Knowledge-Worker Productivity



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California

M

anagement



Review

W i n t e r   1 9 9 9

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V o l . 4 1 ,   N o . 2



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R E P R I N T   S E R I E S

Knowledge-Worker Productivity:

The Biggest Challenge

Peter F. Drucker

© 1999 by The Regents of 

the University of California

CMR143



T

he most important, and indeed the truly unique, contribution of

management in the 20

th

century was the fifty-fold increase in the



productivity of the manual worker in manufacturing. The most im-

portant contribution management needs to make in the 21

st

century 


is similarly to increase the productivity of knowledge work and knowledge workers.

The most valuable assets of a 20

th

-century company was its production equipment.



The most valuable asset of a 21

st

-century institution (whether business or non-



business) will be its knowledge workers and their productivity.

The Productivity of the Manual Worker

First, we must take a look at where we are. It was only a little over a

hundred years ago that for the first time an educated person actually looked at

manual work and manual workers, and then began to study both. The Greek

poet Hesiod (eighth century B.C.) and the Roman poet Virgil (700 years later)

sang about the work of the farmer. Theirs are still among the finest poems in

any language, but neither the work they sang about nor their farmers bear even

the most remote resemblance to reality, nor were they meant to have any. Nei-

ther Hesiod nor Virgil ever held a sickle in their hands, ever herded sheep, or

even looked at the people who did either. When Karl Marx, 1900 years after

Virgil, came to write about manual work and manual workers, he too never

looked at either, nor had he ever as much as touched a machine. The first man

to do both—that is, to work as a manual worker and then to study manual

work—was Frederick Winslow Taylor (1856-1915).

Throughout history there have been steady advances in what we today

call “productivity” (the term itself is barely fifty years old). They were the result



Knowledge-Worker

Productivity:

T

HE



B

IGGEST


C

HALLENGE


Peter F. Drucker

79

CALIFORNIA MANAGEMENT REVIEW



VOL. 41, NO. 2

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of new tools, new methods, and new technologies; they were advances in what

the economist calls “capital.” There were few advances throughout the ages in

what the economist calls “labor”—that is, in the productivity of the worker. It

was axiomatic throughout history that workers could produce more only by

working harder or by working longer hours. The 19

th

-century economists dis-



agreed about most things as much as economists do today. However, they all

agreed—from David Ricardo through Karl Marx—that there are enormous dif-

ferences in skill between workers, but there are none in respect to productivity

other than between hard workers and lazy ones, or between physically strong

workers and weak ones. Productivity did not exist. It still is an “extraneous fac-

tor” and not part of the equation in most contemporary economic theory (e.g.,

in Keynes, but also in that of the Austrian School).

In the decade after Taylor first looked at work and studied it, the produc-

tivity of the manual worker began its unprecedented rise. Since then, it has been

going up steadily at the rate of 3% per annum compound—which means it has

been risen fifty-fold since Taylor. On this achievement rest all of the economic

and social gains of the 20

th

century. The productivity of the manual worker has



created what we now call “developed” economies. Before Taylor, there was no

such thing—all economies were equally “underdeveloped.” An underdeveloped

economy today—or even an “emerging” one—is one that has not, or at least has

not yet, made the manual worker more productive.



The Principles of Manual-Work Productivity

Taylor’s principles sound deceptively simple. The first step in making the

manual worker more productive is to look at the task and to analyze its con-

stituent motions. The next step is to record each motion, the physical effort 

it takes, and the time it takes. Then motions that are not needed can be elim-

inated; and whenever we have looked at manual work, we have found that a

great many of the traditionally most-hallowed procedures turn out to be waste

and do not add anything. Then, each of the motions that remain as essential to

obtaining the finished product is set up so as to be done the simplest way, the

easiest way, the way that puts the least physical and mental strain on the op-

erator, and the way that requires the least time. Next, these motions are put

together again into a “job” that is in a logical sequence. Finally, the tools needed

to do the motions are redesigned. Whenever we have looked at any job—no

matter for how many thousands of years it has been performed—we have found

that the traditional tools are wrong for the task. This was the case, for instance,

with the shovel used to carry sand in a foundry (the first task Taylor studied). 

It was the wrong shape, the wrong size, and had the wrong handle. We found

this to be equally true of the surgeon’s traditional tools. Taylor’s principles sound

obvious—effective methods always do. However, it took Taylor twenty years of

experimentation to work them out.

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Over these last hundred years, there have been countless further changes,

revisions, and refinements. The name by which the methodology goes has also

changed over the past century. Taylor himself first called his method “Task Anal-

ysis” or “Task Management.” Twenty years later it was re-christened “Scientific

Management.” Another twenty years later, after the First World War, it came 

to be knows as “Industrial Engineering” in the U.S. and Japan, and as “Ration-

alization” in Germany.

To proclaim that one’s method “rejects” Taylor or “replaces” him is almost

standard “public relations.” For what made Taylor and his method so powerful

has also made it unpopular. What Taylor saw when he actually looked at work

violated everything poets and philosophers had said about work from Hesiod

and Virgil to Karl Marx. They all celebrated “skill.” Taylor showed that in man-

ual work there is no such thing. There are only simple, repetitive motions. What

makes them more productive is knowledge, that is, the way the simple, unskilled

motions are put together, organized, and executed. In fact, Taylor was the first

person to apply knowledge to work.

1

This also earned Taylor the undying enmity of the labor unions of his



time, all of which were craft unions and based on the mystique of craft skill and

their monopoly on it. Moreover, Taylor advocated—and this is still anathema 

to a labor union—that workers be paid according to their productivity—that is, 

for their output, rather than for their input (e.g., for hours worked). However,

Taylor’s definition of work as a series of operations also largely explains his re-

jection by the people who themselves do not do any manual work: the descen-

dants of the poets and philosophers of old, the Literati and Intellectuals. Taylor

destroyed the romance of work. Instead of a “noble skill,” it becomes a series 

of simple motions.

Nevertheless, every method during these past hundred years that has 

had the slightest success in raising the productivity of manual workers—and

with it their real wages—has been based on Taylor’s principles, no matter how

loudly his antagonists proclaimed their differences with Taylor. This is true of

“work enlargement,” “work enrichment,” and “job rotation”—all of which use

Taylor’s methods to lessen the worker’s fatigue and thereby increase the work-

er’s productivity. It is also true of such extensions of Taylor’s principles of task

analysis and industrial engineering as Henry Ford’s assembly line (developed

after 1914, when Taylor himself was already sick, old, and retired). It is just as

true of the Japanese “Quality Circle,” “Continuous Improvement”(Kaizen), and

“Just-In-Time Delivery.”

The best example, however, is W. Edward Deming’s “Total Quality Man-

agement.” What Deming did—and what makes Total Quality Management effec-

tive—is to analyze and organize the job exactly the way Taylor did. However, he

also added Quality Control (around 1940) that was based on a statistical theory

that was only developed ten years after Taylor’s death. Finally, in the 1970s,

Deming substituted closed-circuit television and computer simulation for

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Taylor’s stopwatch and motion photos. Deming’s Quality Control Analysts are

the spitting image of Taylor’s Efficiency Engineers and function the same way.

Whatever his limitations and shortcomings—and he had many—no other

American, not even Henry Ford, has had anything like Taylor’s impact. ”Scien-

tific Management” (and its successor “Industrial Engineering”) is the one Amer-

ican philosophy that has swept the world—more so even than the Constitution

and the Federalist Papers. In the past century, there has been only one world-

wide philosophy that could compete with Taylor’s: namely, Marxism. In the 

end, Taylor has triumphed over Marx.

During the First World War, Scientific Management swept through the

U.S. together with Ford’s Taylor-based assembly line. In the 1920s, Scientific

Management swept through Western Europe and began to be adopted in Japan.

During the Second World War, both the German achievement and the

American achievement were squarely based on applying Taylor’s principles to

Training. The German General Staff, after having lost the First World War, ap-

plied “Rationalization” (i.e., Taylor’s Scientific Management) to the job of the

soldier and to military training. This enabled Hitler to create a superb fighting

machine in the six short years between his coming to power and 1939. In the

U.S., the same principles were applied to the training of an industrial work force,

first tentatively during the First World War and then, with full power, during the

Second World War. This enabled the Americans to outproduce the Germans,

even though a larger proportion of the U.S. than the German male population

was in uniform and thus not in industrial production. Then, training-based

Scientific Management gave the U.S. civilian work force more than twice—if 

not three times—the productivity of the workers in Hitler’s Germany and in

Hitler-dominated Europe. Scientific Management thus gave the U.S. the capacity

to outnumber both Germans and Japanese on the battlefield and yet still out-

produce both by several orders of magnitude.

Since 1950, economic development outside the Western World has

largely been based on copying what the U.S. did in the Second World War, i.e.,

on applying Scientific Management to making the manual worker more produc-

tive. All earlier economic development had been based on technological innova-

tion—first in France in the 18

th

century, then in Great Britain from 1760 until



1850, and finally in the new economic Great Powers, Germany and the U.S., in

the second half of the 19

th

century. The non-Western countries that developed



after the Second World War, beginning with Japan, eschewed technological

innovation. Instead, they imported the training that the U.S. had developed

during the Second World War based on Taylor’s principles and they used it to

make highly productive, almost overnight, a still largely unskilled and pre-

industrial work force. (In Japan, for instance, almost two-thirds of the working

population were still, in 1950, living on the land and unskilled in any work

except cultivating rice). However, while highly productive, this new work force

was still—for a decade or more—paid pre-industrial wages so that these coun-

tries—first Japan, then Korea, then Taiwan and Singapore—could produce the

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same manufactured products as the developed countries, but at a fraction of

their labor costs.



The Future of Manual-Worker Productivity

Taylor’s approach was designed for manual work in manufacturing, and 

at first applied only to it. Nevertheless, even within these traditional limitations,

Taylor’s approach still has enormous scope. It is still going to be the organizing

principle in countries in which manual work, and especially manual work in

manufacturing, is the growth sector of the society and economy—that is, “Third

World” countries with very large and still growing numbers of young people

with little education and little skill.

However, there is equal—or even greater—opportunity in the developed

countries to organize non-manufacturing production (i.e., production work in

services) on the production principles now being developed in manufacturing

—and that means applying Industrial Engineering to the job and work of the

individual service worker. There is equally a tremendous amount of knowledge

work—including work requiring highly advanced and thoroughly theoretical

knowledge—that includes manual operations. The productivity of these opera-

tions also requires Industrial Engineering.

Still, in developed countries, the central challenge is no longer to make

manual work more productive—after all, we know how to do it. The central

challenge will be to make knowledge workers more productive. Knowledge

workers are rapidly becoming the largest single group in the work force of every

developed country. They may already compose two-fifths of the U.S. work force

—and a still smaller but rapidly growing proportion of the work force of all other

developed countries. It is on their productivity, above all, that the future pros-

perity—and indeed the future survival—of the developed economies will in-

creasingly depend.

What We Know About Knowledge-Worker Productivity

Work on the productivity of the knowledge worker has barely begun. In

terms of actual work on knowledge-worker productivity, we will be in the year

2000 roughly where we were in the year 1900 in terms of the productivity of

the manual worker. Nevertheless, we already know infinitely more about the

productivity of the knowledge worker than we did then about that of the man-

ual worker. We even know a good many of the answers. We also know the chal-

lenges to which we do not yet know the answers, and on which we need to go

to work.

Six major factors determine knowledge-worker productivity.

▪ Knowledge-worker productivity demands that we ask the question:

“What is the task?”

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▪ It demands that we impose the responsibility for their productivity on 

the individual knowledge workers themselves. Knowledge Workers have

to manage themselves. They have to have autonomy.

▪ Continuing innovation has to be part of the work, the task and the re-

sponsibility of knowledge workers.

▪ Knowledge work requires continuous learning on the part of the knowl-

edge worker, but equally continuous teaching on the part of the knowl-

edge worker.

▪ Productivity of the knowledge worker is not—at least not primarily—

a matter of the quantity of output. Quality is at least as important.

▪ Finally, knowledge-worker productivity requires that the knowledge

worker is both seen and treated as an “asset” rather than a ”cost.” It

requires that knowledge workers want to work for the organization 

in preference to all other opportunities.

Each of these requirements (except perhaps the last one) is almost the

exact opposite of what is needed to increase the productivity of the manual

worker. In manual work, of course, quality also matters. However, lack of

quality is a restraint. There has to be a certain minimum quality standard. The

achievement of Total Quality Management—that is, of the application of 20

th

century Statistical Theory to manual work—is the ability to cut (though not



entirely to eliminate) production that falls below this minimum standard.

In most knowledge work, quality is not a minimum and a restraint.

Quality is the essence of the output. In judging the performance of a teacher, 

we do not ask how many students there can be in his or her class. We ask how

many students learn anything—and that’s a quality question. In appraising the

performance of a medical laboratory, the question of how many tests it can run

through its machines is quite secondary to the question of how many tests re-

sults are valid and reliable. This is true even for the work of the file clerk.

Productivity of knowledge work therefore has to aim first at obtaining

quality—and not minimum quality but optimum if not maximum quality. Only

then can one ask: “What is the volume, the quantity of work?” This not only

means that we approach the task of making more productive the knowledge

worker from the quality of the work rather than the quantity, it also means 

that we will have to learn to define quality.



What Is the Task?

The crucial question in knowledge-worker productivity is: What is the task?

It is also the one most at odds with manual-worker productivity. In manual

work, the key question is always: How should the work be done? In manual work,

the task is always given. None of the people who work on manual-worker pro-

ductivity ever asked: “What is the manual worker supposed to do?” Their only

question was: “How does the manual worker best do the job?” This was just as

true of Frederick W. Taylor’s Scientific Management as it was true of the people

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at Sears Roebuck or the Ford Motor Company who first designed the assembly

line, and as it is true of W. Edward Deming’s Total Quality Control.

Again, in knowledge work the key question is: What is the task? One

reason for this is that knowledge work, unlike manual work, does not program

the worker. The worker on the automobile assembly line who puts on a wheel is

programmed by the simultaneous arrival of the car’s chassis on one line and the

wheel on the other line. The farmer who plows a field in preparation for plant-

ing does not climb out of his tractor to take a telephone call, to attend a meeting,

or to write a memo. What is to be done is always obvious in manual work.

However, in knowledge work the task does not program the worker. A

major crisis in a hospital, such as when a patient suddenly goes into coma, does

of course control the nurse’s task and programs her; but otherwise, it is largely

the nurse’s decision whether to spend time at the patient bed or whether to

spend time filling out papers. Engineers are constantly being pulled off their task

by having to write a report or rewrite it, by being asked to attend a meeting, and

so on. The job of the salesperson in the department store is to serve the cus-

tomer and to provide the merchandise the customer is interested in or should

become interested in. Instead, the salesperson spends an enormous amount of

time on paperwork, on checking whether merchandise is in stock, on checking

when and how it can be delivered, and so on—all things that take salespeople

away from the customer and do not add anything to their productivity in doing

what salespeople are being paid for, which is to sell and to satisfy the customer.

The first requirement in tackling knowledge work is to find out what 

the task is so as to make it possible to concentrate knowledge workers on the

task and to eliminate everything else—at least as far as it can possibly be elim-

inated. This requires that the knowledge workers themselves define what the

task is or should be—and only the knowledge workers themselves can do that.

Work on knowledge-worker productivity therefore begins with asking the

knowledge workers themselves: What is your task? What should it be? What should

you be expected to contribute? and What hampers you in doing your task and should be

eliminated?

Knowledge workers themselves almost always have thought through

these questions and can answer them. Still, it then usually takes time and hard

work to restructure their jobs so that they can actually make the contribution

they are already being paid for. However, asking the questions and taking action

on the answers usually doubles or triples knowledge-worker productivity, and

quite fast.

Nurses in a major hospital were asked these questions. They were sharply

divided as to what their task was, with one group saying “patient care” and an-

other saying “satisfying the physicians.” However, they were in complete agree-

ment on the things that made them unproductive. They called them “chores”

—paperwork, arranging flowers, answering the phone calls of patients’ relatives,

answering the patients’ bells, and so on. All—or nearly all—of these could be

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turned over to a non-nurse floor clerk, paid a fraction of a nurse’s pay. The

productivity of the nurses on the floor immediately more than doubled, as

measured by the time nurses spent at the patients’ beds. Patient satisfaction

more than doubled and turnover of nurses (which had been catastrophically

high) almost disappeared—all within four months.

Once the task has been defined, the next requirements can be tackled,

and they will be tackled by the knowledge workers themselves. These require-

ments are:

▪ Knowledge workers’ responsibility for their own contribution. It is the

knowledge worker’s decision what he or she should be held accountable

for in terms of quality and quantity with respect to time and with respect

to cost. Knowledge workers have to have autonomy and that entails

responsibility.

▪ Continuous innovation has to be built into the knowledge worker’s job.

▪ Continuous learning and continuous teaching have to be built into the job.

One central requirement of knowledge-worker productivity remains. We

have to answer the question: What is quality? In some knowledge work—and

especially in some work requiring a high degree of knowledge—we already

measure quality. Surgeons, for example, are routinely measured, especially 

by their colleagues, by their success rates in difficult and dangerous procedures

(e.g., by the survival rates of their open-heart surgical patients or the full recov-

ery rates of their orthopedic-surgery patients). By and large, we mainly have

judgments rather than measures regarding the quality of a great deal of knowl-

edge work. The main trouble is, however, not the difficulty of measuring quality.

It is the difficulty—and more particularly the sharp disagreements—in defining

what the task is and what it should be.

The best example of this is the American school system. As every one

knows, public schools in the American inner city have become disaster areas.

Next to them—in the same location and serving the same kind of children—are

private (mostly Christian) schools in which the kids behave well and learn well.

There is endless speculation to explain these enormous quality differences. A

major reason is surely that the two kinds of school define their tasks differently.

The typical public school defines its task as “helping the underprivileged,” while

the typical private school (and especially the Parochial Schools of the Catholic

Church) define their task as “enabling those who want to learn, to learn.” One

therefore is governed by its scholastic failures, the other one by its scholastic

successes.

Similarly, the research departments at two major pharmaceutical compa-

nies have totally different results because they define their tasks differently. One

sees its task as not having failures, that is, in working steadily on fairly minor

but predictable improvements in existing products and for established markets.

The other one defines its task as producing “breakthroughs” and therefore courts

risks. Both are considered fairly successful—by themselves, by their own top

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managements, and by outside analysts. Yet each operates quite differently and

quite differently defines its own productivity and that of its research scientists.

To define quality in knowledge work and to convert the definition into

knowledge-worker productivity is thus to a large extent a matter of defining the

task. It requires the difficult, risk-taking, and always controversial definition as

to what “results” are for a given enterprise and a given activity. We therefore

actually know how to do it. Nevertheless, the question is a completely new one

for most organizations and also for most knowledge workers. To answer it



requires controversy, requires dissent.

The Knowledge Worker as Capital Asset

In no other area is the difference greater between manual-worker pro-

ductivity and knowledge-worker productivity than in their respective economics.

Economic theory and most business practice sees manual workers as a cost. To 

be productive, knowledge workers must be considered a capital asset. Costs need

to be controlled and reduced. Assets need to be made to grow.

To be sure, in managing manual workers we learned fairly early that high

turnover (i.e., losing workers) is very costly. The Ford Motor Company, as is well

known, increased the pay of skilled workers from eighty cents a day to $5.00 a

day on January 1, 1914. It did so because its turnover had been so excessive as

to make its labor costs prohibitively high; it had to hire 60,000 people a year to

keep 10,000. Even so, everybody (including Henry Ford himself, who had at

first been bitterly opposed to this increase) was convinced that the higher wages

would greatly reduce the company’s profits. Instead, in the very first year, profits

almost doubled. Paid $5.00 a day, practically no workers left—in fact, the Ford

Motor Company soon had a waiting list.

However, short of the costs of turnover, rehiring, retraining, and so on,

the manual worker is still being seen as a cost. This is true even in Japan, despite

the emphasis on lifetime employment and on building a “loyal,” permanent

work force. The management of people at work, based on millennia of work

being almost totally manual work, still assumes that with few exceptions (e.g.,

highly skilled people) one manual worker is like any other manual worker.

This is definitely not true for knowledge work. Employees who do man-

ual work do not own the means of production. They may, and often do, have 

a lot of valuable experience, but that experience is valuable only at the place

where they work. It is not portable. Knowledge workers, however, own the

means of production. That knowledge between their ears is a totally portable

and enormous capital asset. Because knowledge workers own their means of

production, they are mobile. It may not be true for most of them that the orga-

nization needs them more than they need the organization. For most of them it

is a symbiotic relationship in which they need each other in equal measure. It is

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not true, as it was for the manual worker in modern industry, that they need 

the job much more than the job needs them.

Management’s job is to preserve the assets of the institution in its care.

What does this mean when the knowledge of the individual knowledge worker

becomes an asset—and, in more and more cases, the main asset—of an institu-

tion? What does this mean for personnel policy? What is needed to attract and

to hold the highest producing knowledge workers? What is needed to increase

their productivity and to convert their increased productivity into performance

capacity for the organization?

The Technologists

A very large number of knowledge workers do both knowledge work and

manual work. I call them “technologists.” This group includes people who apply

knowledge of the highest order.

Surgeons preparing for an operation to correct a brain aneurysm before 

it produces a lethal brain hemorrhage, spend hours in diagnosis before they cut

—and that requires specialized knowledge of the highest order. Again, during

the surgery, an unexpected complication may occur which calls for theoretical

knowledge and judgment, both of the very highest order. However, the surgery

itself is manual work—and manual work consisting of repetitive, manual opera-

tions in which the emphasis is on speed, accuracy, and uniformity. These opera-

tions are studied, organized, learned, and practiced exactly like any manual

work—that is, by the same methods Taylor first developed for factory work.

The technologist group also contains large numbers of people in whose

work knowledge is relatively subordinate—though it is always crucial. The file

clerk’s job—and that of the clerk’s computer-operator successor—requires a

knowledge of the alphabet that no experience can teach. This knowledge is a

small part of an otherwise manual task, but it is its foundation and is absolutely

crucial.

Technologists may be the single biggest group of knowledge workers.

They may also be the fastest-growing group. They include the great majority 

of health-care workers: lab-technicians; rehabilitation technicians; technicians 

in imaging such as X-ray, ultrasound, magnetic-resonance imaging; and so on.

They include dentists and all dental-support people. They include automobile

mechanics and all kinds of repair and installation people. In fact, the technolo-

gist may be the true successor to the 19

th

and 20


th

century skilled workers.

Technologists are also the one group in which developed countries can

have a true and long-lasting competitive advantage. When it comes to truly high

knowledge, no country can any longer have much of a lead the way 19

th

cen-



tury Germany had through its University. Among theoretical physicists, math-

ematicians, economic theorists, and the like, there is no “nationality.” Any

country can, at fairly low cost, train a substantial number of high-knowledge

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people. India, for instance, despite her poverty, has been training fairly large

numbers of first-rate physicians and first-rate computer programers. Similarly,

there is no “nationality” in respect to the productivity of manual labor. Training

based on Scientific Management has made all countries capable of attaining

—overnight—the manual-worker productivity of the most advanced country,

industry, or company. Only by educating technologists can the developed coun-

tries still have a meaningful and lasting competitive edge.

The U.S. is so far the only country that has developed this advantage

through its unique nationwide systems of community colleges. The community

college was actually designed (beginning in the 1920s) to educate technologists

who have both the needed theoretical knowledge and the manual skill. On this, 

I am convinced, rests both the still huge productivity advantage of the American

economy and the (so far unique) American ability to create, almost overnight,

new and different industries.

Currently, nothing quite like the American Community College exists in

any other nation. The famous Japanese school system produces either people

prepared only for manual work or people prepared only for knowledge work.

Not until the year 2003 is the first Japanese institution devoted to train tech-

nologists supposed to get started. The even more famous German apprenticeship

system (started in the 1830s) was one of the main factors in Germany’s becom-

ing the world’s leading manufacturer. However, it focused—and still focuses—

primarily on manual skills and slights theoretical knowledge. It is thus in danger

of becoming rapidly obsolete.

Other developed countries should be expected to catch up with the U.S.

fairly fast. “Emerging” or “Third World” countries are, however, likely to be

decades behind—in part because educating technologists is expensive, in part

because in these countries people of knowledge still look down with disdain, if

not with contempt, on working with one’s hands. “That’s what we have servants

for” is still their prevailing attitude. However, in developed countries—and again

foremost in the U.S.—more and more manual workers are going to be technolo-

gists. To increase knowledge-worker productivity, increasing the productivity of

technologists deserves to be given high priority.

The job was actually done more than seventy years ago by the American

Telephone Company (AT&T) for its technologists, the people who install, main-

tain, and replace telephones. By the early 1920s, the technologists working out-

side the telephone office and at the customer’s location had become a major cost

center—and at the same time a major cause of customer unhappiness and dissat-

isfaction. It took about five years or so (from 1920 until 1925) for AT&T—which

had by that time acquired a near monopoly on providing telephone service in

the United States and in parts of Canada—to realize that the task was not in-

stalling, maintaining, repairing, and replacing telephones and telephone connec-

tions. The task was to create a satisfied customer. Once they realized this, it became

fairly easy to organize the job. It meant, first, that the technicians themselves

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had to define what “satisfaction” meant. The results were standards that estab-

lished that every order for a new telephone or an additional telephone connec-

tion would have to be satisfied within 48 hours, and that every request for

repair would have to be satisfied the same day if made before noon, or by noon

the following day. Then it became clear that the individual service people—in

those days all men, of course—would have to be active participants in such de-

cisions as whether to have one person installing and replacing telephones and

another one maintaining and repairing them or whether the same people had to

be able to do all jobs (which in the end turned out to be the right answer). Then

these people had to be taught a very substantial amount of theoretical knowl-

edge—and in those days few of them had more than six years of schooling. 

They had to understand how a telephone works. They had to understand how 

a switchboard works. They had to understand how the telephone system works.

These people were not qualified engineers nor skilled craftsmen, but they had 

to know enough electronics to diagnose unexpected problems and be able to

cope with them. Then they were trained in the repetitive manual operation or 

in the “one right way” (that is, through the methods of Scientific Management)

and they made the decisions (e.g., where and how to connect the individual tele-

phone to the system and what particular kind of telephone and service would be

the most suitable for a given home or a given office). They had to become sales-

men in addition to being servicemen.

Finally, the telephone company faced the problem how to define quality.

The technologist had to work by himself. He could not be supervised. He, there-

fore, had to define quality, and he had to deliver it. It took another several years

before that was answered. At first the telephone company thought that this

meant a sample check, which had supervisors go out and look at a sample

(maybe every 20th or 30th job done by an individual service person) and check

it for quality. This very soon turned out to be the wrong way of doing the job,

annoying servicemen and customers alike. Then the telephone company defined

quality as “no complaints”—and they soon found out that only extremely un-

happy customers complained. It then had to redefine quality as “positive cus-

tomer satisfaction.” In the end, this then meant that the serviceman himself

controlled quality (e.g., by calling up a week or ten days after he had done a job

and asking the customer whether the work was satisfactory and whether there

was anything more the technician could possibly do to give the customer the

best possible and most satisfactory service).

I have intentionally gone into considerable detail in describing this early

example because it exemplifies the three elements for making the worker who 

is both a knowledge worker and a manual worker both effective and productive.

▪ First, there is the answer to the question “What is the task?”—the key

question in making every knowledge worker more productive. As the

example of the Bell System shows, this is not an obvious answer. As the

Bell System people learned, the only people who knew the answer to 

this were the technologists themselves. In fact, until they asked the

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technologists, they floundered. However, as soon as the technologists

were asked, the answer came back loud and clear: “a satisfied customer.”

▪ Then, the technologists had to take full responsibility for giving customer

satisfaction, that is, for delivering quality. This showed what formal knowl-



edge the technologist needed. Only then could the manual part of the job

be organized for manual-worker productivity.

▪ Above all, this example shows that technologists have to be treated as

knowledge workers. No matter how important the manual part of their

work—and it may take as much time as it did in the case of the AT&T

installers—the focus has to be on making the technologist knowledgeable,

responsible, and productive as a knowledge worker.



Knowledge Work as a System

Productivity of the knowledge worker will almost always require that the



work itself be restructured and be made part of a system. One example is servicing

expensive equipment, such as huge and expensive earth-moving machines.

Traditionally, this had been seen as distinct and separate from the job of making

and selling the machines. However, when the U.S. Caterpillar Company, the

world’s largest producer of such equipment, asked “What are we getting paid

for?” the answer was “We are not getting paid for machinery. We are getting

paid for what the machinery does at the customer’s place of business. That

means keeping the equipment running, since even one hour during which the

equipment is out of operation may cost the customer far more than the equip-

ment itself.” In other words, the answer to “What is our business?” was “Ser-

vice.” This then led to a total restructuring of operations all the way back to the

factory in order that the customer could be guaranteed continuing operations

and immediate repairs or replacements. The service representative, usually a

technologist, has become the true “decision maker.”

As another example, a group of about 25 orthopedic surgeons in a Mid-

western U.S. city, have organized themselves as a “system” to: produce the high-

est quality work; make optimal use of the limited and expensive resources of

operating and recovery rooms; make optimal use of the supporting knowledge

people such as anesthesiologists or surgical nurses; build continuous learning

and continuous innovation into the work of the entire group and of every mem-

ber thereof; and, finally, minimize costs. Each of the surgeons retains full control

of his or her practice. He or she is fully responsible for obtaining and treating the

individual patient. Traditionally, surgeons schedules surgeries early in the morn-

ing. Hence, operating rooms and recovery rooms are standing empty most of the

time. The group now schedules the use of operating and recovery rooms for the

entire group so that this scarce and extremely expensive resource is utilized ten

hours a day. The group, as a group, decides on the standardization of tools and

equipment so as to obtain the highest quality at the lowest cost. Finally, the

group has also built quality control into its system. Every three months three

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surgeons are designated to scrutinize every operation done by each of the mem-

bers—the diagnosis, the surgery, the after-treatment. They then sit down with

the individual surgeons and discuss their performance. They suggest where there

is need for improvement and they also may recommend that a certain surgeon

be asked to leave the group when his or her work is not satisfactory. Each year,

the quality standards that these supervising committees apply are discussed with

the whole group and are raised, often substantially. As a result, this group now

does almost four times as much work as it did before. It has cut the costs by

50%, half of it by cutting back on the waste of operating and recovery rooms

and half by standardizing tools and equipment. In such measurable areas as suc-

cess rates in knee or shoulder replacements and in recovery after sports injuries,

it has greatly improved its results.



What to do about knowledge-worker productivity is thus largely known.

So is how to do it.



How to Begin?

Making knowledge workers more productive requires changes in basic

attitude, whereas making the manual worker more productive only required

telling the worker how to do the job. Furthermore, making knowledge workers

more productive requires changes in attitude not only on the part of the indi-

vidual knowledge worker, but on the part of the whole organization. It therefore

has to be “piloted,” as any major change should be. The first step is to find an

area in the organization where there is a group of knowledge workers who are

receptive. (The orthopedic surgeons, for instance, first had their new ideas tried

out by four physicians who had long argued for radical changes.) The next step

is to work consistently, patiently, and for a considerable length of time with this

small group. The first attempts, even if greeted with great enthusiasm, will

almost certainly run into all kinds of unexpected problems. It is only after the

productivity of this small group of knowledge workers has been substantially

increased that the new ways of doing the work can be extended to a larger area,

if not to the entire organization. At this point, the main problems will be known,

such as where resistance can be expected (e.g., from middle management) or

what changes in task, organization, measurements, or attitudes are needed for

full effectiveness. To bypass the pilot stage—and there is always pressure to do

so—only means that the mistakes become public while the successes stay hid-

den. It only means discrediting the entire enterprise. If properly piloted, a great

deal can be done to improve knowledge-worker productivity.

Knowledge-worker productivity is the biggest of the 21

st

-century man-



agement challenges. In the developed countries, it is their first survival require-

ment. In no other way can the developed countries hope to maintain themselves,

let alone maintain their leadership and their standards of living. In the 20

th

cen-


tury, this leadership very largely depended on making the manual worker more

productive. Any country, any industry, any business can do that today using the

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methods that the developed countries have worked out and put into practice in

the 120 years since Frederick Winslow Taylor first looked at manual work. Any-

body today, any place, can apply those policies to training, the organization of

work, and the productivity of workers—even if they are barely literate, if not

illiterate, and totally unskilled.

Above all, the supply of young people available for manual work will 

be rapidly shrinking in the developed countries—in the West and in Japan very

fast, in the U.S. somewhat more slowly—whereas the supply of such people will

still grow fast in the emerging and developing countries for at least another

thirty or forty years. The only possible advantage developed countries can hope

to have is in the supply of people prepared, educated, and trained for knowledge

work. There, for another fifty years, the developed countries can expect to have

substantial advantages, both in quality and in quantity. Whether this advantage

will translate into performance depends on the ability of the developed countries

—and of every industry in it, of every company in it, of every institution in it—

to raise the productivity of the knowledge worker and to raise it as fast as the

developed countries have raised the productivity of the manual worker in the

last hundred years.

The countries and the industries that have emerged as the leaders in the

last hundred years in the world are the countries and the industries that have

led in raising the productivity of the manual worker—the U.S. first, Japan and

Germany second. Fifty years from now, if not much sooner, leadership in the

world economy will have moved to the countries and to the industries that have

most systematically and most successfully raised knowledge-worker productivity.



The Governance of the Corporation

What does the emergence of the knowledge worker and of knowledge-

worker productivity mean for the governance of the corporation? What does it

mean for the future and structure of the economic system?

In the last ten or fifteen years, pension funds and other institutional

investors became the main share owners of the equity capital of publicly owned

companies in all developed countries. In the U.S., this has triggered a furious

debate on the governance of corporations. With the emergence of pension funds

and mutual funds as the owners of publicly owned companies, power has

shifted to these new owners. Similar shifts in both the definition of the purpose

of economic organizations (such as the business corporation) and their gover-

nance can be expected to occur in all developed countries.

Within a fairly short period of time, we will face the problem of the gov-

ernance of corporations again. We will have to redefine the purpose of the em-

ploying organization and of its management as both satisfying the legal owners

(such as shareholders) and satisfying the owners of the human capital that gives

the organization its wealth-producing power—that is, satisfying the knowledge

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workers. Increasingly, the ability of organizations—and not only of businesses—

to survive will come to depend on their “comparative advantage” in making the

knowledge worker more productive. The ability to attract and hold the best of

the knowledge workers is the first and most fundamental precondition.

However, can this be measured or is it purely an “intangible”? This will

surely be a central problem for management, for investors, and for capital mar-

kets. What does “capitalism” mean when knowledge governs rather than

money? And what do “free markets” mean when knowledge workers—and no

one else can “own” knowledge—are the true assets? Knowledge workers can

neither be bought nor be sold. They do not come with a merger or an acqui-

sition. In fact, although they are the greatest “value,” they have no “market

value”—that means, of course, that they are not an “asset” in any sense of the

term.

These questions go far beyond the scope of this article. However, it is



certain that the emergence as key questions of the knowledge worker and of the

knowledge-worker’s productivity will, within a few decades, bring about funda-

mental changes in the very structure and nature of the economic system.

Notes

1.

For work in the oldest knowledge profession—that is, in Medicine—Taylor’s close



contemporary William Osler (1849-1919) did what Taylor did and at the same

time in his 1892 book The Principles and Practice of Medicine (arguably the best text-

book since Euclid’s Geometry in the third century B.C.). Osler’s work has rightly

been called the application of Scientific Management to Medical Diagnosis. Like

Taylor, Osler preached that there is no “skill,” there is only method.

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