The Human Side of Enterprise

6Review by Alice Waagen

Book by Douglas McGregor

Publisher: McGraw-Hill, 1960

When I was struggling as a 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 enabler than as a director of work and tasks. We were to “empower” team members and encourage all to be involved in what had previously been considered exclusively management’s decisions. High-performing work teams were our Holy Grail.

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 toolkit developed in the 1980s and ’90s: they had been clearly spelled out by McGregor back in 1960. Indeed, McGregor is considered the originator of employee involvement with his seminal Theory Y, which in turn was based on Abraham Maslow’s concept of a hierarchy of needs, published a decade earlier. McGregor took Maslow’s hierarchy of needs and applied it to the business enterprise.

McGregor’s work was in direct reaction to the prevalent management theory of his day, one he called Theory X. The underlying assumption of Theory X was 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 if we are to be productive.

Theory X also postulated that people prefer strong direction and a minimum of personal responsibility at work. With these basic assumptions, Theory X produced a very top-down management perspective driven by command and control. It reduced management to a set of administrative tasks that had to be executed to ensure that work would be completed 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.

In strong contrast to the Theory X practitioners, he believed work is a natural part of life, not something to be abhorred. He believed 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 asserted 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 that of administrative taskmaster to one of creating conditions that would allow workers 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 workforces.

At this point in reading McGregor’s book I was experiencing a certain deja vu. This alignment of personal and organizational goals is cited in today’s leadership texts as a critical element of any leader’s success. But 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 common business functions, such as performance appraisals and salary administration. For instance, McGregor sees the traditional annual performance review, even when linked with merit-based raises, as a purely administrative task that only rarely provides the kind of feedback that can motivate an employee to better performance. Most performance consultants today would 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 groundbreaking 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 “soft” on employees. Leadership in his era considered coercion and control the only effective ways to make workers fully productive.

The bottom line: Theory Y is a management strategy, not a set of tactics, and is based on the quality of the relationship between leaders and staff. McGregor acknowledged that this relationship is a very complex one, fraught with variables. But by stressing the creation of open, needs-based relationships between leaders and workers, McGregor laid the foundations of much of what we practice in leadership today.