Slide 1: MANAGING IN THE NEXT SOCIETY Brief outline from http://www.elsevier.com/wps/find/bookdescription.cws_home/680458/description#toc Managing in the Next Society By Peter Drucker, Clarke Professor of Social Science, Peter F Drucker Graduate Management School, Claremont Graduate University, California Description "To be able to exploit these changes as opportunities for the enterprise ... executives will have to understand the realities of the Next Society and will have to base their policies and strategies on them. To help them do this, to help them successfully manage in the Next Society, is the purpose of this book." - Peter F. Drucker Managing in the Next Society is a collection of Peter Drucker's most strikingly prescient articles from the past five years. 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. Divided into four parts, the book offers searching analysis of the 'information revolution' and the knowledge society it has created. It goes on to scrutinize the unprecedented demographic, economic and sociological transformations of recent times to present an outline of "the Next Society" which in turn points to a challenging, provocative and at times shocking view of the future. The rapid shrinkage of young people in the developed world for instance looks set to create a fundamental rift in the composition and scope of the mass market. With the work force being dominated by knowledge technologists, traditional personnel policies and personnel management are quickly becoming obsolescent. So what will take their place? And how will enterprises manage a work force which increasingly consists of people who work for the enterprise without being employees of the enterprise? While rapidly expanding in production volume, manufacturing is rapidly shrinking as a creator of wealth and jobs to the point of becoming marginal socially but paradoxically thereby becoming all the more potent politically. And globalization means the rapid emergence worldwide of a new and dominant middle class. What does all this mean for managements and businesses? Drucker's work has taken a leading place in some of the most celebrated publications in the world, including the Economist, Harvard Business Review and the Wall Street Journal. This book provides the opportunity to sample the very best of Drucker's new writing in one volume. It is absolutely essential reading for any one who wants to know how today's transformations will affect tomorrow's economic climate. Table of Contents Part I: The Information Society - Beyond the Information Revolution; The Exploding World of the Internet; From Computer Literacy to Information Literacy; E-Commerce: The Central Challenge; The New Economy Isn't Here Yet; The CEO in the New Millennium; Part II: Business Opportunities - Entrepreneurs and Innovation; They're Not Employees, They're People; Financial Services: Innovate or Die; Moving Beyond Capitalism?; Part III: The Changing World Economy - The Rise of the Great Institutions; The Global Economy and the Nation-State; It's the Society, Stupid; On Civilizing the City; Part IV: The Next Society - The Next Society;
Slide 2: The New Demographics; The New Workforce; The Manufacturing Paradox; Will the Corporation Survive?; The Future of Top Management; The Way Ahead. ============================================== DAD’S NOTES • • • •
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What is the future of the CD ROM? (page 11 - interesting because it has come and gone since the book was written) Insurance against risk as an important future financial product (page 20 – interesting because it is what got AIG in trouble and formed the entanglement between AIG and Citibank) Information technology has changed how we do what we do, but not what we do (Amazon (pre-Kindle, pre MP3 download) for example) Must be less focused on short term gain Corporations still cannot directly relate expenditures to results – accounting statements can be manipulated 15 years from now the governance of corporations will be different Pension funds are a major future concern Must be getting to the end of running the company of short term gain of shareholders Corporations must get to know their non-customers Only advantage America has is more knowledge workers (in 2002) There is complacency in entrepreneurship o In 1970’s America was leapfrogged by Japanese o Citibank sited as example of systematic innovation What does the business need? – Do I have those qualities Have to start small with social experimentation and social entrepreneurship None has a government that citizens respect Professional Employer Organizations (PEO) provide outsourced human resources services, separating people from the company Today’s (2002) Main financial products barely existed a century ago o Citibank example of innovator o Derivatives as an example of a new financial product o Trading for firms own account is gambling (example Jérôme Kerviel at the French bank Société Générale) http://www.nytimes.com/2008/01/27/business/worldbusiness/27cnd-bank.html? ex=1359090000&en=07ac0a8dd1fd2e57&ei=5088&partner=rssnyt&emc=rss o The problem with financial services is they have not made a single innovation in the last 30 years Corporate “1st”’s/Innovators o GM Pension fund (from DAD) but today the fund is crushing GM http://www.detnews.com/apps/pbcs.dll/article?AID=/20090219/AUTO01/902190374 o Credit cards at Citibank (Walter Winston) o Only innovations since these is “scientific” derivatives – unlikely to work – violate “understanding” of risk (from DAD) Warren Buffet said financial derivatives "weapons of mass financial destruction" http://www.huffingtonpost.com/robert-weissman/wall-streets-best-investm_b_172585.html New banking market is in o Demographics – the aging and the young o The “Edwards Jones” customer model – focus on the middle income EVA – economic value analysis Desperate need for protection against
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o Currency exchange risk for middle sized businesses “the ‘free market’ does not work too well – but nothing else works at all” Free market assumes o 1 – only homogeneous markets (actually 3 markets, local, national, and international) o Speculative money prone to panic o 1800’s supply generated demand (railroads instrumental in this) o 1900’s demand dictates supply o Market is useless for forecasting beyond the short term State socialism has failed to produce wealth and provide services o Maybe the future of the economy is the ownership of the economy by pension funds The Asian markets crisis is not economic but social o 200 million peasants wandering around China looking for work o Japan is a country ran by a civil service bureaucracy o China will either break apart or become more efficient and modern The shrinking of the young population has future problems The nation-state will survive o Billions of virtual money moving from currency to currency o Movement of capital is becoming bigger than movement of goods o Need new theories and policies of economics Trans-national companies see the world as one market o Citibank is the only big bank that has gone transnational (as of 2002) o (from DAD – since then HSBC (The Hong Kong and Shanghai Banking Corporation) and Barclay Bank have become important trans-national banks http://en.wikipedia.org/wiki/HSBC http://en.wikipedia.org/wiki/Barclays_plc During the Boer War in South Africa the concept of “total war” was developed o Destroying not just the enemy, but the enemy’s economy Political passions and nation states have won in the past and will do so in the future o (from DAD) The Russian break up for example o http://www.guardian.co.uk/commentisfree/2006/dec/13/comment.russia Bureaucracies dominate almost all developed countries o Bureaucratic elites hold onto power for decades o Procrastination works – Japan has waited out several crises o Procrastination is logical o Bureaucrats move onto business (from DAD) Robert Rubin moved onto Citibank http://money.cnn.com/2008/01/31/news/economy/rubin_benner.fortune/ http://en.wikipedia.org/wiki/Robert_Rubin o Japan poured money into businesses in the 1990’s to fix financial markets – did not work o Bureaucratic ruling elite remain in power if there is no one to replace them o Economically Japan’s agriculture policy has been a failure – high rice prices and tariffs on other products Socially the plan was a success – it reduced the number of farmers o 1980’s Japan’s exchange rate fell and the Japanese markets went into panic government threw money at the economy to no avail Did it again in the 1990’s o Japan is grossly “over banked” o Japan gives primacy in decisions not to businesses but to society o Example – agriculture in Japan Historically, people cannot wait to move into the cities even though there are no jobs or housing o Very little mobility in the rural society
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The absence of community in cities results in crime, and other problems Criminal gangs fill the lack of community Social programs do not create community Non-profit organizations can fill this need Churches Health clubs o 21st century needs explosive growth in non-profit sector Politicians promise to save the existing pension system even though everyone knows this is not possible o Shrinking of younger population will make problem much worse o Immigration will become important and divisive issue o Immigration is important to increase supply of young educated people Next society will be a knowledge society o Characterized by Borderlessness Upward mobility Opportunity for everyone to either succeed or fail o Knowledge society needs both knowledge workers (doctors, lawyers, etc.) and knowledge technologists (computer programmers, engineers) o Rapid decline in people in agriculture o Rapid decline in manufacturing employment Decline in manufacturing will cause rise in manufacturing protectionism o Rapid increase in knowledge technicians and knowledge workers Tomorrow’s top management o Balance demand for short term and long term results o By 2030, half of Germany will be over 65 years old o Same for most developed countries o In America, birth rate is well below replacement level o Aged will become most important constituency o Pensions will be cut o Politicians pretend they can save pensions o Germany must import 1 million immigrants to maintain workforce o America is better at integrating immigrants into society But hindered by poor public schools Markets have been dominated by demands of the young o May be changing towards demands of older population o Society will be split into two distinct work forces The under 40’s The over 50’s o Change will be most noticeable with women because they enter and leave then re-enter the workforce, often changing careers (second careers) as they do so o People are outliving companies – this is new o Baby boom ‘echo’ in the 1980’s was the result of immigrant populations Knowledge workers are a third of the workforce (in 2003) o Knowledge workers are the new capitalists – knowledge is capital o Knowledge is unisex o It requires continuing education o Knowledge workers are highly mobile o Knowledge is not hierarchical o Knowledge workers see their job as a “life” – manufacturing workers as a “job” o Knowledge workers face the “rat race” to maintain their “life” o Knowledge workers “plateau” so they need to focus on other areas o o o o
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Lean manufacturing o Manufacturing output will double while employment shrinks o Maybe solve problems by integrating developing and developed countries Former Mexico President Foxx’s plan for Mexico in a “North American” economy o Maybe solve problems the way China is by rapidly growing the economy o Labor vote is becoming more important because labor is smaller and more unified o Society and economy are no longer driven by manual work o Protecting aging industries does not work Example – 60 years of farm subsidies have not “saved” agriculture – unprotected crops like soybeans have boomed Will the corporation survive? o The old rules – valid for the last 100 years Corporations are master and employees are servants Employees work full time for the corporation One management Consumer trusts the brand Technologies don’t go across industries o New paradigm Knowledge is the means of production, causing interdependence between corporation and employees (example – corporate non-compete contracts for employees) Employees can be part time, consultants, and contractors Corporations can outsource management and employee functions Customer has the information about competing products, and information is power Technology is not unique (example – fiber optics developed by Corning Glass is replacing copper cable in telecommunications) o Company owned research lab is obsolete Partnerships and new ventures Corporations together with colleges o Corporations need knowledge workers more than knowledge workers need the corporation Not just about money Respect, autonomy, decision making ability, training o GM is changing business model away from manufacturing Toyota still focuses on manufacturing (from DAD) and it put Toyota on top http://www.iht.com/articles/ap/2007/04/24/business/AS-FIN-Japan-Toyota-GM.php o What about doing away with the corporate model and replacing it with a o Syndicate The syndicate manufactures and distributes in their own market Outside their market they use the resources of the syndicate 1900’s farmer’s cooperative model o Corporate “supermen” of the 2000’s Sandy Weill of Citibank Jack Welch of GE Not enough men of this vision and intellect to run all companies o Need a new management concept GE – where the CFO and CHO are equal and excluded from the top job Decentralized management across units CEO’s for each unit that meet as a committee Range of top management models are needed for new corporate forms THE FUTURE o New people policy for employees and contractors o Address the over 50 age group of employees
Slide 6: o Need more information about changes outside the company o Must become a change agent – systematic innovation o “the future will turn out in unexpected ways” o Information revolution resembles the industrial revolutions - wrong o Communist manifesto was the response to the 1st industrial revolution o Scientific management, etc., was the response to the 2nd industrial revolution o “greatest changes are still ahead of us” o Will not be dominated by information technology – that is just a tool o Central feature of the next society will be New institutions New problems
