drucker again urged the UAW and car manufacturers to join forces in a way they never had. “The union would still have a role as the representative of the employees against management stupidity, management arbitrariness, and management abuse of power,” he wrote. Yet things wouldn’t get too contentious, for the UAW would also “work with management on productivity and quality, on keeping the enterprise competitive, and thus maintaining the members’ jobs and their incomes.”

One can only imagine what the situation might look like now had the UAW and the automakers banded together more than a half-century ago, when Peter Drucker and Charlie Wilson first contemplated going down this road.

January 7, 2011

Uncertainty? Get Over It

If there is one thing you can be certain about, it’s that Peter Drucker wouldn’t countenance all the complaining by businesspeople about uncertainty.

They’re directing their grousing primarily at the federal government, as illustrated by an interview I caught last week on National Public Radio with Andrew Liveris, the chief executive of Dow Chemical. Commenting just before President Barack Obama’s State of the Union address, Liveris reeled off a litany of concerns that many American chief executive officers have expressed in recent months.

“Well, I not only have high taxes; I have uncertain taxes,” he said. “Right now, I have more regulations coming at me that are not fact-based, not science-based, not data-based. I actually don’t even know what my costs are going to be in the next five years. And so I’m sitting back waiting for regulatory reform, and the government, of course, is now engaged on that—health care and the uncertainty around the health-care bill and what’s going to end up happening there. Energy policy—we’ve got lots of uncertainty in the energy policy regimen. I mean, I can keep going, but that’s half a dozen.”

It’s not that Drucker would have felt entirely unsympathetic. “Modern government has become ungovernable,” Drucker asserted in his 1968 book, The Age of Discontinuity, hitting on a theme that he never backed away from as the decades wore on. “There is no government today that can still claim control of its bureaucracy and of its various agencies.”

But Drucker also believed that in the grand scheme of things, government’s influence tends to be relatively minor. (Unless, I suppose, you’re a federal contractor and your primary customer is Uncle Sam.) Forces outside the public arena act as the main drivers of the most profound changes shaping our world, including the continuing transition to a knowledge age.

“The Futility of Politics”

“If this century proves one thing, it is the futility of politics,” Drucker wrote in 1994. “It is the social transformations, like ocean currents deep below the hurricane-tormented surface of the sea, that have had the lasting, indeed the permanent, effect. They, rather than all the violence of the political surface, have transformed not only the society but also the economy, the community, and the polity we live in.” Drucker added that “headline-making political events” would remain in this lesser role well into the twenty-first century.

Yet beyond all that there exists another, more fundamental reason to stop griping: Uncertainty is simply part of doing business. Executives need to manage uncertainty, not whine about it.

In fact, ever since the economy shifted from agriculture to manufacturing, uncertainty has been part of the equation. “The farmer knew that if he did not have a corn crop by the time the frost came, he would not have a corn crop at all that year,” Drucker wrote in his 1950 book, The New Society. “The husbandman knew that if the ewes failed to lamb in the spring, he would not be able to restock his herd. But in industrial production it cannot be predicted with any certainty when a product or service will be successful. Whether it will be successful . . . we call ‘risk proper’; but whether it will be successful in one year, five years, or in 20 years is ‘uncertainty.’”

More than 50 years later, with the bulk of the nation’s blue-collar manufacturing jobs supplanted by knowledge and service work, the amount of haziness managers face has only increased.

“Uncertainty—in the economy, society, politics—has become so great as to render futile, if not counterproductive, the kind of planning most companies still practice: forecasting based on probabilities,” Drucker wrote in his 1995 book, Managing in a Time of Great Change.

So what then, is a bewildered executive to do?

“Planning for Uncertainty”

To begin, Drucker advised, it’s essential to frame things in a new way. “Traditional planning asks, ‘What is most likely to happen?’” Drucker noted. “Planning for uncertainty asks instead: ‘What has already happened that will create the future?’”

One place to spot these developments, Drucker suggested, is in demographics, particularly the rapidly aging population ballooning across the U.S., Europe, Japan, and elsewhere. Another area to look at is changes in science and technology or in our basic values (think about the environmental movement) that have, as Drucker put it, “already occurred but have yet to have full impact.”

“It is commonly believed that innovations create changes, but very few do,” Drucker wrote. “Successful innovations exploit changes that have already happened. They exploit the time lag—in science, often 25 or 30 years—between the change itself and its perception and acceptance.”

Drucker also called for analyzing structural changes to an industry: fluctuations in productivity, the way consumers’ disposable income is distributed, and so forth.

“Over any short-term period their effects are slight,” Drucker pointed out. “But in the not-so-long run these structural trends are of far greater importance than the short-term fluctuations to which economists, politicians, and executives give all their attention.”

Especially around the time of the State of the Union address.

February 4, 2011