THE MANAGEMENT REVOLUTION

Quoted from Chapter 1, "From Capitalism to Knowledge Society" of Post-Capitalist Society by Peter Drucker

Post-Capitalist Society : Introduction : The Transformation: "EVERY FEW HUNDRED YEARS in Western history there occurs a sharp transformation. We cross what in an earlier book (The New Realities—1989), I called a "divide."

Within a few short decades, society rearranges itself—its worldview; its basic values; its social and political structure; its arts; its key institutions. Fifty years later, there is a new world. And the people born then cannot even imagine the world in which their grandparents lived and into which their own parents were born.

We are currently living through just such a transformation. It is creating the post-capitalist society, which is the subject of this book. See Bob Embry's Time-Life Navigation © article notebook for examples taken from the daily news.

Chapter 1, "From Capitalism to Knowledge Society" is divided into an introduction and five major headings: The New Meaning of Knowledge; The Industrial Revolution; The Productivity Revolution; The Management Revolution; And From Knowledge To Knowledges.

The Management Revolution

When I decided in 1926 not to go to college but to go to work after finishing secondary school, my father was quite distressed; ours had long been a family of lawyers and doctors. But he did not call me a “dropout.” He did not try to change my mind. And he did not prophesy that I would never amount to anything. I was a responsible adult wanting to work as an adult.

Some thirty years later, when my son reached age eighteen, I practically forced him to go to college. Like his father, he wanted to be an adult among adults. Like his father, he felt that in twelve years of sitting on a school bench he had learned little, and that his chances of learning more by spending another four years on a school bench were not particularly great. Like his father at that age, he was action-focused, not learning-focused.

And yet by 1958, thirty-two years after I had moved from high school graduate to trainee in an export firm, a college degree had become a necessity. It had become the passport to careers. Not to go to college in 1958 was “dropping out” for an American boy who had grown up in a well-to-do family and done well in school. My father did not have the slightest difficulty in finding a trainee job for me in a reputable merchant house. Thirty years later, such firms would not have accepted a high school graduate as a trainee; they would all have said, “Go to college for four years—and then you probably should go on to graduate school.”

In my father’s generation (he was born in 1876), going to college was for the sons of the wealthy and a very small number of poor but exceptionally brilliant youngsters (such as he had been). Of all the American business successes of the nineteenth century, only one went to college: J. P. Morgan went to Gottingen to study mathematics, but dropped out after one year. Few of the others even attended high school, let alone graduated from it *1.

By my time, going to college was already desirable; it gave one social status. But it was by no means necessary nor much help in one’s life and career. When I did the first study of a major business corporation, General Motors *2, the public relations department at the company tried very hard to conceal the fact that a good many of their top executives had gone to college. The proper thing then was to start as a machinist and work one’s way up *3. As late as 1950 or 1960, the quickest route to a middleclass income—in the United States, in Great Britain, in Germany (though no longer in Japan)—was not to go to college; it was to go to work at age sixteen in one of the unionized mass production industries. There one could earn a middle-class income after a few months—the result of the productivity explosion. Today these opportunities are practically gone. Now there is practically no access to a middle-class income without a formal degree which certifies to the acquisition of knowledge that can only be obtained systematically and in a school.

The change in the meaning of knowledge that began two hundred fifty years ago has transformed society and economy. Formal knowledge is seen as both the key personal and the key economic resource. In fact, knowledge is the only meaningful resource today. The traditional “factors of production”—land (i.e., natural resources), labor, and capital—have not disappeared, but they have become secondary. They can be obtained and obtained easily, provided there is knowledge. And knowledge in this new sense means knowledge as a utility, knowledge as the means to obtain social and economic results .

These developments, whether desirable or not, are responses to an irreversible change: knowledge is now being applied to knowledge. This is the third and perhaps the ultimate step in the transformation of knowledge. Supplying knowledge to find out how existing knowledge can best be applied to produce results is, in effect, what we mean by management. But knowledge is now also being applied systematically and purposefully to define what new knowledge is needed, whether it is feasible, and what has to be done to make knowledge effective. It is being applied, in other words, to systematic innovation *4.

This third change in the dynamics of knowledge can be called the “Management Revolution.” Like its two predecessors—knowledge applied to tools, processes, and products, and knowledge applied to human work—the Management Revolution has swept the earth. It took a hundred years, from the middle of the eighteenth century to the middle of the nineteenth century, for the Industrial Revolution to become dominant and worldwide. It took some seventy years, from 1880 to the end of World War II, for the Productivity Revolution to become dominant and world-wide. It has taken less than fifty years—from 1945 to 1990—for the Management Revolution to become dominant and worldwide.

See The Essential Drucker for an introduction to world-class management.

Most people when they hear the word “management” still hear “business management.” Management did indeed first emerge in its present form in large-scale business organizations. When I began to work on management some fifty years ago, I too concentrated on business management *5. But we soon learned that management is needed in all modern organizations. In fact, we soon learned that it is needed even more in organizations that are not businesses, whether not-for-profit but non-governmental organizations (what in this book I propose we call the “social sector") or government agencies. These organizations need management the most precisely because they lack the discipline of the “bottom line” under which business operates. That management is not confined to business was recognized first in the United States. But it is now becoming accepted in every developed country.

See Managing the Non-Profit Organization

We now know that management is a generic function of all organizations, whatever their specific mission. It is the generic organ of the knowledge society.

Management has been around for a very long time. I am often asked whom I consider the best or the greatest executive. My answer is always: “The man who conceived, designed, and built the first Egyptian Pyramid more than four thousand years ago—and it still stands.” But management as a specific kind of work was not seen until after World War I—and then by just a handful of people. Management as a discipline only emerged after World War II. As late as 1950, when the World Bank began to lend money for economic development, the word “management” was not even in its vocabulary. In fact, while management was invented thousands of years ago, it was not discovered until after World War II.

One reason for its discovery was the experience of World War II itself, and especially the performance of American industry. But perhaps equally important to the general acceptance of management has been the performance of Japan since 1950. Japan was not an “underdeveloped” country after World War II but its industry and economy were almost totally destroyed, and it had practically no domestic technology. The nation’s main resource was its willingness to adopt and adapt the management which the Americans had developed during World War II (and especially training). Within twenty years—from the 1950s, when the American occupation of Japan ended, to the 1970s—Japan became the world’s second economic power, and a leader in technology. When the Korean War ended in the early 1950s, South Korea was left even more devastated than Japan had been seven years earlier. And it had never been anything but a backward country, especially as the Japanese systematically suppressed Korean enterprise and higher education during their thirty-five years of occupation. But by using the colleges and universities of the United States to educate their able young people, and by importing and applying the concepts of management, Korea became a highly developed country within twenty-five years.

With this powerful expansion of management came a growing understanding of what management really means. When I first began to study management, during and immediately after World War II, a manager was defined as “someone who is responsible for the work of subordinates.” A manager in other words was a “boss,” and management was rank and power. This is probably still the definition a good many people have in mind when they speak of “managers” and “management.”

But by the early 1950s, the definition of a manager had already changed to one who “is responsible for the performance of people.” Today, we know that that is also too narrow a definition. The right definition of a manager is one who “is responsible for the application and performance of knowledge.” (The knowledge he is referring to is universally available knowledge and not just the knowledge conveniently within our own heads or organizations)

This change means that we now see knowledge as the essential resource. Land, labor, and capital are important chiefly as restraints. Without them, even knowledge cannot produce; with out them, even management cannot perform. But where there is effective management, that is, application of knowledge to knowledge, we can always obtain the other resources.

That knowledge has become the resource, rather than a resource, is what makes our society “post-capitalist.” This fact changes—fundamentally—the structure of society. It creates new social and economic dynamics. It creates new politics.

But, what is management? And The Educated Person's role in a knowledge society.

Also see

1. Drucker on Leadership
2. Organization evolution definition
3. Entrepreneurship and Innovation
4. The Essential Drucker
5. The Effective Executive preview and The Effective Executive in Action.
6. Conceptual resources

Elaborations:

1. In the novels of Edith Wharton, the chronicler of American society around 1910 and 1920, the sons of the old and rich New York families do go to Harvard and to Harvard Law School, but practically none of them then practices law. Higher education was considered a luxury, an ornament, and a pleasant way to spend one’s early adulthood.

2. Published in Concept of the Corporation ( 1946)

3. The story is told in the chapter “Alfred P. Sloan” in Adventures of a Bystander (1980, reissued 1991) (table of contents and reviews)

4. For more on this, see my Innovation and Entrepreneurship (1986) (table of contents)

5. In The Practice of Management, which first established management as a discipline in 1954, most of the discussion is of business management, and so are most examples. (dynamic table of contents—click triangles to expand and contract)