They're Not Employees, They're People.
by Peter F. Drucker
Copyright © 2002 by Harvard Business Review School Publishing Coporation. All rights reserved. February 2002
"In a traditional workforce, the worker serves the system; in a knowledge workforce, the system must serve the worker."
A Source of Competitive Advantage
It is actually more important today for organizations to pay close attention to the health and well-being of all their workers than it was 50 years ago. A knowledge-based workforce is qualitatively different from a less-skilled one. True, knowledge workers are a minority of the total workforce and are unlikely ever to be more than that. But they have become the major creators of wealth and jobs. Increasingly, the success – indeed, the survival – of every business will depend on the performance of its knowledge workforce. And since it is impossible, according to the laws of statistics, for an organization to hire more than a handful of “better people,” the only way that it can excel in a knowledge-based economy and society is by getting more out of the same kind of people – that is, by managing its knowledge workers for greater productivity. The challenge, to repeat an old saying, is “to make ordinary people do extraordinary things.”
What made the traditional workforce productive was the system, whether it was Frederick Winslow Taylor’s “One best way,” Henry Ford’s assembly line, or W. Edwards Deming’s “total quality management.” The system embodies the knowledge. The system is productive because it enables individual workers to perform without much knowledge or skill. In fact, on assembly lines and in TQM shops, a highly skilled individual can be a threat to coworkers and to the entire system. In a knowledge-based organization, however, it is the individual worker’s productivity that makes the entire system successful. In a traditional workforce, the worker serves the system; in a knowledge workforce, the system must serve the worker.
There are enough knowledge-based organizations around to show what that means. What makes a university a great university is that it attracts and develops outstanding teachers and scholars, making it possible for them to do outstanding teaching and research. The same is true of an opera house. But the knowledge-based institution that most nearly resembles a knowledge-based business is the symphony orchestra, in which some 30 different instrumentalists play the same score together as a team. A great orchestra is not composed of great musicians but of adequate ones who produce at their peak. When a new conductor is hired to turn around an orchestra that has suffered years of drift and neglect, he cannot, as a rule, fire any but a few of the sloppiest or most superannuated players. He also cannot hire many new orchestra members. He has to make productive what he has inherited. The successful conductors do this by working closely with individual orchestra members and with groups of instrumentalists. The conductor’s employee relations are a given; the players are nearly unchangeable. So it is the conductor’s people skills that make the difference.
It would be difficult to overstate the importance of focusing on knowledge workers’ productivity. The critical feature of a knowledge workforce is that its workers are not labor, they are capital. And what is decisive in the performance of capital is not what capital costs. It is not how much capital is being invested – or else the Soviet Union would have easily been the world’s foremost economy. What’s critical is the productivity of capital. The Soviet Union’s economy collapsed, in large part, because the productivity of its capital investments was incredibly low. In many cases, it was less than one-third that of capital investments in market economies, and sometimes actually negative – consider the huge investments in farming made during the Brezhnev years. The reason for failure was simple: No one paid any attention to the productivity of capital. No one had that as his or her job. No one got rewarded if productivity went up.
Private industry in the market economies teaches the same lesson. In new industries, leadership can be obtained and maintained by innovation. In an established industry, however, what differentiates the leading company is almost always outstanding productivity of capital.
In the early part of the twentieth century, General Electric, for instance, competed with rivals like Westinghouse and Siemens through innovative technology and products. But in the early 1920s, after the era of rapid technology innovation in electromechanics had come to an end, GE concentrated on the productivity of capital to give it decisive leadership, and it has maintained this lead ever since. Similarly, Sears’s glory days from the late 1920s through the 1960s were not based on its merchandise or pricing – the company’s rivals, such as Montgomery Ward, did just as well in both areas. Sears prevailed because it got about twice as much work out of a dollar as other American retailers did. Knowledge-based businesses need to be similarly focused on the productivity of their capital – that is, the productivity of the knowledge worker.