By Paul Simpson, Consultant Editor, Work.
‘The decision about people is the only crucial one.’ That’s what Alfred Sloan, the presiding genius of General Motors (GM), told Peter Drucker when the then nascent management guru had queried why a top committee had spent four hours discussing the assignment of a mechanic. Sloan explained: ‘If we didn’t spend four hours placing a man and placing him right we’d spend 400 hours cleaning up after our mistake.’
Decisions about people should be top priority
Drucker never forgot that conversation, which took place in the 1940s when he was studying GM. Yet as he became more influential, he was disappointed to discover that the lesson he took from that exchange, namely ‘Make decisions on people — selection, placement, and evaluation — your top priority’, was being ignored by so many corporations. In the 1980s, he criticised a ‘cult of cruelty’ where CEOs could boost the company’s share price by announcing mass redundancies as proof — for many gullible investors — of management virility. Long before the current backlash against market-driven globalisation, Drucker argued that ‘Free enterprise cannot be justified as being good for business, it can be justified only as being good for society.’
Today, as many people in developed economies face the prospect of a decade without any real wage increase — or worse still, the threat that their jobs may not even exist by 2030 — Drucker’s concerns are more pertinent than ever.
So why is his voice not heard more often? To be sure, he wasn’t infallible — for example, he didn’t really grasp how start-ups would transform the economy, particularly in the US. Some of his best lines — such as ‘culture eats strategy for breakfast’ — can sound glib. As the second decade of the 21st century draws to a close, even his life story — growing up in a family of bourgeois intellectuals in Vienna, then the capital of the Austro-Hungarian empire, fleeing Nazi Germany and spending more than half a century studying/advising large, usually American, corporations — makes him sound like a relic of a bygone age.
It doesn’t help that many of Drucker’s disciples — notably Jack Welch at General Electric — have fallen off their pedestals. Nicknamed ‘Neutron Jack’ for firing tens of thousands of workers while leaving buildings intact, Welch seemed to epitomise the very ‘cult of cruelty’ Drucker was fulminating against. By advising such CEOs, Drucker laid himself open to the charge that, as one Wired magazine reader argued, he simply bought into the ‘pervasive ideology of late 20th century elites’.
In part, Drucker’s lower profile reflects the increasing segmentation of the discipline that he, with help from Chester Barnard, Mary Parker Follet and Elton Mayo, virtually invented. Today, you have a management guru for every need. If innovation is your focus, read Clayton Christensen. If you’re keen to flatten your management hierarchy, try Gary Hamel. If you want to complete your search for excellence, thrive on chaos or make the most of ‘brand you!’ you can rely on Tom Peters.
Yet good management is not just about excelling in one, a few or even many specialisms. Dr Duncan Brown, head of HR consultancy at the Institute of Employment Studies, says that what makes Drucker so valuable was that he ‘had the breadth of perspective to see beyond and across specialisms to draw out common truths.’
We live in an age when too many business leaders pursue the latest management fad or pointlessly ponder how, through some mysterious corporate alchemy, they could become the next Apple, Google or Amazon. Yet CEOs who actually want to do the hard work required to improve performance would be better off heeding Drucker and focusing on the stuff that managers really need to do.
In Drucker’s view, what managers need to do covers everything from time management, innovation, compromising and knowing when to abandon ideas, projects, or markets to behaving ethically (he quotes the Hippocratic oath ‘first do no harm’ which Google tweaked for its original corporate motto ‘Don’t be evil’).
Yet along with an excellent set of self-help lessons, Drucker offered a critique of corporate capitalism that, especially in the 1980s, many found politically unpalatable. Even a thriving economy, he noted, could be dangerous: ‘Every boom — and I have lived and worked through four or five — puts crooks in at the top.’
Failure of corporate capitalism
The last boom, which burst in the 2008 credit crunch, differed only from its predecessors, Drucker argued, because it ‘considerably increased the temptation to fake the books — the exclusive emphasis on quarterly figures, the overemphasis on the stock price, the well-meant but idiotic belief that executives should have major financial stakes in the company, the stock options (which I have always considered an open invitation to mismanagement), and so on.’
These eloquently articulated concerns remain as urgent as ever. Six years ago, consultants McKinsey tried to redirect corporate America’s culture by launching a crusade for long-term capitalism. Unfortunately, for every CEO such as Paul Polman at Unilever, who gets it, there are 50 fearing that activist investors will get them fired. Even McKinsey, with its granular knowledge of America’s corporate psyche, has found this message a hard sell.
In differing ways, the Brexit referendum, the election of Donald Trump and Emmanuel Macron, and Labour’s pundit-defying showing in this year’s UK General Election, are all evidence of popular discontent with the status quo. That feeling of disempowerment — of lacking control of our lives — has been fuelled by growing social inequality, financial insecurity and a pervasive suspicion that the one percent is benefitting from a thoroughly stodgy economic recovery and the 99 percent aren’t.
Technology and automation
In 2014, the OECD found that in ten developed economies, labour’s share of GDP had declined significantly since 1970 — by 14 percent in Spain, 11 percent in the US, 7 percent in France and Germany and 6 percent in the UK. In other words, labour’s share of the UK’s GDP is roughly the same as it was before World War II. In France, it had slumped even further — to what it was in 1897.
These findings are echoed by the Pew Research Centre which estimated that, adjusting for inflation, the average hourly wage in the US in 2014 had the same purchasing power as in 1973. While sceptics have accused some analysts of torturing the numbers for political purposes, even the innately cautious OECD felt obliged to share its concern that ‘most workers, and in particular the least educated, would find themselves in a ‘race against the machine’.’
Whether you’re pessimistic like Eeyore or optimistic as Pangloss, it is clear that automation will radically redefine lives, economies and societies in a way we have not experienced since the first Industrial Revolution.
The dilemma automation poses for businesses is historic, and stark. If they believe that the role of free enterprise is to be good for business — in terms of quarterly earnings, share prices and stock options and so forth — then they will, as many CEOs talk privately of doing, make 40 percent of their staff redundant, save millions and pass on the costs — in terms of benefits for the newly unemployed — to the state.
There are two problems with this approach. The immediate, obvious difficulty is that the state cannot afford costs of that magnitude. The second problem is that if this strategy is widely adopted, many consumers will not be able to afford the products that these fabulously efficient, highly automated companies make. As novelist James Meek noted in the London Review of Books, ‘robots don’t eat chocolate’.
Social and human value of work
The crucial point here, as Drucker has suggested, is that the economy and society are not the same things. Robert Kennedy, in one of his most eloquent speeches, declared that judging a country entirely by its gross domestic product ‘measures everything except that which makes life worthwhile’. In the same way, work is not just a revenue-generating, economic construct — it has a social value to ourselves as individuals and to the communities to which we belong.
Sometimes, the worst thing that can happen to an ideology is to have no serious competition. Since communism’s demise, political debate in the West has centred on how to manage free market capitalism, not question its rationale. That consensus is fragmenting. Since 2007, there has been a catastrophic decline in the public’s trust in government and business. CEOs who become so fixated on using automation to cut costs that they ignore the social repercussions may live to regret it.
Informed (or misinformed?) by word of mouth via social media, consumers are no longer docile creatures of habit. They are far more inclined to shun brands that rip them off, use slave labour or simply get on their nerves. When thousands of Chinese consumers were outraged by a UN ruling over territories in the South China Sea last year, they posted videos of themselves smashing iPhones — the most potent symbol of American capitalism — as proof of patriotic outrage.
Robots, chatbots and AI will all shape the future of work, probably in ways we cannot foresee, but humanity has to have its say because as Drucker wrote: ‘Work is an extension of our personality. It is achievement. It is one of the ways that a person defines himself or herself, measures his worth and his humanity.’
Paul Simpson’s feature on Peter Drucker is published in the Summer 2017 edition of Work., the CIPD’s thought leadership journal.