• Strategy
  • The Economist

Survey: The Near Future

Peter Drucker explains how it will differ from today, and what needs to be done to prepare for it.

• 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 equal — an 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. Henry Ford’s all-inclusive Ford Motor Company proved unmanageable and became a disaster. But 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. And because knowledge rapidly deteriorates unless it is used constantly, maintaining within an organisation an activity that is used only intermittently guarantees incompetence.

The second reason why maximum integration is no longer needed is that communications costs have come down so fast as to become insignificant. This decline began well before the information revolution. Perhaps its biggest cause has been the growth and spread of business literacy. When Rockefeller built his Standard Oil Trust, he had great difficulty finding people who knew even the most elementary book-keeping or had heard of the most common business terms. At the time there were no business textbooks or business courses, so the transactional costs of making oneself understood were extremely high. Sixty years later, by 1950 or 1960, the large oil companies that succeeded the Standard Oil Trust could confidently assume that their more senior employees were business literate.

By now the new information technology — Internet and e-mail — have practically eliminated the physical costs of communications. This has meant that the most productive and most profitable way to organise is to disintegrate. This is being extended to more and more activities. Outsourcing the management of an institution’s information technology, data processing and computer system has become routine. In the early 1990s most American computer firms, eg, Apple, even outsourced the production of their hardware to manufacturers in Japan or Singapore. In the late 1990s practically every Japanese consumer-electronics company repaid the compliment by outsourcing the manufacturing of its products for the American market to American contract manufacturers.

In the past few years the entire human-resources management of more than 2m American workers — hiring, firing, training, benefits and so on — has been outsourced to professional employee organisations. This sector, which ten years ago barely existed, is now growing at a rate of 30% a year. It originally concentrated on small and medium-sized companies, but the biggest of the firms, Exult, founded only in 1998, now manages employment issues for a number of Fortune 500 companies, including BP, a British-American oil giant, and Unisys, a computer maker. According to a study by McKinsey, a consultancy, outsourcing human-relations management in this way can save up to 30% of the cost, and increase employee satisfaction as well.

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