The theory of the business must be known and understood throughout the organization. This is easy in an organization’s early days. But as it becomes successful, an organization tends increasingly to take its theory for granted, becoming less and less conscious of it. Then the organization becomes sloppy. It begins to cut corners. It begins to pursue what is expedient rather than what is right. It stops thinking. It stops questioning. It remembers the answers but has forgotten the questions. The theory of the business becomes “culture.” But culture is no substitute for discipline, and the theory of the business is a discipline.
The theory of the business has to be tested constantly. It is not graven on tablets of stone. It is a hypothesis. And it is a hypothesis about things that are in constant flux—society, markets, customers, technology. And so, built into the theory of the business must be the ability to change itself. Some theories are so powerful that they last for a long time. Eventually every theory becomes obsolete and then invalid. It happened to the GMs and the AT&Ts. It happened to IBM. It is also happening to the rapidly unraveling Japanese keiretsu.
Assumptions in all three areas have to fit one another.
The assumptions about environment, mission, and core competencies must fit one another. Marks and Spencer recognized that World War I had led to a new environment—masses of new buyers for good-quality, stylish, and inexpensive merchandise such as lingerie, blouses, and stockings. By the mid-twenties the four brothers-in-law who had built the penny bazaars into a major chain of variety stores might have been satisfied to enjoy their considerable wealth. Instead they decided to rethink the mission of their business. The business of Marks and Spencer, they decided, was not retailing. It was social revolution. From having been a successful variety chain, Marks and Spencer purposefully changed its mission into being a highly distinct “specialty” marketer. Finally, it went out and looked for the right manufacturers, whom it often had to help get started—for the existing old-line manufacturers were, for obvious reasons, none too eager to throw in their lot with the brash upstart who tried to tell them how to run their business—thus developing the core competency required by the new environment and mission.
Assumptions about environment, mission, and core competencies must fit reality.
The assumptions about environment, mission, and core competencies must fit reality. When four penniless young men from Manchester, England—Simon Marks and his three brothers-in-law—decided in the early 1920s that a humdrum penny bazaar should become an agent of social change, World War I had profoundly shaken their country’s class structure. It had also created masses of new buyers for good-quality, stylish, and inexpensive merchandise such as lingerie, blouses, and stockings—Marks and Spencer’s first successful product categories. Marks and Spencer then systematically set to work developing brand-new and unheard-of core competencies. Until then, the core competency of a merchant was the ability to buy well. Marks and Spencer decided that it was the merchant, rather than the manufacturer, who knew the customer. Therefore, the merchant, not the manufacturer, should design the products, develop them, and find producers to make the goods to his design, specifications, and costs. This new definition of a merchant took five to eight years to develop and make acceptable to traditional suppliers, who had always seen themselves as “manufacturers,” not “subcontractors.”
A clear, simple, and penetrating theory of the business, rather than intuition, characterizes the truly successful entrepreneur.
A theory of the business has three parts. First, there are assumptions about the environment of the organization: society and its structure, the market, the customer, and technology. The assumptions about the environment define what an organization is paid for. Second, there are assumptions about the specific mission of the organization. The assumptions about mission define what an organization considers to be meaningful results—they point to how it envisions itself making a difference in the economy and society at large. Third, there are assumptions about the core competencies needed to accomplish the organization’s mission. Core competencies define where an organization must excel in order to maintain leadership.
Every one of the great business builders we know of—from the Medici and the founders of the Bank of England down to IBM’s Thomas Watson in our day—had a definite idea, had, indeed, a clear theory of the business that informed his actions and decisions. A clear, simple, and penetrating theory of the business, rather than intuition, characterizes the truly successful entrepreneur, the person who builds an organization that can endure and grow long after he or she is gone.
Nonprofits need management even more than business does.
In the early 1990s, people sentenced to their first prison term in Florida, mostly very poor black or Hispanic youths, were paroled into the Salvation Army’s custody—about 25,000 per year, Statistics showed that if these young men and women had gone to jail, the majority would have become habitual criminals. But the Salvation Army was able to rehabilitate 80 percent of them through a strict work program that was run largely by volunteers. And the program cost a fraction of what it would have to keep the offenders behind bars.
Underlying this program and many other effective nonprofit endeavors is a commitment to management. Forty years ago, management was a dirty word for those involved in nonprofit organizations. It meant business, and nonprofits prided themselves on being free of the taint of commercialism and above such sordid considerations as the bottom line. Now most of them have learned that nonprofits need management even more than business does, precisely because they lack the discipline of the bottom line. The nonprofits are, of course, still dedicated to “doing good.” But they also realize that good intentions are no substitute for organization and leadership, for accountability, performance, and results. Those require management and that, in turn, begins with the organization’s mission.
The bureaucracy cannot admit that the nonprofits succeed where governments fail.
The real answer to the question “Who takes care of the social challenges of the knowledge society?” is neither “the government” nor “the employing organization.” It is a separate and new social sector. Government has proved incompetent at solving social problems. The nonprofits spend far less for results than governments spend for failures.
Instead of using the federal tax system to encourage donations to nonprofits, we have the IRS making one move after the other to curtail donations to nonprofits. Each of these moves is presented as “closing a tax loophole.” The real motivation for such action is the bureaucracy’s hostility to the nonprofits—not too different from the bureaucracy’s hostility to markets and private enterprise in the former Communist countries. The success of the nonprofits undermines the bureaucracy’s power and denies its ideology. Worse, the bureaucracy cannot admit that the nonprofits succeed where governments fail. What is needed therefore is a public policy that establishes the nonprofits as the country’s first line of attack on its social problems.
Economic expansion and increase are not aims in themselves. They make sense only as means to a social end.
As far as the potential economic future of the capitalist is concerned, Henry Ford—that grand old man of modern capitalism—was undoubtedly right, and the professional gravediggers of capitalism wrong. But Ford, no less than his critics, forgot that economic expansion and increase are not aims in themselves. They make sense only as means to a social end. They are highly desirable as long as they promise to attain this end. But if this promise is proved illusory, the means become of very doubtful value.
Capitalism as a social order and as a creed is the expression of the belief in economic progress as leading toward the freedom and equality of the individual in the free and equal society. All previous creeds had regarded the private profit motive as socially destructive, or at least neutral. Their social orders had intentionally subjected the economic activity of the individual to narrow limitations so as to minimize its harmful effects upon spheres and activities considered socially constructive.
It is the purpose of the organization, and the grounds of management authority, to make human strength productive.
It is the task of management to make the institutions of the society of organizations, beginning with the business enterprise, perform for the society and economy, for the community, and for the individual, alike. This requires, first, that managers know their discipline. It requires that they know management. The first task of the manager is indeed to manage the institution for the mission for which it has been designed. The first task of the business manager is, therefore, economic performance. But at the same time she faces the tasks of making the work productive and the worker achieving, and of providing for the quality of life for society and individual. But a leadership group also has to have legitimacy. It has to be accepted by the community as “right.” They need to ground their authority in a moral commitment, which at the same time, expresses the purpose and character of organizations. There is only one such principle of morality. It is the purpose of organization, and, therefore, the grounds of management authority, to make human strength productive. Organization is the means through which man, as an individual and as a member of the community, finds both contribution and achievement.
