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The Human Side of Enterprise

When I was a struggling manager many years ago, participatory management was considered a new and revolutionary way to manage people. A participatory manager served more as a partner and an enabler than a director of work and tasks. We were to empower team members and encourage all to be involved in what were formerly considered exclusively management’s decisions. High-performing work teams were the Holy Grail we all sought to create.

Then I read an old copy of Douglas McGregor’s The Human Side of Enterprise (McGraw-Hill, 1960.) This book made me realize that participatory management practices were not a new concept created in the 80s and 90s but were spelled out clearly by McGregor back in 1960. Indeed McGregor is considered the originator of employee involvement with his seminal Theory Y which in turn is based on the concept of a hierarchy of needs that was created by Abraham Maslow a decade earlier. McGregor takes Maslow‚ hierarchy of needs and applies it to the business enterprise.

McGregor’s work is in direct reaction to the prevalent management theory of his day, one he called Theory X. The underlying assumption on which Theory X was based states that people have an inherent dislike of work and will avoid it at all costs. Because we dislike work, we need to be directed, controlled, and even threatened in order for us to be productive.

Theory X also postulates that people prefer strong direction and a lack of personal responsibility at work. With these basic assumptions as a foundation, Theory X produced a management perspective that was very directive, command-driven and high control. It reduced management to a set of administrative tasks that had to be executed to ensure that work would be complete and goals achieved.

McGregor challenged these assumptions by invoking the research of the cognitive social science theory of his day (thus his use of Maslow).

He viewed the worker very differently from Theory X practitioners in that he believed work was a natural part of life and not something to be abhorred. He believed that people were capable of self-direction and self-control and were committed to achieving set objectives. People wanted responsibility and were capable of producing imaginative, creative and innovative work. He challenged that the beliefs and management practices of Theory X stifled human intellectual potential and were ultimately detrimental to motivating people to produce good work.

Theory Y was enabled in a workplace by applying what McGregor called the Principle of Integration. Under this principle, the manager’s role shifted from being an administrative task master to being responsible for creating conditions in the workplace that allowed individuals to achieve their own goals while addressing the goals of the organization. This alignment of personal with organizational goals would result in what Maslow called self-actualization and would create the most motivated, high performing individual.

By now, I was experiencing a certain deja vu in reading McGregor’s book. This alignment of personal and organizational goals is still cited in leadership texts today as a critical element of leadership success. And while it certainly makes sense theoretically, it can be challenging in practice.

The second half of The Human Side of Enterprise applies Theory Y and The Principle of Integration to some common business applications like performance appraisals and salary administration. For instance, he sees the traditional annual performance feedback, when linked with merit increases as purely an administrative task and rarely as a vehicle for providing feedback that will motivate an employee to greater performance. Most performance consultants today will agree with McGregor that the small annual merit increase is at best a short-lived motivator for improving performance.

We owe a lot to McGregor and this ground-breaking text. Although much of what he wrote sounds like old news today, it was considered outlandish by many in his day. McGregor and his supporters were derided as being “soft” on employees. Leadership in his era considered that coercion and control were the only ways that workers would be made fully productive.

Theory Y is a management strategy, not a set of tactics, and is based on the quality of the relationship between leaders an staff. McGregor acknowledged that leadership is a very complex relationship fraught with many variables. By stressing the creating of an open, needs-based relationship between leaders and workers, McGregor laid the foundation of much of what we practice in leadership today.

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