The Economist

The Way Ahead

The time to get ready for the next society is now

By Peter F. Drucker

November 1, 2001

The next society has not quite arrived yet, but it has got far enough for action to be considered in the following areas:

The future corporation. Enterprises—including a good many non-businesses, such as universities—should start experimenting with new corporate forms and conducting a few pilot studies, especially in working with alliances, partners and joint ventures, and in defining new structures and new tasks for top management. New models are also needed for geographical and product diversification for multinational companies, and for balancing concentration and diversification.
People policies. The way people are managed almost everywhere assumes that the workforce is still largely made up of people who are employed by the enterprise and work full-time for it until they are fired, quit, retire or die. Yet already in many organisations as many as two-fifths of the people who work there are not employees and do not work full-time.

Today's human-resources managers also still assume that the most desirable and least costly employees are young ones. In America, especially, older people, and particularly older managers and professionals, have been pushed into early retirement to make room for younger people who are believed to cost less or to have more up-to-date skills. The results of this policy have not been encouraging. Generally speaking, after two years wage costs per employee for the younger recruits tend to be back where they were before the “oldies” were pushed out, if not higher. The number of salaried employees seems to be going up at least as fast as production or sales, which means that the new young hires are no more productive than the old ones were. But in any event, demography will make the present policy increasingly self-defeating and expensive.

The first need is for a people policy that covers all those who work for an enterprise, whether they are employed by it or not. After all, the performance of every single one of them matters. So far, no one seems to have devised a satisfactory solution to this problem. Second, enterprises must attract, hold and make productive people who have reached official retirement age, have become independent outside contractors or are not available as full-time permanent employees. For example, highly skilled and educated older people, instead of being retired, might be offered a choice of continuing relationships that convert them into long-term “inside outsiders”, preserving their skill and knowledge for the enterprise and yet giving them the flexibility and freedom they expect and can afford.

There is a model for this, but it comes from academia rather than business: the professor emeritus, who has vacated his chair and no longer draws a salary. He remains free to teach as much as he wants, but gets paid only for what he does. Many emeriti do retire altogether, but perhaps as many as half continue to teach part-time, and many continue to do full-time research. A similar arrangement might well suit senior professionals in a business. A big American corporation is currently trying out such an arrangement for older top-level people in its law and tax departments, in research and development and in staff jobs. But for people in operating work, eg, sales or manufacturing, something different needs to be developed.

Outside information. Perhaps surprisingly, it can be argued that the information revolution has caused managements to be less well informed than they were before. They have more data, to be sure, but most of the information so readily made available by IT is about internal company matters. As this survey has shown, though, the most important changes affecting an institution today are likely to be outside ones, about which present information systems offer few clues.
One reason is that information about the outside world is not usually available in computer-useable form. It is not codified, nor is it usually quantified. This is why IT people, and their executive customers, tend to scorn information about the outside world as “anecdotal”. Moreover, far too many managers assume, wrongly, that the society they have known all their lives will remain the same forever.
Outside information is now becoming available on the Internet. Although this is still in totally disorganised form, it is now possible for managements to ask what outside information they need, as a first step towards devising a proper information system for collecting relevant information about the outside world.
Change agents. To survive and succeed, every organisation will have to turn itself into a change agent. The most effective way to manage change successfully is to create it. But experience has shown that grafting innovation on to a traditional enterprise does not work. The enterprise has to become a change agent. This requires the organised abandonment of things that have been shown to be unsuccessful, and the organised and continuous improvement of every product, service and process within the enterprise (which the Japanese call kaizen). It requires the exploitation of successes, especially unexpected and unplanned-for ones, and it requires systematic innovation. The point of becoming a change agent is that it changes the mindset of the entire organisation. Instead of seeing change as a threat, its people will come to consider it as an opportunity.

And then?

So much for getting ready for the future that we can already see taking shape. But what about future trends and events we are not even aware of yet? If there is one thing that can be forecast with confidence, it is that the future will turn out in unexpected ways.

Take, for example, the information revolution. Almost everybody is sure of two things about it: first, that it is proceeding with unprecedented speed; and second, that its effects will be more radical than anything that has gone before. Wrong, and wrong again. Both in its speed and its impact, the information revolution uncannily resembles its two predecessors within the past 200 years, the first industrial revolution of the later 18th and early 19th centuries and the second industrial revolution in the late 19th century.

The first industrial revolution, triggered by James Watt's improved steam engine in the mid-1770s, immediately had an enormous impact on the West's imagination, but it did not produce many social and economic changes until the invention of the railroad in 1829, and of pre-paid postal service and of the telegraph in the decade thereafter. Similarly, the invention of the computer in the mid-1940s, the information revolution's equivalent of the steam engine, stimulated people's imagination, but it was not until 40 years later, with the spread of the Internet in the 1990s, that the information revolution began to bring about big economic and social changes.

Equally, today we are puzzled and alarmed by the growing inequality in income and wealth and by the emergence of the “super-rich”, such as Microsoft's Bill Gates. Yet the same sudden and inexplicable growth in inequality, and the same emergence of the “super-rich” of their day, characterised both the first and the second industrial revolutions. Relative to the average income and average wealth of their time and country, those earlier super-rich were a good deal richer than a Bill Gates is relative to today's average income and wealth in America.

These parallels are close and striking enough to make it almost certain that, as in the earlier industrial revolutions, the main effects of the information revolution on the next society still lie ahead. The decades of the 19th century following the first and second industrial revolutions were the most innovative and most fertile periods since the 16th century for the creation of new institutions and new theories. The first industrial revolution turned the factory into the central production organisation and the main creator of wealth. Factory workers became the first new social class since the appearance of knights in armour more than 1,000 years earlier. The house of Rothschild, which emerged as the world's dominant financial power after 1810, was not only the first investment bank but also the first multinational company since the 15th century Hanseatic League and the Medici. The first industrial revolution brought forth, among many other things, intellectual property, universal incorporation, limited liability, the trade union, the co-operative, the technical university and the daily newspaper. The second industrial revolution produced the modern civil service and the modern corporation, the commercial bank, the business school, and the first non-menial jobs outside the home for women.

The two industrial revolutions also bred new theories and new ideologies. The Communist Manifesto was a response to the first industrial revolution; the political theories that together shaped the 20th-century democracies—Bismarck's welfare state, Britain's Christian Socialism and Fabians, America's regulation of business—were all responses to the second one. So was Frederick Winslow Taylor's “scientific management” (starting in 1881), with its productivity explosion.

Big ideas

Following the information revolution, once again we see the emergence of new institutions and new theories. The new economic regions—the European Union, NAFTA and the proposed Free-Trade Area of the Americas—are neither traditionally free-trade nor traditionally protectionist. They attempt a new balance between the two, and between the economic sovereignty of the national state and supranational economic decision-making. Equally, there is no real precedent for the Citigroups, Goldman Sachses or ING Barings that have come to dominate world finance. They are not multinational but transnational. The money they deal in is almost totally beyond the control of any country's government or central bank.

And then there is the upsurge in interest in Joseph Schumpeter's postulates of “dynamic disequilibrium” as the economy's only stable state; of the innovator's “creative destruction” as the economy's driving force; and of new technology as the main, if not the only, economic change agent—the very antithesis of earlier economic theories based on the idea of equilibrium as a healthy economy's norm, monetary and fiscal policies as the drivers of a modern economy and technology as an “externality”.

All this suggests that the greatest changes are almost certainly still ahead of us. We can also be sure that the society of 2030 will be very different from that of today, and that it will bear little resemblance to that predicted by today's best-selling futurists. It will not be dominated or even shaped by information technology. IT will, of course, be important, but it will be only one of several important new technologies. The central feature of the next society, as of its predecessors, will be new institutions and new theories, ideologies and problems.