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There are three tasks, equally important but essentially different, which management has to perform to enable the institution in its charge to function and to make its contribution:

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every decision, every deliberation of management, has economic performance as its first dimension.

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founded to serve exclusively its own members and to help them toward their own salvation. Therefore, Saint Benedict removed his monastery from human society and into the wilderness. He was not particularly afraid that his monks would yield to the temptations of the world. He saw a greater danger: that they would be concerned with the world, take responsibility for it, try to do good, and be forced to take leadership.

Unlike the Benedictine monastery, every one of our institutions today exists to contribute outside of itself, to supply and satisfy nonmembers. Business exists to supply goods and services to customers, rather than to supply jobs to workers and managers, or even dividends to stockholders. The hospital does not exist for the sake of doctors and nurses, but for the sake of patients whose one and only desire is to leave the hospital cured and never come back. The school does not exist for the sake of teachers, but for the students. For a management to forget this is mismanagement.

No institution can, therefore, exist outside of community and society as the Benedictine monastery, unsuccessfully, tried. Psychologically, geographically, culturally, and socially, institutions must be part of the community.

To discharge its job, to produce economic goods and services, the business enterprise has to have impacts on people, on communities, and on society. It has to have power and authority over people, e.g., employees, whose own ends and purposes are not defined by and within the enterprise. It has to have impact on the community as a neighbor, as the source of jobs and tax revenue, but also of waste products and pollutants. And, increasingly, in our pluralist society of organizations, it has to add to its fundamental concern for the quantities of life, i.e., economic goods and services, concern for the quality of life, that is, for the physical, human, and social environment of modern man and modern community.

This dimension of management is inherent in the work of managers of all institutions. University, hospital, and government agency equally have impacts, equally have responsibilities -- and by and large have been far less aware of them, far less concerned with their human, social, and community responsibilities than business has. Yet, more and more, we look to business management for leadership with regard to the quality of life. Managing social impacts is, therefore, becoming a third major task and a third major dimension of management.

These three tasks always have to be done at the same time and within the same managerial action. It cannot even be said that one task predominates or requires greater skill or competence. True, business performance comes first -- it is the aim of the enterprise and the reason for its existence. But if work and worker are mismanaged there will be no business performance,

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no matter how good the chief executive may be in managing the business. Economic performance achieved by mismanaging work and workers is illusory and actually destructive of capital even in the fairly short run. Such performance will raise costs to the point where the enterprise ceases to be competitive; it will, by creating class hatred and class warfare, make it impossible in the end for the enterprise to operate at all. And, mismanaging social impacts eventually will destroy society's support for the enterprise and with it the enterprise as well.

Each of these three tasks has a primacy of its own. Managing a business has primacy because the enterprise is an economic institution; but making work productive and workers achieving has importance precisely because society is not an economic institution and looks to management for the realization of basic beliefs and values. Managing the enterprise's social impacts has importance because no organ can survive the body which it serves; and the enterprise is an organ of society and community.

In these areas also, there are neither actions nor results except of the entire business (or university, or hospital, or government agency). There are no "functional" results and no "functional" decisions. There is only business investment and business risk, business profit and business loss, business action or business inaction, business decision and business information. It is not a plant that pollutes; it is Consolidated Edison of New York, the Union Carbide Corporation, the paper industry, or the city's sewers.

Yet, work and effort are always specific. There is tension, therefore, between two realities: that of performance and that of work. To resolve this tension, or at least to make it productive, is the constant managerial task.

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requirements are not harmonized, or at least balanced, capital, that is, wealth-producing resource, is endangered, damaged, or destroyed.

Today we are particularly conscious of the time dimension in respect to the long-range impact of short-run economic decisions on the environment and on natural resources. But the same problem of harmonizing today and tomorrow exists in all areas, and especially with respect to people.

The time dimension is inherent in management because management is concerned with decisions for action. And action always aims at results in the future. Anybody whose responsibility it is to act -- rather than to think or to know -- commits himself to the future.

There are two reasons why the time dimension is of particular importance in management's job, and of particular difficulty. In the first place, it is the essence of economic and technological progress that the time span for the fruition and proving out of a decision is steadily lengthening. Edison, in the 1880s, needed two years or so between the start of laboratory work on an idea and the start of pilot-plant operations. Today it may well take Edison's successors fifteen years. A half century ago a new plant was expected to pay for itself in two or three years; today, with capital investment per worker twenty times that of 1900, the payoff period often runs to ten or twelve years. A human organization, such as a sales force or a management group, may take even longer to build and to pay for itself.

The second peculiar characteristic of the time dimension is that management -- almost alone -- has to live always in both present and future.

A military leader, too, knows both times. But traditionally he rarely had to live in both at the same time. During peace he knew no "present"; the present was only a preparation for the future war. During war he knew only the most short-lived "future"; he was concerned with winning the war at hand. Everything else he left to the politicians. That this is no longer true in an era of cold wars, near wars, and police actions may be the single most important reason for the crisis of military leadership and morale that afflicts armed services today. Neither preparation for the future nor winning the war at hand will do any longer; and as a result, the military man has lost his bearings.

But management always must do both. It must keep the enterprise performing in the present -- or else there will be no enterprise capable of performing in the future. And it has to make the enterprise capable of performance, growth, and change in the future. Otherwise it has destroyed capital -- that is, the capacity of resources to produce wealth tomorrow.

The only thing we know about the future is that it is going to be different. There may be great laws of history, great currents of continuity operating over whole epochs. But within time spans of conscious decision and action -- time spans of years rather than centuries -- in which the managers of any

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institution operate, the uncertainty of the future is what matters. The long-run continuity is not relevant; and anyhow, it can be discerned only in retrospect and only in contemplation of history, of how it came out.

For the manager the future is discontinuity. And yet the future, however different, can be reached only from the present. The greater the leap into the unknown, the stronger the foundation for the takeoff has to be. The time dimension endows the managerial decision with its special characteristics. It is the act in which the manager integrates present and future.

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Efficiency concerns itself with the input of effort into all areas of activity. Effectiveness, however, starts out with the realization that in business, as in any other social organism, 10 or 15 percent of the phenomena -- such as products, orders, customers, markets, or people -- produce 80 to 90 percent of the results. The other 85 to 90 percent of the phenomena, no matter how efficiently taken care of, produce nothing but costs (which are always proportionate to transactions, that is, to busy-ness).

The first administrative job of the manager is, therefore, to make effective the very small core of worthwhile activities which is capable of being effective. At the same time, he neutralizes (if he does not abandon) the very large penumbra of transactions: products or staff activities, research work or sales efforts, which, no matter how well done, will not yield extraordinarily high results (whether they represent the realized opportunities of the past, mere busy-ness, or unfulfilled hopes and expectations of the past, that is, the mistakes of yesterday).

The second administrative task is to bring the business all the time a little closer to the full realization of its potential. Even the most successful business works at a low coefficient of performance as measured against its potential -- the economic results that could be obtained were efforts and resources marshaled to produce the maximum yield they are inherently capable of.

This task is not innovation; it actually takes the business as it is today and asks, What is its theoretical optimum? What inhibits attainment thereof? Where (in other words) are the limiting and restraining factors that hold back the business and deprive it of the full return on its resources and efforts?

One basic approach -- offered here by way of illustration only -- is to ask the question What relatively minor changes in product, technology, process, market, and so on, would significantly improve or alter the economic characteristics and results of this business? (This is similar to the vulnerability analysis of the modern systems engineers.)

In making steel these vulnerabilities -- the factors that hold the economic results of the steel industry way below the theoretical potential of industry and process -- might, for instance, be the need, in present steel technology, to create high heats three times, only to quench them three times. For the most expensive thing to produce are temperatures, whether heat or cold. In the electrical apparatus business one vulnerability might well be the habit of public-utility customers to have each generating turbine designed as if it were a unique product rather than assembled as one of a large number and according to standard performance specifications. Another vulnerability might be the habit of the public-utility customers to order turbines when money-market rates are low, which then creates expensive fluctuations in demand and production schedules. If these two habits could be changed,

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large generating turbines might well come down 40 to 50 percent in cost. In life insurance, to give one more example, a central vulnerability might be the high cost of the individual sale. A way to overcome this vulnerability and to realize the potential of the business somewhat more fully might be either statistical selling -- elimination of the expensive personal selling efforts -- or enrichment of the sales channel, for instance, by selling financial planning (including all other investment instruments, such as investment trust certificates), rather than only life insurance.

These examples are cited to show that a relatively minor change does not necessarily have to be easy to make. In fact, we may not know how to do it. But it is still minor, for the business would remain essentially as it is now, yet would have different economic results. And while the illustrations show clearly that these changes may require innovation, they are not, in themselves, innovations. They are primarily modifications of the existing business.

At the same time, inherent in the managerial task is entrepreneurship: making the business of tomorrow. Inherent in the task is innovation.

Making the business of tomorrow starts out with the conviction that the business of tomorrow will be and must be different. But it also starts out -- of necessity -- with the business of today. Making the business of tomorrow cannot be a flash of genius. It requires systematic analysis and hard, rigorous work today -- and that means by people in today's business and operating within it.

The specific job of entrepreneurship in business enterprise is to make today's business capable of making the future, of making itself into a different business. It is the specific job of entrepreneurship in the going business to enable today's already existing -- and especially today's already successful -- business to remain existing and to remain successful in the future.

Success cannot, one might say, be continued forever. Businesses are, after all, creations of man which have no true permanence. Even the oldest businesses are creations of recent centuries. But a business enterprise must continue beyond the lifetime of the individual or of the generation to be capable of producing its contributions to economy and to society. 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 a management.

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worker achieving; managing social impact and social responsibilities; and doing all this in a balance between the demands of today and the demands of tomorrow -- are the things in which the public at large has a stake. The public has no concern with -- and only mild interest in -- what managers have to do to accomplish their tasks. It rightly is concerned with performance. But managers must be concerned with the means to the accomplishment of their tasks. They must be concerned with managerial jobs, with the work of the manager, with the skills he needs, and with his organization.

Any book of management that does not begin with the tasks to be performed misconceives management. Such a book sees management as something in itself, rather than as a means to an end. It fails to understand that management exists only in contemplation of performance. It treats management as an independent reality, whereas management is an organ which derives existence, identity, and justification from the function it serves. The focus must be on the tasks.

To start out discussing management with the work of the manager or with managerial organization -- as most books on management do -- is the approach of the technocrat, who soon degenerates into a bureaucrat. But it is even poor technocracy. For, as will be stressed again and again in this book, management work, management jobs, and management organization are not absolutes, but are determined and shaped by the tasks to be performed. "Structure follows strategy" is one of the fundamental insights we have acquired in the last twenty years. Without understanding the mission, the objectives, and the strategy of the enterprise, managers cannot be managed, organizations cannot be designed, managerial jobs cannot be made productive.

There are hundreds, if not thousands, of books on the management of the various functions of a business-production, marketing, finance, engineer- ing, purchasing, personnel, public relations, and so forth. But what it is to manage a business, what management is supposed to do and how it should be doing it, are subjects which are rarely discussed.

This oversight is no accident. It reflects the absence of both a tenable theory of business enterprise and an adequate discipline of management. Therefore, rather than theorizing, we shall first look at the conduct and behavior of an actual business enterprise. There is no better illustration of what a business is and what managing it means than one of America's most successful enterprises: Sears, Roebuck and Company.

With sales in excess of $10 billion, Sears is the largest retailer in the world. It is by far the most profitable retail business anywhere and altogether one of the most profitable companies in the American economy, by any yardstick. Only Marks & Spencer in Great Britain can compare with Sears in terms of success (see Chapter 8). But, Marks ~ Spencer is not only much smaller -- barely one-tenth of Sears; it also admittedly owes much of its success, especially in its earlier years, to imitating Sears.

51	Managing a Business: The Sears Story

Sears, Roebuck has also been a major growth company, even though its industry, the retail business, is, of course, old and well established, and totally lacking in the glamour of high technology or scientific innovation. No other business in America, not even General Motors, has shown such a consistent and sustained growth pattern since before the turn of this century.

Sears is also a political phenomenon that deserves study. In an age of consumerism, Sears would seem to be a prime target for consumer attacks. Yet there has been no or little criticism. Sears controls, through majority ownership, or through ownership of a substantial minority of the stock, the manufacturers of 60 percent of the merchandise it sells. It would seem a prime target for antitrusters and a glaring example of concentration of economic power. Yet there has never been mention of an antitrust investigation of Sears, let alone an antitrust suit.

The typical case studied in business schools is a case of failure, or at least of problems. But one can learn more from successes. It is far more important to know the right thing to do than to know what to avoid doing.

Sears became a business around the turn of the century with the realization that the American farmer represented a separate and distinct market. Separate because of his isolation, which made existing channels of distribution virtually inaccessible to him; distinct because of his specific needs, which, in important respects, were different from those of the city consumer. While the farmer's purchasing power was individually low, it represented a tremendous, almost untapped, buying potential in the aggregate.

To reach the farmer, a new distribution channel had to be created. Merchandise had to be produced to answer his needs and wants. It had to be brought to him at low price, and with a guarantee of regular supply. He had to be given a warranty of reliability and honesty on the part of the supplier, since his physical isolation made it impossible for him to inspect merchandise before delivery or to obtain redress if cheated.

To create Sears, Roebuck as a business required analysis of customer and market, and especially of what the farmer considered "value." Furthermore, it required major innovation in a number of distinct areas.

First, it demanded systematic "merchandising," that is, the finding and developing of sources of supply for the particular goods the farmer needed, in the quality and quantity he needed and at a price he could pay. Second, it required a mail-order catalog capable of serving as adequate substitute for the shopping trips to the big city the farmer could not make. For this reason, the catalog had to become a regular publication, rather than an announcement of spectacular bargains at irregular intervals. It had to break with the entire tradition of selling by mail and learn not to high-pressure the farmer into buying by exaggerated claims, but to give him a factual description of

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the goods offered. The aim had to be to create a permanent customer by convincing him of the reliability of the catalog and of the company behind it; the catalog had to become the "wish book" for the farmer.

Third, the age-old concept of caveat emptor had to be changed to caveat vendor -- the meaning of the famous Sears policy of "your money back and no questions asked." (1) Fourth, a way had to be found to fill large quantities of customer orders cheaply and quickly. Without the mail-order plant, conduct of the business would have been physically impossible.

Finally, a human organization had to be built -- and when Sears, Roebuck started to become a business, most of the necessary human skills were not available. There were, for instance, no buyers for this kind of operation, no accountants versed in the new requirements of inventory control, no artists to illustrate the catalogs, no clerks experienced in the handling of a huge volume of customer orders.

Richard Sears gave the company his name. He understood the needs of the customer; and he brilliantly improvised to satisfy these needs. But it was not he who made Sears, Roebuck into a business enterprise. In fact, Richard Sears's own operations could hardly be called a business. He was a shrewd speculator, buying up distress-merchandise and offering it, one batch at a time, through mail advertising. Every one of his deals was a complete transaction in itself which, when finished, liquidated itself and the business with it. Sears might have made a lot of money for himself. But his way of operating could never have founded a business, let alone perpetuate it. Indeed his success almost bankrupted him as it pushed his company far beyond the limit of his managerial capacity. His company was about to go under when he sold it to a total outsider, the Chicago clothing merchant Julius Rosenwald (1862-1932).

Between 1895, when he took control, and 1905, when the Chicago mail-order plant was opened, Rosenwald made a business enterprise out of Sears. He analyzed the market, began the systematic development of merchandise sources, and invented the regular, factual mail-order catalog and the policy of "satisfaction guaranteed or your money back." He built the productive human organization, and gave management people a maximum of authority and full responsibility for results. Later he gave every employee an ownership stake in the company, bought for him out of profits. Rosenwald is the father not only of Sears, Roebuck but of the distribution revolution which has changed the world economy in the twentieth century and which is so vital a factor in economic growth.

1. Customers, I am given to understand, actually return less merchandise to Sears than to most of the large American department stores -- it's the basic policy and what it expresses that makes the difference.