Was Drucker Wrong About Knowledge Workers? A Book Review

The following is a review of a book that I recently read, which I shared internally with my VeraSage colleagues. Warning: It's long, about 2,400 words.It deals with a vital topic: how to increase the effectiveness of knowledge workers, what Peter Drucker said the well-being of our entire society depended upon.After reflection, I thought our readers might like to weigh in on these issues, so I'm posting the entire review and asking everyone to contribute their thoughts through the comments section of this post.If you are firm leader who employs knowledge workers, this is the most important task you face in creating a dynamic, sustainable firm—one you'd be proud to have your son or daughter work for.Book Summary: Reinvent Your Enterprise: Through Better Knowledge Work by Jack Bergstrand, Founder, Brand Velocity, Inc.This is a thought-provoking book, one I wanted to share with everyone at VeraSage. The Foreword is written by Rick Wartzman, Director, The Drucker Institute. This is an organization I have tremendous respect for, as they are trying to advance the legacy of Peter Drucker.Drucker identified the greatest challenge of the 21st century: enhancing knowledge worker productivity. Drucker coined the term in 1959, when about 1/3 of the workforce was engaged in manufacturing (compared to about 10% today).The author's mission is to explain how businesses should actually go about doing these things. He is attempting to advance a framework to enhance the effectiveness of knowledge workers, to tackle Drucker's warning: "The well-being of our entire society depends increasingly on the ability of...large numbers of knowledge workers to be effective."The author gets it. He worked for more than twenty years at Coca-Cola, running the global information technology function until 2001. A recurring theme in the book is that Knowledge Workers (KWs) has been constrained to a significant degree by the same scientific methods that helped companies successfully manage manual work for much of the 20th century.The author has also done his homework, with an extensive bibliography that cites many of the same books we have read. I truly appreciated the level of thinking that went into this book.We at VeraSage know how hard these ideas are to transmit to most business audiences. It sounds like a management fad to talk about KWs, even though the idea is 50 years old, and demonstrably true. We simply don't have a framework for KW efficiency/effectiveness, which is why I greatly admire this contribution. He's thought about it quite a bit. And has even prototyped a consulting firm based on KW principles.That said, there's much in the book I don't agree with. It will cause great cognitive dissonance. Perhaps some of it is linguistic, but that's the entire point if we subscribe to the Peter Block notion that all change is linguistic. Half of wisdom is calling things by their proper names.DefinitionsWe are all familiar with the debate between efficiency and effectiveness. But let's start with a clear definition of these terms, as the author does.

• Efficiency focuses on doing things right.
• Effectiveness concentrates on doing the right things.
• Productivity is about doing them both at the same time.
• Knowledge work is how individuals and groups use ideas, expertise, information, and relationships to get things done.
• Knowledge work productivity is the effectiveness and efficiency of these tasks.

He goes on: productivity improvement, through inventing and reinventing Enterprises, is what generates the surpluses that pay for our standard of living.My dictionary defines "productivity" this way: the effectiveness of productive effort, esp. in industry, as measured in terms of the rate of output per unit of input.Later in the book, he admits that productivity is output divided by inputs, and knowledge is one of the chief inputs in a KW environment. This leaves a glaring void with respect to effectiveness.ImplicationsYet the entire debate centers on effectiveness. Just because you are efficient doesn't mean your effective. Examples abound: buggy whip, slide-rule, typewriter, and dot matrix printer manufacturers might have been at the apogee of their efficiency. So what?There's nothing more useless than being efficient at something that shouldn't be done in the first place. A business is not paid to be efficient.So it's clear that efficiency and productivity are always a measurement—a ratio of outputs divided by inputs. Effectiveness, on the other hand, is always a judgment.There is no such thing as "generic efficiency," as Thomas Sowell has explained in his Basic Economics book, and I've written about extensively. It depends on what you're trying to accomplish and the price you are willing to pay.Our automobiles are inefficient from an output/input ratio calculation, since they are idle a majority of the time. But they are highly effective at taking us where and when we want to go.So what? Well, after discussions with many of you, here are some iron laws that are beginning to formulate:

• Effectiveness always and everywhere trumps efficiency.
• It's possible to increase effectiveness and efficiency at the same time.
• It's not possible to increase efficiency and increase effectiveness.
• Efficiency does not provide a sustainable competitive advantage; only effectiveness can.
• Efficiency is a table stake, like having restrooms. Effectiveness is what creates a competitive differentiation.

We are looking for anomalies to these propositions. I thought of computers doing tax returns, which greatly reduced mistakes and thus led to more effectiveness. But Ed pointed out that the end result was just a correct tax return, which could have been hand-checked under the old method several times, albeit with less efficiency, yet the result would have been the exact same—a correct tax return.I'm also pondering Wal-Mart, obviously greatly concerned with efficiency. They squeeze costs out of the system with technology, reduced inventory, etc., then pass these costs on to customers through price discounts. Is that efficiency or effectiveness? Southwest does the same. How does this fit?Consider another example: the ratio of overhead to spending for a charitable organization. This one measure is often touted as the single biggest clue as to the charity's effectiveness. But is it?You still have to judge the results. What if Jonas Sulk's foundation spent 60% on administration and overhead but still developed the cure for polio? Is that inefficient? How about the Manhattan Project spending the same ratio? If the Bill and Melinda Gates Foundation cured AIDS but spent 90% on administration and salaries, should we care?No matter how good our measures are we still need judgment. And this is where the efficiency experts fail miserably, especially in a knowledge environment. Was Einstein efficient? How would you measure it?Efficiency is like painting by the numbers. It's no doubt more efficient; but it produces crappy art. If we believe KWs are artists—and I know this is debatable because of Dan's contention that most professionals aren't KWs—aren't efficiency experts (Lean, Six-Sigma, etc.) doing nothing more than creating paint-by-the-numbers kits?Back to the bookThis book needs to be read with this profound difference between efficiency and effectiveness understood. I'm not sure the author understands it completely (hell, I'm not sure I do either, but I think we are closer to the truth). I don't agree with his political comments in the book, they are economically illiterate when discussing budget and trade deficits, healthcare, education, and energy challenges, so I'll just focus on his business advice.For example, it's hard to disagree with this:

Efficiency focuses on inputs and tries to reduce them whereas productivity [his definition] concentrates on outputs and tries to increase them. Cost cutting does not drive productivity. Reinvention does.

True. What good is it to be producing dot matrix printers efficiently right before Apple produces the LaserWriter and decimates your market? Reinvention is what capitalism is all about. I have severe misgivings that large organizations are as capable of this as the author wants them to be.But it doesn't matter. The market will produce the Black Swans, either from existing organizations or new ones (who used Google 12 years ago?). I, for one, am glad the buggy whip manufacturers are gone. Henry Ford reinvented them without their consent.How KWs Are DifferentI liked how the author contrasted knowledge work with manual work, with our bracketed language added:

Manual work

• Define the task
• Command and control
• Strict standards
• Focus on quantity [measure]
• Measure performance to strict standards
• Minimize cost of workers for a task

Knowledge work

• Understand the task
• Give Autonomy
• Continuous innovation
• Focus on quality [judgment]
• Continuously learn & teach
• Treat workers as an asset not as a cost [Volunteers]

The author points out that waste in a manual environment is seen by everyone, but with KWs it's not nearly as visible. He suggests the following litmus test for productive knowledge work:

Ultimately, these results should be judged based on whether one of the following occurs:

• When something successful that never existed previously is now up and running.
• When something successful that existed previously has been improved or expanded.
• When something unsuccessful that existed previously has been stopped.

Notice he used the words "these results should be judged," not measured! This is why I believe the author is confused by this essential difference.Since knowledge and good ideas have a short life span, the author continuously emphasizes that speed is important:

In the Knowledge Age, what matters most is not what you know but how fast you can apply it.

But this reminds me of the husband whose driving aimlessly and when his wife asks him where they are, he replies: "I have no idea, but we are making great time." Effectiveness is more important than speed, though I'll concede speed shouldn't be ignored.Framework for KWsThe author suggests the following framework for KWs:

• Envision—subjective knowledge. Where do we intend to go and why?
• Design—objective knowledge. What do we need to do and when?
• Build—objective work. How can the work best get done?
• Operate—subjective work. Who is responsible for which tasks?

The middle of the book explains each of these steps, and along the way makes some excellent points on the difference between KW and manual environments.That said, I found the framework complicated. It was as if he substituted Frederick Taylor's framework with his own, needlessly complicated system. He certainly understands the difference between the parts and the whole, since a company is an interdependent system that you can't simply break into parts and impose 100% efficiency on each. This reduces the effectiveness of the whole.Yet, my head began to hurt reading the details of this framework. I believe a shave with Occam's Razor is in order, and I think Google Time (20% for KWs to work on what they want), combined with Before Action Reviews and After Action Reviews, accomplishes the same objectives.Prototyping a Pure Knowledge FirmPerhaps the most interesting part of the book is the last section where the author describes founding a consulting firm, Brand Velocity, Inc., on the basis of Drucker's KW principles.He laments that many of the incentive structures in business were founded by Scientific Management principles in order to control workers. Retention incentives, fur-lined handcuffs, the author argues, can have the long-term effect of keeping the least productive people while scaring off the best and brightest.He also understands that a small proportion of the best KWs create an overwhelmingly disproportionate amount of output (this is true across knowledge sectors, from programmers, to lawyers, and is backed up by many studies). Bill Gates once said that Microsoft was essentially 20 programmers, and this was in the late 1990s, not when it was a start-up. The same was said of Pixar when it sold to Disney, except it was three people.Another principle the author articulates is that if firms can't manage KWs outputs from a distance, they probably aren't managing them productively in their office buildings either. He believes, just like the number of farms has shrunk over the last century while farming output soared, so will the number of offices housing KWs.If, as the World Bank writes, 75% of wealth resides in human capital, this leads to another important principle: people have value, not jobs. KWs will need to be "compensated based on their personal contributions, without the company taking more than its fair share. At the same time, KWs will need to directly feel the pain when the goals of the Enterprise aren't achieved."Brand Velocity he calls an economic pass through, and as such, there are no caps to compensation and there are very few socialized costs (Category 3 spending in our lingo) linked to personalized benefits.The author writes, "if you have an Enterprise where employees aren't able to earn more than their bosses, your company probably won't be as productive as it could be."Given VeraSage's discomfort with the partnership model, and our search for an alternative model, here's how Brand Velocity distributes its income:

At Brand Velocity, there is a 20% structural cost advantage, so operating income is capped at this amount. All surplus profits are redistributed to employees based on their contributions tracked by "points" within the firm related to the company's top three business drivers: selling great work, delivering great work, and recruiting and developing a diverse group of great people. ...Other activities are important, but they don't earn points.The result is that high contributors—regardless of rank—can earn more at Brand Velocity than they can if they start their own company or work for another firm.

From a technology perspective, employees have complete choice of their own tools. Some have Macs, some use windows, some iPhones, some Blackberries. They also advance money for expense accounts at the beginning of every quarter. If the employee has any left over at the end, they earn it back, after taxes. This takes them out of Category 3 and places them into Category 1 spending—a smart way to align incentives.And here's a thought-provoking idea: they work to increasingly replace judging with coaching. He writes, "dogs perform and people contribute." No performance reviews, with the author wondering how effective a performance review for Einstein would have been.The author also puts employees through strategic profiling, such as Myers-Briggs Type Indicator, and this is where he lost me (but Michelle would love it). You can see his individual profile at www.StrategicProfiling.com. There are fifteen categories! Occam's Razor anyone?This needless complexity made me think that he's substituting Taylor under the rubric of knowledge work principles.In the final portion of the book, the author writes that "Scientific Management helped develop the profitable mass market. Now, the challenge is to profitably develop the tailored market."Also, "innovation is important. But, it needs to be productive innovation created with customers." This belies history, as Henry Ford said: "If I had listened to my customers I would have produced a faster horse."Not Final thoughtsIf Drucker was right, if the major challenge facing the 21st century is to increase KW effectiveness, why aren't more companies doing it, especially among PKFs? There are examples: Best Buy's ROWE program; Google, Apple, Intel, Cisco, Novartis, etc. But the list is sort of short.One possibility is Drucker was wrong. We have to face this possibility.Alternatively, just as with implementing Value Pricing, this is just too hard, and most firm leaders don't know how to tackle the issue.There is a 40 minute interview with the author and director of The Drucker Institute here.Of course, I am interested in all of your opinions on these issues. Please post your comments and let's start the dialogue.