ONE Doing Business in the Lego World
The assumptions on which most businesses are being run no longer fit reality.1
—Peter F. Drucker
As I crisscrossed the country over the past couple of years, interviewing Peter Drucker and working with clients, something struck me. The staid world of business—the world I’d studied, the world I felt I’d mastered during 20 years at McKinsey & Company and as head of my own consulting firm—had been turned upside down by a silent revolution. In this chapter, I describe that revolution, tell you how Peter helped me understand this radical transformation, and explain what it means for you right now.
THE SILENT REVOLUTION
Change came gradually, predictably, to businesses in the period following World War II through the early 1990s. But then, boom! A silent revolution took place on five fronts:
1. Information flew.
2. The geographic reach of companies and customers exploded.
3. The most basic demographic assumptions were upended.
4. Customers stepped up and took control of companies.
5. Walls defining the inside and outside of a company fell.
Developments on these five fronts played off one another, further accelerating the revolution.
First, information flew. Since the expansion of the Internet, information travels instantaneously, without regard for distance, and its widespread availability is unprecedented. In the globally integrated economy, management must make decisions at all hours of the day and night. Purchasing managers in Plano and distributors in Dubuque can now distinguish between good suppliers and bad ones instantaneously. The greater velocity of information has accelerated the pace of everything in business. Success is measured not by the quarter or the month, but by the minute or second. Every industry, from manufacturing to movies, has had to adjust to this fast-forward world. As Lynda Obst, a producer at Paramount, recently noted, “We used to have a weekend to get our money out of a movie like Stealth or Doom. Now we get one night, tops.”2
The greater velocity of information has
accelerated the pace of everything in business.
For decades, information was power. But today, with the unprecedented availability of instant information to anyone with a laptop, true power comes from screening, interpreting, and translating vast quantities of information into action.
Second, the geographic reach of companies and customers exploded. Remember that cartoon of the kid scraping a hole in the ground and saying, “Hi, Mom, I’m digging to China”? Today that same 11-year-old gets on his Mac and connects to a peer in Guangzhou for a game of war, and his 13-year-old sister goes to sweetandpowerful.com to buy a fleece pullover made in Sri Lanka. Companies and their customers now have an astounding geographical reach. Even mom-and-pop firms can scour the world for resources. And in this global marketplace, brands are created and gain widespread recognition in weeks or months rather than years, cutting down the advantage of the big-brand players who used to be the select members of an exclusive club.
Companies and their customers now have
an astounding geographical reach.
Third, basic demographic assumptions were upended. Populations in the developed world have been jolted by an aging group of workers and a declining birth rate. The migration from industrial to knowledge workers and the increasing success of women in the workforce have changed customers’ needs and forever changed the relationships of corporations with both customers and employees. Until quite recently, only customers in affluent countries reached the apex of Maslow’s pyramid of self-actualization,3 which starts with the basics of food and shelter. Now, millions more people in all social strata have been freed from worrying about the basics; they seek service and fulfillment.
With longer life spans, later retirements, and a record number of women in the workplace, convenience matters more than ever. I noticed recently that my supermarket was touting premade peanut butter and jelly sandwiches for parents who don’t have an extra 60 seconds to slather two spreads on bread. With changes in how customers are distributing their income, companies are offering more useful information and more service. The three fastest-growing consumer purchases today are not traditional consumer goods; they are activities (such as sporting events and health club memberships), health care, and education. Health care and education make up almost a third of America’s gross national product (GNP).
To managers, the biggest effect of these demographic changes is that societies, markets, and workplaces are driven by new populations with new demands. Once-dependable workers over age 50 do not necessarily keep on toiling as full-time, 9-to-5 employees. Instead, many dive into the labor force as temporaries, parttimers, consultants on special assignment, or knowledge workers. Some of these older workers will be pushed into free agent status because of layoffs and buyouts.
Societies, markets, and workplaces are driven
by new populations with new demands.
Fourth, customers stepped up and took control of companies. Never before have customers been so clearly in the driver’s seat. They are engaged with companies in ways that would have astounded Henry Ford or Thomas Watson. Customers are no longer simply passive recipients of goods and services; they are active participants from the product inception, whether as groups evaluating the product or as individuals working with software programs and design engineers to custom-build everything from Levi’s jeans to light fixtures. Consumers can access virtual shelves for almost any product, and they want customized products delivered with the click of a mouse.
Customers create their own weblogs with their own online content. Hachette closed its Ellegirl teen magazine while its competitor, Condé Nast, is launching a Web site with all its content created by teen readers rather than by Condé Nast staffers. We read each other’s blogs and socialize at virtual meeting places such as MySpace.com and the online dating site Match.com. Shopping for a mate has become almost as easy as shopping for a book on Amazon.com (“Add this man or woman to My Cart!”).4
Savvy customers have become part of the process that used to exclude and dismiss them with condescending remarks like, “You’ll have that dining room table delivered in eight weeks. And, no, we cannot make it three inches taller just because you have a relative in a wheelchair—you’ll have to find a carpenter to do that.” Today you design it with one of several manufacturers such as Thomas Moser—often online—exactly the way you want it.
Finally, defining walls fell. These days, a company draws on capabilities outside its own walls in ways that would have been unheard of just a few years ago. To test ideas, companies now use expertise drawn from completely different industries and form alliances with other companies with overlapping missions. Since Home Depot recognized that its strength was internal to its stores, it has passed all its logistics issues off to UPS; now UPS manages everything at Home Depot connected with shipping. This partnership allows the two companies collectively to serve Home Depot customers more efficiently.
Sometimes companies even team up with direct competitors. Last year, two global rivals, China National Petroleum Corporation and India’s Oil and Natural Gas Corporation, teamed up to buy a Syrian oil field, and this year they jointly bid for another one in Colombia.5 Walls have fallen to bring the best people and divisions within companies together rapidly and to enable organizations to adapt without huge write-offs. Whereas independence was once key to speed and a barrier to the entry of competitors, it has come to signify isolation. And isolation is corporate death.
Isolation is corporate death.
The impact of this silent revolution hit me one day in 2005. Although I had studied the company carefully twice before, I was making my first visit to Procter & Gamble (P&G) in Cincinnati as a writer. Everyone welcomed me, from sales reps to the chairman, president, and CEO, A.G. Lafley. They wanted my thoughts, and they were eager to give me every bit of information I requested.
What a vast change this warm reception was from my two prior dealings with the firm in 1990 and again a decade later in 2000. I wasn’t working for P&G on either occasion; I was studying it for a competitor. Back then, the Cincinnati behemoth was so secretive that the chairman of my client company told me not to even so much as mention P&G’s name in any report. He felt that if P&G found out I was analyzing it, there would be “repercussions.” I dubbed it Company S for “secret”—as if any executive couldn’t figure out who was making all those soaps, detergents, and diapers I was writing about.
Now here I was in Cincinnati in 2005—feeling a certain amount of dread mixed with excitement—interviewing Lafley over a lunch of chicken and green beans in his office. At the conclusion of our meeting, he told me to call with any questions. And it wasn’t just Lafley who was forthcoming. Rather than a hermetically sealed conglomerate, I found a company so open that it invited me, an outsider, to visit one of its product-testing centers. The company is intent on tapping outside sources and retirees for research and development (R&D) and is even testing a program with DuPont to link the two firms’ technology centers. P&G had changed its attitude so radically that it was letting employees write articles about how they were managing. Drucker’s influence was apparent. He had been working with P&G since about 1990, and he had constantly pushed executives to see beyond the borders of Ohio. And they had listened.
On my way home, I reflected on my day. What impressed me was not just that P&G was more open; what was really striking was that it was rethinking the way it did everything. I had seen the same ability to rethink the present and embrace the future at GE’s corporate headquarters in Connecticut, and then across the country at a completely different place—the Myelin Repair Foundation, a little-known start-up foundation in northern California.
EMBRACING THE FUTURE
My GE experience began as I prepared to interview its former chairman, Jack Welch, a long-time Drucker client. Before seeing this legendary executive, I wanted to know what GE insiders thought and what tips they could offer for drawing Welch out. I called Dave Stevenson, a friend who used to run GE’s major appliances marketing group. He told me that he had created his own company, doing research on major consumer expenditures. Seven companies, including GE, were buying his research and market planning. That was unusual for GE, which used to distrust outside researchers. But Dave said that Welch had forced the major appliance group to ask not only what others could do better, but what activities should be spun off and which department heads could work independently. When Dave had volunteered to take marketing outside, the bosses surprised him by agreeing to it. Dave gave me his tip: Listen to Jack Welch and don’t be offended by his rough style. Another thing: Jack likes specific questions that demand specific answers.
When I called Welch at the appointed time, I grabbed his attention by asking what he was doing for his birthday. He asked me how I knew, and I told him it was the same as Peter Drucker’s—a bit of trivia that surprised him. My second question was how Peter had influenced him. He said that Peter had made him conscious of GE’s ability to work with another organization that was excited about something that GE found boring. “If it’s not your front room,” Peter had asked Welch, “can you make it someone else’s front room?” Peter had expressions that everyone seemed to remember. His point was that if you don’t have passion for a particular activity, then find an ally who has expertise and passion for that activity and can do it better. Harness GE’s clout and the ally’s passion and move forward. “GE recognized that they were never going to be the best in the world at programming and found a company that was passionate about it in India 20 years before anyone else,” Welch told me. This wasn’t what the press calls outsourcing. Outsourcing is meant to save money or make things easier for the manufacturer. Instead, GE wanted to put the best teams together, even if some members were external and including them added to logistical demands. It sought partnerships that would deliver the best value to the customer. Jack termed this shift “boundarylessness” and indicated that it is a continual challenge for most companies.
Over the years GE executives continued to ask themselves that question and go outside its walls more and more. This effort began in earnest with Peter exhorting Welch to focus on strengths and find somebody else to do the rest.
Focus on strengths and find somebody else
to do the rest.
Big, profit-hungry companies aren’t the only ones breaking boundaries. After talking to Welch, I visited the Myelin Repair Foundation, an innovative group in northern California that is trying to find a cure for multiple sclerosis (MS). (This organization is discussed in detail in Chapter 4.) Its approach challenges two long-standing practices that create barriers in research. First, the foundation is connecting separate, competing research groups that used to share findings only after their papers were published. A group of five leading neuroscientists from different universities are piloting a new, collaborative approach to medical research with a shared research plan right from the start.
Second, the foundation is collaborating with patients at every step—something even the best researchers don’t do. Their meetings include not just researchers and fundraisers but also patients, the people most affected by MS. The patients’ presence creates a new sense of focus and urgency in the researchers. This isn’t an academic exercise that will culminate in articles for specialized journals. This is about life and death and about finding a breakthrough in a few years, not in a future someone’s lifetime. The scientists are looking for take-home solutions to the deterioration of myelin, the protective insulation surrounding nerve fibers of the central nervous system, which is destroyed by MS. This relatively small foundation is pioneering the twenty-first-century way of doing business.
Embracing the new requires
abandoning the past.
Industrial mainstays like P&G and GE and newcomers like the Myelin Repair Foundation are reshaping where and how companies work with customers, other stakeholders, and even potential rivals. These innovators are accelerating the pace at which companies connect, disconnect, and reconnect. P&G and GE recognize that the financial market values soft assets, such as customer relationships, international access and agility, and intellectual capital, and that’s where they put their investments. We’ll learn from their successes—and some of their mistakes—throughout this book.
To paraphrase Drucker, embracing the new requires abandoning the past. In our conversations, he often said that we are at a moment of transition where businesses and organizations will be redefined. If they don’t, they’ll go the way of pterodactyls.
THE PRIMACY OF KNOWLEDGE
I was eager to test my observations about the silent revolution with Peter Drucker, the visionary who had an astounding track record in predicting and shaping the future. The companies I advised were reeling from the changes around them, and I knew his counsel would make my advice better. It was a lucky coincidence that several of the companies I worked with had consulted with him decades earlier.
When I drove to Drucker’s house in a middle-class enclave of Claremont, California, in February 2005, a lone Toyota sedan was parked in the driveway. I remembered my first visit the previous summer when we began to talk about the possibility of my writing a book. On that day, I drove by the house three times, checking the address. It was a nice house, but not ostentatious—an average ranch house in an average neighborhood. It did have distinctive landscaping. The lawn resembled one of those British creations where someone manages to cram in twice as many plants as you’d think possible and make it look wonderful nonetheless.
This time, with the book under way, I rang the bell and heard Peter’s usual, “Just a moment!” Then I heard a thumping noise through the house. Peter opened the door and commented, “I’m not as fast as I used to be.” The thought flashed through my mind, maybe not physically. He continued, “Pleased to see you.” He grabbed my hands and said, “Well, come in.” We walked past Doris’s office and a shelf stacked with mail. We walked through the living room, which was always immaculate. The Financial Times was spread on a long table.
We sat down in the den, next to a round coffee table, with me on his right, by his better ear. Peter enjoyed small talk, but today we plunged right into a business discussion. I wondered if he had noticed the phenomenon of the outside world becoming part of companies. I began by asking his thoughts about the most important challenge for managers today. I used the classic B-school question: What should be keeping managers up at night? He laughed and said, “I don’t know.”
By now, I understood him well enough to realize that he did know. This was his way of prodding a questioner to dig for the answer. Then he’d go into his “I’ll-tell-you-something-else; we’ll-get-back-to-that-question-shortly” routine.
We did get back to it, and this chapter does too, in a moment. Peter often talked in circles—beginning with something that might appear totally unrelated and ending with an insight into a question. Somehow it connected to his initial observation.
Peter observed that we are now in another
critical moment: the transition from the
industrial to the knowledge-based economy . . .
We should expect radical changes in society
as well as in business.
In this case he didn’t start by discussing managers, or even science. He talked about World War II. It was, he said, the first war won on industrial power, not military depth. It was the first time in which industry was not an auxiliary but the main fighting force itself. In fact, in the first six months, the United States manufactured more aircraft, tanks, and artillery than Hitler and his advisers thought the Americans could make in five years. They did it by applying the discipline of management from operations research and quality control to rapidly convert factories from making cars to producing tanks. Peter then mentioned my friends from the Sloan School and the role they had played. That led him to a soliloquy about peace. He said that any peace following such a war must be an industrial peace—a peace in which industry is not just on the periphery but at the center. He was on a roll, tracing the transition from a mercantile economy to an industrial economy . . . and the concomitant tension between policy and reality.
Peter observed that we are now in another critical moment: the transition from the industrial to the knowledge-based economy . . . We should expect radical changes in society as well as in business. “We haven’t seen all those changes yet,” he added. Even the very products we buy will change drastically.
I asked how the Americans won the Gulf War in 1991. He didn’t take his usual moment to collect his thoughts. “Technology,” he shot back. When I asked how the war on terrorism will be won, he took a moment and said, “Knowledge.” He then explained the difference to me: “Technology is the application of yesterday’s knowledge. The war on terrorism will be won based on our ability to apply knowledge to knowledge—or someone else’s ability.” He meant the ability to integrate the pieces and add to what we know individually.
And that brought us to management, or what he called “knowledge-based management.” He spent the better part of the next two hours defining and pulling this idea apart: the importance of accessing, interpreting, connecting, and translating knowledge. He spoke about how critical it is to find and manage knowledge in new places like pharmaceutical companies as they move beyond chemistry to nanotechnology and software. Knowledge-based management is also critical to old multinationals like GE as they begin to build infrastructure for the developing countries, with the caveat that they first need to fully understand those countries. Essentially, GE has to access information about the developing world and its infrastructure, interpret this information, and connect it with the rest of GE. Drucker commented that information will be infinite; the only limiting factor will be our ability to process and interpret that information. That is what he meant when he emphasized the importance of the productivity of the knowledge worker.
Peter had a way of looking at something and teasing out both the positive and the negative. “On the one hand, it’s important to specialize,” he said. “On the other hand, it’s dangerous to over-specialize and be isolated.”6 The ability to access specializations while cutting across them—that’s what I’d seen at the headquarters of the Myelin Repair Foundation only a few hundred miles away. Finally, Peter was answering my question—finding a way to specialize enough, but not too much, and without isolation. “That,” he said, “is what should keep managers up at night.”
Doris appeared. All too quickly my morning session with Peter had ended. That afternoon, when I went back, our topic was Thomas Friedman’s bestseller The World Is Flat. Friedman argues persuasively that it doesn’t matter where work gets done—it makes no difference whether a computer company produces a part in India or Indiana.
Everywhere I went, executives seemed to agree: The world is flat. I asked Peter if he thought the world was flat.
“From whose perspective?” he asked.
“Yours,” I said.
“I have trouble walking around my living room,” he joked. “It doesn’t seem flat to me.”
His mind was so spry that sometimes I forgot he was 95 years old. “All right,” I said, “then from the manager’s perspective.”
He paused and said, “Their landscape is flat only if there is an opportunity from it being flat. But if there is an opportunity, it will not be flat for long.”
THE LEGO WORLD
After several more discussions with Peter, I came to understand what he was telling me. The management world is flat only if you take an industrial perspective. If you just want the lowest cost, the capabilities exist virtually every place in the world to get the lowest cost. But if cost is not your only concern and you recognize that the industrial world has given way to an information and knowledge-driven world, you will see that the world is not flat and that Indiana and India are not interchangeable. Indeed, the ability to put together and connect the pieces in different ways and with the customer all the time defines an enterprise’s performance. Many more than two dimensions of place and time matter all the time. Even country geography is not flat. Silicon Valley is different from Silicon Alley which is different from Wall Street.
The ability to put together and connect
the pieces in different ways and with the
customer all the time defines
an enterprise’s performance.
In the twenty-first century, businesses exist in a Lego world. Companies are built out of Legos: People Legos, Product Legos, Idea Legos, and Real Estate Legos. And these aren’t just ordinary Legos; they pass through walls and geographic boundaries, and they are transparent. Everything is visible to everyone all the time. Designing and connecting the pieces is at least as important as providing them. It’s crucial to remember that these aren’t simply pieces of plastic or metal—they are not just factories or warehouses. They are also humans who program computers, train newcomers, and think about innovation as they prowl malls, libraries, and parks, coming up with new products and services. These pieces are constantly being put together, pulled apart, and reassembled.
My company’s Legos—manufacturing, distribution, skills, and services—cannot be unique unto themselves; they have to connect with your company’s Legos. I can build my company, but in a year or two, my CEO and I might have to tear down and rebuild part of it in a totally different configuration, perhaps with fewer American People Legos and more of your company’s People Legos in Sweden or South Africa. Leading visionaries in business are expressing the same notion. Ray Ozzie, Microsoft’s chief software architect, recently explained: “What’s more important than any one individual Lego is that you know how to build with all the Legos. With everything out there, all those programs and applications and accessories, what’s important is the ability to find a way to connect fragmented software pieces rather than simply finding the next piece of software.”7
In the twenty-first century,
businesses exist in a Lego world.
That’s the idea that Peter embraced, but it was larger than software and components. He thought in terms of people, with a tremendous sense of humanity and compassion for the individual. That’s the beauty of it. We are not talking about commodities. We are talking about individuals and their ability to create. As these Legos connect and interconnect in ways we could never have imagined a decade ago, when the Internet was in its infancy, we find a powerful, human structure. In an organization, we can connect individuals’ strengths, minimizing their weaknesses. And across organizational boundaries, we can connect the strengths of each corporation and provide the customer with far greater value than can any single enterprise.
Dell is a classic example of a Lego manufacturer. It has configured its offering so that customers can custom-build computers to meet their individual needs. Michael Dell claims that the firm’s important capabilities are the management and integration of information and the ability to quickly build a computer to a customer’s specifications. Dell’s Product Legos include anything from processor and memory capacity to screen size. Its internal network includes vendors, shipping locations, and the location of the customer service center (depending on the time of day, customers can be helped by someone in South Africa, India, or Texas). Connecting pieces include Dell’s systems, user interface, assembly centers, and customer support service. Although Dell recognizes customer service as its weakest link, Dell can deliver a customer-tailored product to anyplace in the world at an incredible speed, largely because of the interchangeability of its components, which is at the heart of Dell’s “Lego-like” operations. Dell’s challenge will be to disconnect and reconnet in a new way as the PC moves from a worktool to the entertainment and communication center.
Amazon exemplifies the Lego approach in the retailing arena; it connects with other vendors who have expertise in making everything from textbooks to toys. Its Web site links you to book publishers, third-party used bookstores, individuals reselling books, and vendors for any product you can dream of—from televisions to telephones to T-shirts. Amazon knows you, and, when you log on, it welcomes you by name and offers you purchase suggestions at lightning speed. It often knows what I want before I do. It’s the high-tech version of the old-fashioned grocer who not only knows you by name but also has a hunch you need sugar before you run out. The company is connected to you, your mind, and your credit card. It is the connection that is important.
Dell took its expertise and understanding of the electronics world and connected that capability with each consumer to greatly increase its impact. Amazon linked one Lego to another, from baby clothes to DVDs, and created a simple interface offering the consumer scores of products and incredible ease of use—one-click checkout. Jeff Bezos had the patience and foresight to build a company around connections, and, after a decade of testing, learning, and growing, he made a profitable business. He also had the insight that told him that building an initial customer base around books would ensure that his core customer would be literate, savvy, relatively affluent, and likely to return to purchase more.
A NEW SOLUTION SPACE
The most significant trends affecting business transcend all companies and all industries. They cross borders and touch all areas of civil society. Business as we know it is disappearing. Companies aren’t selling products; they’re selling experience. Relationships have gone far beyond the roles of buyer and seller. There are no competitors. Let me repeat that, because it’s something that Peter Drucker loved to say: There are no longer competitors, just better solutions and more choices that can be put together in more ways. In other words, companies focused on competitors are focused on the past, not a future full of technological and demographic opportunities.
Business as we know it is disappearing.
Companies aren’t selling products; they’re
selling experience. There are no longer
competitors, just better solutions and more
choices that can be put together in more ways.
The evolution of cellular phones into instruments capable of doing much more than handling voice communication offers a striking example. The obvious convergence of functions to give a customer a product that does many things—capturing and transmitting still and moving digitalized images, connecting with the Internet, even functioning as a TV—not only means serving a wide range of consumer needs but also guarantees that customers will upgrade to a new device frequently because they want the latest version with new and enhanced capabilities. And the carriers will constantly have to upgrade infrastructure and systems in order to not only constantly improve service, coverage, and signal quality but also to be prepared to offer new forms of service functions. Sprint “competes” with Verizon in recruiting and retaining subscribers by focusing on constant innovation, which is the primary engine of growth and sustainability. By continually innovating in both technology and range of services offered, what was once an enterprise offering a commodity—cellular phone service—becomes one offering a rapidly widening range of value-added services. The winner is the organization that offers the most varied menu from which a customer can pick, choose, and customize. And this trend is driving change not just in the electronics industry, but in a variety of goods and services that themselves were unimaginable years ago.
IMPLICATIONS FOR MANAGERS
One of Drucker’s talents was his ability not just to see trends but also to shed light on their implications so that managers could act on them. In our conversations, we discussed three consequences of the silent revolution:
1. Financial markets now value knowledge more highly than they value hard assets, underlining the emergence of the knowledge economy.
2. The U.S. economic engine is facing the gravest threat of the past 100 years: the need for corporations to be strategic collaborators rather than unilateral superstars.
3. Strategy has become a crucial ongoing activity for management, not simply an annual planning exercise.
Financial markets value companies based on what they think they can earn over time. For decades—since the Industrial Revolution, really—what mattered was hard assets: factories, inventory, and accounts receivable, or the ability to build products. Reflecting the preeminence of the knowledge economy, the silent revolution has prodded the financial markets to value the intangibles, such as relationships, intellectual property, and knowledge, and to quantify the value they might generate in the future. We are buying services more than products—health care, education, personal trainers. The market reflects this shift in value. In the last five years, soft assets—intellectual property, patents, and connections—have doubled in value compared to traditional assets, such as plants and equipment.8
Drucker noted two developments that drove this shift to soft assets. Old companies, like Boeing, were being revalued as their physical assets took a back seat to their knowledge, relationships, and ability to connect. At the same time, innovative companies, like Google, Yahoo!, and Craigslist, were launched in cyberspace with very little in the way of physical assets, providing services that had never existed before. Unlike a traditional newspaper that relies on classified ads, Monster.com is a forum, a truly interactive business. At first it sounded like just an electronic version of the classified ad—hardly a big advance. But browsers can see what is happening in the labor market, how jobs are being described, and which industries are prospering. It offers a much more comprehensive view of the job market than does a stack of the Sunday New York Times, or even nytimes.com.
Consider Craigslist, which, though not a newspaper, has had an even more profound effect on the print media, because it does not charge for classified ads. In just one day, I sold my car on Craigslist to someone who lives just outside the circulation area of my hometown newspaper—and rather than paying $50 for agate type that might or might not lure a buyer, I didn’t pay a cent. And then I was hooked. I started buying gardening equipment from people in my suburb who posted ads on Craigslist. In just one week, I gave up my lifetime habit of scanning the classifieds in my hometown paper. Monster.com and Craigslist are more than mere services; they are locations—virtual Starbucks. You join a crowd. It’s comfortable.
The second challenge is one that Peter and I talked about frequently and one that keeps me up at night: U.S. companies’ ability to cooperate in the global marketplace. America’s institutions—even our economy and our mindset—are designed for the individualism of an industrial economy, not a Lego world. The game has changed. Peter agreed. He kept saying, “The theory of business has changed.” He saw a warning in England’s behavior at the time of the later stages of the Industrial Revolution. By holding on to the past, England survived as a nation but lost its world leadership. Peter foresaw a time when many countries would be as strong economically as the United States. The booms in India, China, and even Brazil have created world-class competitors.
Americans will have to play as equals, something that’s not easy when you’ve spent a good part of a century as the undisputed Number One. We have to retool our schools so that students don’t simply learn how to answer multiple-choice questions. They need to synthesize information and think critically. If we want our children to thrive in this new world, we should immerse them in Mandarin or another language by the age of five so they learn to connect to other cultures and languages.
The most significant business implication
of the silent revolution is the new role and
importance of a good business strategy.
The most significant business implication of the silent revolution is the new role and importance of a good business strategy. Simply put, a strategy focuses critical resources on tasks aimed at producing results. I used to assume that business strategy was like strategy in chess. You had a quantifiable number of moves to choose from. Everyone played on the same basic board from year to year, from decade to decade, learning a few new moves and facing new competitors. The best strategist won the game.
But, today, it’s as if chess is played in four dimensions, on multiple boards, simultaneously by experts on five continents. And in business you don’t have to worry about competitors so much as ever-changing rules and unidentified customers.
From 1950 to 1990, the boundaries of strategy were well defined, as were the customers, markets, competitors, suppliers, and potential threats. Enemies—regulators or rivals—were clear. Companies spent three to six months every year crafting their strategies, which were then translated into budgets, capital requests and approvals, and personnel changes.
But not in the Lego world where strategy arises from proactive and innovative moves that create opportunities. The boundaries may be global; the markets may not even fit into any convenient categories, such as 13-year-old girls with $50-a-week allowances who like fleece pullovers. The resources will likely extend outside your own company, and the direction of your business will have to align with other strategies. Even if you own the right physical assets and employ the best minds, you are no longer guaranteed control over the right-of-way to the customer; too many filters influence a customer’s purchase decisions. For example, when influential teenagers with a presence on MySpace.com decide that teens must buy their pullovers from a hot new place, it’s bad news for the old place. In the Internet age, the classic value delivery chain makes about as much sense as a chain letter.
Strategy has to move and be refined at a speed comparable to what used to be called tactics; it has to be in real time. You don’t have six months, or even three months, to create a master plan. Opportunities disappear as rapidly as they can be captured. Strategy is not a goal; it is a direction, a blueprint for putting the pieces together and building. It must have continuous feedback to translate real-time results into refinements and changes as appropriate. In a Lego world, fluid design and the ability to connect and reconnect provide a new agility that is a central element of the twenty-first-century enterprise.
In a Lego world, fluid design and the
ability to connect and reconnect provide a new
agility that is a central element of the enterprise.
As Drucker often pointed out, companies face unparalleled demands. They must craft and communicate a strategy that invigorates their employees and collaborators and that gives them a shared purpose and direction. They must be ready to adopt almost anything that will give them an edge in innovation and enhanced productivity. A company that builds on each individual’s potential is far more likely to succeed than one that inches people forward in dull tasks. Creating tomorrow—by taking advantage of opportunity and human talent and capability, in a manner which enhances society—is the challenge of management in the twenty-first century.
CONCLUSION
As Drucker maintained for over 70 years, businesses are the critical engine of a thriving and sustainable society that values individuals and rewards achievement, with management effectiveness the determining factor in keeping the engine running. Let’s be clear: Business isn’t just business. It’s the economic engine of democracy.
Business isn’t just business.
It’s the economic engine of democracy
Drucker believed that with the right questions, the right judgment, and the right mindset, the manager who “walks outside” and thus liberates himself or herself and others from the confines of “what you think you know” is more than capable of rising to the occasion. We will not all be the genius Peter was, but we can all learn from his approach, beginning with asking the right questions.
