Managing in the Next Society
Tags: #business #management #future of work #technology #society #economics
Authors: Peter F. Drucker
Overview
In ‘Managing in the Next Society’, I address the profound societal and economic shifts that are shaping the 21st century and their implications for businesses, individuals, and governments. This is not a book about fads or quick fixes; it’s about understanding fundamental changes and adapting to a new reality. The ‘Next Society’ is not some distant future, it’s already here, driven by demographic shifts, the rise of knowledge work, and the ongoing impact of the Information Revolution.
This book is written for leaders in all sectors—business, government, and nonprofit. My central argument is that these social changes will be more important for the success or failure of an organization than economic events. We are moving beyond the traditional corporation, the traditional workforce, and the traditional assumptions about how the world works.
I explore the rise of e-commerce, the changing nature of work and the workforce, the challenges facing the financial services industry, the need for social entrepreneurship, and the evolving role of government. I argue that success in the Next Society requires new approaches to management, a focus on innovation, and a willingness to embrace change. Throughout the book, I draw on historical examples, personal anecdotes, and my years of experience as a management consultant to illustrate my points and offer practical advice for navigating the challenges ahead.
Book Outline
1. Beyond the Information Revolution
The truly revolutionary impact of the Information Revolution is just beginning. It’s not information itself driving this change, but rather e-commerce. E-commerce is changing how we do business, how we see the world, and ourselves within it. New and unexpected industries will emerge, while the impact on society and politics may be even greater.
Key concept: E-commerce is to the Information Revolution what the railroad was to the Industrial Revolution—a totally new, totally unprecedented, totally unexpected development.
2. The Exploding World of the Internet
Just as the railroad revolutionized the industrial world, e-commerce is reshaping the information age. Distance is no longer a barrier, creating a single, global market where businesses must be competitive on a global scale. The shift to e-commerce will bring unexpected changes in what is bought and sold, and how.
Key concept: In the new mental geography created by the railroad, humanity mastered distance. In the mental geography of e-commerce, distance has been eliminated. There is only one economy and only one market.
3. From Computer Literacy to Information Literacy
We must move beyond mere ‘computer literacy’ and embrace ‘information literacy’. CEOs need to take responsibility for how they use information. The key is for leaders to understand what information they need, from whom, in what form, and when. They must become sophisticated users of information as a tool.
Key concept: CEOs must accept that if the computer is a tool, it is the tool user’s job to decide how to use it.
4. E-Commerce: The Central Challenge
E-commerce is not just about selling online, it’s a fundamental shift in how business is done. Selling and purchasing become distinct activities, each with its own unique challenges. The ability to deliver goods and services efficiently becomes a critical core competency for businesses in a world where distance is irrelevant.
Key concept: E-commerce separates, for the first time in business history, selling and purchase.
5. The New Economy Isn’t Here Yet
The ‘New Economy’ is not yet here. Many internet startups are not truly businesses but stock market gambles. The real shift is the decline of manufacturing as a source of value and the rise of knowledge and distribution as key economic drivers.
Key concept: Manufacturing does not add value anymore. Value is contributed in knowledge and distributing.
6. The CEO in the New Millennium
The CEO’s job is changing. They must adapt to the new realities of the knowledge society. This includes navigating the changing landscape of corporate governance, finding new ways to leverage information for decision-making, and recognizing the growing importance of knowledge work.
Key concept: Today’s knowledge workers are probably less productive than in the past because their schedules are filled with activities that don’t reflect their training or talent.
7. Entrepreneurs and Innovation
Entrepreneurship is a discipline, not just a matter of having a ‘great idea’. True entrepreneurial success requires a systematic approach to innovation, a willingness to adapt to unexpected market shifts, and a sharp focus on cash flow over short-term profits.
Key concept: Innovation requires us to systematically identify changes that have already occurred in the business—in demographics, in values, in technology or science—and then to look at them as opportunities.
8. They’re Not Employees, They’re People
The modern workforce is changing in fundamental ways. The growth of temp agencies and Professional Employer Organizations (PEOs) reflects a shift towards a more flexible and specialized workforce. This change is driven in part by the increasing burden of government regulations and the need for companies to focus on their core competencies.
Key concept: People are our greatest liability.
9. Financial Services: Innovate or Die
The financial services industry must innovate or die. Traditional financial products have become commoditized, and reliance on trading for profits is a risky long-term strategy. The industry needs to find new sources of revenue, such as serving the growing middle class and offering innovative financial management solutions for businesses.
Key concept: The dominant financial services institutions have not made a single major innovation in thirty years.
10. Moving Beyond Capitalism?
Capitalism, while effective for generating wealth, is too one-dimensional, failing to account for human and social needs. We are moving beyond traditional capitalism towards a system where knowledge workers are the new capitalists, but social responsibility is more important than ever. We need to move beyond a two-sector economy of government and business and embrace a third sector, the ‘social sector’ of nonprofit organizations, to effectively manage in the long term.
Key concept: But, just as I am unlikely to do well trying to cut my toenails with a hammer, government is incompetent at fulfilling community needs.
11. The Rise of the Great Institutions
Despite claims of its demise, the nation-state has shown remarkable resilience and will likely survive the globalization of the economy. However, it will be greatly transformed, particularly in its control of money and its role in international business. Traditional warfare doctrines will also need to be adapted to the realities of the global economy.
Key concept: So far, at least, there is no other institution capable of political integration and effective membership in the world’s political community.
12. It’s the Society, Stupid
American policy towards Japan is often based on flawed assumptions. It’s important to understand that bureaucracy is not unique to Japan, and dismantling it is more complex than simply exerting political will. Procrastination may be a rational strategy for Japanese policymakers, who prioritize social harmony over economic efficiency.
Key concept: The Japanese bureaucracy, no matter how discredited, is the only group that fits the bill.
13. On Civilizing the City
Civilizing the city is a critical task for the 21st century. The traditional, rural sense of community has vanished, and urban dwellers need new, voluntary communities that foster a sense of belonging, achievement, and contribution. This is a task that neither government nor business can effectively fulfill. It falls to the social sector, the non-governmental, non-business, nonprofit organizations.
Key concept: The task today, therefore, is to create urban communities—something that never existed before.
14. The Next Society
The ‘Next Society’ is coming and will be defined by major social changes, particularly the aging of the population, the shrinking number of young people, and the rise of knowledge work. These changes will require adaptation from both businesses and individuals. Companies will need to find new ways to organize and manage their workforces, and knowledge workers will need to prioritize continuous learning and develop strategies to cope with the pressures of a highly competitive knowledge society.
Key concept: The Next Society has not quite arrived yet, but it has got far enough for action to be considered in the following areas:
15. The Way Ahead
To prepare for the Next Society, we need to rethink the corporation and its structure, developing new models for organization and management. We must also rethink people policies, finding ways to attract, retain, and motivate knowledge workers and to utilize the talents of older workers. Gathering outside information about trends and changes in the world will be crucial, and businesses must become ‘change agents’, embracing change as an opportunity rather than a threat.
Key concept: CEOs must accept that if the computer is a tool, it is the tool user’s job to decide how to use it.
Essential Questions
1. How will the changing demographics of the Next Society, particularly the aging population and shrinking youth, fundamentally reshape social and economic structures?
The Next Society is fundamentally shaped by the rapid growth of the older population and the shrinking of the younger generation. This demographic shift has profound implications for workforce planning, pension systems, immigration policies, and even market dynamics. It challenges existing social and economic structures, forcing us to rethink traditional models of work, retirement, and community. Additionally, the changing age structure of society will reshape consumer preferences and market demands, requiring businesses to adapt their products, services, and marketing strategies to cater to a predominantly older, knowledge-worker dominated population.
2. What are the defining characteristics of the knowledge society and how will they impact the way we work, manage, and organize ourselves?
The shift from a manufacturing-based economy to a knowledge-based economy requires a fundamental change in mindset for both individuals and organizations. Knowledge workers are the new capitalists, bringing their portable, specialized knowledge as capital to the table. They are highly mobile and value respect and continuous learning over traditional notions of loyalty. Organizations must adapt their management practices to attract, retain, and motivate these knowledge workers, recognizing them as partners rather than subordinates.
3. How is e-commerce transforming business and creating new challenges and opportunities in the global economy?
E-commerce, driven by the internet, eliminates distance as a factor in business, creating a single global market. This forces companies to become globally competitive, regardless of their physical location. The ease with which information can be accessed empowers customers and shifts power dynamics. Success in this environment requires mastery of delivery and logistics, as selling and purchasing become increasingly separated. Traditional multinational corporations may struggle to adapt, while new, agile, and information-savvy companies have an advantage.
4. Why are traditional institutions like government and business proving inadequate for addressing the social needs of the Next Society, and what is the solution?
Both government and business, the traditional pillars of society, are proving inadequate for addressing the emerging social needs of the Next Society. Government, while essential for certain functions like collective defense and infrastructure, is too bureaucratic and inflexible to effectively address diverse local community needs. Business, primarily focused on profit, often lacks the motivation or expertise to tackle social problems. This gap calls for the rise of a ‘third sector’ of non-governmental, nonprofit organizations that are mission-driven and can effectively address community needs through social entrepreneurship and innovation.
5. How will the corporation need to evolve in structure, management, and purpose to remain relevant and successful in the Next Society?
The corporation, as we know it, will undergo a significant transformation in the Next Society. Traditional hierarchical structures will become less relevant as knowledge work, outsourcing, and the need for flexibility reshape the organization. New corporate forms, such as confederations and syndicates, will emerge, emphasizing strategic alliances, joint ventures, and knowledge partnerships. Top management will need to adapt its role to balance the corporation’s economic, human, and social dimensions, prioritizing the attraction, retention, and development of knowledge workers, and finding ways to manage a more diverse and decentralized workforce.
Key Takeaways
1. Embrace Continuous Learning
Knowledge is the key resource in the Next Society, and it requires constant renewal. For AI product engineers, this means continuous learning is not optional, but a necessity for staying relevant and competitive. The skills and knowledge that are valuable today may quickly become obsolete as AI technology rapidly evolves. Those who embrace lifelong learning, actively seek out new knowledge, and adapt their skills will thrive in this environment.
Practical Application:
An AI product engineer can leverage this takeaway by staying abreast of the latest advancements in AI research, participating in online courses and workshops, and attending industry conferences to ensure their skills and knowledge remain current and competitive. They can also contribute to the knowledge base of the field by publishing research papers or participating in open-source projects.
2. Recognize Market Fragmentation
The traditional homogeneous mass market is fragmenting, and businesses need to adapt to increasingly diverse customer segments with distinct needs and preferences. AI product engineers must understand that a one-size-fits-all approach is no longer effective. Age, lifestyle, values, and cultural differences will play a larger role in shaping market demands. The ability to gather and analyze data to understand these diverse segments will be critical for designing successful AI products and services.
Practical Application:
AI product engineers, when designing AI-powered solutions, must consider the needs and expectations of a diverse user base. For instance, an AI-powered financial planning tool should not only cater to younger, tech-savvy investors but also provide a user-friendly interface and tailored guidance for older individuals who may be less familiar with technology.
3. Focus on Empowering Knowledge Workers
In the Next Society, knowledge workers are not just employees, they are partners, bringing valuable expertise and insights to the organization. AI systems should be designed to complement and augment human intelligence, not to replace it. AI product engineers should focus on developing AI tools that empower knowledge workers to be more productive, make better decisions, and solve complex problems collaboratively.
Practical Application:
AI product engineers should focus on developing AI solutions that empower and augment human capabilities, rather than simply automating tasks. For example, instead of building an AI system to replace customer service agents, focus on AI tools that help agents provide faster, more personalized, and more effective support to customers.
4. Prioritize Outside Information
Effective decision-making in the Next Society requires access to ‘outside information’, not just internal data. AI product engineers should recognize that traditional information systems often lack the ability to provide this crucial external perspective. They should explore new ways to gather and analyze data from diverse sources, including social media, news feeds, and industry publications, to provide businesses with a more comprehensive understanding of their environment.
Practical Application:
When developing AI solutions for businesses, AI product engineers should prioritize understanding the client’s ‘outside world’. For example, if designing an AI-powered marketing tool, don’t just focus on the client’s existing customer data. Gather insights about their non-customers, industry trends, and competitive landscape to develop a more comprehensive and effective solution.
5. Embrace Cross-Sector Collaboration
The increasing complexity of social and economic challenges requires collaboration across sectors. The ‘third sector’ of non-profit organizations is playing a vital role in addressing community needs and driving social innovation. AI product engineers should explore opportunities to apply their skills and knowledge to develop AI solutions that benefit not only businesses but also contribute to the broader social good.
Practical Application:
AI product engineers should actively seek out opportunities to work with organizations in different sectors, such as government agencies or nonprofits, to understand their unique challenges and needs. This cross-sector collaboration can lead to innovative AI solutions that address societal problems and create positive social impact.
Suggested Deep Dive
Chapter: They’re Not Employees, They’re People
This chapter explores the changing nature of work and the rise of knowledge workers in a way that is particularly relevant to the field of AI. As AI increasingly automates routine tasks, the skills and management of knowledge workers will become even more critical for organizations. Understanding this shift in the workforce, as discussed in this chapter, is crucial for AI product engineers as they design and develop AI solutions that effectively augment and empower human capabilities.
Memorable Quotes
Beyond the Information Revolution. 23
The truly revolutionary impact of the Information Revolution is just beginning to be felt. But it is not “information” that fuels this impact.
The Meaning of E-commerce. 31
In the new mental geography created by the railroad, humanity mastered distance. In the mental geography of e-commerce, distance has been eliminated. There is only one economy and only one market.
Bribing the Knowledge Worker. 41
What we call the Information Revolution is actually a Knowledge Revolution.
From Computer Literacy to Information Literacy. 64
CEOs must accept that if the computer is a tool, it is the tool user’s job to decide how to use it.
Tying It Together. 101
Tomorrow’s leader won’t be able to lead by charisma. He or she will need to think through the fundamentals so that other people can work productively.
Comparative Analysis
While ‘Managing in the Next Society’ shares common ground with other notable works on the knowledge economy and societal change, such as Thomas Friedman’s ‘The World is Flat’ and Clayton Christensen’s ‘The Innovator’s Dilemma’, it stands out in its emphasis on the human and social dimensions of these transformations. Friedman focuses primarily on the technological and economic forces driving globalization, while Christensen explores how established companies can be disrupted by new technologies. Drucker, on the other hand, delves deeper into the changing nature of work, the emergence of the knowledge worker as the ‘new capitalist’, and the urgent need for social innovation alongside economic growth. He also highlights the limits of traditional market theory in navigating a rapidly changing world, emphasizing the importance of adaptability, social responsibility, and a ‘third sector’ of non-profit organizations in addressing community needs. Drucker’s perspective, grounded in his decades of experience as a management consultant and keen observations of global trends, offers a more nuanced and humanistic approach to understanding and managing the challenges and opportunities of the 21st century.
Reflection
Managing in the Next Society is a call to action for leaders to adapt to a rapidly changing world. While I focus on likely trends and offer frameworks for navigating them, I also acknowledge the inherent unpredictability of the future. One must be skeptical of any deterministic predictions, even my own, as complex social and economic systems rarely follow linear trajectories. While I am generally optimistic about the opportunities presented by the knowledge society, I also highlight potential pitfalls, such as the widening inequality, the pressures on knowledge workers, and the decline of traditional industries. The book’s strength lies in its ability to provoke thought and challenge conventional wisdom, encouraging readers to think critically about the forces shaping the 21st century and their role in it. Its lasting significance is in reminding us that ultimately, people are both the greatest liability and the greatest opportunity in the Next Society, and that managing with this understanding is key to success.
Flashcards
What will become a core competency for businesses in the Next Society?
The ability to effectively deliver goods and services in a globalized, e-commerce driven world.
What is the primary means of production in the Next Society?
Knowledge. It is owned by knowledge workers and is highly portable.
Where is the true profit center in a business?
A customer whose check hasn’t bounced.
What is a key principle of successful innovation?
To systematically identify changes that have already occurred in the business—in demographics, in values, in technology or science—and then to look at them as opportunities.
Does education guarantee entrepreneurial success?
No. Education gives you neither experience nor wisdom.
What is the ‘basic disturbance’ of the 21st Century?
The aging population and shrinking youth.
What are the three sectors necessary for a balanced and well-functioning society?
Government, business, and the social sector (nonprofits).
Why are many small nonprofits mismanaged?
Because they wrongly believe that good intentions move mountains. Bulldozers move mountains.
What was the most innovative political achievement of the 19th Century?
The International Red Cross.