CHAPTER SIX

The Once and Future Manager

THE PROFESSIONAL MANAGER has not one job, but three. The first is to make economic resources economically productive. The manager has an entrepreneurial job, a job of moving resources from yesterday into tomorrow; a job, not of minimizing risk, but of maximizing opportunity. Every manager spends a very large part of his time with problems that are essentially economic, at least in their results. For instance, where are the markets? How can we achieve a little more productivity from these resources? What are the right things to do, and the right things to stop doing? So everybody who is a manager, no matter whether he is a general manager or a specialist, wrestles for part of his day with an economic dimension.

Then there is a managerial or “administrative” job of making human resources productive, of making people work together, bringing to a common task their individual skills and knowledge; a job of making strengths productive and weaknesses irrelevant, which is the purpose of organization. Organization is a machine for maximizing human strengths. If you have a man very good at making things, and no good at marketing and finance, who is in business for himself, you know that he is not going to last very long. If you have an organization, even a small one, you can use a good manufacturing man because you can use his strengths, and his weaknesses are not relevant. You have other people who are good at marketing, or at finance, so that you can build a team in which the strengths of individuals count.

Then there is a third function. Whether they like it or not, managers are not private, in the sense that what they do does not matter. They are public. They are visible. They represent. They stand for something in the community. In fact, they are the only leading group in society—not just the business manager, but all the executives of organizations in this developed, highly organized, highly institutionalized society. Managers have a public function. They may discharge it by a great deal of work outside the business within the community, from Royal Commissions down to the local Boy Scout troop. Or they may discharge it purely within their own business by leadership and example. But they always do discharge it. Nothing anybody who is a manager does is private, in the sense that one can say: “This is my own affair. It does not concern anybody else. What I do is, therefore, of no real interest to anybody.” Managers are on the stage, with the spotlight on them.

So the executive job, as it is today, not as it will be tomorrow, is threefold; a job in which we need objectives, and we need tools; a job in which we need character, and we need competence; a job in which we have to decide, “this we are willing to do, and, therefore, we need to learn how to do it well,” or “this we are not going to do, we will let someone else do it, it is beyond our ken, beyond our competence.” These are the demarcations of the job.

The Conglomerates Will Be the Stranded Giants of the Next Decade

Whether any one man, or any team of men, can manage a great complexity of different businesses, as in the conglomerates, is a doubtful matter. I came into the world of business a long time ago. My first job in the City of London was to liquidate the stranded giants of the 1920s. I was a pretty good international grave robber. I do not want to go out liquidating the stranded giants of the 1960s. I am afraid, however, that the conglomerates will be the stranded giants of the next decade.

Putting it very bluntly, I do not believe that one can manage a business by reports. I am a figures man, and a quantifier, and one of those people to whom figures talk. I also know that reports are abstractions, and that they can only tell us what we have determined to ask. They are high-level abstractions. That is all right if we have the understanding, the meaning, and the perception. One must spend a great deal of time outside, where the results are. Inside a business one only has costs. One looks at markets, at customers, at society, and at knowledge, all of which are outside the business, to see what is really happening. That reports will never tell you.

At the really critical moment, when a business is in trouble—and I have never seen a business that is not in trouble sooner or later—there is a very high premium on understanding a business, and not just on calculating. So, the conglomerates make me very uneasy, because they put far too much trust in reports. Reports are very comforting to me; they tell me a great deal. But they have also misled me often enough to make me realize that, unless I go out and gain understanding, I may be acting on yesterday, even though the information is up to date.

The belief that one can manage, and invest in, many businesses is based on the assumption that, if things go wrong, one can always sell out and walk away, and let somebody else worry. But I think that to the manage—which means being responsible for performance and direction—one has to have a certain core of understanding. If one has a shipping line, and a bank, and an insurance company, and a chocolate company, and a petrochemical company, and a textbook business—I am simply listing the businesses of one company I know—when it comes to the critical moment, one cannot really understand. I do not understand that many businesses. It is hard enough to understand one. I do not understand that many markets, or that many temperaments. The people in a publishing house are very different from the people in a department store—and should be. Being a buyer of ladies’ underwear is very different from being a buyer of novels, both in temperament and in knowledge. I have, therefore, very grave doubts about the conglomerates.

At the same time, in this modern world of ours, yesterday’s demarcations, yesterday’s industry classifications, yesterday’s technology lines, no longer apply. They are becoming fuzzy; they interact; they cut across. People who buy packaging do not buy tin cans, and they do not buy paper, or glass; they buy just packaging. They do not care what the material is. On the other hand, if you have a glass company, the only thing which comes out of the kilns is glass; no matter how hard you try, you are not going to produce paper from them. Here is a very real problem, which makes yesterday’s industry structures increasingly inappropriate.

The conglomerate builders in America also have an understanding which the old-line managers do not have. They are the first people to understand the new capital market. This has been arriving for the past thirty or forty years. It is a market because a large middle class suddenly arose which had enough surplus money. In my youth, it was an axiom in the City that 99 per cent of the people would never have enough surplus to do more than buy life insurance and pay back their mortgages, which are necessities. The capital market was less than 1 per cent of the population. Today the capital market in the United Kingdom is probably 25 per cent of the population. In America, it is closer to 40 per cent. Even on the Continent, it is going up to 10 per cent or 15 per cent. That is a real market, with choices.

The conglomerate people are the first to understand what that market wants and needs, and they package for that market. However, we have all learned that the first response to a new situation is the wrong response—the right question, but the wrong answer. So I think that the conglomerates are giving the wrong answer, and that we are all going to pay dearly for it, at least in the United States.

I see a need to find a way in which you can adapt yourself to the growing complexity of technology and market, while at the same time maintaining a core of unity that can lie either in the market, or in technology. Here are two examples of the right kinds of conglomerate. Sears, Roebuck is probably the largest retailer in the world. It is willing to buy anything which the American family needs, whether it be fabric, underwear, life insurance, or garden furniture. As long as the family buys it, it is Sears, Roebuck’s business, because Sears, Roebuck understands what the family is as an economic unit, and is the expert buyer for the family. The role of the merchant is never to be a seller; it is always to be a buyer for the customer. That is a conglomerate. But, however many different items it carries, it is a unified business.

At the other extreme, Corning Glass is willing to go into any market, as long as it is based on glass technology. It is in the customer market, it is the largest producer of television tubes—any market, as long as it is glass—because they understand their technology. These two extremes both are manageable and make sense. But I am afraid that my friend who is trying to balance the economic risks of a shipping line by having a perfume company is going to be in trouble. In fact, he already is.

Never Look at Any One Measure Alone in Any Business: Look at Multiple Measures

I will never accept anything as “the” right measure of efficiency. Perhaps this is an admission of defeat. I have given up even looking for the right measure. I want multiple measures. When in comes to capital appropriations, I want to see return on capital, and pay-out, and discounted cash flow—all three. Today, this is one of the things I demand of the computer. Ten years ago, this meant that 25,000 clerks with 25,000 pens would have to work 25,000 years to get it. I look at the three and ask what they really tell me. If the Home Office pathologist cuts a hair lengthwise and crosswise and on the bias, he looks at all three of them under the microscope, so that he will see the one that tells him something about the murder.

I would never start out with earnings per share, because leverage is a very dangerous thing. First, it works both ways, as some of us with older memories will remember, and second, the underlying assumption that a business can be unprofitable or unproductive but my investment in it can be productive, is a very short-range assumption. It is all right if you can sell out after six weeks but not if you are stuck with it. I look at return on total assets as one of the key figures, as I look at return per dollar employed, in other words, the productivity of capital, the value added. But I also look at earnings per share, because after I understand the economics of a business, I then ask how I finance it.

I speak like an old banker, which is exactly what I am, but you would be surprised how backward the art of finance is and how few industrialists realize how one structures finance. Many businesses use equity capital to finance the production of commodities, which is madness. Commodities are something that the banker will loan money on. Few people realize that once you understand the total economics, then you form the financial structure, using the various money streams, which change all the time. Very often you see businesses where the economics are sound but the financing is wrong, so that the earnings per share are way too low: where one can refinance a business, restructure it, give a business the capacity to attract capital. Sometimes you see the opposite, where everybody in the market is rushing in and buying shares in a business wildly because the earnings per share seem to be going up; and actually it is a low-profit business, very cunningly camouflaged, through financial manipulation. This can last usually for a maximum of eighteen months. Then the stock market suddenly discovers that something is wrong; but, for eighteen months, a lot of people can be fooled. I would never look at one measure alone, on anything in business. First, these measurements are not good enough; second, we do not understand enough for any single measurement to be “the” ultimate measurement.

The First Yardstick by Which Management Is Judged Is, Do They Keep Us Busy?

In every organization you know, there are many people who are being promoted up to the point where they no longer perform. Up to that point, they did well, so they were promoted. When they no longer perform, they are not promoted, but they stay there, we all know this. If it is inevitable—and it is inevitable—that we are promoting many people on the basis of performance, up to the point where we promote them beyond their capacity, perhaps this is something which we ought to tackle, instead of just being reconciled to it. The best managers I know spend a good deal of time upon something on which the rest of us spend no time, namely, on thinking through their organizational dilemmas.

Take, for example, the man who started out when the company was small. He was a very good bookkeeper. The company grew, and geological forces raised him to the point where he was now financial V.P. of a very large business—and he is still a bookkeeper. Everybody knows some of these examples, not only in the financial area but in every area. He has been with the company twenty-eight years. He is approaching fifty-five, and he has come in every morning at nine, and has been the last man to leave. Nobody has ever criticized him, and now, suddenly, he is beyond his competence, out of his depth, and a danger to the organization.

What do we do now? Most of us say, “We cannot do anything, so let us try to build around him.” The really good managers whom I know do not accept that. They say, “Yes, we owe loyalty where loyalty has been given. We should have taken corrective action long ago, but it is too late now. We should not have let him go up to that position, but it is too late. But we cannot allow him to remain there, because he is doing a great deal of damage.” The damage is caused, not because he is not a good financial officer and you need one, but because he tells your organization, “This is what management really expects.” He makes cynics out of the young people, and this is one of the sins for which there is no forgiveness.

You cannot fire this man, not because the organization would take a dim view of it, but because most of us are reasonably decent human beings. On the other hand, if you leave him there, you corrupt. So what do you do? Sometimes, one cannot do anything, but say, “All right, we shall have to sweat out the next ten years until he retires.” But more often than not, if you really do spend time, you do find a solution that is dignified and considerate. These few cases—they are never very many—are the test of management. It is by this that your organization, your professional, administrative, and management people, right down to the shop floor, really measure you.

An organization measures its management by two yardsticks. The first is “Do they keep us busy? Do they know how to keep us working?” Because if you do not, then you obviously do not take your organization or your own job seriously. The one thing people demand of management is competence. The organization where people are allowed to sit around and mark time has contempt for its management. The other yardstick is “Do they treat the exceptional cases with imagination, intelligence, and compassion?” These are your test cases. Everybody has this proven level of incompetence in their management group. If the man has been with you only five years, you fire him; that is easy. But if he had been with you thirty years, can you move him out where he at least will not do damage? What can you do that is dignified and considerate, and yet tells everybody down the line, “They had his number, and acted on it”?

In the largest organization I know, there are not more than a dozen cases every two or three years. So this is not a large problem in numbers, but it is a big problem in impact. There is no one solution. These cases have to be handled strictly individually. They are the human problems that keep good managers awake at night. By your compassion, but also by your realism, in solving them, your organization will judge you. This is leadership in a business.

The Facts and the Myth of Job Mobility in America Are Not Necessarily the Same

We have plenty of companies in America that advertise for a chemical engineer under forty, with at least forty years’ experience; that is very common. The facts, and the myth, of American job mobility are not necessarily quite the same. When you actually analyse one of our large companies, there is a very large amount of turnover and mobility in the management and professional ranks during the first five or seven years. There is a considerable amount at the top, and none in between—none. There we have almost lifetime employment, like the Japanese.

If you actually break it down into market segments, you will find that the young people hop around a great deal. In many cases they have no choice. A great many companies have magnificent personnel policies on paper, and that is all they have. Take a young man who starts out in design engineering. After three years he discovers that this is not what he really wants to do or is good at. His company is advertising for sales engineers, but he has no way of applying, if only because his boss would take a very dim view of any intimation that he might wish to move. So he quits, and the company has only itself to blame.

My students are men of thirty to thirty-three, with six, seven, or ten years’ experience, and they come to me and tell me such things. I look at them and say, “Whom do you work for?” They say, “The ABC Company.” I say to them, “Across the street from where you work is the employment agency your company uses. You quit, go there, and the next day you will have the job you have been trying to be transferred to for eighteen months.” It works every time.

That is not the only reason why the young people are mobile. To be mobile is one way of finding out where you belong. This is not to say that some of them do not overdo it. Then they settle down, they marry, and children come along. The forces that keep them static increase their pull. When they reach top management they may start moving around again.

We have another, smaller problem in another area: the good, technical, functional man of forty-four or forty-five, who has now been Director of Market Research for fifteen years. By now he knows all about the toy market that he is ever going to know, and he is bored. He knows perfectly well that he is never going to be vice-president (marketing); he may want to move, and he should move. Where he is, he is becoming a barnacle, and slowing down the ship to a considerable extent. These are usually timid people, with much at stake in pensions and so forth. There we should have more mobility, in that middle group of purely functional people, who will not rise to general management, and do not wish to do so. They are bored with what they have been doing for too long. They have lost enthusiasm. They have lost any willingness to learn. They know only the right way, the wrong way, and the company way.

Small Business Has Done Much Better Than Any Other in the Last Twenty Years

I have heard for some forty years that the small business is in trouble, and I used to believe it. After twenty years, I said, “Where is the evidence?” I have not seen any. In fact, the small business has done much better than any other in the last twenty years, in every place, including Britain. More small businesses have been started and more small businesses have been prosperous. What is “small” may have changed. But the distribution of businesses has changed amazingly little in the last fifty years, in any major country. The merger move on today is not really threatening the small business.

Most small businesses believe they need management less; they need management more. A large business can hire a lot of specialists; a small business cannot and, therefore, has to be better at what it is doing. Second, they need objectives much more than do large businesses. They need a realization of what they are really trying to do. They need much more concentration, as they have fewer energies. And they have a different but very serious problem of management succession. precisely because they are usually family companies and because they cannot offer a great deal to the professional non-family, man, unless they make him an owner, which is not easy with our tax laws. So they have to insist much more rigorously on performance in top jobs. The secret of a family company is a very simple one; as long as you demand that the family members at the top work twice as hard as anybody else, you are all right; but the moment you allow the playboy in management, you are gone, because then the people you employ will not work for you any more, if they are any good. In a family company, subordinates will be perfectly willing to work for a not terribly bright family member, as long as he works.

The real problem in small businesses is not that of being a small business, it is that of the business that outgrows small size; that is where you have your mortality; those are the businesses that are being bought up—the business that has outgrown what the original founder can manage, that by any objective analysis should grow, but bumps against an invisible ceiling all the time. There you have a problem of how to make it possible for a man to change his basic habits, because he strangles the business. Some of them, bluntly, do not want the business to grow.

I have seen businesses where the founding management suddenly realizes that it has three or four or five hundred employees and six markets and now has to build itself a management team, get some information, and think through its own role. The founder realizes that he will have to stop playing at every position and will have to build and encourage and lead players. That is a real crisis of small businesses. It is very difficult for them to grow into medium-sized ones because this is not a matter of quantity, but a matter of basic change in habit, in behaviour, and in values.

The Main Impact of the Computer Has Been to Create Unlimited Jobs for Clerks

The computer came on the scene in the late 1940s and, despite all the talk about how fast things go today, we have not yet got an information industry. What we need is not going to be a physical object. It is going to be what is called software—the concepts, the ideas, the logic. There also has to be a lot of peripheral and transmitting and receiving and sending equipment that will make the computer a tool one can use, which it is not today. So far the main impact of the computer has been the creation of unlimited employment opportunities for clerks. This is not great progress. But we are coming very close to the point where we will have an information industry. The pieces are probably all there: the communications satellite and the television screen and the duplicating machine and the fast printer.

What we lack primarily are large concepts which will enable people to use the machine. It will not really become usable as long as we make the asinine attempt to have the computer speak English, which it cannot do. In music, the difference between East and West is the fact that many centuries ago St. Ambrose invented notation. Up to that time music was described in words, as it still is in the East, which means you cannot have ensemble music, you cannot have keys, and you have to memorize. But we all expect seven-year-olds to learn notation in two weeks, and most of them can do it.

We are beginning to learn notation which will essentially enable anybody to use the computer without that unspeakable clumsy, slow, and expensive “programming” or translation job. The proper notation, which will enable us to use an electronic medium electronically, rather than trying to use bastard language that it cannot handle and we cannot handle, is perhaps ten years away.

The future manager will find the computer as much a fact of life as children today find the telephone. This is a new form of energy; information is energy for the mind. What should the manager try to do with it? The first question is, Does it free you? Does it enable you to spend less and less time controlling and more and more time doing the important things? If the result of the computer is that you pore over more records, you are abusing it or you are being abused by it. Then you have less control, incidentally: control is not an abundance of facts, but knowing what facts to have and what they mean.

If it enables you to spend no time controlling operations, because you have thought through what you expect—and, if what you expect does not happen, you know immediately, but, so long as it does happen, you do not have to worry very much—then you are using the computer properly. The first test is, How many hours outside the office does the computer give you? In the office, you are cost-centred and not result-centred. The computer is a tool of liberation if used correctly. Otherwise, you become its servant. It should liberate you from being chained to operations and to your desk and enable you to have time for people and for the outside, where the results are.

The second test is, Are you using it to enable the people in your organization to do what they are ostensibly being paid for? Or are you using it to make it even easier for them to do everything except what they are being paid for? There used to be very little choice, but there is no reason for this any more—if you instruct your systems and computer people properly, instead of having them tell you what they should focus on, which is invariably the payroll. Nobody had any difficulty in getting out the payroll before the computer; so use it for the payroll, but do not believe that it is very much of an advance to do the unnecessary three times as fast.

The area in which management in most businesses is today most impeded in getting performance by information and data processing is the field sales force. Sales managers are now so snowed under with all kinds of paper that they do not know who the customers are, they do not train the sales force. They have never been out. Good salesmen are very poor paper handlers: there is almost an inverse relationship between the ability of a salesman to sell and his handwriting legibility. In that room where you have half a dozen or a dozen girls processing the orders that come in from the field, invariably they are all slaving and sweating over the orders from the good salesman: if only because the others do not send in orders. Good salesmen are not paper pushers, and vice versa.

Therefore, this is the area that needs to be looked at. The only resource of a salesman is time. If you find, as you will find, that 70 per cent or 80 per cent of your salesmen’s time is occupied by sending in information that then has to be gone over again, that is one in which to put the computer to work. The computer people will say that this is not really technically demanding. They are wrong, and you must say, “Never mind, my boy. If you want to do technically demanding jobs, go back to the university. You are on my payroll.” Maybe you can say it a little more nicely. I long ago learned not to be nice, because people do not hear it when you hint.

Ask “What are the areas where handling data has become an end in itself and has been allowed to overgrow the job?” That is where the data processing people had better go to work. Then ask “What are the repetitive crises that really sidetrack the whole organization again and again?” Is it the annual inventory battle, of which I take a dim view? Or other repetitive crises that really should not happen—things that we have not really thought through, that we have not anticipated? At least now we can build early warning into the system.

So these are the instructions I give to my computer people. I say, “By now, children, you have learned how to do payroll; you may even have learned how to do credit; you may even have learned how to follow an order through the plant so that one can coordinate plant scheduling with shipping and customer promises.” (Although that is something everybody says he has done, I have yet to see anybody who really has.) “Fine. You have learned how to do large-scale clerical work. Now I want you to start working on information.”

The Job Which Most Managers Were Brought Up to Spend Most Time On Will Disappear

The literature of management has been concerned, over the last fifty years, with the management part of the job, because it was the new thing. This is not going to become less important, but it is going to become relatively less urgent. The job which most managers have been brought up to spend most of their time on is scratching for a little dubious information about what happened yesterday. Accept the fact that, the day after tomorrow, they will be able to get it. Our great-great-grandfathers, who started industries, spent most of their time trying to get a little power. We now turn a switch. Nobody worries a great deal about where to get power from. Tomorrow we will no longer have to worry about where we get the other form of energy: the input of the mind, the information input. That will be easy, too.

Now, however, we have to learn a great deal about the entrepreneurial part of the job, to which we have really paid very little attention during these last fifty or sixty years. It is going to be different and quite demanding for two reasons. First, I think it is likely that the last third of the century will be as innovative an era as was the corresponding period of the nineteenth century. We are already getting industries that are based on the knowledge of this century and are quite different; and there is going to be need for a lot of innovation, not just technological, but social and economic as well. At the same time, the pattern of the late nineteenth century, in which you had the individual inventor, who then somehow teamed up with the money man, is likely to be repeated.

A great deal of the innovating activity will have to be carried on in existing businesses, where it has not been done so far. By and large, the old folklore which says that existing businesses are incapable of doing the really new things has so far been proved. Even though they all spend a lot of money on research and development, there is not very much to show for it, except some very beautiful buildings in parklike surroundings.

We have to learn to do the job, simply because the economic realities force us to do so. Not only is every single taxation system, in every single developed country, forcing the capital to stay in existing businesses; but also the human resources are there, and it is of the essence of the new industries that the development stage is where you really need men and money. It is not true that inventions become marketable products faster these days. They become marketable products much less fast. In the nineteenth century, within a few months of invention of the electric light bulb and the telephone, on the other side of the Atlantic, you had commercial installation of both in London. This speed we do not have today. This would take ten years of development work today; and the development phase has become far more expensive, and you need far more knowledge for it. Our complexities are greater and this, too, means that existing businesses will very largely have to do the work.

This puts a very great premium on learning systematically to innovate, as part of the management job in the existing business. This is something where all of us really start out on pretty much the same level of nonperformance, so that everybody has a chance of doing it. The technology gap is a thing of the past, simply because, when it comes to the new industries, there are no advantages on one side or the other: it depends on who is going to do the better job of learning how one does this particular kind of work, which is very largely marketing, very largely development. But it also depends on the ability to have two different kinds of organization under the same corporate form, the managerial and the entrepreneurial, which are not organized in the same way. They require that, in our minds, we keep them not separate but, at least, distinct.

If you also want to know in which way your industry is going, what are tomorrow’s products and tomorrow’s needs, do not look to your home market. It is very unreliable whether it is as big as the United States or as small as Luxembourg. Look to the international market: it is almost totally reliable. It is not true that the United States sets the fashions: this is a fashionable newspaper myth. The world market has been setting the fashions. The real market research today is world market research; we have to learn to see a world market, instead of just national economies.

The idea of the sovereign state as the one central institution—the idea of Hobbes, Locke, and Rousseau—no longer corresponds to reality; all the large; organized, managed, special purpose institutions of society are autonomous. They can be conducted, they can be led, they can be controlled, to a certain extent; but they cannot be made undone. They are necessities. They are the only way of getting the job done. You can nationalize them, but that does not mean that you control them. On the contrary we have all learned that the one way not to have control is to nationalize something. It is one of the few well-documented experiences of our generation.

Although business is not really that good, and knows it, business is still way ahead of the other institutions, largely because it has been working on the problems longer. So we are coming to be looked upon as a model. Management is a central function, not in business, but in our society, on the performance of which the very existence of the society depends. Therefore, managers, and business managers in particular, suddenly have a dimension added: of exemplar, of leadership. These, then, are the new challenges, the new jobs. How do we make organizations capable of innovating? How do we make knowledge productive? How do we make our business and our industries capable of operating in a very complicated and very dangerous world economy? And what do we really have to do, so that we embody this leadership function, this representative function, this spotlight role of being the most visible, the most articulate, and the most advanced example of this new species, the people who make organization productive for society and individual alike?

Is the Traditional Organization Structure Going to Work Tomorrow as It Has till Now?

There is sufficient reason to wonder whether the traditional organization structure, with which we are all familiar, is going to work tomorrow the way it has worked for the past forty years. Everybody is familiar with the pyramid. We took our organization structure from the military, and so it is a rank-focused structure. When you look at the high-technology and high-knowledge businesses, this structure does not work. You do need the authority of decisions. There has to be somebody who finally can say “yes” or “no,” after which the matter rests and debate ceases. You do need an orderly process for on-going work. But ideas do not observe these channels, or they die.

What we see emerging are, essentially, very complex structures, the analogy to which is not mechanical, as it has been in the traditional organization, but biological. There is no biological organization that has only one axis. Biological organizations have at least two, and usually three. Muscles, nerves, the circulatory system—these are all organizing principles. They coexist in very complex relationships. Probably the kindest way to describe what we are doing is to say that we are “fooling around” with systems which maintain an ordered structure, and yet enable a great deal of positioning according to the logic of the job, on the one hand, and the logic of knowledge on the other.

The high-technology companies are simply showing the way. Their problem is very acute. You may have a physicist, next to a cell biologist, next to a communications engineer, and you cannot say that one is more important than the others. In one task, one man is more important; in the next task, another is. So you need to be able to have spontaneous teams, with a high degree of purpose and order and self-discipline, within a framework of orderly decision making and procedure. Though there are examples where this actually works, they are not yet sufficient to enable us to distil the principle. But we can say that it can be done, and is going to be done. As we move from an organization where there were a few people at the top who had all the decision-making power and all the knowledge, while the rest were at their machines, to an organization where the bulk of the people are paid for knowledge input and, above all, for innovation input, we are going to see more of this development.

Free-form organizations, or whatever fancy word you want to use for them, need exceedingly clear objectives—much clearer objectives than the hierarchical, pyramidal organization needs, where the fellow at the top can change his mind and you get, at least on paper, fairly rapid changes all the way down. (You do not, in reality.) Free-form organizations also need a willingness to commit themselves to objectives and to rather demanding performance goals. Otherwise, they degenerate into a debating society.

Second, they require that the people in the group take responsibility for their contribution; they require that the people at the top say, “Look, we are going to leave you alone as much as we can, but one can only delegate what one understands; one cannot delegate what one does not understand. Therefore, if you want autonomy—and we want you to have autonomy—it is your job to think through and tell us what contribution we should hold you accountable for, what are your priorities. Maybe we are going to look at them and say they seem very fine but they make no sense to us, or we are going to look at something and say it is very fine, but we are still responsible for this company and this is not what we are trying to do. But it is your responsibility to take the initiative and to think it through and to focus yourself on the results of the total organization. Maybe you will say that what you really want to work on will not have results until the year 1992. Fine. There are certain things that have that long a lead-time; there is nothing we can do about it; but at least let them be part of our objective and of our goals.” Unless you enforce self-discipline, a good time is had by all—but that is all.

Managers Have to Accept That Industrial Relations Will Become Increasingly Bitter

While the headlines are going to be focused for a long time on the Industrial Relations aspect of the management of people, this is yesterday’s rear-guard action and, like all rear-guard actions, it cannot be won. The purpose of a rear-guard action is to enable the main force to get away. Increasingly, the real job will be the mobilization of knowledge and of the knowledge worker. The cost of the people who are being paid to put knowledge to work is very high: not only because they are paid well, but also because they are not usually people who can be used with great versatility. Knowledge is always specialized, always specific. These are also people who either perform very well or do not perform at all. Mediocre knowledge work, as a rule, is not worth having.

But so far most of us still act as if we believe that we can substitute three mediocre clerks for one first-rate knowledge worker. Not only do three mediocre clerks not produce as much as one knowledge worker; three mediocre people produce nothing at all—they only get in each other’s way. We are grossly overstaffed and grossly undermanned in most places. Knowledge, in the last analysis, is the only resource of the developed countries. When it comes to willing backs, the underdeveloped countries are way ahead. One cannot compete with the productivity of labour in underdeveloped countries, if they learn a little management.

While we will have to worry about Industrial Relations, therefore, this is, increasingly, going to be a purely negative, a purely defensive area, in which all one can do is hope that one does not lose ground. The opportunity lies in making knowledge productive and thereby making the labour force of yesterday essentially irrelevant and immaterial. This, however, also implies that industrial relations are going to become increasingly bitter. Accept the fact—accept that the industrial worker in the developed world knows that he is dispensable, and his union leader knows it very well. That makes him increasingly bitter and increasingly resistant. The industrial worker, the main beneficiary of the last seventy years of industrial development, suddenly sees his status and his function in the industrial society threatened. We converted the casual labourer of yesterday, who had neither income nor job security, into the machine operator of today, who has both. And those he is going to keep, but not the status and function, the power that he has had: when a Labour government starts talking about trade-union legislation, something has happened that is fundamental.

The problem will not be solved by the old, traditional remedy of worker membership on the board. Wherever we have tried this, it has corrupted a few unionists, and that is all it has done. It has not had an impact on the rank and file, and it has not impeded management. It is more a symbolical than a real thing. I would say, “Do not involve workers in management process. What are the decisions they should take responsibility for that managers are doing and that are only remotely connected with the things for which managers are responsible?”

Almost thirty years ago, when I helped run a liberal arts college, we called in the students and told them that there was a war on, that we were shorthanded and that they were going to have to run certain things: which was practically everything except the teaching and the hiring of faculty and the determination of the curriculum, which we did. But they ran everything else, including the feeding. They made a botch of it the first year—no worse, let me say, than the faculty committee had done. But in the second year they did a good job; there was no problem, and the leaders emerged. They tried a few crazy things and some of them worked, and some of them did not; but they did a fairly responsible job or they went hungry and, after they had gone without meals twice in a row, the feeding arrangements worked. You would be surprised how salutary it was for them to find out that, if you do not plan meals, you do not get any.

How many of the things managers do are only incidental to their job, including a lot of what is plant discipline—shift assignments and so on—that could be left to employees themselves? No doubt, a lot of management people are working on these matters. All right then, have some redundancies.

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These notes from talks given at lectures and seminars in England were first published in Management Today, May 1969.