TECH TALK: The Company: Peter Drucker

Peter Drucker, writing in his book Managing In The Next Society takes a look at the future of the Company:

For most of the time since the corporation was invented around 1870, the following five basic points have been assumed to apply:

  • The corporation is the master, the employee is the servant. Because the corporation owns the means of production without which the employee could not make a living, the employee needs the corporation more than vice versa.

  • The great majority of employees work full-time for the corporation. The pay they get for the job is their only income and provides their livelihood.

  • The most efficient way to produce anything is to bring together under one management as many as possible of the activities needed to turn out the product.

  • Suppliers and especially manufacturers have market power because they have information about a product or a service that the customer does not and cannot have, and does not need if he can trust the brand. This explains the profitability of brands.

  • To any one particular technology pertains one and only one industry, and conversely, to any one particular industry pertains one and only one technology. This means that all technology needed to make steel is peculiar to the steel industry; and conversely, that whatever technology is being used to make steel comes out of the steel industry itself. The same applies to the paper industry, to agriculture or to banking and commerce.

    Every one of these assumptions remained valid for a whole century, but from 1970 onwards every one of them has been turned upside down. The list now reads as follows:

  • The means of production is knowledge, which is owned by knowledge workers and is highly portable. This applies equally to high-knowledge workers such as research scientists and to knowledge technologists such as physiotherapists, computer technicians and paralegals. Knowledge workers provide capital just as much as does the provider of money. The two are dependent on each other. This makes the knowledge worker an equalan associate or a partner.

  • Many employees, perhaps a majority, will still have full-time jobs with a salary that provides their only or main income. But a growing number of people who work for an organisation will not be full-time employees but part-timers, temporaries, consultants or contractors. Even of those who do have a full-time job, a large and growing number may not be employees of the organisation for which they work, but employees of, eg, an outsourcing contractor.

  • There always were limits to the importance of transactional costs..Now the traditional axiom that an enterprise should aim for maximum integration has become almost entirely invalidated. One reason is that the knowledge needed for any activity has become highly specialised. It is therefore increasingly expensive, and also increasingly difficult, to maintain enough critical mass for every major task within an enterprise. The second reason why maximum integration is no longer needed is that communications costs have come down so fast as to become insignificant.

  • The customer now has the information. Whoever has the information has the power. Power is thus shifting to the customer, be it another business or the ultimate consumer. Specifically, that means the supplier, eg, the manufacturer, will cease to be a seller and instead become a buyer for the customer. This is already happening.

  • Lastly, there are few unique technologies any more. Increasingly, the knowledge needed in a given industry comes out of some totally different technology with which, very often, the people in the industry are unfamiliar.

    Will the corporation survive? Yes, after a fashion. Something akin to a corporation will have to co-ordinate the next society’s economic resources. Legally and perhaps financially, it may even look much the same as today’s corporation. But instead of there being a single model adopted by everyone, there will be a range of models to choose from.

  • Last Word

    The Company is for us, perhaps the single most important institution for us, outside of our Family. There is a two-way relationship between us and the Company, and one which keeps evolving. Knowing more about the history and evolution of the Company can help us better understand this living being and shape not just its future, but also our own.

    TECH TALK The Company+T

    Published by

    Rajesh Jain

    An Entrepreneur based in Mumbai, India.