Peter F. Drucker, one of the most influential management thinkers, tackles the new world business order and management imperatives of the 1990s and beyond in his new book, "Managing for the Future." In the first of a two-part excerpt, Mr. Drucker delineates five important areas that will bring wide changes in the social and economic environment. In Part 2, which will appear in tomorrow's business section, he examines the productivity challenge businesses face in the '90s and beyond.
In five important areas the 1990s will bring far-reaching changes in the social and economic environment, and in the strategies, structure and management of business.
For a start, the world economy will be quite different from what businessmen, politicians and economists still take for granted. The trend toward reciprocity as a central principle of international economic integration has by now become well-nigh irreversible, whether one likes it or not (and I don't).
Economic relations will increasingly be between trading blocs rather than between countries. Indeed, an East Asian block loosely organized around Japan and paralleling the European Economic Community and North America may emerge during the decade. Relationships will therefore increasingly be conducted through bilateral and trilateral deals in respect to investment and trade.
Reciprocity can easily degenerate into protectionism of the worst kind (that's why I dislike it). But it could be fashioned into a powerful tool to expand trade and investment if -- but only if -- governments and businessmen act with imagination and courage. In any event, it was probably inevitable. It is the response to the first emergence as a major economic power of a non-Western society, Japan.
Integration through alliances
Second, businesses will integrate themselves into the world economy through alliances: minority participations, joint ventures, research and marketing consortia, partnerships in subsidiaries or in special projects, cross-licensing and so on. The partners will be not only other businesses, but also a host of non-businesses such as universities, health-care institutions, local governments. The traditional forms of economic integration trade and the multinational company -- will continue to grow in all likelihood. But the dynamics are shifting rapidly to partnerships based neither on the commodity nexus of trade nor on the power nexus of ownership by multinationals.
Third, businesses will undergo more, and more radical, restructuring in the 1990s than at any time since the modern corporate organization first evolved in the 1920s. The information-based organization needs far fewer levels of management than the traditional command-and-control model. By now a great many -- maybe most -- large American companies have cut management levels by one-third or more. But the restructuring of corporations -- middle-sized ones as well as large ones and, eventually, even smaller ones -- has barely begun.
Businesses tomorrow will follow two new rules. One: to move work to where the people are, rather than people to where the work is. Two: to farm out activities that do not offer opportunities for advancement into fairly senior management and professional positions (e.g., clerical work, maintenance, the "back office" in 00 the brokerage house, the drafting room in the large architectural firm, the medical lab in the hospital) to an outside contractor. The corporation, in stock market jargon, will be unbundled.
Underlying this trend is the growing need for productivity in service work done largely by people without much education or skill. This almost requires that the work be lodged in a separate, outside organization with its own career ladders. Otherwise, it will be given neither enough attention nor importance to ensure the hard work that is needed not just on quality and training, but on work-study, work-flow and tools.
Finally, corporate size will by the end of the coming decade have become a strategic decision. Neither "big is better" nor "small is beautiful" makes much sense.
Management will increasingly have to decide on the right size for business, the size that fits its technology, its strategy and its markets. This is both a difficult and a risky decision -- and the right answer is rarely the size that best fits a management's ego.
The challenge to management
Fourth, the governance of companies themselves is in question. The shift of ownership in the large, publicly held corporation to representatives of the employee class -- i.e., pension funds and mutual trusts -- constitutes a fundamental change in the locus and character of ownership.
It is therefore bound to have profound impact, especially on the governance of companies -- above all, to challenge the doctrine, developed since World War II, of the self-perpetuating professional management in the big company; and to raise new questions regarding the accountability and indeed legitimacy of big-company management.