THE PRACTICE OF MANAGEMENT direction Of its managers by objectives and self-control, the settmg up Of their jObs, the spirit Of the management organization, the structure Of management and the development Of tomorrow's man ・ agers. And once the goals are clear, it can always be determined whether they are being attained or no [. Certainly the examination of the spirit of management, proposed in Chapter 13 below, should bring out any significant shortfall. NO one but the management 0f each particular business can decide what the objectives in the area of 々と〃 c ons 市り should be. AS discussed in the Conclusion of this b00k, objectives in this area, while extremely tangible, have to be set according to the social and political conditions which affect each individual enterprise and are affected by it, and on the basis of the beliefs of each manage ・ ment. lt iS this that makes the area SO important; for in it managers go beyond the confines 0f their own little world and participate responsibly in society. But the overriding goal is common for every business: tO strive [ 0 make whatever is productive for our SOCiety, whatever strengthens it and advances its prosperity, a source 0f strength, prosperity and profit for the enterprise. We are in a bad way, however, when we come to setting objectives for 07 々ど r 々どな orma れ c ど 2 d れ d ど . lt is れ ot that the area is "intangible. " lt is only t00 tangible; but we know t00 little about it SO far, operate largely by superstitions, 01 e れ s and slogans rather than by knowledge. To think through the problems in this area and to arrrve at meaningful measurements is one Of the great challenges tO manage ・ ment. The objectives in this area should include objectives for union relations. If this were a book 0 industrial society, the umon would hgure prominently ()s it does indeed in my Ⅳど Soc り ). ln a book on the P ac 0 / 外ーれ ag ど襯 e ー the union is only one of many outside groups and forces management deals with—suppliers, for instance. But it is a powerful outside force. lt can through wage demands wreck the business, and through a strike deprive management Of control. The management Of any unionized company therefore needs definite long ・ range objectives for its union relations. Ⅱ it

86 THE PRACHCE OF MANAGEMENT one slice 0f bread every day is better than half a 10 today and none tomorro 、 Almost every one 0f these expenditures requires highly skilled people t0 be effective. Yet' first-rate people will not remain with a business if their activity is subject tO sudden' unpredictable and arbitrary ups and d0 、】 s. Or if they stay' they will cease t0 exert themselves—for "what's the use 0f my working hard if management will kill it anyhow. " And if the meat ax cuts 0 圧 trained people during an "economy wave"' replacements are hard tO find or take a 10 g time t0 train when management' applying the be110WS' suddenly decides tO revive the activity. Decisions concerning managed expenditures themselves are Of such importance for the business as a WhOle—over and above their impact on individual activities—that they must not be made without careful consideration 0f every item in turn and 0f all 0f them jointly. lt is essential that management know and consciously decide what it iS dOing in each area and why. lt iS essential that management know and consciously decide which area tO give pnority, which tO cut first and how far, which t0 expand first and how far. Ⅱ is essential finally that management know and consciously decide what risks t0 take with the long ・ run future for the sake Of short-term results, and what short ・ term sacrifices tO make for long-run results. A managed ・ expenditures budget for a five-year period should ShOW the expenditure considered necessary in each area tO attain business objectives within the near future—up tO five years or SO. lt should show the additional expenditure considered necessary in each area tO maintain the position Of the business beyond the five ・ year periOd for which concrete objectives are being set. This brings out the areas where expenditures are tO be raised 6 爲 t if business gets better, and those where they are tO be cut first if business turns down; it enables management tO plan what tO main ・ tain even in bad times, what tO adjust tO the times, and what tO avoid even in a boom. lt shows the tOtal impact of these expendi ・ tures on short-range results. And finally it shows what to expect from them in the 10n range ・ Ba れ g the 0 とル鉛 ln addition to balancing the immediate and the long ・ range future, management also has tO balance objectives. What is more

引 0 THE PRACTICE OF MANAGEMENT —ultra-conservauve men in temperament and outlook——who tra their interest in union work tO their failure tO get the recognition 0 ー a promotion intO management. ln every business there are opportunities for workers——while remaining workers——to acquire managerial ViSion. ln every business there are dozens Of activities that are not business actiVIties but plant ・ community activities. These must be run by somebody. But they have Often only the most incidental relationship to the business, and the most peripheral impact on its success. They need not, there• fore, be run by management. Some such activiues are the Red Cross BIood Bank or the Christmas Party, shift schedules or safety pro ・ grams, the cafeteria or the employee publications. Each of these activities by itself appears tO be Of minor importance, but in the aggregate they present a large area 0f responsibility. TO the employee these acuvities are important, if only because they affect his social life directly. There is alSO a whole area Of information services which employees could perform for themselves. An annual report for employees is issued; an employee handbook is written for new e ー・ ployees. There are training courses [ 0 be given on new techniques or new SkillS, on serving customers or answering telephone calls. 、 0 have management run these things instead of forcing the responsibility ontO the employees deprives the enterprise Of its best opportunity tO imbue its employees with managerial vision. But ⅱ is also poor business. Management has enough to do without adding non-business activities tO its business responsibilities. 、 0 run ( ヤ munity activities well requires time and a large staff. ControI of these activities by management, instead of making employees eager and able to perform better, invariably creates additional targets for criticism and discontent. Has any management ever gotten anything but complaints about the way it runs the cafeteria? Let me make one point clear: I am convinced that in managing the business employees such cannot participate. They have no responsibility—and therefore no authority. Nor do I want to see more community activities in the typical business—in fact. I think that in many businesses we could well do with fewer than there are tOday. I dO not advocate more staff people, constant meetings or any Of the other symptoms of organizational dropsy. I advocate only that

THE MANAGER AND HIS WORK 345 a bOOk Of its own. The work of the manager, in other words, is complex. And every one Of its categories requires different qualities and qualifications. Setting objectives, for instance, is a problem Of balances: a balance between business results and the realization Of the principles one believes in; a balance between the immediate needs 0 [ the busi ・ ness and those Of the future; a balance between desirable ends and available means. Setting objectives therefore requires analytical and synthetizing ability. Organizing, t00 , requires analytical ability. For it demands the most economical use Of scarce resources. But れ deals with human beings; and therefore it also stands under the principle 0f jusuce and requires integrity. Both analytical ability and integnty are similarly required for the development of people. The skill needed for motivating and communicating, however, is primarily SOCial. lnstead Of analysis, integration and synthesis are needed. Justice dominates as the principle, economy is secondary. And integrity is of much greater importance than analytical ability. Measuring requires again first and foremost analytical ability. But it alSO requires that measurement be used to make self-control possible rather than be abused to control people from outside and above, that is, tO dominate them. lt is the common violation Of this principle that largely explains why measurement is the weakest area in the work Of the manager tOday. And as long as measurements are abused as a t001 Of ・・ control" ()s long, for instance, as meas• urements are used as a weapon Of an internal secret POli that supplies audits and critical appraisals 0f a manager's perform ・ ance tO the bOSS without even sending a carbon copy tO the manger himself) measuring Will remain the weakest area in the manager's perforn 】 ance. Setting objectives, organizing, motivating and communicating, measuring and developing people are formal, classifying categories ・ Only a manager's experience can bring them to life, concrete and meaningful. But because they are formal, they apply t0 every man ・ ager and to everything he does as a manager. They can therefore be used by every manager to appraise his own skill and performance, and to work systematically on improving himself and his ド r ・ formance as a manager.

THE PRACTICE OF MANAGEMENT For the enterprise is management's specific trust; everything else arlses out Of this trust. The first responsibility which management owes tO the enterprise in respect tO public opinion, policy and law is tO consider such demands made by society on the enterprise ()r likely to be made within the near future) as may affect attainment Of itS business Ob ・ jectives. lt is management's jOb 【 0 find a way tO convert these de ・ mands from threats tO, or restrictions on, the enterprise's freedom Of action mtO opportunities for sound growth, or at least tO satisfy them with the least damage tO the enterprise. Even the staunchest friend Of management would not claim that the job done so far could not be improved upon. One illustration should suffce. Ⅱ should have been clear ten years ago that the changing age structure of the American population, coupled with the steady drop in the purchasing power 飜 the dollar, would produce an irresistible demand on business tO do something for 01d employees. Some managements faced the problem years ago; we have good pension plans going back tO 00. But many more refused t0 see the inevitable. As a result they were forced tO accept demands for employee pensions which tend to impose the greatest rather than the least burden on the enterprise though they dO not actually meet the issue. For it is becoming increasingly obvious that pensions will not solve the problem of the old employee. Ⅱ one fifth of the work force is of pensionable age, as it soon will be in our society, compulsory pensioning of the older people puts an all but un- bearable burden on the production of the younger men. At the same time the great bulk of the people who reach what used to be considered old age are both able physically to continue work and eager to do so. What managementshould have done was to work out plans for keeping employed those older people who want to work and are able to do 50 , with pen- sions as something to fall back on for those who are unable or unwilling tO keep on working. At the same time these plans would have to make sure that the older employees who are retained do not bottle up the prom& tional opportunities for younger men or endanger their employment security. Having failed to think through the problem, managements will almost certainly find themselves faced with compulsory employment pro. grams for older people—imposed by unions or by government—which will mean additional COSt and new restrictions. American managements are on the verge 0f making the same mistake in respect to the stability of income and employment. That

THE SMALL, THE LARGE. THE GROWING BUSINESS 241 may have meaning in military organization. Applied tO business, they can, however, only confuse. There are tWO kinds of activities in any business enterprise: busi- ness-producing functions such as marketing and innovatlon, and supply functions. Some supply functions provide physical goods such as purchasing and production; some provide ideas such as engineering; some provide information such as accounting. But none Of these iS a Staff function. None either advises another func- tlOn or acts for it. lt would actually be undesirable [ 0 have any staff functions. As far as I have been able tO grasp the concept, tO be ・・ staff" means tO have authority without having responsibility. And that is destructive. Managers d0 indeed need the help 飜 functional specialists. But these men primarily dO their own jOb rather than advise the man ・ ager how t0 d0 his. They have full responsibility for their work. And they should always be members 0f the unit t0 whose manager they render functional service rather than part Of a special staff. ln the small or fair-sized business, staff is usually confined tO one area: the managing Of worker and worker. Even there ()s we shall see in Chapter 2 1 ) the confusion created by the staff conce-pt has done serious damage. But in the large and in the very large business the staff concept has had the more serious result Of creating a number Of central Offce service staffs: groups Of professional spe- cialists attached tO headquarters whO are supposed tO service and advice tO operating managers in a particular area. Typically we find in the large business a central-offce marketing staff, a central- Offce manufacturing staff, a central-office engineering staff, a central- Offce personnel staff, a central-offce accounting Staff and SO forth. These central-offce staffs seriously impede the performance 0f top management. concern for each Of the key areas Of business perform- ance should be the specific responsibility 0f someone on the chief- executive team. ln the small business all eight key areas may well be assigned tO one man, whO is the "thought man" for the company. The very large company, on the other hand, may have t0 have a separate full-time executive for each key area: market in- novation, productivity, supply 0f resources' profitabilitY' manage- ment organization and personnel' employee performance and at- titudes and public responsibility. But if these men are alSO supposed tO run a service staff, they dO

CHIEF EXECUTIVE AND BOARD son Brown carried it in effect when he was vice-chairman. ()r each key area can be assigned to a separate man as a full-time ] 0 though that is for the very large business only. lt is the approach of General Electric, where the executive offce—in addition to presi ・ dent and group executives—contains a fair number 0 [ services vice-presidents, each charged with company-wide responsibility in one key area. Size Of the company and character of the business are the determining factors here. What matters, above all, is that the responsibility for long ・ range planning and thinking, for clear ob ・ Jectives, for the development of adequate yardsticks to measure their attainment, and for the education Of managers in the vision and the skills needed to reach the objectives, be clearly spelled out and unambiguously assigned. The second requirement is that there be no appeal from one mem- ber Of the chief executive to another. Whatever gny one of them decides is the decision of all of top management. This does not mean that there should be no one on the team WhO acts as its captain. On the contrary, a captain is needed. And 0 e man iS almost certain tO stand out as the senior member by virtue Of his intellectual or moral authority. There was, for in• stance, never any doubt in General MOtors that the head of the table was wherever Mr. Sloan sat, nor at Sears, Roebuck that Gen ・ eral Wood was a good deal more than the "first among equals." But whenever one man thus stands out, he has to be doubly careful Ot tO countermand or overrule the others, not tO interfere in the areas assigned tO them, Ot tO let his superiority turn intO their in ・ feriority. His strength, in Other words, should strengthen his team ・ mates—which is, after all, the definition Of an effective and strong team captain. He is a playing captain not a manager calling signals from the bench. How many members should the team have? The fewer the better —but more than tWO. lndeed if two men can work together closely, they form an ideal team. But two people like this are rarely found. And two people in a team are always a highly unstable combination. " Ⅱ there are only tWO men," a veteran member Of a chief-executive team once 【 Old me, "even a slight disagreement may become dangerous.

C H A P T R 2 4 THE ECONOMIC DIMENSION Financial rewards れ Ot a 50 e Of positive motivation——The mo 5 に 0u5 decisions imminent in thiS area——An insured expectation Of income and employment——The resistance tO profit—Profit ・ sharing and share ownership—-"N0 厄 , no jOb. ・ HAVE intentionally postponed any discussion Of the economic rela. tionship between enterprise and worker. NOt that it is of minor importance. But financial rewards, as already indicated, are not れ】 a ] or sources Of positive motivation in the modern industrial ciety, even though discontent with them inhibits perforrnance. The best economic rewards are not substitutes for responsibility or for the proper organization 0f the job. Yet, conversely, non-financial incentives cannot compensate for discontent with econormc rewards. lt is in this area that we may face the most serious zmmediate decisions. Ⅱ only because of the union demand for the ・ guaranteed annual wage," the next few years may well determine whether we can resolve economlC conflicts to the lasting benefit 0f enter- prise, worker and SOCiety, or will instead aggravate them for years tO come. The main problem is not one of high or 10W wage rates. lt is not even primarily one of wage differentials, powerful though resent- ment against "wrong" differentials may be. The real problems lie much deeper. The first of these is the conflict between the enterprise's view Of wage as cost and its demand for wage flexibility, and the employee's view of wage as income and his demand for wage stability. This con ・

MAKING DECISIONS 367 beyond the manager's field of vision or range of imagination. They can thus bring out alternative courses Of action. They can ShOW which factors are relevant (that is, facts) and which are irrelevant (that is, mere data). They can show the degree of reliability of the available data and what additional data are required tO arrive at sound judgment. They can show what resources will be needed in any Of the alternative courses Of action, and what contribution from each component or function would be required. They can be used tO ShOW the limitations Of each available course Of action, its risks and its probabilities. They can show what impact a gven acuon would have on Other areas, components and functions, the relationship between input and output and the location and nature of bottlenecks. They can tie together the work and contribution of each function or component with those Of all others and show this tOtal impact on the behavior and results Of the entire business. The new t001S are also not without danger. ln fact, unless properly used they can become potent means for making the 、打 ong decisions. Precisely because they make possible concrete and specific analysis of problems which hitherto could only be roughly defined or sensed, the new tOOlS can be abused tO "SOlve" the problems Of one small area or Of one function at the expense 0 [ Other areas or functions or Of the entire business. They can be abused, as the tech- nicran calls it, tO "sub-optimize. " And it iS important tO stress that practically all the problems which are given in the literature so far as illustrations of Operations Research are problems which should never be SOlved by themselves as such a solution inevitably results in serrous "sub-optimization. " ln fact proper use Of these t001S iS possible only if they are first applied to the analysis and definition of the characteristics of the whole business. Only then can they be profitably used for the analysis of individual problems and for the improvement Of individual decisions. FinaIIy, the new tools promise help in making others understand what action is required Of them and what to expect from associates. Mathematical information theory is still in its infancy. But it is likely to produce t001S capable of identifying the relevant and new deviation in an action pattern and defining it in precise symbols. AII these things have been done for generations by imagmative ople. What the new t001S do is to bring this accomplishment

THE PRACTICE OF MANAGEMENT employee as well; that indeed management considers itself h tO procure and safeguard the jobs 0 [ the employees. lt 5h0W5 , above all, that profitability is an absolute necessity for the employee and for his stake in the enterprise: his job. ObviousIy we lack knowledge and expenence in this area. far we can only sketch out the approach; how to do the job we still have to learn. But, after all, it is only in the 1 t few years that we have acquired the basic economic insights to make the worker him ・ 記 If see that his own interest requires ot that he ask: "Are profits t00 high?", but always: "Are they high enough?" "Economic educa- tion" alSO will れ Ot glve him t 5 understanding—even if it is real education rather than propaganda. lt requires clear actions 0 Ⅱ the part 0f management t0 establish visibly and simply the harmony of p 収記 between enterprise and worker, their mutuality and their common dependence 0 Ⅱ adequate profitability.