Managing in the Next Society

Peter Drucker

• Publisher: Routledge
• Year: 2012
• eBook ISBN: 9781136384073
• Topic: Business
• Subtopic: Business General
• Index: Business

Divided into four parts, the book offers searching analysis of the 'information revolution' and the knowledge society it has created. It goes to scrutinize the unprecendented demographic, economic and sociological transforms of recent times to present an outline of 'The Next Society' - which in turn points to a challenging, provocative and at times disturning view of the future. Managing in the Next Society is a collection of Peter Drucker's most strikingly prescient articles. Salient and incisive as ever, Drucker ranges widely over the most critical issues facing business and society today to offer advice, admonition and instruction for proactive executives.

PART I

THE INFORMATION SOCIETY

CHAPTER 1

Beyond the Information Revolution

The truly revolutionary impact of the Information Revolution is just beginning to be felt. But it is not “information” that fuels this impact. It is not “artificial intelligence.” It is not the effect of computers and data processing on decision-making, policymaking, or strategy. It is something that practically no one foresaw or, indeed, even talked about ten or fifteen years ago: e-commerce—that is, the explosive emergence of the Internet as a major, perhaps eventually the major, worldwide distribution channel for goods, for services, and, surprisingly, for managerial and professional jobs. This is profoundly changing economies, markets, and industry structures; products and services and their flow; consumer segmentation, consumer values, and consumer behavior; jobs and labor markets. But the impact may be even greater on societies and politics and, above all, on the way we see the world and ourselves in it.

At the same time, new and unexpected industries will no doubt emerge, and fast. One is already here: biotechnology. And another: fish farming. Within the next fifty years fish farming may change us from hunters and gatherers on the seas into “marine pastoralists”—just as a similar innovation some ten thousand years ago changed our ancestors from hunters and gatherers on the land into agriculturists and pastoralists.

It is likely that other new technologies will appear suddenly, leading to major new industries. What they may be is impossible even to guess at. But it is highly probable—indeed, nearly certain—that they will emerge, and fairly soon. And it is nearly certain that few of them—and few industries based on them—will come out of computer and information technology. Like biotechnology and fish farming, each will emerge from its own unique and unexpected technology.

Of course, these are only predictions. But they are made on the assumption that the Information Revolution will evolve as several earlier technology-based “revolutions” have evolved over the past five hundred years, since Gutenberg’s printing revolution, around 1455. In particular the assumption is that the Information Revolution will be like the Industrial Revolution of the late eighteenth and early nineteenth centuries. And that is indeed exactly how the Information Revolution has been during its first fifty years.

THE RAILROAD

The Information Revolution is now at the point at which the Industrial Revolution was in the early 1820s, about forty years after James Watt’s improved steam engine (first installed in 1776) was first applied, in 1785, to an industrial operation—the spinning of cotton. And the steam engine was to the first Industrial Revolution what the computer has been to the Information Revolution—its trigger, but above all its symbol. Almost everybody today believes that nothing in economic history has ever moved as fast as, or had a greater impact than, the Information Revolution. But the Industrial Revolution moved at least as fast in the same time span and had probably an equal impact if not a greater one. In short order it mechanized the great majority of manufacturing processes, beginning with the production of the most important industrial commodity of the eighteenth and early nineteenth centuries: textiles. Moore’s Law asserts that the price of the Information Revolution’s basic element, the microchip, drops by 50 percent every eighteen months. The same was true of the products whose manufacture was mechanized by the first Industrial Revolution. The price of cotton textiles fell by 90 percent in the fifty years spanning the start of the eighteenth century. The production of cotton textiles increased at least 150-fold in Britain alone in the same period. And although textiles were the most visible product of its early years, the Industrial Revolution mechanized the production of practically all other major goods, such as paper, glass, leather, and bricks. Its impact was by no means confined to consumer goods. The production of iron and ironware—for example, wire—became mechanized and steam-driven as fast as did that of textiles, with the same effects on cost, price, and output. By the end of the Napoleonic Wars the making of guns was steam-driven throughout Europe; cannons were made ten to twenty times as fast as before, and their cost dropped by more than two-thirds. By that time Eli Whitney had similarly mechanized the manufacture of muskets in America and had created the first mass-production industry.

These forty or fifty years gave rise to the factory and the “working class.” Both were still so few in number in the mid-1820s, even in England, as to be statistically insignificant. But psychologically they had come to dominate (and soon would politically also). Before there were factories in America, Alexander Hamilton foresaw an industrialized country in his 1791 Report on Manufactures. A decade later, in 1803, a French economist, Jean-Baptiste Say, saw that the Industrial Revolution had changed economics by creating the “entrepreneur.”

The social consequences went far beyond factory and working class. As the historian Paul Johnson has pointed out, in A History of the American People (1997), it was the explosive growth of the steam-engine-based textile industry that revived slavery. Considered to be practically dead by the Founders of the American Republic, slavery roared back to life as the cotton gin—soon steam-driven—created a huge demand for low-cost labor and made breeding slaves America’s most profitable industry for some decades.

The Industrial Revolution also had a great impact on the family. The nuclear family had long been the unit of production. On the farm and in the artisan’s workshop, husband, wife, and children worked together. The factory, almost for the first time in history, took worker and work out of the home and moved them into the workplace, leaving family members behind—whether spouses of adult factory workers or, especially in the early stages, parents of child factory workers.

Indeed, the “crisis of the family” did not begin after the Second World War. It began with the Industrial Revolution—and was in fact a stock concern of those who opposed the Industrial Revolution and the factory system. (The best description of the divorce of work and family, and of its effect on both, is probably Charles Dickens’s 1854 novel Hard Times.)

But despite all these effects, the Industrial Revolution in its first half century only mechanized the production of goods that had been in existence all along. It tremendously increased output and tremendously decreased cost. It created both consumers and consumer products. But the products themselves had been around all along. And products made in the new factories differed from traditional products only in that they were uniform, with fewer defects than existed in products made by any but the top craftsmen of earlier periods.

There was only one important exception, one new product, in those first fifty years: the steamboat, first made practical by Robert Fulton in 1807. It had little impact until thirty or forty years later. In fact, until almost the end of the nineteenth century more freight was carried on the world’s oceans by sailing vessels than by steamships.

Then, in 1829, came the railroad, a product truly without precedent, and it forever changed economy, society, and politics.

In retrospect it is difficult to imagine why the invention of the railroad took so long. Rails to move carts had been around in coal mines for a very long time. What could be more obvious than to put a steam engine on a cart to drive it, rather than have it pushed by people or pulled by horses? But the railroad did not emerge from the cart in the mines. It was developed quite independently. And it was not intended to carry freight. On the contrary, for a long time it was seen only as a way to carry people. Railroads became freight carriers thirty years later, in America. (In fact, as late as the 1870s and 1880s the British engineers who were hired to build the railroads of newly westernized Japan designed them to carry passengers—and to this day Japanese railroads are not equipped to carry freight.) But until the first railroad actually began to operate, it was virtually unanticipated.

Within five years, however, the Western world was engulfed by the biggest boom history had ever seen—the railroad boom. Punctuated by the most spectacular busts in economic history, the boom continued in Europe for thirty years, until the late 1850s, by which time most of today’s major railroads had been built. In the United States it continued for another thirty years, and in outlying areas—Argentina, Brazil, Asian Russia, China—until the First World War.

The railroad was the truly revolutionary element of the Industrial Revolution, for not only did it create a new economic dimension but also it rapidly changed what I would call the mental geography. For the first time in history human beings had true mobility. For the first time the horizons of ordinary people expanded. Contemporaries immediately realized that a fundamental change in mentality had occurred. (A good account of this can be found in what is surely the best portrayal of the Industrial Revolution’s society in transition, George Eliot’s 1871 novel, Middlemarch.) As the great French historian Fernand Braudel pointed out in his last major work, The Identity of France (1986), it was the railroad that made France into one nation and one culture. It had previously been a congeries of self-contained regions, held together only politically. And the role of the railroad in creating the American West is, of course, a commonplace in U.S. history.

ROUTINIZATION

Like the Industrial Revolution two centuries ago, the Information Revolution so far—that is, since the first computers, in the mid-1940s—has only transformed processes that were here all along. In fact, the real impact of the Information Revolution has not been in the form of “information” at all. Almost none of the effects of information envisaged forty years ago have actually happened. For instance, there has been practically no change in the way major decisions are made in business or government. But the Information Revolution has routinized traditional processes in an untold number of areas.

The software for tuning a piano converts a process that traditionally took three hours into one that takes twenty minutes. There is software for payrolls, for inventory control, for delivery schedules, and for all the other routine processes of a business. Drawing the inside arrangements of a major building (heating, water supply, sewerage, and so on) such as a prison or a hospital formerly took, say, twenty-five highly skilled draftsmen up to fifty days; now there is a program that enables one draftsman to do the job in a couple of days, at a tiny fraction of the cost. There is software to help people do their tax returns and software that teaches hospital residents how to take out a gallbladder. The people who now speculate in the stock market on-line do exactly what their predecessors in the 1920s did while spending hours each day in a brokerage office. The processes have not been changed at all. They have been routinized, step by step, with a tremendous saving in time and, often, in cost.

The psychological impact of the Information Revolution, like that of the Industrial Revolution, has been enormous. It has perhaps been greatest on the way in which young children learn. Beginning at age four (and often earlier), children now rapidly develop computer skills, soon surpassing their elders; computers are their toys and their learning tools. Fifty years hence we may well conclude that there was no “crisis of American education” in the closing years of the twentieth century—there was only a growing incongruence between the way twentieth-century schools taught and the way late-twentieth-century children learned. Something similar happened in the sixteenth-century university, a hundred years after the invention of the printing press and movable type.

But as to the way we work, the Information Revolution has so far simply routinized what was done all along. The only exception is the CD-ROM, invented around twenty years ago to present operas, university courses, a writer’s oeuvre, in an entirely new way. Like the steamboat, the CD-ROM has not immediately caught on.

THE MEANING OF E-COMMERCE

E-commerce is to the Information Revolution what the railroad was to the Industrial Revolution—a totally new, totally unprecedented, totally unexpected development. And like the railroad 170 years ago, e-commerce is creating a new and distinct boom, rapidly changing the economy, society, and politics.

One example: A midsize company in America’s industrial Midwest, founded in the 1920s and now run by the grandchildren of the founder, used to have some 60 percent of the market in inexpensive dinnerware for fast-food eateries, school and office cafeterias, and hospitals within a hundred-mile radius of its factory. China is heavy and breaks easily, so cheap china is traditionally sold within a small area. Almost overnight this company lost more than half of its market. One of its customers, a hospital cafeteria where someone went “surfing” on the Internet, discovered a European manufacturer that offered china of apparently better quality at a lower price and shipped cheaply by air. Within a few months the main customers in the area shifted to the European supplier. Few of them, it seems, realize—let alone care—that the stuff comes from Europe.

In the new mental geography created by the railroad, humanity mastered distance. In the mental geography of e-commerce, distance has been eliminated. There is only one economy and only one market.

One consequence of this is that every business must become globally competitive, even if it manufactures or sells only within a local or regional market. The competition is not local anymore-in fact, it knows no boundaries. Every company has to become transnational in the way it is run. Yet the traditional multinational may well become obsolete. It manufactures and distributes in a number of distinct geographies, in which it is a local company. But in e-commerce there are neither local companies nor distinct geographies. Where to manufacture, where to sell, and how to sell will remain important business decisions. But in another twenty years they may no longer determine what a company does, how it does it, and where it does it.

At the same time, it is not yet clear what kinds of goods and services will be bought and sold through e-commerce and what kinds will turn out to be unsuitable for it. This has been true whenever a new distribution channel has arisen. Why, for instance, did the railroad change both the mental and the economic geography of the West, whereas the steamboat—with its equal impact on world trade and passenger traffic—did neither? Why was there no “steamboat boom”?

Equally unclear has been the impact of more recent changes in distribution channels—in the shift, for instance, from the local grocery store to the supermarket, from the individual supermarket to the supermarket chain, and from the supermarket chain to Wal-Mart and other discount chains. It is already clear that the shift to e-commerce will be just as eclectic and unexpected.

Here are a few examples. Twenty-five years ago it was generally believed that within a few decades the printed word would be dispatched electronically to individual subscribers’ computer screens. Subscribers would then either read text on their computer screen or download it and print it out. This was the assumption that underlay the CD-ROM. Thus any number of newspapers and magazines, by no means only in the United States, established themselves on-line; few, so far, have become gold mines. But anyone who twenty years ago predicted the business of Amazon.com and barnesandnoble.com—that is, that books would be sold on the Internet but delivered in their heavy, printed form—would have been laughed off the podium. Yet Amazon.com and barnesandnoble.com are in exactly that business, and they are in it worldwide. The first order for the U.S. edition of my most recent book, Management Challenges for the 21st Century (1999), came to Amazon.com, and it came from Argentina.

Another example: Ten years ago one of the world’s leading automobile companies made a thorough study of the expected impact on automobile sales of the then emerging Internet. It concluded that the Internet would become a major distribution channel for used cars, but that customers would still want to see new cars, to touch them, to test-drive them. In actuality, at least so far, most used cars are still being bought not over the Internet but in a dealer’s lot. However, as many as half of all new cars sold (excluding luxury cars) may now actually be “bought” over the Internet. Dealers only deliver cars that customers have chosen well before they enter the dealership. What does this mean for the future of the local automobile dealership, the twentieth century’s most profitable small business?

Another example: Traders in the American stock-market ...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• Foreword
• Preface
• PART I. THE INFORMATION SOCIETY
• PART II. BUSINESS OPPORTUNITIES
• PART III. THE CHANGING WORLD ECONOMY
• PART IV. THE NEXT SOCIETY
• Acknowledgments
• Index