In the past 10 years, companies have learned that information has the power to drive their businesses. This has caused tremendous change to such fundamentals as strategy, organizational structure and market reach.
To explore these developments with some historical perspective, we brought together two big thinkers on business and information management. Last spring, Tom Davenport --director of the Information Management Program at the University of Texas at Austin, CIO columnist and co-author of Information Ecology: Mastering the Information and Knowledge Environment (Oxford University Press, 1997) --visited professor Peter F. Drucker at his home in Claremont, Calif. Drucker, one of the world's most noted authorities on corporate management and professor at Claremont Graduate School, introduced such innovative ideas as the rise of the knowledge worker and the transition from assembly line to flexible production and empowerment. The pair weigh in on the state of reengineering, information management, the psychology of managers and the role of technology in the last few years of the 20th century.
Davenport: What do you think about reengineering? Did something go astray?
Drucker: Yes, obviously --two things. One is that the father of the term, [Michael] Hammer, realized that one could make a great deal of money by asserting that you could learn to reengineer your company in a three-day seminar, provided you paid enough. The other problem is that reengineering became associated with wholesale firing. And in a way, Hammer and [James] Champy, [who together wrote a manifesto on reengineering,] were not guilty of it, but in order to sell it, they did imply that you would need fewer people.
Reengineering is a way of seeing the processes of the firm. You always need to reallocate people because you change the processes. But I am not sure that even the majority of reengineering cases require fewer people. You may need fewer of one kind and more of another.
Davenport: Maybe the problem was that reengineering got too popular for its own good. I'm not sure anything could have lived up to that level of expectation and hype.
Drucker: Reengineering became the bandwagon, and everybody jumped on it. Now many have jumped off. Predictably, there will be a lot of companies that will quietly keep on doing it and then in six years will know how to do it. Maybe we should give the child another name so that nobody remembers.
You may say it was oversold; I say it was overbought. [Hammer and Champy] tried to find clients who were going to make the world over in three days. [Reengineering] will come back. How soon I don't know. But within 10 years for sure.
Davenport: Why is American management so fashion-conscious?
Drucker: Insecurity. We've been caught in a period of very rapid change; the feeling is that there must be a right answer. But also, thinking is very hard work. And management fashions are a wonderful substitute for thinking.
When Frederick Taylor sold scientific management, he insisted that [companies] hand over the management of the plant, and he ran it with his own crew. Evangelists [believe they] have the answer, and I think Taylor didn't know that other answers existed. Same with [W. Edwards] Deming, whom I knew very well. I could never convince Ed that total quality management is for manufacturing. It works where there is production work and no place else.
Each evangelist is quite sure that his own patent medicine cures everything. And it's very hard to get management to ask, "Is this for us?" There is no universal medicine. The stuff that is good for my arthritis would not help me at all with a broken leg, even though it's in the same general area.
It also, I think, bespeaks a systemic behavior of adolescents. Compared to [managers], a 15-year-old is a conservative.
Davenport: You think managers are adolescents? In what sense?
Drucker: They yield to peer pressure. If a fellow CEO on the golf course says, "We are using this, and we wouldn't do without it," you have to do it, too. The last 20 years have been very unsettling. Executives really don't understand the world in which they live. But bandwagon psychology is nothing new. When I was growing up in Vienna, everybody felt the need to be psychoanalyzed. And there was a time when every child older than 4 years had to have his tonsils out. So this is not confined to management.
Davenport: How harmful are fads such as reengineering for the management of organizations?
Drucker: I think the reengineering craze was a tiny little boom compared to sensitivity training. Reengineering did very little damage compared to sensitivity. However, I think the evangelists, as I call them, have peaked.
Davenport: I think you're right: There's a bit of backlash against evangelism. One of the reasons I admire your work so much is you've never really been an evangelist for any single thing.
Drucker: No. I was taught at an early age that you make the diagnosis before you operate. And nine times out of 10, when you make the diagnosis, you don't operate. You just wait. You're going to have to put that foot in a cast and for six months try not to step on it. But American management has been no more fad-conscious than any other. Japanese and European managers have been just as oriented to fads.
Davenport: It's somewhat reassuring to know it's not just a problem in our culture.
Drucker: The search for the one quick fix is a universal human failing.
Davenport: You've been writing about managing information for quite a long time --20 or 30 years. Do you see progress toward information-based organizations and effective information management in organizations?
Drucker: There has been real progress in software and hardware [development]. There is unbelievable software now for operations. Last April, I was in Boston and spent a little time with friends at the Harvard University Medical School and its teaching hospitals. I looked at some of the medical software now available. In the past, all the surgical resident ever saw of an operation was a surgeon's back because he sat up above and observed. Now you have virtual software that actually enables that resident to do the surgery and see the results. I have a grandson who studies architecture. About 60 cents of the dollar in every nonresidential building goes toward utilities, communications and so on. The software to design not what the public sees but what makes the building function is incredible. And the same is true --though it's more work --in manufacturing and operations.
Davenport: I agree. In my work with companies on their business processes, I have yet to find a major operational process that hasn't been transformed by the use of information technology. But how about management? Has that been affected as much?
Drucker: No. Let's go back. In the 1950s and early '60s, when I began to work with computers, we were all convinced that new availability of data would have an enormous impact on how the business was run. And this isn't what happened. I [never met] the senior manager who knew what information was available for decisions. Very few senior executives have asked the question, "What information do I need to do my job?" In part because they've all been brought up with the accounting information that they understand. But the other type of information system, they don't understand.
The information you need the most --and not just in business --is about the outside world, and there is absolutely none. It doesn't exist. You'd be surprised how much outside information about customers and noncustomers companies simply do not have and, in many cases, cannot get. And yet, you don't make your decisions on what goes on inside the company; you shouldn't, at least.
Managers have come to rely heavily on the computer's information. And you cannot put into the computer data that you don't have. Both executives and students think you tell the computer to get the data, and the computer gets it --no. You have to get it yourself. And because of the plethora of inside information that the computer spits out day in and day out, a very large number of executives spend all the time with these internal figures.
Davenport: You've argued that the best way to get external information is to get out of the office and work directly with customers, as Alfred Sloan [of General Motors] did.
Drucker: If you wait for reports, the delay is always six months. And information about the outside is obsolete quickly, especially today when technologies crisscross, and markets and distribution channels change four times a week. The only way you can get outside information is to go out with your customers and not play golf with the other vice presidents. When a salesperson goes on vacation for two weeks, take his or her job. At least you get to know your customer. You still don't know the 75 percent of your market that is not your customers. But at least you know a little bit. A brilliant CEO of a large high-tech company says, "If I want to find out what's going on, I ask my 13-year-old daughter. She knows much more than I do because I sit in an office all day."
Davenport: Somebody once said that attention is the real currency of the information age. Isn't the success of many companies dependent not only upon having the information but also upon paying attention to it?
Drucker: Absolutely. There are lots of companies that insist on getting copious reports, but they are worthless in most cases. You can get an enormous amount of statistics in developed countries, but you have to believe that the information is relevant to you.
Go back to the early '30s. Nobody in Europe had ever worn a ready-to-wear suit; there were tailors who made suits [for individuals]. And then in 1931 or '32, a fellow by the name of Montague opened a chain of men's clothing stores called the Fifty-Shilling Tailor. When I mentioned the Fifty-Shilling Tailor to a client in that industry, he said there was no point in looking at it; none of his customers would ever go there. That client doesn't exist anymore; it deserves not to exist. It's not always absence of information; it is also tunnel vision. Of the two, I think tunnel vision will take a good deal longer to overcome.
Davenport: Do you think it's reasonable for one person within an organization to be the czar of all information? Not only the kind of information that comes through a computer but also in textual form and the kind of information you get through going out and being a car salesman for a couple of weeks. Or is that too much for one role?
Drucker: I'm reasonably convinced that within 20 years or so most businesses will have an information executive who will be in charge of both the traditional accounting system and the new information systems.
Davenport: What industry do you think has been affected the most by the information revolution?
Drucker: The biggest impact will be on knowledge industries such as education and medicine, which are in great need of increased productivity. The impact on education will be profound, but first there will have to be a critical mass of technology in the classroom. Soon we will have some sort of desktop-access machine --it is unlikely to be a regular PC --as standard equipment in classrooms. There are also revolutionary applications involving simulation in medicine and software for maintaining and repairing equipment in the military. Of course, some of these same capabilities are being used in businesses.
Davenport: I'm sure you are familiar with the figures suggesting that up to half of capital expenditures are for some type of information technology. Do you think that IT has become the growth engine of our economy?
Drucker: I beg your pardon. The fastest-growing industry in our economy is management consulting. One of the most important things for managers to learn is when and how to use consultants. But don't kid yourself. You do need computer technicians.
The computer industry is where the automotive industry was in the 1900s. Now the pattern is for computer vendors to sell you people as well. It is reminiscent of when J.P. Morgan bought a Rolls-Royce, and the company told him that he had to have a driver supplied by them. Morgan brought an antitrust suit against Rolls-Royce so that he could use his own driver.
Davenport: I would argue that technology and its management is becoming somewhat commoditized, even though it changes rapidly. So it can be outsourced. Do you think the trend of outsourcing the management of technology will continue to grow?
Drucker: It will grow because if you work with many different companies, you become an expert. "Practice makes a master" is an old proverb. If you don't do it day in and day out, the hand very quickly loses its cunning. And whenever I have analyzed an organization, there may be half a dozen things they do day in and day out where one can expect them to meet the stiffest performance standards. They have 16 things they do once in a great while --not just in technology but also in nontechnical areas such as advertising. I think it was around 1900 or 1910 that businesses found out that you need somebody who does nothing else but advertising, and you need somebody who has more than one client so that he learns by being exposed to different patients or different plants.