15 Nov. 2012 | Comments (0)
In 1960, 11 years after he founded the company that became Circuit City, my father Sam Wurtzel was reading a book he couldn't put down: The Human Side of Enterprise, by MIT professor Douglas McGregor. McGregor had been writing on the topic for years — including in this 1957 article (restrospective commentary from 1972) on performance appraisals in HBR — and Sam was captivated by his ideas. The next morning, he called McGregor's office and asked for a meeting with him. Initially rebuffed, he flew to Boston and called again only to be told the professor was still unavailable. But Sam was creative and tenacious. Finally, he said, "I am staying at the XYZ hotel and will wait here as many days as necessary to see him." In a few minutes, the secretary called back and arranged an appointment for the next day.
What excited Sam was McGregor's clear and compelling articulation of the personnel (today, we say "human resources") policies in which he instinctively believed. From the day he opened his first TV and appliance retail store in Richmond, Virginia, Sam understood that management means getting results through the efforts of other people. And he believed that the only way to do that was by treating them with respect and providing them an opportunity to grow.
Sam loved McGregor's argument that there are two theories of personnel management. Theory X assumes employees are by nature lazy and avoid work and therefore need to be closely supervised and controlled. This was the popular perspective espoused by Fredrick W. Taylor, the 19th century guru of time and motion studies, which were used by management to micromanage workers; to tell them not only what to do but also how to do it. Theory X treats employees as replaceable economic units, devoid of ambition and self-direction. Theory Y, on the other hand, assumes that most people enjoy mental and physical activities, want to be creative, and want to succeed at work. Given the right conditions, employees will seek out and accept responsibility and exercise self-control, self-direction and some creativity in accomplishing the objectives to which the company and they are committed. The job of a Theory Y manager is to create an environment in which subordinates understand the company's objectives and want to cooperate with management and each other to solve problems and participate in the decision-making.
McGregor was advocating for the latter approach as early as that 1957 HBR article. He insisted that the traditional top-down performance appraisal should instead be replaced with a process in which capable, thoughtful subordinates would evaluate their own performance and establish their own individual goals in concert with their managers. This small move away from employee "management" and toward employee development within the organization would be a key part of what he later called Theory Y.
It was also central to how Sam built Circuit City. Between 1949, when it was founded, and 2000, Circuit City became the largest and most profitable independent retailer of consumer electronics in the country in part because it valued its employees and helped them to grow. However, in the last nine years of the company's life, new management increasingly relied on Theory X. Yes, the environment was challenging and other mistakes were made. But perhaps the biggest one was to treat staff as disposable economic units. In any business, especially one dealing with the public, employee morale is crucial. When workers are treated as cogs in a machine instead of flesh-and-blood human beings, they naturally fail to give their best efforts. When that happens, sales and margins decline, turnover increases and profits plummet.
Today, most modern companies use Theory Y policies to attract, retain and motivate staff. They invest heavily in orientation, training, and professional development; their management is interactive and open management; and their performance reviews are as McGregor wanted them to be. At the same time, technology has the potential to take us back to Theory X. Employers can now measure productivity to the split second. Call centers, for example, know how many calls an operator handles per hour, the average time per call and how many sales were made or disputes resolved. UPS can prescribe routes for its drivers, tell how long they spend at each stop and track them through GPS. Any job that regularly requires the employee to use a computer lends itself to the same sort of individual productivity analysis.
My father would approve of increased productivity through the use of data, but he would be wary about the consequences. You cannot manage a workforce by computer. Employers must retain respect for each employee, appreciate their disparate strengths, solicit their input on personal and corporate decisions, and provide opportunities for them to grow.
This blog first appeared on Harvard Business Review on 10/23/2012.