Stardate 20021225.1600

(On Screen): A reader writes:

My brother works for a company that was purchased by a German who combined it with his manufacturing company. The Kraut is slowly destroying the American division. I referred my brother to your website, especially the article on Stardate 20021220.1429, because it is the arrogance and gall of this guy that is running everybody off, customers and employees. His message to the US salesmen, "You must tell the customer that he needs our product. The customers are ignorant and don't know what they really need!"

(I'm suppressing the reader's identity because I don't want to risk getting his brother into trouble.)

What I believe we're seeing here is a Theory X manager. This is a reference to work done by Douglas McGregor who wrote a book called "The Human Side of Enterprise" which was published in 1960. I first encountered these ideas in the book "Up the Organization", which was written by Robert Townsend. Townsend was an early convert to McGregor's Theory Y and spent his career as a manager trying to convert organizations he was put in charge of from Theory X to Theory Y. Eventually he was seen as a "rising star" and was tapped by Lazard Freres to take over Avis in the 1960's when it was being hammered by Hertz and was in deep trouble. What he did was to spend several years converting the entire company to Theory Y. (For oldtimers, it was while Townsend was in charge of Avis that they started running ads with the slogan "We're #2, but we try harder".)

Avis didn't actually achieve parity with Hertz, but it survived and prospered and is still one of the largest car rental companies in the world, and Townsend wrote his book in the form of a series of very short (half-page to three page) articles about various subjects which were listed in alphabetic order. It's a fun book to read, and I recommend it highly. (Alas, it is out of print.)

What McGregor said was that "Theory X" assumed the following about workers:

— People inherently dislike work.
— People must be coerced or controlled to do work to achieve objectives
— People prefer to be directed

McGregor says that these fundamental assumptions are incorrect. On the contrary:

— People view work as being as natural as play and rest
— People will exercise self-direction and self-control towards achieving objectives they are committed to
— People learn to accept and seek responsibility

McGregor based this on Maslow's hierarchy of needs, and says that a good manager could make his organization into the means by which employees could fulfill the two two levels of that hierarchy, for esteem and status, and for self actualization. To the extent that a manager makes his organization into a way for people to achieve those things, those people will then commit to that organization and their productivity will skyrocket.

McGregor acknowledged that it was likely to be somewhat difficult to do this at the level of the factory floor in the extreme case where the work was repetitive and low-skilled, but noted that it was far more applicable to professional staff.

Since then, more and more managers and companies have tried this, and what they've found is that it works and works well (which is why it's spread). It's nearly universal in high-tech, for instance.

And it turns out that it can also be applied in heavy industry when the labor is actually skilled, which for instance is increasingly the case in the steel industry. Moreover, it applies to nearly all information workers. When an employee's brain is more valuable to the employer than their hands, Theory Y can be applied.

It sounds as if this German is running a straight-line Theory X operation, and the experience these days, at least in high tech, is that there's no better way to run an organization into the ground by driving away all the best talent.

What has emerged is two ways to motivate people in Theory Y. First is to get them excited about the product, to instill in them a sense of competition against the other companies in the market. I must say that when I worked at Tektronix, knowing that HP was out there was a great motivation. It wasn't fear, by any means; I did and do now admire HP (at least, the part of it I used to compete against, which was spun off) and at the time my group was in second place to them. It was more of a matter of eagerness, because we believed we were producing a good product which was going to take marketshare from them (which, in fact, it did).

The other way is to make people, especially professionals, believe that they can personally advance if they do good work. Merit rewards, both in terms of pay and more importantly in terms of promotion, are critical to motivating people. If they believe that the merit system is fair, then this will motivate them tremendously.

I can't say I'm surprised that a German manager would be Theory X. I commented recently on the amazing failure of Europe to be competitive in the world in innovative high tech, and part of the reason is that it may well be extremely difficult to implement Theory Y there. Because of the labor laws, and because of a corporate culture which rewards credentials instead of talent (you can't rise above a certain level unless you have the right kinds of educational degrees from the right universities, irrespective of how hard you work and how talented you are, and how much you've learned on the job), and because of the socialism embraced to a greater or lesser extent in all of Europe, the effect is that in most organizations there's only a weak link between advancement and merit (including hard work).

And in that case, when people see no potential for personal growth as a result of hard work, then you won't get hard work and it's easy to see how managers could get into the habit of flogging their people, even though you still get lackluster results.

Socialism as such suffers from this, and it has been the Achilles' heel of Socialist theory all along. "From each according to his ability, to each according to his need" is a fine principle, but what it means is that what I get has nothing to do with what I give, and thus there's really little incentive for me to work hard to give anything. At that point, avoidance of punishment really is the only way to motivate me, and Theory X is the only approach which will work. Theory Y can't be applied because that requires unequal reward, which is anathema to Socialism.

What the history of the last hundred years has shown beyond any shadow of a doubt is that the productivity of workers in a nation is inversely proportional to the extent to which that nation has embraced Socialism. When nations compete with each other, then unless there's some really exceptional reason why, the nation which is more socialist will lose. And when a nation eliminates socialism it becomes more competitive, and when it becomes more socialist it becomes less competitive.

In any case where you divorce reward from effort the result is less effort, which is why the labor unions are often not an asset. In heavily unionized industries, where pay is negotiated collectively and includes no merit evaluation, and where promotion is based solely on longevity ("seniority") there's no incentive to do any more than to coast. Workers will exert themselves enough to guarantee that they're not terminated, but not really beyond that.

So it's hardly surprising that in the last 20 years all the rising stars of the American economy have been non-union.

When someone takes over a decent company and starts to run it according to Theory X, the effect is to antagonize and alienate the people there. And given that there are other jobs available, the best people (those who are most valuable and thus would have the easiest time finding other positions) will be the ones who leave. That should be obvious.

But it operates that way even at the level of nations. Part of the reason for the brain drain from Europe to the US is that the collective US high tech industry is far more Theory Y than the Europeans, who are far more Theory X. And one of the reasons for that is that Theory Y is fundamentally incompatible with Socialist principles and with Socialist practice.