Thursday, January 26, 2017

Monday, January 23, 2017

Jobs as Property

I am reading parts of Ethical Theory and Business (4th edition, 1993) by Beauchamp and Bowie. It includes a 1989 law journal article "Baseline Questions in Legal Reasoning: The Example of Property in Jobs.” (It’s probably used as a textbook. There are 9 editions now. Amazon.)

This was my first encounter with regarding a job as property. The idea is opposed to at-will employment, whereby an employee can be dismissed by an employer for any reason (that is, without having to establish “just cause” for termination), and without warning (Wikipedia).

I present some key points of the article.

The authors say “the at-will rule ignores the employees’ property interests entirely.”

They argue that jobs themselves should be recognized as legally protected property interests. They assume that property rights are almost always shared, rather than unitary. In many ways common law supports this, treating non-owners as owners. Their main example is a house with a mortgage. When there is a mortgage, the lender is the legal owner, but the borrower has rights, too. For example, the lender cannot foreclose as long the borrower makes full and timely payments. When the mortgage is paid off, the borrower becomes the owner.

They present several possible levels of rights that employees might have about their jobs. A narrow definition would prohibit employers from firing employees for reasons of malice or in bad faith. A little broader definition would adopt the just cause principle. Broader yet would be that employees have a near absolute right to continued employment, and the employer could dismiss the employee only with a large enough severance package. Broader yet would be that employees have rights to manage the business. The authors do not advocate the last two, but I speculate that they would have pretty strong standards favoring the employee for what counts as a “just cause.”

A different article in the same book defends employment at will. “In dismissing or demoting employees, the employer is not denying rights to persons. Rather the employer is simply excluding that person’s labor from the organization.” Other articles discuss drug testing, whistle-blowing, and trade secrets in relation to employee dismissal.

Jobs as property? I agree that employees should not be dismissed without good reason. However, the idea of a job as property seems very questionable. Property is usually something one can buy or sell, but jobs aren’t bought and sold. (I don’t regard an employer or job seeker paying a headhunter to find somebody qualifies as “buying and selling a job.”) Labor better qualifies as property than a particular job. Labor is what a worker sells to an employer, and an employer buys from a worker, in exchange for wages or other compensation. Better than labor in my opinion are a worker’s time and skills. Why? Time and skills are less tied to a particular job than labor. Persons retain their time and skills even while not working. 

Friday, January 20, 2017

Peter Drucker on Innovation

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

There were good reasons in the past for the administrative function to the neglect of innovation. When management first became a concern in the early 20th century, the greater need was learning how to organize and direct large scale work, recently new at the time. Innovation was seen as something separate done by inventors. That view changed in the coming decades.

Innovation now needs to be built into organizations. First, they have much more access to manpower and capital. The ratio between invention and research and the efforts needed to convert the results of invention and research into new businesses or products has changed significantly. As a rule of thumb, every $1 spent on generating an idea, $10 have to be spent on “research” to convert it to a new discovery or invention. For every $10 spent on “research”, at least $100 need to be spent on development, and a $1,000-$10,000 are needed to introduce and establish a new product or business on the market. Only then is there “innovation.”

Innovation is not a technical term, but an economic and social one. Its criterion is not science or technology, but a change in the economic or social environment, a change in the behavior of people as consumers or producers, and so on.

Innovation strategy requires different measurements and a different use of budgets from those of an ongoing business. Nothing is inimical to successful innovation as a demand to produce the sort of steady and often growing profits of a more mature business. Innovations may take years to produce a profit, but if and when they do, profit growth will be higher than from a mature business. On the other hand, it is important to decide when to abandon an innovative effort (MTRP 783-96). 

Tuesday, January 17, 2017

Peter Drucker on Growth

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

The idea that growth is by itself a goal is a delusion. There is no virtue in in a company getting bigger. The right goal is to become better. Sound growth should be the result of doing the right things. By itself, growth is vanity and little else.

Growth crazes in the business world are a recurrent disease. In public service institutions, and especially government, the growth craze is endemic and permanent. Bigger is not necessarily better in a service institution, whether a hospital, a government agency, a university – or in the personnel staff in business, or in a research laboratory. But growth is just as demanding and difficult in the public service institution as it is in business.

Yet growth will continue to be desirable and a necessary business objective. Even when there isn’t overall growth, there is a need for management to understand how to manage it. A period of zero growth is not one of stability but of turbulence. When a business operates in a dynamic environment, and there isn’t growth in some respect, the business will not survive.

There is plenty of room in a growing economy. There is even room for those who do not know how to grow well and grow more by accident than by management.

Even fairly moderate growth calls for financial planning to meet the new demand to expand and replace the existing capital structure.

The controlling factor in managing growth is always top management (MTRP 772-7).

Saturday, January 14, 2017

Peter Drucker: Top-management

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

Top-management is not a single task; it is multidimensional. The following is only a sketch; he says lots more about each one. It is also a partial list.

1. The task of thinking through the mission of the business.
2. Setting standards.
3. Building and maintaining the organization, its structure and design.
4. The major relations which only the people at the top can establish and maintain. They may be relations with customers or major suppliers. They may be relations with the industry, bankers, the financial community, government, or other outside institutions.
5. There are countless “ceremonial” functions.
6. There is a need for a “stand-by” organ for major crises. (MTRP 611-12).

[A] peculiar characteristic of top-management tasks is that they require a diversity of capabilities, and, above all, of temperaments. They require the capacity to analyze, to think, to weigh alternatives, and to harmonize dissent. But they also require the capacity for quick and decisive action, for boldness, and for intuitive courage. They require being at home with abstract ideas, concepts, calculations, and figures. They also require perception of people, a human awareness, and empathy and altogether a lively interest in people and respect for them. Some tasks demand that a man work by himself, and alone. Others are tasks of representation and ceremonial, outside tasks, that require the politician’s enjoyment of crowds and protocol; the ability to represent and to make a good impression by saying nothing.

The top-management tasks require at least four different kinds of human being: the “thought man,” the “people man,” the “action man,” and the “front man.” Yet these four temperaments are almost never found in one person” (MTRP 616).

Wednesday, January 11, 2017

Peter Drucker: Contribution Analysis

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

There are four major groups of activities distinguished by their contribution to a businesses.

There are, first result-producing activities – that is activities which produce measurable results which can be related, directly or indirectly, to the results and performance of an entire enterprise. Some of these activities are directly revenue-producing. Others contribute measurable results.

There are, second, support activities which, while needed, and even essential, do not by themselves produce results but have results only through the use made of their “output” by other components within the business.

There are, third, activities which have no direct or indirect relationship to the results of a business, activities which are truly ancillary. They are hygiene and housekeeping activities.

Finally, and different in character from any of these, is the top-management activity” (MTRP, 532).

Results producing activities directly bring in revenues. “Here belong innovating activities, selling and all the work needed to do a systematic and organized selling job, such as sales forecasting, market research, sales training, and sales management. Here also bring the treasury function, that is, the supply and management of money in the business.” Also included are information activities.

Support activities can also be called resulting-contributing. Manufacturing is typical of these activities. Also included are training, human resources, purchasing and physical distribution, engineering, and operations such as the handing of data and paper, and in an insurance company, claims settlement.

Hygiene and housekeeping activities include such things as janitorial service, cafeterias, administration of benefit programs, and record keeping requirements.

This is a rough, nonrigid classification, and far from scientific. (MTRP, 533-4).

Top-management activities will be addressed in my next post.

Monday, January 9, 2017

Peter Drucker: Markets and Socialism

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

The market approach is commonly called “capitalist.” But this is a misunderstanding. The market approach can equally be called “socialist.” * Whether ownership is in capitalist hands or not is no longer primary. What matters is managerial autonomy and accountability. What matters is whether resources are being allocated to produce results and on the basis of results.

The prevailing idea that the U.S. economy is capitalistic because ownership is private is a misunderstanding. Decisive ownership of American big business is in the hands of the people – that is, the hands of the mutual funds and pension funds who are the fiduciaries for the middle class and workers. Big business in the U.S. has not been nationalized, but it has largely been socialized. In terms of the classical definition, the U.S. is, at best, a mixed and may steadily be approaching a socialist economy in which the public owns the means of production. But the U.S. manages largely on the basis of local autonomy of the enterprise and allocated resources on the basis of results. It is still a market economy” (MTRP 154).

Socialist and capitalist and their conjugates have two different meanings. In one socialism means a political theory advocating state ownership of industry, or an economic system based on state ownership of capital. In another social means relating to human society, the interaction of the individual and the group, or the welfare of human beings as members of society. Clearly Drucker means the latter here. Also, by capitalist he doesn’t mean an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state. He rather means capital is a component of production, regardless of who owns it.

Increasingly the mid-sized and large firms in American industry are being owned for the benefit of employees via retirement funds and mutual funds. By 1990 – the book was published in 1973 – such funds will own 2/3rds to 3/4ths of mid-sized and large firms. The managers of these funds are the only true “capitalists” around (MTRP 293).

Market socialism at WikipediaMarket socialists are generally against a free market in capital. Some believe it is fine and even advocate for workers at a company to own capital of that company, but are against other private sector people, who don't work at that company, owning its capital. They believe such others owning it would exploit the workers.

Saturday, January 7, 2017

Peter Drucker: Service Institutions

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

The basic difference between a service institution and a business is the way the institution is paid. Businesses are paid by satisfying customers. Service institutions are paid from a budget allocation. They aren’t paid for what the taxpayer or customer mean by results and performance. Their revenues are allocated from a revenue stream obtained by tax, levy, or tribute.

Service institutions include governments, public schools, nonprofit hospitals, and some utilities. There can also be quasi service institutions within a business, a division which is paid from an allocation for overhead. These divisions tend to exhibit the same characteristics as the more typical service institutions. (MTRP 141).

Efficiency and cost controls aren’t considered virtues, however much they are preached. The importance of a budget-based institution is measured by the size of its budget and staff. The urge to spend near the end of an accounting period in order to get a larger budget or not get a smaller one for the next accounting period results in a lot of waste (142). Being budget-based makes it more difficult to abandon what’s wrong or obsolete (145).

There are exceptions to the general behavior of service institutions, such as Bell Telephone (before its breakup) and some American universities, but I will say no more about them.

Thursday, January 5, 2017

Peter Drucker: Administration and Entrepreneurship

More from Peter Drucker's Management: Tasks, Responsibilities, Practices follows.

The manager need to administer – manage and improve what already exists and is known. He also has to to be an entrepreneur – redirect resources from area of low or diminishing results to areas of higher or increasing results. Optimizing should focus on effectiveness – to produce revenues, to create markets, to do things better, to achieve extraordinary results. Economists often speak of efficiency, which shouldn’t be neglected, but effectiveness is primary. Efficiency is concerned with doing things right. Effectiveness is doing the right things. The most efficient business cannot survive, let alone succeed, if it is efficient at doing the wrong things.

Effectiveness starts with the realization that in business, or any other social organism, 10- 15% of the phenomena – such as products, orders, customers, markets, or people – produce 80-90% of the results. The other 85-90% of the phenomena, now matter how efficiently handled, produce only costs, or busy-ness.

The first administrative job of the manager is to make effective the small core of worthwhile activities which is capable of being effective. At the same time, he neutralizes the large penumbra of other things that don’t yield extraordinary results.

The second administrative job of the manager is to bring the business all the time a little bit closer to the full realization of its potential.

“The perpetuation of a business is a central entrepreneurial task – and ability to do so may well be the most trenchant and definitive test of management” (MTRP 45-47).

The individual entrepreneur does not need to explain his business to others. One person is thinker, analyst and executor. Unlike the single entrepreneur, business enterprise requires continuity beyond the life span of one man. It commits resources to a longer future and typically to multiple products or services. Insofar has the literature of management and economics has given a theory, it has dealt mostly with the man at the top. He alone knows what the business is about and makes entrepreneurial decisions. This may have been adequate for the 19th century, but no longer. Today’s businesses (also, hospitals and governments) brings together a great many men of high knowledge and skill. Business decisions affecting the entire business are made at all levels. Middle managers have become largely decision-makers rather than just executors of higher-level decisions (MTRP 74-76).

Monday, January 2, 2017

Peter Drucker on Profit

Profit is not the purpose of but a limiting factor on business. It is not the explanation, cause, or rationale of business behavior or decisions, but the test of their validity. It is the result of performance of the business in marketing, innovation, and productivity. So profit's first function is a test of performance. It is an example of feedback, self-regulation of a process by its own results.

Whether there is such a thing as a profit motive is highly doubtful. There has never been any evidence for it. Indeed, the idea of it does harm, based on the mistaken prevailing belief that there is an inherent contradiction between profit and making a social contribution. Actually, a company can make a social contribution only if it is highly profitable. (Management: Tasks, Responsibilities, Practices 59-60).

When business people talk to the public about profits, they usually still define the goal of their business as profit maximization and appeal to the profit motive. They fail to explain and justify the functions of profit. (MTRP 374).

An equally important function of profit is the premium for the risk of uncertainty. Much economic activity focuses on the future, which is inherently risky. Only profit can supply the capital for tomorrow’s jobs, both more jobs and better jobs.

At the very least, business needs a minimum of profit – the profit required to cover its own future risks, to enable it to stay in business, to maintain the wealth-producing capacity of its resources.

Finally, profit pays for the economic satisfactions and services of a society, from health care to defense, and from education to the opera. They all have to be paid out of the difference between value produced by economic activity and its cost. (MTRP 71-73).

To the best of my knowledge, Drucker never says that wages are profits, like I did here. But analogous to the above, profits in the forms of wages are what pay for the satisfactions and services of individuals and their families – for food, clothing, a place called home, health care, education, transportation, entertainment and so forth. Also, regarding wages as profits might have made Drucker less cavalier about the profit motive.