BUSINESS MANAGEMENT

Horacio H. Randle
Unit I:
1 From “Capitalism” to “Knowledge Society”.-

2 The new meaning of “Knowledge”.-

3 The “Industrial Revolution”.-

4 The “Productivity Revolution".-

5 The “Management Revolution”.-

6 Organizations as a “Different Species”.-

7 The “Theory of Business”.-

8 Planning for “Uncertainty”.-

The “Post-Capitalist Society” written by Peter Drucker in 1992, is an
analysis of the major world transformation from the “Age of
Capitalism” to the “Age of Knowledge Society” and how affects society,
economics, business, and politics.

Drucker describes how every few hundred years, a sharp

transformation has taken place and greatly affected society - its
worldview, its basic values, its business and economics, and its social
and political structure.

The basic economic resource, the means of production, is no longer

capital, natural resources or labour but Knowledge.

The primary resource in the Post-Capitalism, it is “Knowledge”, and the

leading social groups are the “Knowledge Workers“.

The Post-Capitalist Society, provides a searching look into the future

as well as a vital analysis of the past, focusing on the challenges of
the present transition period and how, if we can understand and
respond to them, we can create a new future.
Peter F. Drucker (1909, Austria -2005 USA)
Consultant, educator, and author.

Drucker is known as the "Father of Management"

because of his efforts in the field of corporate
management.

Drucker theories are still being studied in many MBA

programs as well as in corporate leadership seminars.

“Performing, responsible management is the alternative

to tyranny and our only protection against it.”

“Because the purpose of business is to create a

customer, the business enterprise has two, and only two,
basic functions: marketing and innovation.

Marketing and innovation produce results; all the rest are

costs”
1.- From “Capitalism”
to “Knowledge Society”.-
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Capitalism
Capitalism is often thought of as an economic system in which private actors own and
control property in accord with their interests, and demand and supply freely set prices in
markets in a way that can serve the best interests of society.
The essential feature of capitalism is the motive to make a profit.

As Adam Smith, the 18th century philosopher and father of modern economics, said: “It
is not from the benevolence of the butcher, the brewer, or the baker that we expect our
dinner, but from their regard to their own interest.”

Both parties to a voluntary exchange transaction have their own interest in the outcome,
but neither can obtain what he or she wants without addressing what the other wants. It
is this rational self-interest that can lead to economic prosperity.

In a capitalist economy, capital assets—such as factories, mines, and railroads, can be

privately owned and controlled, labor is purchased for money wages, capital gains
accrue to private owners, and prices allocate capital and labor between competing uses.
Foundations of Capitalism
Capitalism is built upon several fundamental pillars
that shape its economic structure and functioning.

These core principles have had a profound impact

on societies and economies around the world,
contributing to the dynamic nature of modern
global trade and finance.

The 4 Foundations of Capitalism, are:

1) Private Property

2) Self-Interest

3) Competition
4) Decentralization
1 Private Property 2 Self Interest
Private Property allows People act in pursuit of
people to own tangible their own good, benefitting
assets such as land and society as if guided by an
houses, as well as invisible hand, as described
intangible assets such as in Smith’s 1776 Wealth of
stocks and bonds. Nations.

3 Competition
Firms’ freedom to enter and exit markets maximizes social
welfare, benefiting both producers and consumers.
4 Market Determination 5 Freedom
A market mechanism that Freedom to choose with respect to
determines prices in a consumption, production, and
decentralized manner through investment—dissatisfied customers
interactions between buyers can buy different products,
and sellers. investors can pursue more lucrative
ventures, workers can leave their
jobs for better pay.
6 Limited Role of Government
To protect the rights of private citizens and maintain an orderly
environment that facilitates the proper functioning of markets.
Types of Capitalism
Capitalism takes on different forms across the world,
influenced by culture, history, and politics.

Each variant has its own characteristics and

implications for how businesses operate and how
wealth is distributed within society.

Understanding these differences is key to grasping the

global economic landscape, economists classify
Capitalism into six different groups using various
criteria.

Capitalism, for example, can be simply sliced into six

types, based on how production is organized.
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1) Oligarchic Capitalism

Power of the Few Example

Under oligarchic capitalism, a small An illustrative case of oligarchic
group of elite capitalists, known as capitalism is present in Russia,
oligarchs, dominate both the where the intertwining of economic
economic and political systems. The and political power is evident.
term oligarchy is derived from Greek,
meaning the ‘power of the few’, and
stands in contrast to democracy, or
the ‘rule of the many’.
2) State-Guided Capitalism

1 State Control
State-guided capitalism is characterized by the predominant
control of the economy by the state, as opposed to private
individuals. The government directs the economy through a mix of
regulations and direct involvement in economic activities.

2 Example
China serves as a prime example of state-guided capitalism, where
the government exerts significant influence over the country's
economic direction.
3) Corporate Capitalism
Corporate Dominance Institutional Power Western Example
In corporate capitalism, These corporate Many Western countries
large corporations hold a entities are institutional, can be argued to exhibit
controlling position in the run by legitimate corporate capitalism,
market. This system is companies, and have a where large
marked by the dominance significant influence corporations have
of private institutional over the market, though achieved a dominant
interests rather than it is not a completely status in various market
personal ones, as seen in free market system. sectors.
oligarchic capitalism.
4) Entrepreneurial Capitalism

1 Free Market Entrepreneurs 2 Small Business Focus

Entrepreneurial capitalism These businesses are often
is founded on the activities composed of just one
of free market owner and a few
entrepreneurs, typically employees, which helps
involving small-scale prevent any single
businesses with minimal company from gaining an
staff. unfair advantage, such as a
monopoly.
5. Laissez-Faire Capitalism

Laissez-faire (French for “let do”) capitalism is based on

letting people do as much as they want, with minimal
interference from the state.

It is the complete absence of state intervention in the

market.

The justification for this system is that it is the purest form

of a free market.

This, however, assumes that free markets emerge naturally

without government intervention.
6) Welfare State Capitalism

Government Role Redistribution Nordic Examples

The government Resources Countries like
plays a significant redistributed often Sweden, Norway, and
role in welfare state include financial Finland exemplify
capitalism, using the support such as welfare state
state to redistribute unemployment capitalism, where a
resources within the benefits or child- competitive private
economy. raising assistance, as market is
well as direct services complemented by
like healthcare and taxation to support
education. those less successful
within it.
Brief history of Capitalism
18th century

The development that distinguished capitalism from previous

systems, was the use of accumulated capital to enlarge
productive capacity (rather than to invest in economically
unproductive enterprises, such as pyramids and cathedrals).
The focus of capitalist development shifted from commerce, to
industry. The steady capital accumulation of the preceding
centuries was invested in the practical application of technical
knowledge during the Industrial Revolution.

Adam Smith, wrote in 1776 “An Inquiry into the Nature and Causes
of the Wealth of Nations”, by the which recommended leaving
economic decisions to the free play of self-regulating market
forces. Adam Smith is called the "father of economics" because
of his theories on capitalism, free markets, and supply and
demand.
19th century

After the French Revolution and the Napoleonic Wars had swept
the remnants of feudalism into oblivion, Smith’s policies were
increasingly put into practice.

The growth of industrial capitalism and the development of the

factory system in the 19th century also created a vast new class
of industrial workers whose generally miserable working and
living conditions inspired the revolutionary philosophy of Karl
Marx.

Marx wrote “Das Kapital” in 1867 and explained that because the
result of the industrialization process, which leads to large-scale
enterprises acquire the assets instead of the less successful
people. According to Marx, only when the temper of the working
class snaps and capitalism is replaced by socialism. Marx
predict the inevitable overthrow of capitalism in a proletarian-led
class war.
20th century

Marx’s apocalyptic expectations were largely replaced by the

less violent but equally disquieting views of different autors like:

Ludwig von Mises, wrote “The Theory of Money and Credit” in

1912. He argued that government intervention in the economy
could never reproduce the results of a free-market society.

John Maynard Keynes, wrote “The General Theory of

Employment, Interest, and Money” in 1936. He advocates for a
regulated market economy, predominantly private sector, but
with an active role for government intervention during recessions
and depressions.

Friedrich Hayek, wrote “The Road to Serfdom” in 1943. He

believed that free markets allowed for creativity, innovation, and
entrepreneurship, which are necessary for societies to bloom
and citizens to prosper.
Adam Smith 1723-1790, Scotland.-
“An Inquiry into the Nature and Causes of the Wealth of Nations” (1776 )

Free Market rules, reject government interference in market activities.

Government’s only has three functions: 1) Protect national borders, 2) Enforce
civil law, and 3) Engage in public works (e.g., education.

1 Individual Needs 2 Invisible Hand

Our individual need to fulfill Unseen forces moves the free
self-interest results in societal market economy.
benefit.

3 Self-Interest & Labor Division

Self-interest and the division of labor in an economy result in mutual
interdependencies that promote stability and prosperity through the
market mechanism.
Carl Marx 1818-1883, Germany.-
“Das Kapital” (1867)

 The capitalism consistently only benefits a select few. Under this economic
model, ruling by class becomes richer by extracting value out of cheap labor
provided by the working class.

 Marx’s favored government intervention. Economic decisions, he said, should

not be made by producers and consumers and instead ought to be carefully
managed by the state to ensure that everyone benefits.

 Labor was a mere commodity that could gain only subsistence wages.

 The capitalistic system would inevitably destroy itself. The oppressed

workers would become alienated and ultimately overthrow the owners to
take control of the means of production themselves, ushering in a classless
society.
Ludwig von Mises. 1881-1973, Austria.-
“The Theory of Money and Credit” (1912).

 The government intervention in the economy could never

reproduce the results of a free-market society.

 The belief that state institutions can improve on the market by

taking what it does and somehow doing it better, it is dangerous.
In the absence of the profit motive, there is no obvious way of
measuring the success of public agencies in delivering their
objectives.

 The only purpose of money, is exchange, neither production nor

consumption. By printing money government scan create an
artificial boom, but this must inevitably be followed by a bust.

 Under socialism, production goods are held in common

ownership. They are never traded, never bought and sold, but
continue as joint property, so market prices are never
established for them. Without prices and profits there is no
efficient way of allocating resources.
John Maynard Keynes 1883-1946, UK.-
“The General Theory of Employment, Interest, and Money” (1936)

 During recessions and depressions, a regulated market economy

it is necessary, with an active role for government intervention.

 Demand is influenced by public and private economic decisions.

Changes in demand have the strongest short-term impact on
output and employment.

 Governments should play an active role in their countries'

economies, instead of just letting the free market reign. If
government spending increases, for example, and all other
components of spending – consumption and investments –
remain constant, then the output will increase.

 Governments should increase spending, even if it means going

into debt.
Friedrich Hayek 1899-1992, Austria.-
“The Road to Serfdom” (1943)

Free markets allowed for creativity, innovation, and

entrepreneurship, which are necessary for societies to bloom and
citizens to prosper.

 Government intervention, in the form of centralized planning,

leads to increased debt and inflation, particularly when the
government spends money it doesn't have.

 Economic control is, in effect, political control.

 Individual freedom is a precondition for prosperity.

 Individual Freedom and Spontaneous Order, are essentials

 Socialism was not economically viable

From Capitalism to Knowledge Society
Within one hundred fifty years, from 1750 to 1900, capitalism and technology conquered the globe and
created a world civilization.

What was brand new was their speed of diffusion and their global reach across cultures, classes, and
geography. And it was this speed and scope that converted capitalism into “Capitalism” and into a
“system,” and technical advances into the “Industrial Revolution.”
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This transformation was driven by a radical change in the meaning of knowledge.
Sociedad del Conocimiento
Knowledge had always been seen as applying to being. Then, almost overnight, it came to be applied to
doing. It became a resource and a utility. Knowledge had always been a private good. Almost overnight it
became a public good.

For a hundred years – during the first phase – knowledge was applied to tools, processes, products. This
created the Industrial Revolution.

Today, knowledge is being applied to knowledge itself. This is the Management Revolution. Knowledge is
now fast becoming the sole factor of production, sidelining both capital and labor. It may be premature
(and certainly would be presumptuous) to call ours a “knowledge society”; so far, we have only a
knowledge economy. But our society is surely “post-capitalist.”
This era marked the unprecedented global spread and
influence of these forces, shaping a world civilization.

The rapid diffusion and reach across cultures, classes,

and geographies turned capitalism into a dominant
system and technical advances into the Industrial
Revolution.

This period also saw a fundamental shift in the

perception of knowledge, from a private to a public
good, and from being about existence to being about
utility and action.
Capitalism's Global Reach

Global Societal Technological

Domination Transformation Diffusion

Within a century, Capitalism permeated Technological

Capitalism expanded and transformed all advances, such as
from Western and societal groups, eyeglasses and the
Northern Europe to redefining social potter's wheel, spread
the entire inhabited structures and swiftly but remained
world. economies worldwide. confined to specific
crafts or applications
until the Industrial
Revolution.
Revisiting Historical Perspectives

Class and Social Change Capitalism's Recurrence

The Industrial Revolution was the Capitalism has occurred repeatedly
first to change social structures throughout history, in various forms,
and create new classes is both in the East and the West.
challenged by the historical record.

Unprecedented Change
The last 250 years are unique not for the occurrence of capitalism or technical
innovation, but for the extraordinary speed and scope of these changes.
The Knowledge Society

The Knowledge Society represents an evolution beyond the Information Society,

emphasizing the strategic importance of knowledge creation, dissemination, and
application in shaping societal progress.
In this era, the focus extends beyond mere data accumulation and technological
infrastructure to cultivating and utilizing intellectual capital.
The Knowledge Society acknowledges that access to information alone is insufficient; it
underscores the need for a population equipped with critical thinking skills, continuous
learning, and the ability to apply knowledge in diverse contexts.
This paradigm shift reflects an understanding that knowledge drives innovation,
economic development, and societal well-being.
In the Knowledge Society, collaboration and interdisciplinary approaches are emphasized,
fostering an environment where individuals and communities actively create and share
knowledge, thereby contributing to a more sustainable and inclusive global landscape.
Knowledge Society

1 1962
The origins of the "Knowledge Society" concept, could be found
in the 1960s, when Fritz Machlup and Yoneji Masuda first
mentioned the impact that information was having on their
society.

2 1974
The Knowledge Society was definitively mentioned as being
implemented in 1974 by Peter Drucker, in “The Post-Capitalist
Society”.

3 1984
Alvin Toffer in his book The Third Wave, emphasizes that
knowledge is infinitely expandable and its use does not wear it
down, but can produce more knowledge. más conocimiento.
Differences Between Information and Knowledge
Information Knowledge
Described as the structured, organized and Means the familiarity and awareness of a person,
processed data, presented within context, which place, events, ideas, issues, ways of doing things
makes it relevant and useful to the person who or anything else, which is gathered through
wants it. learning, perceiving or discovering.

Data means raw facts and figures concerning It is the state of knowing something with
people, places, or any other thing, which is cognizance through the understanding of
expressed in the form of numbers, letters or concepts, study and experience.
symbols.
Knowledge connotes the confident theoretical or
Information is the data which is transformed and practical understanding of an entity along with the
classified into an intelligible form, which can be capability of using it for a specific purpose.
used in the process of decision making. Combination of information, experience and
intuition leads to knowledge which has the
Information it is something that informs, in potential to draw inferences and develop insights,
essence, it gives an answer to a particular based on our experience and thus it can assist in
question. decision making and taking actions.
Information Society and Knowledge
The Information Society and the Knowledge Society represent two interconnected
phases in the evolution of human civilization, each characterized by transformative
shifts in how information is generated, processed, and disseminated. The Information
Society emerged in the latter half of the 20th century, propelled by the rapid
advancements in information and communication technologies

1 Information Society 2 Knowledge Society

1 Emerged in the latter part of Represents an evolution
the 20th century, characterized by beyond the Information Society,
the pervasive use of information emphasizing the strategic
and communication technologies importance of knowledge creation,
(ICTs) to generate, process, and dissemination, and application in
transmit data globally. shaping societal progress.

The proliferation of computers, the In this era, the focus extends beyond
advent of the internet, and the mere data accumulation and
digitization of information were technological infrastructure to
instrumental in defining the cultivating and utilizing intellectual
Information Society. capital.
2.- The new meaning of
“Knowledge”.-
 In the new era, the basic economic resource would be knowledge, which seemed to
include an ability to manipulate ideas and innovate.

 The leading social groups would be “knowledge workers”.

 The key economic challenge would be the productivity of knowledge work and the
knowledge worker.
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 Knowledge would be applied to knowledge itself.
Sociedad del Conocimiento
 “Knowledge is now being applied to systematically and purposefully define what new
knowledge is needed, whether it is feasible, and what has to be done to make knowledge
effective. It is being applied, in other words, to systematic innovation.

 As a result, knowledge has become the resource rather than a resource. This fact
changes, fundamentally, the structure of society. It creates new social, economic and
political dynamics.”
 Knowledge transitioned from being a private good to
a public one, marking For Drucker, Knowledge has
meant different things throughout history.

 For hundreds of years, knowledge was applied to a

person’s “being,” somewhere around 1700, the
meaning of knowledge changed radically. Knowledge
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began es eltomejor
to be applied ejemplo
“doing,” not de
just to “being.”

Sociedad
 That change in thedel Conocimiento
meaning and purpose of
knowledge, initiated one of three revolutions in the
application of knowledge that created and then
destroyed both communism and capitalism and
ultimately led to the creation of a postcapitalist
knowledge society.

 The basic economic resource would be knowledge,

which seemed to include an ability to manipulate
ideas and innovate.
 Knowledge is just not another resource like labor,
capital, but is the only important resource today.
Information only becomes actionable in the hands of
someone who knows what to do with it. In other
words, knowledge makes information actionable.

 Knowledge transitioned from being a private good to

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public one, marking ejemplo
For Drucker, dehas
Knowledge
Sociedad
meant different del
thingsConocimiento
throughout history.

 For hundreds of years, knowledge was applied to a

person’s “being,” somewhere around 1700, the
meaning of knowledge changed radically. Knowledge
began to be applied to “doing,” not just to “being.”
Historical Transformation of Knowledge

Private to Public Good Industrial Revolution Productivity Revolution

Knowledge transitioned The application of Knowledge applied to work
from being a private knowledge to tools, led to the productivity
good to a public one, processes, and products revolution, transforming the
marking a significant sparked the Industrial proletariat into a middle class
shift in its role within Revolution, altering the and quelling class conflict.
society. course of human history.
The Economic Challenge of Capitalist Society

Knowledge Application Shift in Management Resource Mobilization

The application of Management's definition Where knowledge is
knowledge to work is evolved from overseeing effectively applied, other
credited with creating people to being resources such as land,
developed economies responsible for the labor, and capital can be
and sparking a application and mobilized to produce.
productivity explosion. performance of
knowledge.
Labor, Capital, and Their Future

Knowledge as Key Shareholder Value

Knowledge has become the key The focus on maximizing
resource, with manual labor in shareholder value can lead to short-
manufacturing becoming a liability term management decisions that
rather than an asset. harm the long-term wealth-
producing capacity of businesses.

Profit Redefined
In an economy of change and innovation, profit is redefined as the costs of past
operations and the costs of an uncertain future.
The Importance of Knowledge in
Today's Economy
Knowledge is not just another resource like labor or
capital; it is the most significant resource in today's
world.
Information becomes actionable only when it is in the
hands of someone who knows what to do with it.

Knowledge, therefore, is what makes information

actionable.

The basic economic resource is knowledge, which

includes the ability to manipulate ideas and innovate.
The leading social groups in this era, the "Knowledge
Era," are the "knowledge workers".
Understanding Knowledge as a Resource

Actionable Information Economic Resource Knowledge Workers

Information only The basic economic The leading social
becomes actionable in resource would be groups would be
the hands of someone knowledge, which “knowledge workers”.
who knows what to do seemed to include an A new era was
with it. In other words, ability to manipulate appearing, the
knowledge makes ideas and innovate. “Knowledge Era”,
information actionable. although he never
explicitly defined
“knowledge”.
The Knowledge Era and Its Challenges

1 Basic Economic 2 Productivity 3 Knowledge on

Resource Challenge Knowledge
In the new era, the The key economic Knowledge would
basic economic challenge would be be applied to
resource would be the productivity of knowledge itself, to
knowledge — which knowledge work systematically and
seemed to include and the knowledge purposefully define
an ability to worker. what new
manipulate ideas knowledge is
and innovate. needed, whether it is
feasible, and what
has to be done to
make knowledge
effective.
Knowledge social transformation

Resource New Dynamics Leadership Evolution

Transformation
As a result, This fact changes, Command and
knowledge has fundamentally, the control won’t work in
become the resource structure of society. It this new era, because
rather than a creates new social, the workers own
resource. economic and most of the means of
political dynamics. production —
knowledge.
From Knowledge to Knowledges

1 Traditional to Specialized
We moved from knowledge in the singular to knowledges in the
plural. Traditional knowledge was general. What we now consider
knowledge is of necessity highly specialized.

2 Actionable Information
The knowledge we now consider knowledge proves itself in action.
What we now mean by knowledge is information effective in
action, information focused on results.

3 Specialization
To accomplish anything, this knowledge has to be highly
specialized. It was specific and specialized-experience rather than
learning, training rather than schooling.
Knowledge Management

Coordination & Productivity of 21st Century Focus

Exploitation Workers
Knowledge The most important The most important
management is “the contribution of contribution
coordination and management in the management needs
exploitation of past was the to make in the 21st
organizational increase in the century is similarly
knowledge productivity of the to increase the
resources, in order manual worker in productivity of
to create benefit and manufacturing. knowledge work and
competitive the knowledge
advantage.” worker.
Drucker`s quotes about knowledge
 There’s no such thing as knowledge management; there are only knowledgeable people.
Information only becomes knowledge in the hands of someone who knows what to do
with it.

Internet es el mejor ejemplo de

 The purpose of information is not knowledge. It is being able to take the right action.

 Sociedad
Culture del Conocimiento
eats strategy for breakfast,

 If you want something new, you have to stop doing something old.

 Knowledge is information that changes something or somebody — either by becoming

grounds for actions, or by making an individual (or an institution) capable of different or
more effective action.

 The knowledge that we consider knowledge proves itself in action. What we now mean
by knowledge is information in action, information focused on results.
 We now accept the fact that learning is a lifelong process of keeping abreast of change.
And the most pressing task is to teach people how to learn.

 Company cultures are like country cultures. Never try to change one. Try, instead, to
work with what you’ve got.

 The most important thing in communication is hearing what isn’t said.

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Knowledge has to be improved, challenged, and increased constantly, or it vanishes.

Sociedad del Conocimiento
Today knowledge has power. It controls access to opportunity and advancement.

 Checking the results of a decision against its expectations shows executives what their
strengths are, where they need to improve, and where they lack knowledge or
information.

 Management is doing things right; leadership is doing the right things.

 Making good decisions is a crucial skill at every level.

Tomorrow's illiterate, will not be
the man who can't read; he will
be the man who has not learned
how to unlearn."

Herbert Gerjuoy
"The new education must teach the
individual how to classify and
reclassify information, how to
evaluate its veracity, how to change
categories when necessary, how to
move from the concrete to the
abstract and back, how to look at
problems from a new direction —
how to teach himself."
Alvin Tofler
3.- The “Industrial Revolution”.-
Industrial Revolution (1770 - 1880)

Transformation 1
Experience, turns into knowledge
and apprenticeship into textbook.
2 Methodology
The ancient Professional Secrecy, turns into
Methodology.
Capital Demand 3
Technological changes create and increase the
capital demand, exceeding the capacity of artisans.
• The Industrial Revolution began around 1760 in
England and ends in the 1840s.

• The thriving commercial bourgeoisie, enriched thanks

to British naval superiority, had control of colonial
trade and, in addition, had other economic and political
conditions that allowed it to invest its capital in
technological inventions and the installation of
factories.

• The factory system, aimed at increasing productivity,

changed the organization of work. This change
encouraged the growth of large industrial cities, such
as Manchester, Birmingham, Liverpool and Sheffield.

• When the Industrial Revolution began, working

population became increasingly concentrated in
industrial cities.
• The Industrial Revolution turned “experience” into
“knowledge”, “learning” into a “textbook”, “secrets”
into “methodology”, “doing” into “applied
knowledge”.

• The speed of technical change, increase the

demand for capital way beyond anything the
craftsman could possibly supply, triggering the
concentration of production in factories.

• Production went, from being based on art, to

technology and Capitalism became the center of
the economy and society.

• Knowledge had always been a private good; since

then it became a public good.

• A new social class is born: Proletariat.

The Industrial Revolution and its impact

1 Capitalism Evolves
Capitalism, not a new concept, evolved rapidly during this
period, becoming a system known as "Capitalism" with a
global impact.

2 Knowledge Redefined
Knowledge underwent a radical change, shifting from a
focus on being to doing, becoming a critical resource and
utility.

3 Industrial Revolution
The application of knowledge to tools, processes, and
products sparked the Industrial Revolution, alongside
social upheavals and the rise of Communism.
4.-The “Productivity Revolution”.-
Productivity Revolution (1880- II WW)

1 Fredrick Taylor
In 1881, Taylor first applied the knowledge to the study, analysis, and the
engineering of work.

2 Goal
More productive workers so that they would earn decent salaries.

3 Productivity
The application of knowledge to work significantly increased the
Productivity.
Frederick Winslow Taylor (1856-1915, USA)
Taylor analyzed the work in a metallurgical factory, breaking it down
into simple tasks, strictly timing them, and requiring workers to
complete the necessary tasks in a timely manner. Taylor’s asserts that
work could be studied, analyzed, and divided into a series of simple
repetitive motions in order to improve the productivity.

Taylor’s axiom was that all manual work, skilled or unskilled, could be
analyzed and organized by the application of knowledge.

His main motivation was the creation of a society in which owners and
workers, capitalists and proletarians could share a common interest in
productivity and could build a harmonious relationship on the
application of knowledge to work.

In past times, the only way a worker could produce more, was by
working longer hours or by working harder. By Taylor`s ideas, the major
beneficiary of the fruits of productivity had to be the worker, not the
owner.

In the post-World War II decades, Taylor-based training became the one

truly effective engine of economic development. The application of
knowledge to work explosively increased productivity.
The productivity of the new classes, the classes of the post-capitalist
society, can be increased only by applying knowledge to work.
• The productivity of the new classes, the classes of the post-
capitalist society, can be increased only by applying knowledge to
work. Neither machines nor capital can do it. Indeed, if applied
alone, they are likely to impede rather than to create productivity.
When Taylor started to study work, nine out of every ten working
people did manual work, making or moving things; in
manufacturing, in farming, in mining, in transportation.

• The productivity of people engaged in making and moving things is

still going up at the historical rate of 3.5 to 4 percent — and in
American and French agriculture, even faster. But the Productivity
Revolution is already over. Forty years ago, in the 1950s people who
engaged in work to make or to move things were still a majority in
all developed countries.

• As a result of Taylor's ideas, Marx's "proletarian" became a

"bourgeois" being the true beneficiary of Capitalism and the
Industrial Revolution. This explains the total failure of Marxism in
the highly developed countries, for whom Marx had predicted the
“revolution” for the year 1900; explains why, after 1918, there has
been no “proletarian revolution” even in the defeated countries of
Central Europe in which there was misery, hunger and
unemployment; explains why the Great Depression did not lead to a
communist revolution.

• Even in the decades after World War II, Taylor-based training

became the only truly effective engine of economic development.
• By 1950, it was clear in the Soviet Union that Marxism had failed
morally, socially, and economically. The answer was, the Productivity
Revolution.

• In the Second World War, the United States systematically applied

Taylor's approach to prepare “first-class men” in a few months and
this, more than any other factor, explains why the United States was
able to defeat both Germany and Japan.

• All the previous economic powers of modern history, England, the

United States, Germany, had emerged due to leadership in new
technologies.

• The post-World War II economic powers, first Japan, then South

Korea, Taiwan, Hong Kong, Singapore, all owe their development to
Taylor's training system, which allowed them to staff a largely pre-
industrial workforce and, therefore, with a low salary level, with world-
class productivity in a minimum period.

• The Productivity Revolution transformed the Proletariat into a middle-

class citizens with almost upper-class income, and with it, defeated
class war and communism.

• The Productivity Revolution has become a victim of its own success.

From now on, what matters is the productivity of non-manual
workers. And that requires applying knowledge to knowledge.
5.- The “Management Revolution”.-
realidad. Roman Empire
The Roman Empire, leaves behind a profound legacy of
leadership principles like: Vision, Adaptability, Leading by
example, Effective Communication, Team Building,
Discipline, and Innovation.

Examples:

- Julius Caesar´s Vision and Strategy exemplified in the

well planned and calculated military campaigns.

- Diocletian’s Adaptability, restructuring the government.

- Marcus Aurelius’ Conflicts Resolution.

- Augustus and Trajan, Legacy and Succession Planning.

1) Robert Owen (1771 – 1858) UK.-
Social Reformer
Investment in human resource,
is always better than any other asset.
2) Charles Babbage (1791 - 1871) – England.-
Mathematician, Philosopher and Engineer

- Employee-Management Relationship:
Employees should be associated with the
management in a manner that benefit both.

- Concept of Profit Sharing:

Developed the concept of profit sharing and
participate in the decision making process of the
organization.
3) Frederick Winslow Taylor (1856 - 1915) USA.-
Mechanical Engineer

- Over Time Wages:

The workers who exceed the standard time to deliver
more output are given additional rates as wages.

- Bonus To Workers:
Provision of Bonus to workers for improvement in
productivity.
4) Henri Fayol (1841 - 1925) France.-
Mining Engineer

- Concept of Functional Head:

Employees associated with a particular type of work
should report to one superior only.

- Scalar Chain:
Referring to the hierarchy model followed in an
organization from top to bottom, all communication
should pass through proper channel of hierarchy.
However in case of delay in communication due to
hierarchy there must be provision of cross
communication.
5) Henry Laurance Gantt (1861 – 1919) USA.-
Management Consultant

- Bonus To Managers:
Bonus must be paid to those managers who teaches
their employees to finish their tasks effectively in
given time period.

- Social Responsibility:
Promoted the concept of corporate social
responsibility.
• It took some seventy years, from 1880 to the end of
World War II, for the Productivity Revolution to become
dominant and world-wide.

• It has taken less than fifty years (from 1945 to 1990)

for the Management Revolution to become dominant
and worldwide.

• Management as a discipline only emerged after World

War II. As late as 1950, when the World Bank began to
lend money for economic development.

• In 1950, the definition of a manager had already

changed to one who “is responsible for the
performance of people.” Today, manager is one who “is
responsible for the application and performance of
knowledge”.
• The change in the meaning of knowledge has
transformed society and economy. Knowledge is the
only meaningful resource today.

• Traditional “factors of production” like land, labor, and

capital, have not disappeared, but they have become
secondary. They can be obtained and obtained easily,
provided there is knowledge.

• Knowledge in this new sense means knowledge as a

utility, knowledge as the means to obtain social and
economic results. Knowledge is now being applied to
knowledge. We have moved from knowledge in the
singular to knowledges in the plural.

• Supplying knowledge to find out how existing

knowledge can best be applied to produce results is, in
effect, what we mean by management.
• Management, its not only “Business Management”.

• Management did indeed first emerge in its present

form in large-scale business organizations.

• It is needed even more in organizations that are not

businesses, whether not-for profit but non-
governmental organizations or government agencies.
These organizations need management the most
precisely because they lack the discipline of the
“bottom line” under which business operates.

• Management is a generic function of all organizations,

whatever their specific mission. It is the generic organ
of the knowledge society.
The Japan case

 The general acceptance of management has been the

performance of Japan since 1950.

 Japan was not an “underdeveloped” country after World

War II but its industry and economy were almost totally
destroyed, and it had practically no domestic technology.

 Japan’s main resource was its willingness to adopt and

adapt the management which the Americans had
developed during World War II (and especially training).

 Within twenty years (from 1950s when the American

occupation of Japan ended, to 1970) Japan became the
world’s second economic power, and a leader in
technology.
Management is a distinct process, consisting of planning,
organizing, actuating and controlling, performed to
determine and accomplish stated goals by the use of
human beings and other resources.”

The four management functions included in this process

are planning, organizing, directing and controlling.

• Planning refers manager’s think of their actions in

advance. Their actions are usually based on some
method, plan or logic, rather than on a hunch.

• Organizing refers manager’s coordinate the human and

material resources of the organization.

• Leading refers managers motivate and direct

subordinates

• Controlling refers attempts to ensure that there is no

deviation from the plan or norms.
Functions of Management
Effective management is built upon four fundamental pillars:
planning, organizing, leading, and controlling. Each plays a pivotal
role in guiding an organization towards achieving its mission.

Planning Organizing Leading Controlling

It starts with This involves The realm of Monitoring
establishing structuring the leadership; inspiring progress and
objectives and workforce, defining and motivating making
devising strategies roles and allocating employees to work adjustments to
to reach them. resources to ensure towards the ensure the
Planning involves efficient task common goals of the outcomes align
forecasting future execution. organization. with the set
trends and objectives.
preparing to meet
challenges.
Management Organizational Objectives

1 Goal Setting
Management thrusts an organization forward by clearly
defining what it aims to achieve, giving all stakeholders a
clear target to strive for.

2 Strategy Formulation
Designing a roadmap for success, management plans the
routes and tactics that will lead the organization to its
intended destination.

3 Resource Allocation
Understanding resource limitations and strengths,
management assigns responsibilities and resources in the
most effective manner.
6.- Organizations as a
“Different Species”.-
An organization is something that is organized, a group
of persons organized for some end or work.

Is an organized group of people with a particular

purpose, such as a business or a government
department.

Is the process of identifying and grouping work to be

performed, defining and delegating responsibility and
authority and establishing relationships for the purpose
of enabling people to work most effectively together in
accomplishing objectives.
Is a body of individuals working under a defined system
of rules, assignments procedures, and relationships
designed to achieve identifiable objectives and goals.

It is an entity, such as a company, an institution, or an

association, comprising one or more people and having
a particular purpose.
The Essence of
Organizations
Organizations are special-purpose institutions, designed to concentrate
on a singular task for effective performance. They are tools, and like any
tool, their specialization determines their performance capacity. This
principle applies to businesses, unions, schools, hospitals, community
services, and churches alike.
The Mission of an Organization

Specialization and Focus Unity and Direction

Because an organization is Only a clear, focused, and
composed of specialists, its common mission can hold
mission must be crystal clear the organization together and
to prevent confusion and enable it to produce results,
ensure that members apply much like an orchestra
their expertise to the common playing in harmony under a
task, rather than following single score.
their specialty in isolation.

External Results
Organizations exist to produce results on the outside, such as
customer satisfaction in business, cured patients in hospitals,
or educated graduates in schools and universities.
Measuring Success in Organizations

Contribution of Clear Accountability

Members Objectives and Decision-
Making

Each member's Results need to be There must be

contribution is vital, defined clearly, individuals who are
yet no single unambiguously, and accountable for the
member can produce if possible, organization's
results alone. This measurably, to mission, spirit,
highlights the ensure that the performance, and
importance of a clear organization can results, akin to a
task and mission for appraise and judge conductor
the organization. its performance controlling the score.
effectively.
Is an entity, such as a company, an institution, or an
association, comprising one or more people and having
a particular purpose.
Is a human group, composed of specialists working
together on a common task. Unlike 'society', 'community'
or 'family' - the traditional social aggregates.

Is when people work together to accomplish some

desired end state or goal. It can happen through
intentionally designed activity, spontaneous
improvisation, or some combination of the two, but it
always depends upon coordinated effort.

Is purposefully designed and grounded neither in the

psychological nature of man nor in biological necessity.
Yet while a human creation, it is meant to endure - not
for ever perhaps but for a considerable period.
An organization is always specialized. It is defined by its
task.
The Nature of Organizations
Defined Purpose System of Endurance and
and Structure Coordination Specialization
An organization is An organization is While a human
an organized group the process of creation, an
of people with a identifying and organization is
particular purpose, grouping work to be meant to endure -
such as a business performed, defining not forever perhaps
or a government and delegating but for a
department. It is responsibility and considerable
purposefully authority, and period. It is always
designed and establishing specialized and
grounded neither in relationships for the defined by its task.
the psychological purpose of enabling
nature of man nor people to work
in biological most effectively
necessity. together in
accomplishing
objectives.
Organizational Composition
Human Group Diverse Legal Forms Contrast with
Community and
Society
An organization is a There are a variety of Community and society
human group, composed legal types of by contrast are defined
of specialists working organizations, including by a bond that holds
together on a common corporations, together human beings,
task. It happens when governments, non- whether language,
people work together to governmental culture, history or
accomplish some organizations, political locality.
desired end state or organizations,
goal. international
organizations, armed
forces, charities, not-for-
profit corporations,
partnerships,
cooperatives, and
educational institutions.
Organizational Dynamics

Coordinated Designed Spontaneous

Effort Activity Improvisation

An organization Intentionally Spontaneous

can happen designed activity improvisation
through is a key aspect of allows for
intentionally how flexibility and
designed activity, organizations innovation within
spontaneous achieve their the organization,
improvisation, or goals, with clear adapting to new
some roles and challenges and
combination of structured opportunities.
the two, but it processes.
always depends
upon coordinated
effort.
The Function of Organizations
The function of an organization is to make knowledges productive. The more specialized
knowledges are, the more effective they will be.

Best radiologists are not the ones who know the most about medicine; they are the specialists who
know how to obtain images of the body's inside through X-ray, ultrasound, body-scanner, magnetic
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resonance. Best market researchers are not those who know the most about business but the ones
who know the most about market research.
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Knowledges by themselves are sterile. They become productive only if are together into knowledge.
To make this possible is the task of organization, the reason for its existence, its function.

Specialists are effective only as specialists; and knowledge workers must be effective.

The most highly effective knowledge workers do not want to be anything but narrow specialists.
Specialists need exposure to the universe of knowledge. But they need to work as specialists, and
to concentrate on being specialists. And for this to produce results, organization is needed.
Organization as a distinct species
Organization is not a legal or economic term any more than are “Community” or ”Society”.

Some organizations pursue economic objectives, influence the economy, and are in turn influenced by it.
Many others - the Churches or the Boy Scouts - are not within the economist's purview.

Organization is incompatible with what both political and social scientists still assume to be 'normal,
because, a “normal society” is unitary rather than pluralistic. But the society of organizations is profoundly
pluralistic.

Armies, churches, universities, hospitals, businesses, labour unions etc, are all 'organizations'. They are
the man-made environment, the 'social ecology' of post-capitalist society. They have far more in common
with one another than they differ. Management is a generic function pertaining to all organizations alike.

Only the emergence of management since World War II has made us see that organization is something
distinct and discrete. It is neither 'community' nor 'society' nor 'class' nor 'family', the modern integrators
which social scientists know. But it is also not 'clan' or 'tribe' or 'kinship group' or any of the other
integrators of traditional society known and studied by anthropologists, ethnographers and sociologists.
Organization is something new and distinct.
Organizations
Open System Mutual Influence
An Organization, must be considered as an Open System, constantly An Organization not even influences its environment, but is also
interacting with the environment, receiving inputs such as a) Raw influenced by it, adapting and evolving as an answer to external
materials, b) People and c) Information, transforming them into dynamics.
products or services

Organizational Process Grupo Humano

Managers orders chaos trough organizational process solving La organización es un grupo humano con un objetivo común,
conflicts, and establish a satisfactory work environment, implicitly actividades organizadas y una frontera identificable, cuya función
recognizing human factors.a es hacer que los saberes sean productivos.
Competition for Talent
Marketing Recognition Team
Membership and Reward Structure
Organizations must Organizations must The modern
market membership attract, hold, organization cannot
as vigorously as they recognize, reward, be a hierarchy of
market their products motivate, serve, and "Boss" and
and services, satisfy people, as "Subordinate" but
competing for the they are composed of must be organized as
most essential knowledge a team of
resource: qualified, specialists who are "Associates" working
knowledgeable, equals in the pursuit together towards a
dedicated people. of a common task. shared goal.
7.- The “Theory of Business”.-
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According to Drucker, the Theory of the Business is composed of Three Parts:

1) The Environment of the Organisation: society and its structure, the market, the customer, and technology.
The assumptions about the environment define what an organisation is paid for.

2) The Specific Mission of the Organisation. The assumptions about mission define what an organisation
considers to be meaningful results; in other words, they point to how it envisions itself making a difference in
the economy and in the society at large

3) The Core Competencies needed to accomplish the organisation’s mission. The assumptions about core
competencies define where an organisation must excel in order to maintain leadership.

In Drucker’s own words: “Management is doing things right; leadership is doing the right things.”
Peter Drucker’s management theory embodies many modern concepts, including the following:

• Decentralization: Focused on decentralizing or democratizing workplace management, empowering the

staff so all employees would feel valued and know their contributions and voices mattered.

• Knowledge Work: Knowledge workers, such as engineers and analysts, are white-collar employees whose
jobs require handling or using information.

• Workforce Development: Managers should improve and develop themselves and their team members,
according investing in employee training.

• Corporate Social Responsibility: Businesses should see themselves as part of a community and make
decisions in that regard – with equal respect for their external and internal impact.

• Organizational Culture: If an organization is great in spirit, it is because the spirit of its top people is great. If
it decays, it does so because the top rots.

• Customer Experience: Businesses have only one real purpose: to create customers.
Management By Objectives

One of Drucker’s most enduring ideas is “management by objectives,” or MBO. Although it has come to
mean different things to different people, the definition most agree on is management in pursuit of shared
organizational goals.

The idea is simple: Employees at all levels work together to advance the business toward an agreed-upon
destination. Each worker has an equal say, sharing their opinions on the destination. From there, teams
establish business goals and delegate specific tasks according to skill sets and interests.

The process comprises five basic steps:

1. Managers and team members review and set organizational goals together.
2. Team members distill organizational goals into individual objectives.
3. Managers and team members monitor progress toward individual and shared goals.
4. Managers and team members evaluate performance based on measurable milestones.
5. Team members receive feedback and rewards relative to progress.
8.- Planning for “Uncertainty”.-
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Change is normal, inevitable and not to be feared.

Is it mandatory to make peace with uncertainty and becoming organized for change, particularly for the
“systematic or planned abandonment”.

“Uncertainty is the complement of knowledge. It is the gap between what is known and what needs to be
known to make correct decisions”

People and organizations continually live with uncertainty, but in making decisions and taking actions, they try
to find out what they need to know and do to achieve their desired outcomes; that is, they try to link the
present to the future with certainty.
What Is Planning?

Is the continuous process of making present

entrepreneurial (risk-taking) decisions systematically
and with the greatest knowledge of the futurity;
organizing the efforts needed to carry out these
decisions; and measuring the results of the expectations
through organized.

What Is Uncertainty?

Something is uncertain if it is unknown or cannot be

known. People live with uncertainty every day. They
make choices without a full knowledge of the facts or
understanding of the possible outcomes and
consequences of their actions. People’s futures are also
affected by the actions of others; often this is
unexpected, and they have little control over it. The
same situation applies to groups and organizations.
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Uncertainty and Planning

Uncertainty is the result of having limited knowledge about an occurrence or event, making it difficult to
control, plan, or predict a future outcome, which can often be distressing.
Planning anticipates uncertainties, not eliminates them. However, it helps to reduce the risk of uncertainties.

Planning is a form of decision making by individuals and organizations that generally involves more
complex situations, a longer time frame for actions and outcomes, and more prior thought about alternative
choices and their consequences. Planning by organizations also involves a framework for implementation.

The effects of uncertainty are likely to be more significant and important to take into account. But planning
can also provide a structured social process for trying to understand and manage uncertainty about the
future and in the future.

Organizations and processes set up to do public planning exist within the context of a social environment.
This environment is constantly changing, and the planning process constantly interacts with the social
environment.

In planning, an organization or group has to imagine possible futures, agree about a desired future, and
identify and decide on policies and actions to create this future.