WHAT OU BUSINESS—AND WHAT SHOULD IT BE? 53 around the traditional wholesaling organization Of the industry with its high distributive expenses will sweep the market. The next question is: "What does the customer buy?" The Cadillac people say that they make an automobile and their busi- ness is the CadilIac Motor Division General Motors. But d 5 the man wh0 spends four thousand dollars on a new Cadillac buy trans ・ portation or does he buy primarily prestige? Does the CadiIIac, in other words, compete with the Chevrolet and the Ford; or does it compete—-to take an extreme example—with diamonds and mink coats? The best examples of bo 山 the right and the wrong answers to t 5 question are found ⅲ the 肥 and fall of the Packard M0tor Car Com・ pany, only a dozen years ago Cadillac's most formidable competitor. Packard, alone among the independent producers of high-priced cars, survived the early depression years. lt prospered because れ had shrewdly analyzed what the customer buys and had come up with the right answer for depression times: a high ・ priced but carefully engineered, solid and un ・ ostentatious car, ・ 01d and advertised as a symbOl Of conservative solvency and security in an insolvent and insecure world. By the mid ・ thirties, hOW• ever, this was no longer adequate. Since then Packard has found it dificult [ 0 figure out what its market is. Though it has highly priced cars, they d0 not symbolize that the owner has "arrived"—perhaps because they are not high-priced enough. Though it brought ou 【 medium-priced cars, it did not succeed in making them symbolize the sterling worth and solid achievement Of the successful professional. Even a new management re ・ cently come ⅲ did not find the right answer. As a result, Packard in the midst 0 [ a boom had tO merge with another company tO stave 0 disaster. TO raise the question "what does the customer buy?" is enough tO prove inadequate the concepts Of market and competition on WhiCh managements usually base their actions. The manufacturer Of gas kitchen stoves used tO consider himself in competiuon only wi th the 0 ther m anu facturers 0 ー gas 5t0V05. But the hO sewi , his customer, does not buy a stove: she buys the easiest way k food. This may be an electric 5 【 0 Ⅳ e , a gas stove (whether for tO manufactured, natural or bOttled gas), a ( 0a1 stove, a WOOd stove, 0 「 any combination 山 e 代 Of. She only rules out—at least in tOday'S America—— 山 0 ketde OV the open e. Tomorrow she might well consider a stove that 社 5e5 supersonic waves or infra-red heat ()r one that runs water

54 THE PRACTICE OF MANAGEMENT a yet-t&be-discovered chemical). And since she, being the customer, decides what the man ufacturer really produces, si nce she, be i ng the customer alone can aeate an economic good, the gas-stove manufacturer has tO consider 3 business as that of supplying an easy way to cook, his market the cooking ・ implement market, his competition as 1 suppliers 0f acceptable ways 0f cooking food Another example: Twenty-five years ago or a small manufacturer of packaged and branded f00ds analyzed his business by raising the question 0f what his customer—the retail grocer—actually bought when he bought 届 3 pr 収は . The conclusion—and it took five years Of hard work tO reach it—was that the retail grocer lOOked tO the manufacturer for managerial services, espe ・ cially for advice on buying, inventory keeping, bookkeeping and display, rather than for goods which he ( 0 d get 仕 om many other 50 ( es. As a 代 sult the company shifted the emphasis of its sales effort. The salesman 血 become a serviceman whose first responsibility is to help the customer work out his own problems. He will, of course, push the company ・ 3 products. But he is expected tO advise the customer objectively and im ・ partially on how much of the competitors' products he needs, how to display them, わ ow to sell them. And he is being judged by service stand ・ ds and paid 伝 for service performance. SelIing the company's own product has become a by-product. lt was 山 is decision that the company 5 ⅱⅡ considers responsible for its rise from a fairly minor tO a leading position in the industry. Ⅳんおどど C 加ど Finally, there is the most diffcult question: "What d 5 the cus ・ tomer consider value? What does he 100k for when he buys the product?" Traditional economic theory has answered this q Ⅱ on with the one word: price. But this is misleading. TO be sure, there are few products in which price is not one of the mapr considerations. But, first, ・・ price" is not a simple concept. TO return, for illustration ・ 5 sake, to the fuse ・ box and switch-box manu ・ facturer; ⅲ 3 ( 載 omers , the contractors, are extremely price.conscious. Since all the boxes they buy carry a quality guarantee accepted by the trade well as by building inspectors and ( onsum 3 (the Underwriters' Laboratories label), they make few quality distinctions between brands, but 市 op 0 nd for the cheapest product. But to read "cheap" as meaning

WHAT IS OU BUSINESS—AND WHAT SHOULD IT BE? lowest manufacturer ・ S pnce would be a serlOus mistake. On the contrary, "cheap" for the ( on a は or means a product that has a fairly high manu ・ facturer's price: a product that (a) costs the least money finally installed in 肥 home, (b) achieves this 10W ultimate cost by requiring a minimum 0f time and skill for installation, and (c) has a high enough manufacturer's cost to give the contractor a good profit. Wages for sk-illed electrical labor being very high, 10W installation ( os go a very long way to 0 魅 e [ high manufacturer's price. Furthermore under the billing tradition the trade, the contractor makes little money out Of the labor required for in ・ stallation. Ⅱ he is 取 ot his own skilled worker, he bills his customer for little more than his actual wage costs. He makes his profit traditionally by charging double the manufacturer's price for the product he installs. product that will give him the lowest cost t0 the homeownen with the lowest installation cost and the highest mark ・ up on the product—that the highest manufacturer's pnce—is therefore the cheapest t0 him. And if price iS value, then high manufacturer's price is better value for the electrical contractor. This may appear to be a complicated price structure. Actually I know few Others as simple. ln the American automobile industry, Where most new cars are SOld in trade against a used the price" is actually a constantly shifting configuration 0f differentials be ・ tween the manufacturer's price for a new car, a and third-hand used car, a third-hand and fourth ・ hand used car, and so on. And the whole is complicated on the one hand by constantly changing differentials between the amount a dealer will allow on a used car and the price he will ask for it, and on the other hand bY the differences 1 れ running COStS between sizes. Only advanced mathematics can actually calculate the real autOI 0- bi le " pnce ・ And, secondly, price is only a part 0f value. There is the whole range 0f quality considerations: durabilitY' freedom from break- down, the maker's standing, purity, etc. High price may actually be value—as ln expensive perfumes, expensive furs or go 、Ⅱ s. Finally, what about such concepts 0f value on the part 0f the cus- tomer as the service he receives? There is little doubt' for that the American housewife today buys appliances largely on the basis Of the service experience she or her friends and neighbors have had with other appliances sold under the same brand name. The speed with which she can Obtain service if something goes wrong' the 55

250 THE PRACTICE OF MANAGEMENT clear setting Of objectives and unambiguous assignment Of responsi ・・ bilities on all levels. The change in attitude, ViSIOn and competence that is needed cannot be avoided through good intentions, through native intuition, through the warm heart or the glad hand. That the top man 0f a large company knows all his foremen by their first name is not something tO boast Of; it is rather something tO be ashamed of. For who does the work of t00 management while he memorizes names? The personal touch is no substitute for per- forma nce. lndeed, the good intentions that are a11 t00 common make im- possible the solution of the problem of growth. They make it diffcult for the managers themselves tO see that a problem exists. ver ツ one Of the top executives in a company that has undergone great growth sees that his associates have not changed but are still be- having as if they managed the repair shop in which they started. He sees that the problem exists in other companies. lndeed, he usually sees that the attempt of these other people to tackle the situation with good intentions iS a mistake. But (just as every girl at one stage Of her growth seems [ 0 be convinced that she, and she alone, can reform a drunkard) every one Of these men is convinced that he, and he alone, can continue tO manage in the 01d way because "he knows how t0 keep in touch with his people," has the human touch, has "his communications. " And the fine glow of righteousness that these phrases emit, blinds him to the fact that he has failed to face a problem that demands of him a change in attitude and in behavior. I know only one way in which management can diagnose the state Of gTOWth of the enterprise. This is by analyzing the activities needed tO attain objectives, analyzing the decisions needed and analyzing the relations between mangement jobs. These analyses would have shown at Johnson & Johnson that twenty-seven people had to be consulted in a decision on any one product. They would have shown in the other comoany cited both that the president had tO give time tO basic capital-expenditure decisions and that he had 0 busioess "fighting fires. " These three analyses are also the only means to bring about changes in attitudes and behavior. ln the first place, they identify

THE SEARS STORY For the automobile that changed Sears's market once seems tO be about tO change れ again. ln most Of our cities driving has become 50 unpleasant, and parking so diffcult, that the automobile is rapidly ceasing to be an aid t0 the shopper and is becoming its own worst enemy. At the same time, the typical Sears customer, the housewife, tends more and more tO be employed and at work during shopping hours. Or else she has small children and nobody t0 leave them with when she goes shopping ・ If thiS interpretation iS correct, Sears needs as searching an analysis 0 [ market and customer as was made in the tWO earlier turning points in its history. New objectives will have tO be developed. A new type of distributive organization might be needed ln which the local store becomes headquarters for order-taking salesmen, traveling (perhaps with a sample car) from house t0 house. Such a development might well be foreshadowed in the growing volume 0f door-to ・ door sales during the last few years. This change would almost certainly require new concepts Of organization, new compensation policies and new methods. lt would create a new problem 0f finding the right personnel as diffcult as was find ・ ing retail store managers twenty years ago. Servicing the Sears products in the customer's home might well become Of central im ・ portance—perhaps eventually as important as was the original money-back warranty of forty years ago. The bulk 0f customer buy- ing might again shift t0 catalogue buying—though no longer by mail —either from a traveling salesman or over the telephone. And this in turn would require a technological change in the mail-order plant which, to this day, operates almost unchanged 仕 om the basic pattern developed fifty years ago by 0 は 0 Doering. The filling 0f customers' orders, whether received by mail, by telephone or through sales ・ men, would appear to demand a fully automatic plant based on a radical application of the principles 0f Automation and feed-back. Even in merchandising there might be need for new obJectives; for tOdav's most important customer—the young married mother and housewife, who often holds down a job as well— ln many ways as distinct a market as the American farmer ever was in the days Of his most complete isolation. Once again, in other words, Sears may have t0 think through what itS business , where itS markets are, and What innova ・ 0n5 are *.

PERSONNEL MANAGEMENT BANKRUPT? 283 grams, ideograms, logograms, syllable signs and phonetic marks of the writing of his day, and their replacement by two dozen signs capable expressing all sounds and of conveying all words and thoughts, was straight Scientific Management—of the highest ord び . Yet, the alphabet would not only be totally useless—it would be a complete barrier communication—were we expected to say "Cee-Ay-Tee," when we wanted tO say "cat,' Just because we spell the word with these three letters. The job of integrating letters into words is れ ot a simple one. Even an idiot child can usually learn the letters, but even a bright one has dff. culty making the jump 丘 om Cee-Ay-Tee to cat. lndeed, practically all reading difrulties of children (the biggest problem of elementary educa- tion) are problems of integrating letters into words; many people, we know, never learn tO d0 that but learn instead [ 0 recognize common words and syllables—they learn pictograms and ideograms rather than letters. And yet the alphabet not only triumphed despite the diffculty of integra ・ tion. lt is the integration that is its tnumph and its real achievement. Finally, the confusion between analysis of work and action in work is a misunderstanding 0f the properties of the human resource. Scientific Management purports to organize human work. But it assumes—without any attempt tO test or [ 0 verify the assumption—— that the human being is a machine t001 (though a poorly designed one). lt is perfectly true that we have to analyze the work into its constltutent motions. lt iS true that we can best improve work by improving the way the individual operations are performed. But it iS simply not true that the closer the work comes to confining itself tO the individual motion or operation, the better the human being will perform it. This is not even true Of a machine t001 : to assert it Of human beings iS nonsense. 、 he human being does in- dividual motions orly ; viewed a machine t001 , he is badly de ・ signed. Let us leave aside all such considerations as man's will, hiS personality, emotions, appetites and soul. Let us 100k at man only as a productive resource and only from the point 0 [ view Of englneers concerned with input and output. We have no chOice but tO accept the fact that man's specific contribution is always tO perform many motions, tO integrate, tO balance, tO control, tO measure, tO judge. The individual operations must indeed be analyzed, studied and improved. But the human resource will be utilized productively

HUMAN ORGANIZATION FOR PEAK PERFORMANCE 291 indeed refused to see it, because it did not fit the pattern of the automobile assembly line. ln the automobile industry itself there has been plenty of evidence that the one-motion one-J0b concept does not automatically lead t0 peak perfonnance. One example out of many will suffce. During WorId War Ⅱ unskilled, indeed almost illiterate, Negro women produced 0 れ e of the most complicated aircraft-engine parts. The job re- quired more than eighty different operations. But instead of each opera ・ tion being done by one worker, the whole job, for metallurgical reasons, had to be done by the same operator. NormalIy this would have meant entrusting the work tO skilled machinists. But there were no machinists available. And the quantities required were much t00 large, the urgency much [ 00 great, tO permit organization on a skill basis. These unskilled women—the only labor still available—therefore had to do the work. Each jOb was analyzed intO its eighty component operations. The operations were all laid out in 10 c sequence. And each woman was grven a detailed instruction chart, showing step by step what tO dO, what to dO before doing it and what to make sure of in doing it. Much to everybody ・ 5 sur- prise, 山 is resulted in more, faster and better work than could possibly have been turned out either by highly skilled machinists or on the or 山 0 ・ dox assembly line. ln Other industries the same results were always obtained when ever circumstances led tO an abandonment Of orthodox assembly line methods. A mail ・ order plant recently reorganized the handling 0f customer letters. Till then this work was organized by individual motions. One clerk an- swered complaint letters, another one inquiries, a third correspondence on installment credit, and so forth. Each only handled what could be answered by printed form letter; the few letters that required individual handling or judgment she passed on to the supervisor. Now each clerk handles all correspondence With a customer—all customers whose names begin with the letter "A," for instance. Ninc hundred and ninety ・ eight out 0f every thousand letters 5 猷 I are answered by form letter. And there the work itself is as fully engineered, as fully predetermined, as fully laid out—and as repetiuve—as before. But instead 0 [ repeating one par ・ ticular motion again and again, each clerk now handles the entire range Of motions——thirty ・ nine tO be precise—involved in rouune relations with the mail-order customer. And while the rare letter that requires judgment is still not answered bv the completely unskilled clerk, she is supposed t0 1 e on れ her suggestion hOW tO deal with it before handing れ tO her

350 THE PRA(ÄICE OF MANAGEMENT managers are as essential tO hiS performance as are hiS relations and responsibilities t0 the people under him. Another definition—though one that is usually implied rather than spelled out—is that importance defines the manager. But in the modern enterprise no one group iS more essential than another. worker at the machine, and the professional employee in the labora ・ tO or the drafting room, are as necessary for the enterprise tO function as iS the manager. This is the reason why all members Of the enterprise have tO have the managerial vision. lt iS not im ・ portance but function that differentiates the various groups within the enterprise. The most common concept of what defines the manager is rank and pay. This is not only wrong, but it is destructive. Even tOday we find incidentally, so-called rank ・ and-file workers who have higher mcomes than the majority Of managers; there are model makers in the automobile industry, for instance, whose annual income exceeds $ 15 , 08 and whO are yet considered workers and are indeed members Of the union's bargaimng unit. And unless we can pay professional contributors adequately, can give them promotional opportunities as individual contributors, and can provide for them the status, dignity and self-respect 0f the true professional, we will simply not be able tO manage their ever-increasing numbers. Altogether the idea that rank and pay define the manager is not much more than a fallacious conclusion fro れ 1 the individual pro ・ prietor Of yesterday tO the manager Of today's business enterprise. Who is a manager can be defined only by a man's function and by the contribution he is expected to make. And the function which distinguishes the manager above all others is his d ca 0 れ 2 ~ one. The one contribution he is uniquely expected to make is to Othe 爲 v iO れ and ability to perform. lt is vision and moral responsi- bility that, in the last analysis, define the manager.

C H A P T R 2 1 IS PERSONNEL MANAGEMENT BANKRUPT? Personnel Admini3tration and Human ReIations What has P ・ sonnel Administration achieved?—lts three basic misconceptions— The insight of Human Relations—And its limitations—"Scientific Management," our most widely practiced personnel-manage- ment concept—lts basic concepts—lts world-wide impact—lts stagnation since the early twenties—lts tW0 blind spots—"Cee-Ay- Tee" or Cat"?—The "divorce of planning 仕 om doing"—Scien- 丘 c Management and the new technology—ls Personnel Manage- ment bankrupt? A FEW years ago I received the following letter 丘 om the president 0f a company: I employ 2 , 38 people mostly women doing unskilled as.sembly work. Please send me at your earliest convenience a suitable personnel policy and enclose a statement Of your fee. For a 10 Ⅱ g time I thoughtthis letter a good, though unintentional, joke. But lately it has dawned 0 Ⅱ me that the laugh was really on me. My correspondent, I have come to suspect, is much like the child in Andersen's story of "The Emperor's New CIothes" who had the innocence tO say out loud that the emperor was naked when eveybody else was trying to pretend that he could see the rul ' 5 garments. A go deal 0f what passes today for management of the human organization iS mechanical in nature and might indeed be dispensed by mail. The two generally accepted concepts 0f managing 山 0

THE ECONOMIC DIMENSION 引 5 flexibility and economic security. lt can resolved so as t0 greatly strengthen the enterprise and reduce its economic burden. The IBM example alone proves thiS. But if management fails tO realize this and tO act accordingly. something like the "guaranteed annual wage" will be forced on it ・ We Justly stress that in a modern industrial society the worker becomes "middle class. " But the symbol of middle-class position has always been the weekly or monthly salary that is the regular, ex ・ pected, stable income—the most visible symbol 0f the "proletarian, ・ the hourly or piece wage ・ We also know that security Of continuing employment is the one really important security tO most employees. Next tO it all the Other security gains, such as Old-age pension or care, pale intO insignificance. Whether our unions demand an employment guaran ・ tee this year or next, it iS bound tO come simply because it corre- sponds t0 social reality. Management has only the choice between an employment and wage prediction that benefits the enterpnse and the worker, and the "guaranteed annual wage" that hurts both; between a resolution Of the Old conflict that will strengthen the enterprise, and a phony promise Of economic immortality that can only aeate new bitterness and further conflict. T んどおな地れ P 加 ~ A predictable income and employment plan may also be the key tO overcoming the deep-rooted resistance tO profit. There iS れ 0 greater danger t0 a free economy than the hostility 0f employees toward profi し MOSt Of the remedies we have used on the disease SO far have turned out tO be only palliatives. Profit-sharing would appear [ 0 be the obvious solution. lt has れ OW been tried for well over a century, however, and the results. ßpecially in the large enterprise, are not encouraging ・ As long as an enterprise makes big profits SO that the workers get large shares, the plan is popular enough. But the real j0b is t0 convince workers that 山 e 代 is an ever-present danger Of loss, that therefore profit is necessary t0 build their own future j0b and their livelihood. And this profit-sharing does not dO. On the contrary, in its customary fo 血 (under which the worker gets an annual dividend), it tends t0 convince workers that making a profit—a big profit—is easy ⅱ