Based on a landmark twenty-year study of 115 members of the Harvard Business School's Class of 1974, this vital and important book describes how the globalization of markets and competition is altering career paths, wage levels, the structure and functioning of corporations, and the very nature of work itself.
THE NEW RULES INCLUDE:
New Rule #1: Conventional career paths through large corporations no longer lead to success as they once did;
New Rule #4: The greatest opportunities have shifted away from professional management in manufacturing to consulting and other service industries;
New Rule #7: Success requires high personal standards and a strong desire to win.
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June 18, 1997
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Excerpt from The New Rules by John P. Kotter
IS THE AMERICAN DREAM DEAD?
They grew up in an era of great expansion in the the United States, a time that gave renewed life to the concept of the American dream. Kevin Johnson was one of them. Born near Chicago on March 27, 1946, he was raised in an environment where upward mobility was the order of the day. In 1954, Kevin's father was promoted from salesman to sales manager. The family moved out of their older two bedroom home located just ten minutes from Comiskey Park and into a four bedroom split-level in Winnetka with a two car garage, a barbecue patio, and a real backyard. The economy was a mighty engine back then. Gross national product in the United States increased in real (1992) dollars from 213.4 billion in 1946 to over a trillion in 1968, the year that Kevin and a group of early baby boomer peers graduated from Stanford. During this period, American businesses set the standard for the world and were exceptionally successful. No less than 75 of the world's 100 largest revenue-producing industrial firms in 1955 were U.S. based.
America's global domination was already slipping when Kevin completed college and went to work for Motorola, although few of us noticed the downward trend. After four years of work in the electronics industry, Johnson found another wave that was still on the rise -- the movement toward MBA education. In September of 1972, he came to Boston and enrolled as a student at Harvard. Two years later he finished the program and, despite the recession, received four good job offers. When he started work in June of that year, he felt on top of the world.
Kevin's optimism was fed both by his own early history and by the business school experience. In Boston, he and his classmates were told many times and in many ways that some of them were destined to be very important people in the world of industry. This promise of professional success from an MBA education was even confirmed by a Fortune article that appeared as they were taking their last exams. Focusing on HBS graduates from 1949, the title of the piece was "The Class the Dollars Fell On." The subheading told readers that in twenty-five years, the "Class of 1949 has risen to power, prestige, and riches." Those pictured in the article included Jim Burke, the then President of Johnson & Johnson, Sumner Feldberg, the Chairman of Zayre, Vincent Gregory, Jr., the President of Rohm & Haas, William Hanley, Jr., the President of Elizabeth Arden, Peter McColough, the Chairman of Xerox, M. G. O'Neil, the President of General Tire, and John Shad, the Vice Chairman of E. F. Hutton.
I doubt if any of us back then fully recognized that the economy was beginning to undergo a very fundamental change. After twenty-five to thirty-five years of growth and prosperity -- the period in which the Class of' 49 built their careers -- the environment was suddenly becoming more global, more competitive, faster moving, more unstable, and a lot tougher. Real GNP increases slowed greatly. The net result was a huge decline in the acceleration of the living standard for the average U.S. citizen.
From 1947 to 1973, Americans became accustomed to an economic growth rate that would double their real standard of living every 1.6 generations. After 1973, the economy slowed to the point where it required twelve generations to achieve the same result.5 For some people, living standards actually declined. A world in which people become twice as prosperous economically every generation or two is radically different from one in which there is little change from grandparents to grandchildren. (See Exhibit 1.1)
Most people, including Kevin, did not fully realize until the 1980s that something very fundamental had changed about the time of the first oil shock. Even today, all the reasons for and implications of this shift are not entirely obvious. But today we do know that the high expectations molded by the quarter century after World War II do not fit well in a new age of tough global competition.
It was in this new age that Kevin and millions in his generation began their careers. Pumped up by a quarter century of growth and good times, they were shot out of a cannon in the direction of a brick wall.
By the early 1990s, more and more people who were Kevin's age and younger began to wonder if they would be able to live as well as their parents had. Charlie Kolowski, a grade school buddy of Kevin's, was laid off from a middle management job in 1981, spent fourteen months unemployed, and then accepted with misgivings a job with less responsibility and income than he had had before. Brent Farmer, the tight end on Kevin's high school football team, saw his salary at a Chicago auto parts company drop by 15% in 1989. Elizabeth Bloom, the seventh grade love of Kevin's life, decided in 1985 to return to the workplace after her two children started school but only received offers for service jobs paying $5.00 to $6.00 an hour. All three, along with millions of others, began to seriously question the American Dream of ever increasing prosperity. In their study of people born in the United States between 1946 and 1964, Paul Leinberger and Bruce Tucker concluded pessimistically "that the 75 million members of the baby-boom generation...will likely be the first generation in American history that will not do better economically than its parents."
Times were tough. Even Kevin found a business climate that was faster moving and more dynamic than anything he had been led to expect. An acknowledged film fanatic who today owns over 300 movies on videotape, Johnson had seriously considered trying to get a job in Hollywood both in 1968 and in 1974. But when he sought counsel, nearly everyone advised against such a move. "Again and again I was told that work in the motion picture industry would be too unstable and too risky. People told me to go to a company I could count on, like IBM." He reluctantly accepted this advice, began work in June 1974 as a financial analyst in the electronics division of a Fortune 500 company, and received relatively predictable promotions in 1975 and 1977. Then, unexpectedly, his employer encountered new competition from the Far East and simply stopped growing. "The firm had been experiencing revenue increases of close to 10% per year, year after year. Then, suddenly, we had new competition, sales growth dropped to nearly zero, and we actually lost money. Opportunities for fast promotions disappeared. Even worse, some people lost their jobs. The whole experience was unsettling."
Five years later and at another firm, Kevin's future plans were once more disrupted when his division was sold, his mentor quit, and his fast track again disappeared. "I thought I had done thorough homework on the firm and the people involved before I accepted the job. And then suddenly, the business was sold and the division general manager (a strong supporter of mine) was replaced. The new owners reorganized everything and basically canceled the strategic program I was working on. It was deja vu all over again. I'm sure my wife would say I was impossible to live with for about six months. I was very angry, anxious, discouraged, and uncertain about what to do next." Two weeks before Christmas in 1986, he quit the "stable" world of large industrial corporations and accepted a job elsewhere.
Compared to some of his Class of '74 colleagues, Kevin's setbacks have been minor. Over one-third report that they have been fired or laid off at least once. Bill Jameson was out of work, except for a few "consulting" assignments, for nearly two years. Bill says the stress during this period nearly ruined his marriage. Some have seen their entrepreneurial ventures fail in a difficult economic environment. Troy Gleason lost nearly half a million dollars when his startup went bankrupt. At one time or another, virtually all of these people, have been very discouraged, as reality did not keep up with their expectations. After getting into a fight with her boss, receiving virtually no pay raise, and being passed over for a promotion, Karen Glister wrote in a 1980 correspondence: "To think that I spent many thousands of dollars to get an MBA, put in sixty-five hour work weeks, and suffered some pretty bad bosses, all FOR THIS?"
Times were tough.
For twenty years now, I have been following Kevin and 114 of his MBA classmates. These have often been difficult years, characterized by a tough economy, a crowded labor market created by an increasing abundance of baby boomers, and limited opportunities in firms that have stopped growing. Under these circumstances, how well have Kevin and his fellow MBAs fared?
They started work in June 1974. The single largest employer for the entire class was Citicorp. The bank hired twenty-one students, or about 2.6% of those graduating. Other major employers included Ford, Arthur Andersen, General Foods, Exxon, Goldman Sachs, W. R. Grace, Procter & Gamble, Baxter Laboratories, Boise Cascade, McKinsey, IBM, and Hewlett-Packard. With few exceptions, their job titles were rather modest: assistant salesman, grain merchant, consultant, manager of business analysis, senior accountant, corporate planning specialist, project manager, research analyst, quality assurance engineer, senior estimator, sales representative, loan officer, master scheduler, financial analyst -- plus many more. About 30% of these positions could be called marketing or sales jobs, 17% were in finance, 13% were accounting or control oriented, 13% were in general management, and 10% were in production or operations. The majority of these positions were very similar in one important aspect -- they did not require much supervision of others. Instead, the work was professional in nature, where individuals applied expertise learned in school in combination with special competencies that they were taught by their employers. They analyzed business data, bought or sold merchandise, audited accounts, scheduled production flows, designed systems for managing cash, and gathered information for market research. Fewer than 5% held jobs in which they were responsible for more than a dozen other people.
On average, they stayed in those positions for eighteen months and with their first employers for 3 1/2 years. Then between 1975 and 1992, the typical person in Kevin's class changed firms twice and held seven different jobs. The journey was sometimes exciting and dynamic, but for most of them it was far from smooth or easy. Career problems were exacerbated by turbulence off-the-job. Some went through trauma trying to conceive children and failing. A few have lived with the sorrow of serious birth defects in their offspring. Health problems have led to the death (at age thirty-eight) of one class member and to numerous significant illnesses. More than one has had a spouse walk out on him, at least one has had his house burn down, and many have been caught in crazy lawsuits, in-law crises, and more.
But despite all the problems, most have progressed in their careers astonishingly well. Between 1975 and 1992, they moved out of their professional roles first into managerial jobs, then into either entrepreneurial situations or executive positions. In 1975, 7% of them could be classified as executives, entrepreneurs, or owners. By 1992, nearly 80% rated that classification. In 1975, 13% reported that general management was their primary functional focus. In 1992, over 50% described their jobs this way. The budgets they controlled grew from almost zero to millions of dollars per year. Subordinates also grew from almost none to, in some cases, hundreds or even thousands. Their job titles confirm this increasing power. By 1992, nearly 50% of the group were called chairman, vice chairman, president, managing director, CEO, COO, or owner. Another 30% were executive vice presidents, senior vice presidents, group vice presidents, vice presidents, general managers, or partners.
With this power has come growing affluence. The typical person's income increased more than tenfold between 1974 and 1992, going from $18,000 to $195,000. Net worth increased 100 times, to over a million dollars. That is nearly as much wealth as the combined net worth of two dozen families in the United States. For the most successful half of the class, the numbers are much higher. At the low end, only 2% of the group had total family income less than twice of what is typical in the United States.
Incredibly, this group has done even better financially than the fabled HBS Class of '49. In 1992 dollars, the class that rode post World War II prosperity had incomes of about $150,000 at their 25th HBS reunion. The Class of '74 earned more before their 20th reunion. The 49ers had an average net worth of slightly over $700,000 (1992 dollars) twenty-five years after school. Kevin and his colleagues have also exceeded that figure before their 20th reunion. (See Exhibit 1.2.)
If current trends continue, the typical person in the Class of '74 will retire with a net worth around eight million dollars. The top 5% will have over $100 million. In non-inflated currency, most will accumulate wealth over ten times as large as that held by their parents.
In 1992, at age forty-six, Kevin made $255,000 as the Executive Vice President of a $150 million a year software firm that specialized in interactive video production. This was his third employer and his eighth job since graduation (see the profile on Page 18). He was married with two children and had a net worth of a little over $1 million. In late January 1993, he reported that he was generally quite satisfied with life. At times, he admitted, he wished he were president of his firm and owned more of its stock. But overall, he felt his job was interesting; "I finally made it into the video business!' And he expressed great enthusiasm for his family.
Not all of his classmates are as happy as Kevin. Some have had expectations that they have not been able to fulfill. But most like their work very much. In 1992, over 40% reported they were extraordinarily satisfied or very satisfied with their jobs; at the other extreme only 3.2% said they were very or extraordinarily dissatisfied. Ninety percent are married. Most have children and are very happy with their families. Within this group, success on the job has rarely resulted in an unsatisfying personal life (see Exhibit 1.3). Overall, less than 12% reported in 1992 that they were dissatisfied with their overall lives.
Hearsay knowledge of all this has been attracting hundreds of thousands of people each year to business programs. In an age of limits, the Dream seems to live on for some.
So why have they done so well?
A part of their economic success is attributable to smarts and the advantage of a degree from Harvard. But intelligence and educational privilege explain far less than one might expect. Large numbers of people at the Graduate School of Arts and Sciences at Harvard had better test scores in 1972 than these HBS students and yet are earning much less today. Even within this group of MBAs, those with higher incomes in 1993 did not score better on intelligence measures while in school than did their lower-earning classmates. To the contrary, those with higher incomes today appear to have scored slightly lower on the business school admission test (the GMAT).
If the HBS degree and the connections it implies were key, the earnings spread between the top and the bottom of the class would not be huge. Yet it is. By the time they retire, the top 10% of the Class of '74 will probably have accumulated wealth that is one hundred times greater than the bottom 10%. One hundred times.
Their economic success is not well explained by the privilege of their family backgrounds either. Few grew up in rich circumstances. Many came from the upper middle class, but on average, they appear to have done considerably better in their careers than most of their peers with similar socioeconomic backgrounds. Within the class itself, parental wealth and education do little to explain income differences in 1993.
The story of their success is both more complex and less conventional than "rich boy does well" (or "smart girl" or "well-connected child"). Indeed, conventional explanations are of limited use here because unconventionality itself is a key part of the story.