Peter Drucker in the age of Internet Integration, revised for 2020

Written 2010, slight revisions for 2020. Also see:https://hbr.org/2016/10/why-peter-druckers-writing-still-feels-so-relevant

Peter Drucker’s six decades of learning is more relevant today because management is undergoing some of the most dramatic changes since the switch from a manufacturing based economy to an information based economy. We are now 20+ years within the information to internet based economy. In recent years, this change has become apparent to us and the affects upon management and organizations.

The importance of Peter Drucker’s book about General Motors is as important today with a new group of mangers. The Internet is seen as a great benefit by most people but it is a complex set of data, information flow, marketing and disparate technologies that have greatly disrupted most organizations.

No one is immune. The Internet is a disruptive medium that few have realized an even less have capitalized upon. The hotel business is a classic example where managers have quickly given up brand equality to web sites, such as expedia.com So have the profits disappears from the hotel, only turning up in fractions, big fractions, at web site consolidators.

Where do we see the biggest and most realistic opportunities for innovation and change - and where would they be most needed?

The biggest opportunities are in organizing and managing the flow of data to knowledge to decision making within almost all organizations. Failure to do so limits people and their creative abilities.

What differs from Information economy to Internet economy is how organizations need to absorb the Internet as a global medium and distributed application. The Internet is not simply an information source. Managers need to prepare data in very different ways. They have several critical steps that are difficult to process; data to knowledge and eventually

into decision making format. The manager’s data to decision process (DtD) must a) deal with volumes of data, often disparate b) move data quickly c) deal with inefficiencies that will soon be insurmountable.

In recent years, the problems of the prior decade have been solved; The storage issues associated with large volumes of data, the speed of the computer and the capacity/speed of the network. Until we reach new pressures associated with visualization, these issues are largely solved for mid to large organizations.

Now that the machine is ready, managers must be trained for the age of the decision economy.

How can we be successful in managing those changes?

By creating a fundamental set of learning criteria and guidelines that help people, managers and organizations absorb Internet Integration. Ducker’s fundamental work is validated by what and how the Internet presents/challenges organizations. These challenges today are just as critical as what GM faced in the 1940s as the economy transformed from hands on to organizational structures. Below, we outline the various issues faced and suggest an outline of issues and possible direction and define why DtD issues are so critical.

Peter Drucker’s work on decentralization and empowerment reads like a classic play from any Internet centric business story. Web sites like FaceBook (social), eBay(commerce), Google (search) and many others contain all of these aspects. Decentralized authority is well represented by, Facebook (social), YouTube (video/search). The issue of net neutrality is a difficult subject centered on privatization and effecting all Internet subject matter. Empowerment of people has been driven to almost any person who can sign up for a Facebook account or even email someone.

The issue or collision of Drucker and Internet come with how modern management deals with internet and management theory. Most businesses, 15 years into the world wide web continue to suffer from resource misallocation, and failure to yield the true value of the web and the internet as a whole.

Decentralization

Most organizations still suffer from the GM management structure. In many ways, we have found DtD and Internet Integration creates difficult centralization problems. While organizations may wish to decentralize the difficulty of the subject matter seems to prevent it. One reason decentralization creates havoc is from decentralized flow of data, unprocessed inappropriately within an organization. Too many people have access to too many things that have no bearing on good decision making. What happened? The Internet gave management and the knowledge worker far too much unstructured data. This form of data can be very difficult to process and we see managers suffer from access to too much, unprocessed and without any chance of forming conclusion or decision.

We believe the internet driven data, of which most corporations have plenty of, will not disappear but only grow in size and scope. The concepts of Bloom’s taxonomy of learning becomes a critical issue here and some form of it should be applied in a modified ‘internet’ form.

The internet as a global medium reaches and influences 1?2 of the world’s population. It likely reaches more. Developing countries access is growing by one and two magnitudes every 5 years.

As a distributed application, the internet has basic data, information and knowledge on almost everyone or every group of people and organization. Here lies the danger. If we know the average income and investment of an

individual, the census track details they live in, how many people drive SUVs, have AMEX cards, go to school, graduate, do we really have the strategy and process in place to make a decision? Most likely no.

Here is where the work of Drucker lives on. Empowerment

Peter Drucker believed empowerment was a critical part of management. Empowerment does deliver decisions but without true Internet Integration, poor decisions or lack of decisions will prevent this method from reaching an optimal state. All too often in the course of hundreds of organizations, thousands of people and millions of dollars spent, people lack the management structure to form decisions in a Decision economy. Empowerment does not occur unless this re-education take place. Ideally in needs to happen 10 years ago. Once the structure does exist, Internet technology and a decision economy architecture will allow for empowerment and decentralization, thus allowing organizational growth.

"Do not simply cling to your past successes, be willing to change, adopt new ideas and continually review all the different segments of business."

Organizations operate to self sustain

Without a doubt, an organization is useless if it does not self sustain for long periods of time. The assumption is made is it self-sustains, grows and ultimately provides a product or service that has value to society. This value must also be beyond profitability. A present and unfolding example is British Petroleum. While profits have been extraordinary in recent years, the lack of investment into preventative solutions to leaks may destroy the entire organization. In other very different ways, facebook and almost all social networking web sites face similar issues with sustainability.

The age of the decision worker

The Drucker concept of ‘knowledge worker’ is transforming into the ‘decision worker’. The Knowledge worker is a concept we would like to see modified to fit the problem of Internet Integration.

It can be defined in a simple way as PREVENTING far too much data and capability driven into an organization too quickly and without structure or planned outcome. While this may sound overbearing, it is not. We simply believe too much data and too many options are just non-human without the proper education system. Another way to suggest this problem: we would never allow a ditch digger to manage an accounting department.

We believe Drucker would agree. Organizations are people and people work best as people, not tools of data. In many ways, strategy has taken a back seat to technology. After years of seeing this first hand, we always suggest “never let technology dictate strategy”. According to Bloom, knowledge is a lower form of ‘cooked data’ and it requires humans to do more ‘cooking’. More data access and more capability to look at data in some many different ways require organizations to examine how they process data. Data must not be converted just into knowledge but it must be further refined into high level sets, fit appropriately to the job at hand. Eventually, all decisions are centralized with the owner or operator of the company. Currently, far too much unrefined decisions or mistakes reach this level.

Each knowledge worker must be converted into some type of ‘self realization worker’ or better yet ‘decision workers’.

"What everybody knows is frequently wrong."

The Decision Worker

We believe Drucker would agree the name needs to change. A knowledge worker is a valid concept but as more data and information is available, humans can only absorb so much, so quickly. In order to process data and knowledge faster and with better outcome, they must transform knowledge into decision or a “pre-state” of decision format. Prior to Internet driven data, a knowledge worker had less data available for two reasons: The machine or the volume of data.

Prior to Internet – the pyramid of data to decision flow

decision

knowledge data

Internet Integration Era – the age of the decision worker

decision knowledge

data

From the above illustration, we put forward the concept that far too much data creates the risk of either poor or nonexistent knowledge, which in turn creates poor or non-existent decisions. One could assert this has always been the case but never before have so many been exposed to so much data. Because of the knowledge worker’s empowerment in the last century, the ability and access to conversion of data to knowledge is greater. As more knowledge forms, more decisions are processed with poor foundation.

An example to consider. 1,000 years ago, people overbuilt or under built structures. We can all point to great roman roads still in use, the great wall of China or St Peter’s in Rome – old things that still stand and still in use. So many bridges stand the test of time for years far beyond their original design use.

In some ways this is in inappropriate use of resources. If we over-engineer every structure, will we have anything to eat? Over engineering is a misuse of resources and I would like to asset that improper conversion of data to knowledge has similar problematic effects.

Can we learn too much from a bolt?

Now fast forward to the 1930s when airplanes were in the early days of development. An engine knowledge worker (designer) knew some things about engine horsepower, torque settings on bolts, amperage in wires, fuel use, etc. This kept most airplanes in the air but failures were very common. In these early days, data was hard to acquire.

The modern engine designer has volumes more information available. The good news: engines are far more reliable and few fail in mid-flight. We have removed many of the human causes of failure because of concepts like six sigma, continuous improvement driving innovation and planned reliability. Much of these concepts rely on data that is still hard to acquire.

Now fast forward to a fictional but possible future where each and every bolt on an engine could report its status to a central nervous system or depository, in real time. All of this data would be driven at the engine designer. True, this would help with planned fatigue issues, maintenance and design. Reliability would benefit but to the person changing the oil or the airplane driver? Do they need instant information about each bolt? No!

How the Internet has developed is analogous to this problem. The internet marketing manager has access to rich but often misinformation, based on cookie based sales, this person may suggest buying patterns very different from actual human behavior. This data is driven upstream to management and ‘cooked’ into summary data which creates additional misinformation.

In the smart bolt scenario, no manager or designer would care to know the status of each bolt in use this second. Yet in our modern internet driven age, managers have to deal with this level of data detail every day. An example is knowing the impression, visitors from every search term, every hour of the day. The data is readily available and it is presented as useful or important information by search engines. Decisions to change marketing are often based on a handful of impressions.

The two outcomes are where Drucker helps.

First, the decision worker needs to be mentored, educated and converted into consuming and processing data to decision. Second, the manger, especially the upper management needs to determine and demand what is needed to self-sustain and grow an organization in light of this Internet Integration age.

I believe Drucker was welcomed into many organizations for a reason yet today, few managers dare welcome what the Internet can do for organizations.

Is it just too early?

In some ways, yes! The internet in its dual purpose is only 15 years old and most of the rich data has only recently come into being. As late as 2005, certain aspects of internet data sources did not exist. Capacity, speed and the entire infrastructure build out was missing for many organizations.

Never before has real time information about a potential customer existed and yet so few know what to do with it. We, as humans, can only take in so much. What we dare to take in still needs to be converted. That conversion process takes time and effort. Too much trash ‘in’ creates a ‘data worker’ at best.

“Dr. Drucker cared not just about how business manages its resources, but also how public and private organizations operate morally and ethically within society”

Knowledge Worker Internet Integration

Decision Worker

Operating in an internet integrated organization has additional burdens. Issues include privacy of the customer and where does value tapper or even stops. While we agree that privacy issues are looming and large, we choose to focus this document on the ethics and morality of profits and self sustaining ability of the organization in an Internet Integration age.

The reason is profits. In an age of decision workers, it is possible to yield a higher volume of profit out of a customer base. The argument can be made that while it is possible, it should be done. Should we do this right away? My answer is yes and no. Yes, if the benefit to the customer and the organization is sustainable. I call this concept “rich and happy”. If an organization is rich, they have a certain amount of room for profits resulting from their offerings. Happy only comes about if the organization can truly sustain and predict profits and hopefully, growth.

Lack of knowledge allowed too many organizations to under price or over price services – eventually turmoil ensued. Example: GM: overpriced product that became unsustainable. Digital Equipment Corporation – the

same issue. One can say the same of MySpace and British Petroleum but we have yet to see the end of either organization.

Underpriced and undervalued organization examples include NECCO – the New England Candy Company. The cost and price of the products allow for very little innovation. It seems they enjoy their status as a takeover option with no takers. The product ingredients are dated to what modern consumers want and the packaging a throw-back to the 1970s or earlier. It works but it is not sustainable. As market share continues to fall, profit volume drops placing more pressure on economy and not growth.

Most organizations fit neatly in-between the GM and NECCO examples. So is it ethical to build businesses that only fail within a decade? My answer is no! Can the Internet provide the tools needed to under price and underperform, yes. Can the Internet help organizations over price – yes. It is finding the ‘happy and rich’ middle ground, where profit volume is maximized but dampened to include social and ethically responsible activities that produce long term, self sustaining success. The Internet can provide this because of its maturing dual purpose – a great global medium and an advanced distributed application.

Will shareholders revote? Some will seek out the high yield, marginal value organization, only to risk their own personal wealth in doing so. We already see this occur but with greater access to new ways of conceptualizing long term value, these companies will not prove out to be good risks. As more data is converted to knowledge and pre-state decision status, the less likely a long term bad bet is possible. We are seeing early stage example where investors and the public at large is less likely to be ‘sold’ on organization prospectus. The example of British petroleum selling media t early numbers on oil leak volumes was successful yet some organizations, with access to ever greater data sources, independently verified otherwise. As a result, the

true nature and costs became revalued by the investors and the stock has tumbled in value. At the time of this writing, BP stock had lost 70 billion dollars in market capitalization. It all started with one scientist questioning government and BP estimates. As of this writing his numbers, some 20x (verify) the initial 1,000 barrels per day (BP number, reported by CNN, et al) appears closer to the actual value. Thus, the company position is weakened greatly. Note: most estimates were derived by internet streamed data sources, no one is mailing a copy of the tape anymore, are they?

In 2008, the entire world saw just how wasteful investment baking truly was. Based on government prodding and greed, these organizations ‘gamed’ the system to benefit the few. Very little factual data or knowledge came out of these systems beforehand. This is yet another example of a failed and unsustainable system that made some very rich but no one is happy today. A true failure.

Will more examples like this exist? Yes. Organizations that are not transparent, hoard data from customers and investors will be at risk for underinvestment as the decision worker emerges.

Based on the new age of Internet Integration, we also believe Drucker would adjust MBA program requirements. We believe he was well under way to changing the MBA concept from its current system to one that focuses on decision workers, Internet Integration and the value of data flow toward decision.

“...Drucker's philosophy that management is a liberal art—one that takes into account not only economics, but also history, social theory, law, and the sciences. As Drucker said, "it deals with people, their values, their growth and development, social structure, the community and even with spiritual concerns . . . the nature of humankind, good and evil.”

We agree that modern management is a liberal art. Neo-classic economics failed modern business as it did not take into account social aspects and ‘unknowns’ that are factors that can be accounted for in different ways, from different approaches. More organizations will have to adjust social structures, governing rules and the organizational community to survive Internet Integration.

The internet brings into play some concepts that need to be defined for modern management:

Economics

Which one? In a truly modern business, data flow is greatly advanced yet knowing what to do with data and knowledge and the flow of such needs to be reexamined for the benefit of economic analysis. We believe in a top down approach to data consumption. First define the goals then strategy. Allow economic data flow to only serve a means to achieve the goals. Too much economic data from the bottom up cannot be processed by humans. Economics will adjust to remain relevant. Does this mean everyone in an organization has a say? Yes and No. Each individual does have a say based on their level and ability, training and conversion of data toward decision.

As the organization goals are created and adjusted with market conditions, economics changes because of the speed and capacity of data flow will crease organizations to adjust strategy. An organization is forced to ask: am I acquiring the right set of data? Is the data reasonably reliable? What are we gathering from it? What decisions are we making from the knowledge created? Based on the results of those decisions, how soon can we adjust all of the above?

For many businesses the ultimate goal is sales grow but few understand where total profit volume exist for the current offerings. Most organizations

rely on budgeted goals and budgeted outcomes – not where they could be , but for.

For example: A business that sells widgets dos $1 billion US per year at a 15% profit or $150 million in gross profit volume. The current goal is to grow 8% per year for the next 3 years based on current offerings. After Internet Integration, the organization sales could be a $1.5 billion US per year sat a maximum profit volume of $225 million. Any sales in excess of $1.5 billion results in lower profit volume due to increased cost structures. The time to convert to a self sustaining, profit volume focused model will take 24 months with no additional capital outlay. The differences in decision making come from access to company and external data sources and the ability for management to convert knowledge into decision mailing at several different levels.

History

The internet is different. Its dual purpose creates no historic perspective, making this activity risky. With no history, we are doomed to make history for the first time. It is true that we can find many examples of certain items but few global examples of mass data access and conversion in use. The launch of an Apollo rocket proved successful because of a management structure and plenty of data and the means to process data to prevent disaster.

A moderate sized organization has vastly more data than the Apollo rocket, more knowledge yet often does not have the teams of people in place to manage the DtD issues being presented in real time. It is as if the chairs are half empty. Certainly no business is launching massive rockets and has open checkbooks to do so but modern business has far more data and knowledge to contend with and many fewer manager level types in one room. Few have a CapCom responsible for real time decision making.

In the Internet Integration age, Drucker would be called upon to solve these problems of new management thinking overdue in 2010.

“Central to his philosophy is the view that people are an organization's most valuable resource, and that a manager's job is to prepare and free people to perform”

A manage can only prepare people to perform if they are prepared themselves, Without historic perspective, without example or learning’s, a manager can only manage and often cannot teach what they don’t already know. The Internet came about very fast. Like 1950s TV shows, it is primitive but unlike that era, the Internet is too powerful, too fast for most organizations.

Marketing

Ducker’s work on marketing as a means to communicate value, brand and offerings should be updated to represent the dual ‘customer journey’ and the difficulties such a dual CJ creates in terms of mismatched timing, messaging and how the entire dual CJ is budgeted and valued.

It is still early and how the two CJs will merge into a complete picture will take time and management learning.

Before it, tangible means to reach customers was understood. With the advent of radio created the electronic means to have reach and frequency like never before. One of the great differences between radio and Internet is radio does not create the data flow back that Internet created.

The Internet is a decentralized force that is has great reach yet its full impact is not yet realized. The value of the medium to the customer is comparable to throwing raisins vs. grapefruits at people. No banner ad or search result can truly make people cry. As this medium changes people

and organizations, the foundational teachings of Peter Drucker can be applied to better yield value to management and the medium as a whole.

“His writings have predicted many of the major developments of the late twentieth century, including privatization and decentralization; the rise of Japan to economic world power; the decisive importance of marketing; and the emergence of the information society with its necessity of lifelong learning”

Information society is one of the critical issues Peter Drucker realized. He was correct to realize information society requires lifelong leaning. At issue: How well learning is taking place in the age of Internet Integration.

Example: TV commercials: By the 1970s, TV commercials run by VW, Coke and AT&T created lifelong brand association. These commercials are art and emotionally exceptional in creating brand. Yet it took 20+ years for this form of TV to appear (1950s to 1970s). In 15 years of WWW, we have yet to see the same channel develop that can deliver a similar level of emotional engagement. You Tube maybe interesting but as a commercial vehicle, it is sand.

Productivity

Managers face an immense challenge to create knowledge worker productivity. We suggest they need to skip ahead to ‘decision worker productivity’ but can only do so by segmenting what decisions are within the reach of a ‘knowledge worker’. Over reaching this goal only produces wrong answers or too steep of a learning curve – thus a delay in time to market, time to optimization and a poor fit into the social setting of the organization.

Innovation

Innovation is important to changing the game. The Internet is two things: It gives people the opportunity to innovate and itself is undergoing innovation. The Internet can help a business prosper by finding new markets, new ways to sell existing product or can become innovation itself, such as design of media management technology.

Innovation is the game changer that allows for a ‘shuffling of the deck’. Conversion rates, reach and frequency can radically change when a company invents something radically different (Computer to Laptop, TV, refrigeration) or just significantly different (iPhone to iPad).

Most important, innovation can be realized if a business will listen to what the customer wants and more important, what they need. No customer knows of what they want 10 years from now as the product and service likely does not exist in any similar form. Example: iPad, the Internet itself. Peter Drucker’s work on Innovation is a foundation for which managers must use to convert an organization through Internet Integration.

Optimization

“His books were filled with lessons on how organizations can bring out the best in people, and how workers can find a sense of community and dignity in a modern society organized around large institutions”

In this document, we asserted several areas where optimization should exist. First, by profit volume that takes into account the socially responsible place of an organization.

Responsibility

” Drucker wrote in his 1973 Management: Tasks, Responsibilities, Practices, “that in modern society there is no other leadership group but managers. If the managers of our major institutions, and especially of business, do not take responsibility for the common good, no one else can or will.”

Modern Business

“By that time, large corporations had developed the basic manufacturing efficiencies and managerial hierarchies of mass production. Executives thought they knew how to run companies, and Drucker took it upon himself to poke holes in their beliefs, lest organizations become stale. But he did so in a sympathetic way. He assumed that his readers were intelligent, rational, hardworking people of good will. If their organizations struggled, he believed it was usually because of outdated ideas, a narrow conception of problems, or internal misunderstandings.”

"People in any organization are always attached to the obsolete – the things that should have worked but did not, the things that once were productive and no longer are."