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Richard Straub

The Great Transformation

In his landmark book, Innovation and Entrepreneurship, Peter Drucker quotes
Thomas Jefferson: “Every generation needs a new revolution.”1 However, Drucker
quickly makes it clear that, as much as he admires Jefferson, this comment is off
the mark.

Drucker notes that most of the revolutions we have witnessed in recent history
have, in fact, failed to deliver what they promised. As French philosopher and
political theorist Alexis de Tocqueville pointed out, revolutions do not demolish
the prisons of the old regime; they tend to enlarge them.2

The conditions that typically lead to revolution in the first place are oppressive
leadership, bankrupt ideas and institutions, Und, above all, society’s failure to
renew itself. Achieving large-scale social change without going through the
upheaval of a revolution is obviously the better option. The term “transformation”
aptly describes this preferable path.

A key question we face today is whether the Western world has the capacity to
transform itself in ways that will achieve growth and prosperity, rather than to
move inexorably toward social and economic decline and, quite possibly, Erfahrung-
ence the wrenching trauma of a citizens’ revolt along the way.

DANGEROUS TRENDS

Evidence of the need for social change is strong, and a number of factors have con-
verged to make the picture especially daunting. Taken together, they indicate that
we are heading toward decline rather than prosperity.
(cid:2)(cid:1)Economic Stagnation and Financial Instability. Even though some indicators
have improved since the global financial meltdown that began in 2007, Die
structural problems that bogged down our economies are by no means resolved.
In a recent interview, American economist Larry Summers talked about the
probability of secular stagnation as a “base case” for decisionmakers.3 Moreover,

Richard Straub is President of the Peter Drucker Society Europe and Director of
Corporate Services and EU Affairs at the European Foundation for Management
Development.

The Great Transformation will be the theme of the sixth Global Peter Drucker
Forum, to be held in Vienna, Österreich, November 13-14, 2014.

A version of this essay appeared previously in EFMD Global Focus Magazine.

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Richard Straub

the debt crisis many developed economies are dealing with severely limits those
governments’ ability to provide further stimulus.

(cid:2)(cid:1)Growing Income Inequality. French economist and academic Thomas Piketty
argues in his much-discussed book, Capital in the 21st Century, that capital has
essentially won in a contest with labor over the division of economic returns in
the long term. With returns on capital growing faster than the economy overall,
capital’s share of economic value is increasing at the expense of labor’s, resulting
in widening income disparities. Piketty’s profound analysis points to this as a
long-term trend.4 Henry Mintzberg, a leading management thinker, comes to a
similar conclusion in a 2014 online pamphlet, Rebalancing Society, in which he
analyzes the imbalance in society.5

(cid:2)(cid:1) Unemployment and Underemployment. Unemployment and underemploy-
ment are at a stubbornly high level, and youth unemployment remains a partic-
ular concern. Some Western trade unions have made things worse by opposing
flexibility within labor markets. Jedoch, Drucker for one believes that unions
are an important “countervailing power” to large corporations and thus “mod-
ern society . . . needs an organ such as the labour union.”6

(cid:2)(cid:1) An Aging Population and Low Birth Rates in Western Countries.
Demographers predict that by 2035 one billion people around the globe will be
above the age of 65.7 Gleichzeitig, falling birth rates in developed economies
are reducing the number of people who will support this older population. Der
implications for funding retirement and social protection systems are striking,
and the situation is expected to create a financial burden for the future work-
force that is on course to become unbearable.

(cid:2)(cid:1)Untamed Leviathan. “The state almost everywhere is big, inefficient and broke,”
Economist editor John Micklethwait remarked in 2011.8 Since then things have
only gotten worse. The suffocating bureaucracy of the state too often deprives
advanced economies of the oxygen they need for innovation and growth.

(cid:2)(cid:1)Increasing Corporate Autism. Since the 1980s, corporations have increasingly
set aside concerns for a broad set of stakeholders—customers, employees, Und
communities—in favor of the supposed interests of shareholders. This trend has
accelerated since the financial crisis and has led to a significant reduction in
value-creating investments with a long-term horizon.

Will these steadily worsening trends become tomorrow’s reality, or can we still
shape a better future? How do we escape the vicious cycle we seem to be caught
In? Obviously, levers need to be pulled at both the macro and the micro levels.

At the macro level, monetary and fiscal policy, labor markets, social security,
tax regimes, and rules governing competition all need to be addressed.
Policymakers should focus on removing obstacles and creating incentives in the
right direction. This approach can be at least partly summarized as “managing by
getting out of the way,” which means refocusing regulations in the fields where

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The Great Transformation

they are essential and otherwise enabling productive forces to act without artificial
and counterproductive burdens.

The micro level is, Natürlich, the heart of management, where actual value is
created and destroyed, and where specific decisions are taken that lead to world-
changing innovations—or to a waste of productive resources.

Actual growth happens in individual organizations that are successfully man-
aged before growth figures for a country are calculated. In der Zwischenzeit, politicians
and other experts are obsessed with aggregations and ratios, and they tend to for-
get that the action happens in real life and not in the abstractions of economics.

Management is a real-world practice dealing with people and organizations.
Managers can make a world of difference by applying their knowledge, their cre-
Aktivität, their emotions, and their values. Management, in this broad (and very
Druckerian) sense, includes commercial players, nonprofit organizations, Und
public-sector bodies, each of which has a mandate to create value and achieve its
mission.

American author and journalist Walter Kiechel wrote in the Harvard Business
Review that “management has come to shape the world in which we work [amid]
an era of global triumph, measured by agreement on certain key ideas, steadily
improving productivity, the worldwide march of the MBA degree and a general
elevation of expectations about how workers should be treated.” Kiechel asserts
that Drucker, a key figure in the rise of management as a discipline, “laid out a
vision of the corporation as a social institution—indeed, a social network—in
which the capacity and potential of everyone involved were to be respected.”9

MANAGEMENT: A TRACK RECORD WITH BIG QUESTION MARKS

We have learned a lot about management in recent years. Once we accept the
importance of good management for the economic and social well-being of
today’s world, it is legitimate to ask a critical question: are managers equipped—
in terms of skills, competencies, and courage—to lead us toward a Great
Transformation?

Management has become the focus of education, Forschung, and practice.
Extensive thinking has gone into developing the discipline of management, its
tools and methodologies, Und, increasingly, into specialized fields such as market-
ing, Operationen, finance, and human resources. Thousands of books proclaim the
latest breakthroughs and demonstrate the progress of management thinking and
Forschung. Zum Beispiel, Julian Birkinshaw, a professor at London Business School,
suggests in his book Reinventing Management four main dimensions along which
management has been steadily, if slowly, evolving:10
(cid:2)(cid:1)Coordinating work with a shift from bureaucracy to emergent practices
(cid:2)(cid:1)Communicating decisions by drawing on collective wisdom
(cid:2)(cid:1)Setting objectives that rely on the principle of obliquity rather than direct align-

ment

(cid:2)(cid:1)Motivating employees by intrinsic rather than extrinsic methods

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Richard Straub

Jedoch, a reality check shows that, despite considerable progress in making
management more effective, many fundamental challenges remain. Bureaucratic
hierarchies, in the form of control-oriented, top-down structures, are still highly
prevalent.

In his book What Matters Now, American management thinker Gary Hamel
argues that innovation, particularly disruptive innovation, is unlikely to flourish
when a few executives have a chokehold on resource allocation.11 The overwhelm-
ing internal complexity of large organizations creates a tendency to focus internal-
ly rather than on taking an “outside-in” perspective. This brings a loss of focus on
customers and, as a result, more energy is spent on resolving internal issues than
on finding new ways to delight customers.

The overemphasis on short-term gains at the expense of long-term prosperity
has become the new normal, despite its negative consequences. In a recent
McKinsey survey of one thousand corporate board members and “C-suite” exec-
utives, 63 percent of respondents stated that the pressure to generate strong short-
term results has increased over the past five years,12 even though 86 Prozent
declared that using a longer term horizon to make business decisions would have
a positive effect on corporate performance in a number of ways, einschließlich
strengthening financial returns and increasing innovation. Regrettably, the creed
of shareholder value still has a tight grip on corporate executives and their gover-
nance.

When one looks behind the gadgetry of corporate finance, the results are not
nearly so impressive. The rate of return on assets and on the invested capital of
UNS. firms in 2011 was only one-quarter of what it was in 1965.13 Darüber hinaus, man-
agement’s effectiveness in winning the hearts and minds of the workforce is even
worse; nur 13 percent of people employed worldwide say they are engaged at
arbeiten, according to Gallup’s 2013 Studie, the State of the Global Workplace. In
other words, about one in eight workers—roughly 180 million employees in the
countries studied—are psychologically committed to their jobs and likely to be
making a positive contribution to their organization.14

Clayton Christensen, a Harvard Business School professor who is recognized
as the number one management thinker in the Thinkers50 ranking, maintains that
management’s misallocation of capital is putting capitalism itself at risk.15 With a
constant drive to achieve short-term cost reductions, most corporate innovations
have centered on improving efficiency. Jedoch, the capital freed up by increas-
ing efficiencies is not being used to generate what Christensen calls “empowering
Innovationen,” which would create new businesses or even whole new industries,
thus spurring growth and adding jobs. Corporations are instead hoarding cash on
their balance sheets like never before, and some of the capital generated by effi-
ciency innovation is reinvested in even more efficiency innovation.

The picture is also not rosy in the management of mega-scale initiatives initi-
ated by political decisions. Government leaders may be good at communicating
and at managing the pure political process, but when it comes to execution and the
ultimate value creation for citizens, things easily get out of control. High-profile

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The Great Transformation

projects such as the German energy transition, Energiewende, show deep manage-
ment flaws that range from governance and strategy to execution.

Everyday projects, which do not typically capture the headlines, are also mis-
managed. A recent report by the GAO, Zum Beispiel, found that the U.S. govern-
ment has 77,000 empty or underutilized buildings across the country, costing tax-
payers more than $1.5 billion a year to maintain.16 Such troubles may be related to
the fact that those in the political arena have not yet embraced management skills
as a factor for success in their political careers, yet the damage flawed management
of such initiatives can cause is huge.

To sum up, the overall track record of managements’ effectiveness and leader-
ship is rather mixed, but there are enough bright spots to give us confidence that
managers can still provide the foundation on which we will forge the Great
Transformation.

A GREAT TRANSFORMATION FOR THE BETTER IS WITHIN OUR REACH

We are at an exceptional moment in history, as the developed world begins to
make a series of enormous changes in society—whether for better or for worse
remains to be seen. Jedoch, it is not preordained; myriad actors will shape the
future, some will have more impact than others, but we know one thing for cer-
tain: during this Great Transformation, managers will be of pivotal importance.
As Drucker wrote in his 1993 Buch, The Ecological Vision, “Management and
managers are the central resource, the generic, distinctive, the constitutive organ
of society . . . and the very survival of society is dependent on the performance, Die
competence, the earnestness and the values of their managers . . . What managers
are doing is therefore a public concern.”17 This seems to be the moment to take
Drucker’s statement seriously, to live up to our responsibility as managers and
Führer. To do so will require courageous and decisive action.

The Great Transformation must begin by rebuilding trust and revisiting man-
agers’ fundamental commitment to society—namely, innovation and value cre-
ation. Natürlich, done well, over the long term this is also good for a company and
its bottom line. Failing to invest in innovation means putting the future of a whole
organization at risk, and no company that goes out of business can be a good
neighbor, good employer, or a good citizen. At the same time, it must become
unacceptable for a CEO to earn 300 times or more than their average employee.
Even worse is that failing to keep a business viable creates significant damage, solch
as human suffering and society’s need to address that suffering with social pro-
grams—at taxpayers’ expense.

From Scalable Efficiency to Scalable Learning

Despite great new management ideas and concepts, the issue of scalability and the
broad-based application of innovative management practices are far from
resolved. Instead of liberating the creative and innovative energy of employees, als
well as of supply-chain partners and others who are part of a corporation’s ecosys-

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Richard Straub

tem, blind processes and rigid hierarchies still hold them down. In effect, Die
emergence of Taylorism in non-manufacturing business operations has been
enabled by digital technology. Jedoch, we can do much better than that.

Authors John Hagel III and John Seely Brown, who are co-chairmen of the
Deloitte Center for the Edge, have described a shift toward a massive transforma-
tion, from institutions designed for scalable efficiency to institutions designed for
scalable learning.18 This relates not so much to formal, classroom-based learning
but to learning from the ongoing experiences, Projekte, and initiatives that occur
continually in various parts of an organization. The key is to foster learning by
connecting minds to create value and share knowledge for innovation across the
organization. Enterprise social media and traditional means of communication
provide a new infrastructure for this type of scalable learning.

Toward a Human-Centric Paradigm

Digital technology is an unprecedented game changer, due to its continuous expo-
nential development. As such, it can lead either further down the efficiency-
enhancing and cost-cutting route, or up the innovation path. It can replace brawn
with robotics or augment human brains with artificial intelligence.

Many organizations will undoubtedly be tempted to use technology to replace
human beings wherever and whenever possible, but this would be a terrible mis-
take and almost certainly lead to a downward spiral for both society and the econ-
omy. The emphasis should instead be on empowering workers so they can lever-
age new technologies, with the understanding that technology is meant to serve
people and enhance their capabilities.

The leader of a prominent gaming company told me that the primary task of
management in his organization is to eliminate obstacles and provide tools for his
workers so they can improve their access to knowledge and collaborate across
their on-site functions, and even beyond the company’s walls.

Management as a Liberal Art

For this kind of vision to be realized, humanists must be given equal prominence
with the technologists. The grossly reductionist idea that almost any expert can be
replaced by an “expert system” does not take into account profound human capa-
bilities like intuition, Kreativität, and compassion. It is also naïve to assume that
knowledge is objective and somehow disconnected from the human condition; In
fact, the value of knowledge is largely determined by those producing and apply-
ing it. Drucker had this in mind when he called management a liberal art. It is “lib-
eral,” he explained, “because it deals with the fundamentals of knowledge, self-
Wissen, wisdom and leadership; ‘art’ because it is practice and application.”19
Managers draw from all the knowledge and insights of the humanities and social
sciences—from psychology and philosophy, economics and history, the physical
sciences and ethics. Aber, they have to focus this knowledge on achieving results
and being effective. This is something management education institutions should

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The Great Transformation

seriously consider if they do not want to become ever-more specialized engineer-
ing-type schools for management techniques.

A Second Renaissance?

In a time when technologists and technocrats dominate so much of the debate in
Politik, economics, and education, rediscovering the essence of being human is
more important than ever. In der Tat, in order to benefit from what MIT’s Erik
Brynjolfsson and Andrew McAfee have dubbed “the Second Machine Age,” we
also need a second Renaissance that is powered by the humanities and knowledge
across disciplines, as Drucker posited.20 Otherwise we run the risk of ending up in
a technocracy, where technology becomes the new faith and the top technocrats
are the new masters who determine the fate of those subject to their technology-
driven world. What financial technocrats might do in such a world does not need
further comment. The Transhumanists and Kurzweil’s Singularity adepts seem to
have lost the connection to the roots of human existence and uniqueness. By prop-
agating an ideology pretending that perfect technology leaves the human being
behind like a flawed outcome of evolution, it is an outrageous reduction of human
condition to technology’s capabilities – as advanced as they may be.

When Roger L. Martin, an academic and prolific author, writes in his book
The Design of Business about the knowledge funnel and shows human progress
from mystery to heuristics to algorithms, he does not imply that the world is going
algorithmic but, as scientific progress has demonstrated, that each new discovery
and each new algorithm opens up new mysteries.21 The deeper we drill, the more
mysteries we seem to unlock.

A TSUNAMI OF INNOVATION AND ENTREPRENEURSHIP

Done right, a new marriage between the human spirit and the most powerful tech-
nology humanity has ever developed, which is still in its early stages of deploy-
ment, could produce incredible results. Just think about the extensive waste in
today’s organization in terms of people’s ideas, Kreativität, motivation, and engage-
ment. Releasing just 10 percent of this latent value would mean a jump in innova-
tion and value creation—and, im Gegenzug, in the world’s prosperity. We need to get
closer to what Peter Drucker called an entrepreneurial society in which innovation
and entrepreneurship become an integral life-sustaining activity in our organiza-
tionen, our economy, our society.22

With a human-centric approach, serviced by the best technology has to offer
and supported by smarter government policies and regulations, our organizations
can create new infrastructures that enable knowledge sharing, communication,
and collaboration. In essence, we can trigger a tsunami of innovation and value
creation.

There are already cases that demonstrate the tremendous potential for achiev-
ing massive and deep transformation in a short time. India’s Aadhaar project led
by former Infosys CEO Nandan Nilekani is one such example. The project aimed

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Richard Straub

to provide a fake-proof ID to each of the 1.2 billion people who live in India, 500
million of them below the poverty line. Five years after its inception, 650 Million
people have enrolled for the unique Aadhaar biometric ID that is authenticated
online, and which has the potential to give ID holders access to social benefits,
bank services, and the labor market.23

The implications are enormous for India and rest of the developing world. Es
is the classic example of advanced technology serving fundamental human needs.
It also shows how the application of sound management practices can bring the
two streams together—leading-edge technology and a deep commitment to
improving the human condition.

IN TRANSITION TOWARD THE GREAT TRANSFORMATION

The Great Transformation will not happen overnight. Jedoch, we are already in
a state of transition where sound existing management knowledge can be applied.
We find a lot of this in the legacy of the great management thinkers whose ideas
are based on a human-centric worldview: Peter Drucker, Warren Bennis, Henry
Mintzberg, Charles Handy, and C. K. Prahalad are among them. Based on these
Fundamente, many new concepts and methods are being introduced that fit our
time even more precisely.

We don’t know what the future will bring, but we can determine the direction
in which we want to go. We can take purposeful steps toward the Great
Transformation by creating a world that embraces technology but keeps the
human being at its core, conscious of our culture, our history, our spirituality, Und
our unending quest for self-realization.

1. P. F. Drucker, Innovation and Entrepreneurship. New York: Harper & Row, 1985, location 4641,

Kindle edition.

2. Drucker, Innovation and Entrepreneurship, location 4649, Kindle edition.
3. L. Summers, Toronto: Institute for New Economic Thinking, April 2014. Speech available at

http://ineteconomics.org/conference/toronto.

4. T. Piketty, Capital in the 21st Century. Belknap Press, 2014.
5.

H. Mintzberg,

Rebalancing

Society, Marsch

2014.

Verfügbar

bei

http://www.mcgill.ca/desautels/events/past-events/rebalancing-society.

6. P. F. Drucker, The New Realities: In Government and Politics, in Economics and Business, In

Society and World View. New York: Harper & Row, 2014.

7. A Billion Shades of Gray,” The Economist, April 26, 2014. Verfügbar um
http://www.economist.com/news/leaders/21601253-ageing-economy-will-be-slower-and-
more-unequal-oneunless-policy-starts-changing-now.
J. Micklethwait,
http://www.economist.com/node/18359896.

“Taming Leviathan,” The Economist,

2011. Verfügbar

bei

9. W. Kiechel, “The Management Century,” Harvard Business Review, November 2012.
10. J. Birkinshaw, Reinventing Management. London: Wiley, 2012.
11. G. Hamel, What Matters Now? San Francisco: Jossey-Bass, 2012.
12. D. Barton and M. Wiseman, “Focusing Capital on the Long Term.” McKinsey & Unternehmen,
December2013. Available at http://www.mckinsey.com/insights/leading_in_the_21st_centu-
ry/focusing_capital_on_the_long_term.

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The Great Transformation

13. Deloitte Center for the Edge, “The Shift Index” 2013. Verfügbar um

http://www.deloitte.com/us/shiftindex.

14. Gallup, State of

the Global Workplace

Study, Oktober 2013. Verfügbar um

http://www.gallup.com/poll/165269/worldwide-employees-engaged-work.aspx.

15. C. Christensen and Derek van Bever, “The Capitalist’s Dilemma,” Harvard Business Review.

Juni, 2014

16. GAO, Federal Real Property: National Strategy and Better Data Needed to Improve Management
of Excess and Underutilized Property. Washington, Gleichstrom: Author, GAO-12-645, Juni 20, 2012.
Available at http://www.gao.gov/products/GAO-12-645.

17. P. F. Drucker, The Ecological Vision. London: Transaction Publishers, 1993.
18. Deloitte, “The Shift Index.”
19. P. F. Drucker, The New Realities, Kerl. 15.
20. E. Brynjolfsson and A. McAfee, The Second Machine Age. New York: W. W. Norton, 2014.
21. R. Martin, The Design of Business. Boston: Harvard Business Press, 2009.
22. Drucker, Innovation and Entrepreneurship.
23. V. Sathe, “The World’s Most Ambitious ID Project: India’s Project Aadhaar,” Innovations 6, NEIN.

2 (2011): 39-66.

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