📖 The Human Side of Enterprise

1960. Douglas McGregor

McGregor is credited with the birth of the “human relations movement”, centered around his conception of Theory Y management captured in this book.

It was voted the 4th most influential management book of the 20th century, and is considered somewhat of a rebuttal to scientific management, at times directly referencing the work of Frederick Taylor (who’s book was 1st on that same list). After half a century of reductionism, McGregor came out advocating for a more human approach to business.

In brief, the book is about how a managers’s basic assumptions about human behaviour will determine their managerial style. He famously grouped a number of assumptions into two sets; Theory X and Theory Y. Theory X assumes people dislike work, will avoid it if they can, and thus require some level of coercion and control in order to get effort out of them. Theory Y assumes people are motivated to work under the right conditions, seek responsibility, and are imaginative and creative problem solvers.

So if you’re a manager, this framing is to shift the question away from what type of person you have reporting to you, but rather what type of manager are you? What assumptions do you hold about human nature that will determine how you approach the job? Assumptions that are often self fulfilling that will “appear to be validated but only because we have mistaken effects for causes”.

Simple as that, right?

Well no, not really. When you explore further, you quickly realise there is still some level of disagreement over how best to interpret the text.

On the surface it is assumed that McGregor was advocating for Theory Y as an alternative to the Theory X approach that had dominated for the last 50 years. A way to liberate the worker from fear of the factory hand.

However it wasn’t long before academics and commentators were claiming people were over-generalising and misinterpreting McGregor’s work.

In the annotated edition (2006), Edgar Schein opens his forward with “People have read about Theory X and Theory Y for 45 years now, but I think they still do not truly understand what these theories mean in practice”.

Niels Pflaeging argues—with his trademark rhetoric—the key concept people get wrong is that actually “Theory Xers do not exist. Have never existed, will never exist”. He goes on to say the peddling of these flawed interpretations presents “the biggest tragedy in the history of work” and “may be the biggest fraud in history”.

Others argue that McGregor held a neutral point, and that he wanted people to invent other theories to build on his work. Apparently going on to publish early articles about Theory Z managers (although I haven’t found any of these credited to him).

McGregor did state the “purpose of this volume is not to entice management to choose sides over Theory X or Theory Y” but rather “to urge management to examine it’s assumptions and make them explicit”. He said “Theory X explains the consequences of a particular managerial strategy; it neither explains nor describes human nature, although it purports to”. However he never got a chance to further clarify matters as he died of a sudden heart attack four years after publication (aged 58), before the book really took off.

Jargon

This obviously wouldn’t be the only case of a business theory being bastardised. Take Agile, which heralded a dramatic shift in how best to approach software development. 17 years on however, and it’s applications have moved well beyond code, as big consultancies lead boardrooms around the world through ‘Agile transformations’ of their monolithic institutions. Maybe the word should “just be retired”

Or maybe a more apt comparison is with Clay Christensen’s theory of disruptive innovation. When published in 1995 it quickly became hugely popular, spawned a successful book with The Innovator’s Dilemma, and cemented Christensen’s place as a modern day business guru. Forbes called him “one of the most influential business theorists of the last 50 years”. So surely he is happy with how well his theory spread?

“It’s very frustrating. We didn’t realise how quickly control of a concept could be lost. These people who misapply it have never read the theory.” C. Christensen

I guess not. 20 years after the initial article, he’s still on HBR at pains to set the record straight, conceding that “the theory’s core concepts have been widely misunderstood and its basic tenets frequently misapplied.”

Referring to the paired theories of disruptive and sustaining innovation, he said if only “we’d said there was Type 1 innovation and Type 2 innovation, maybe we’d have forced people to take the time to understand what it’s about.” However, clearly that didn’t work for McGregor.

But disagreements aside, this book presented a revolutionary new way to think about management, that to some extent still feels revolutionary today.

A a few highlights, takeaways, extracts:

Fundamental Assumptions

“The key question of top management is what are your assumptions about the most effective way to manage people?…Behind every managerial decision or action are assumptions about human nature and human behaviour”

Although such assumptions are “rarely expressed so bluntly”, McGregor encourages the reader to “tune your ear to listen for assumptions about human behaviour”. Try it next time you are in a management meeting. He argues that although a fair amount of “lip service is given to the idea of the worth of the average human being”, most management practices betray that notion.

“What sometimes appear to be new strategies—decentralisation, management by objectives, consultative supervision, democratic leadership—are usually old wine in new bottles because the procedures developed to implement them are derived from the same inadequate assumptions about human nature”

Scientific management stemmed from inadequate research

McGregor’s stance is that Theory X assumptions are based on a flawed understanding of human behaviour and motivation. By 1960 however, with the growth in social sciences, there had been “a convergence of research findings and a growing acceptance of a few rather basic ideas about motivation [that] explain the inadequacies of Theory X”

He layed the groundwork for Herzberg’s two factor theory—published 4 years later—by stating that “a satisfied need is not a motivator of behaviour”, which he stressed was “a fact of profound significance”. Using the example of “your own need for air. Except as you are deprived of it, it has no appreciable motivating effect upon your behaviour.” Early research on motivation, which has since been expanded on, with Daniel Pink’s 2011 book Drive a recent example.

Role of Authority

If there is the single assumption which provides conventional organisational theory it is that authority is the central indispensable means of managerial control…[But] if authority is the only tool in the managers kit, he cannot hope to achieve his purposes very well.

Integration of individual and organisational goals

The central principle which drives from Theory Y is that of integration; the creation of conditions such that the members of the organisation can achieve their own goals best by directing their effort‘s towards the success of the enterprise.

Again this theory has been repackaged many times over since it’s publication. Take Reid Hoffman’s 2014 book The Alliance which argues that employees and employers should become allies for time bound projects in which everyone’s desires are integrated.

It’s your fault, not theirs

Theory X offers management an easy rationalisation for ineffective organisational performance: it is due to the nature of the human resources with which we must work. Theory Y on the other hand places the problem squarely in the lap of management. If employees are lazy, indifferent, unwilling to take responsibility, intransigent, uncreative, uncooperative, Theory Y implies that the causes lie in management’s methods of organisation in control.

“As long as the assumptions of Theory X continue to influence managerial strategy, we will fail to discover, let alone utilise, the potentials of human beings…Theory Y is an invitation to innovate.”

Reflecting on the impact of McGregor, Tom Peters—of In Search of Excellence—said that “everybody knew that what he said was true, and everybody continued to treat their workers like shit”.

For reference, I have included below the actual core assumptions for each as stated by McGregor.

Theory X

Theory X rests on three core assumptions:

1. The average human being has an inherent dislike of work and will avoid it if he can

2. Because of this human characteristic of dislike of work, most people must be coerced, controlled ,directed, threatened with punishment to get them to put forth adequate effort towards the achievement of organisational objectives

3. Three the average human being prefers to be directed, wishes to avoid responsibility, has relatively little ambition, wants security above all.

Theory Y

Theory Y rests on six core assumptions:

1.The expenditure of physical and mental effort and work is as natural as play or rest.

2. External control and the threat of punishment are not the only means of bringing about effort towards organisational objectives. Man will exercise self-direction and self-control in the service of objectives to which he is committed.

3. Commitment to objectives is a function of the rewards associated their achievement.

4.The average human being learns, under proper conditions, not only to except but to seek responsibility

5. The capacity to exercise a relatively high degree of imagination, ingenuity, and creativity in the solution of organisational problems is widely, not narrowly, distributed in the population.

6. Under the conditions of modern industrial life, the intellectual potentials of the average human being and only partially utilised