What Peter Drucker Knew About 2020
BY PETER NATHAN FURR & JEFFREY H. DYER (HBR – DECEMBER 2014 ISSUE)
When PwC released its annual survey of corporate chief executives for 2014, it was immediately obvious that change is on leaders’ brains: “As CEOs plan their strategies to take advantage of transformational shifts,” the consultancy reported, “they are also assessing their current capabilities – and finding that everything is fair game for reinvention.”
It’s no wonder why.
“Every few hundred years throughout Western history, a sharp transformation has occurred,” Peter Drucker observed in a 1992 essay for Harvard Business Review. “In a matter of decades, society altogether rearranges itself – its worldview, its basic values, its social and political structures, its arts, its key institutions. Fifty years later a new world exists. And the people born into that world cannot even imagine the world in which their grandparents lived and into which their own parents were born. Our age is such a period of transformation.”
For Drucker, the newest new world was marked, above all, by one dominant factor: “the shift to a knowledge society.”
Indeed, Drucker had been anticipating this monumental leap – to an age when people would generate value with their minds more than with their muscle – since at least 1959, when in Landmarks of Tomorrow he first described the rise of “knowledge work.” Three decades later, Drucker had become convinced that knowledge was a more crucial economic resource than land, labor, or financial assets, leading to what he called a “post-capitalist society.” And shortly thereafter (and not long before he died in 2005), Drucker declared that increasing the productivity of knowledge workers was “the most important contribution management needs to make in the 21st century.”
Sadly, judging from the way most of our institutions are run, we are still struggling to catch up with the reality Drucker foresaw. How should managers alter their approaches to fit the times? Here are six aspects of running an enterprise that should now be front-and-center:
Figure out what information is needed. “It is information,” Drucker wrote, “that enables knowledge workers to do their job.” This is especially true for executives. The trouble is, even in a hyper-connected world where endless amounts of data are literally at our fingertips, many rely on the producers of the data – the bean counters, the sales force, the IT department – to serve up the numbers they believe are most relevant. And these folks don’t necessarily have a clue. A 2014 McKinsey & Co. survey found, for example, that fewer than 20% of IT professionals say they are effective at targeting where they can add the most value inside their organizations. “An adequate information system,” Drucker wrote, must lead executives “to ask the right questions, not just feed them the information they expect. That presupposes first that executives know what information they need.”
Actively prune what is past its prime. Virtually every executive is eager to see his or her organization innovate. Through our work at the Drucker institute, however, it is clear that most are reluctant to take the necessary first step toward creating the new: continually winding down those products, services, programs, and procedures that are no longer making a real contribution. “Every organization will have to learn to innovate” on a constant basis, Drucker wrote. “And then, of course, one comes back to abandonment, and the process starts all over. Unless this is done, the knowledge-based organization will very soon find itself obsolescent, losing performance capacity and with it the ability to attract and hold the skilled and knowledgeable people on whom its performance depends.”
Embrace employee autonomy. Drucker urged executives to push decision-making and accountability all the way down through the organization as early as 1954, when he introduced the concept of Management by Objectives. And yet there is ample evidence that most organizations remain paragons of command-and-control. In a knowledge economy, top-down direction is particularly detrimental because employees are bound to know more than their supervisors do about the specialized fields in which they operate. They may also know more about the customer—his needs and desires. “Knowledge workers have to manage themselves,” Drucker advised. “They have to have autonomy.”
Build true learning organizations. “If knowledge isn’t challenged to grow, it disappears fast,” Drucker cautioned. “It’s infinitely more perishable than any other resource we have ever had.” To keep it fresh, John Hagel, co-chairman of Deloitte’s Center for the Edge, says that firms need “new architectures” designed to increase the flow of information and learning inside and outside the organization’s walls. Traditionally, the organizing principle for businesses was to achieve efficiencies of scale. Now, Hagel says, “scalable learning” must be the aim. Pursuing it begins with redesigning work environments to foster new knowledge creation – that is, to move beyond sharing what’s already known to helping workers make genuine discoveries more quickly by tackling performance challenges together. Unfortunately, there’s an awfully long way to go. Asked how many corporations have implemented this vision, Hagel says: “The answer is zero.”
Provide a much stronger sense of purpose. Survey after survey reveals that the vast majority of employees are not engaged in what they do. One big reason is the failure to connect people’s jobs with a larger sense of purpose. Too often, the organization seems to be an end in itself; no meaningful link has been forged between the daily tasks of the enterprise and how they serve the customer and better society. “What motivates – and especially what motivates knowledge workers – is what motivates volunteers,” Drucker wrote. Among other things, “they need to know the organization’s mission and to believe in it.” A paycheck, even a fat one, is not enough. No longer can organizations expect to inspire “by satisfying knowledge workers’ greed,” Drucker counseled. “It will have to be done by satisfying their values.”
Be more mindful of those left behind. Drucker worried a lot about a group that he characterized as “knowledge-worker cousins”: service workers. “Knowledge workers and service workers are not ‘classes’ in the traditional sense,” Drucker wrote. “But there is a danger that … society will become a class society unless service workers attain both income and dignity.” He added: “Anyone can acquire the ‘means of production’, i.e., the knowledge required for the job, but not everyone can win.” Again, Drucker’s words prove prescient as the gains in the knowledge economy are hardly being shared equitably. “Our basic grievance with today’s billionaires is that relatively little of the value they’ve created trickles down to the rest of us,” the University of Toronto’s Roger Martin asserts. He warns that this situation is unsustainable, and that top executives need to rein in their compensation. Surely, Drucker would have agreed. “A healthy business,” he wrote, “cannot exist in a sick society.”
It’s easy to forget how profound the emergence of the knowledge age really is. Ours is “the first society in which ‘honest work’ does not mean a callused hand,” Drucker noted. “This is far more than a social change. It is a change in the human condition.” But for all that, what it takes to manage effectively now is no mystery. We’ve been headed down this path for more than half a century.
In his HBR piece, Drucker suggested that our great transformation would be completed by 2010 or 2020. It is high time that management started acting like the clock is running out.