The many pitfalls of management theory

As a newspaper reporter who covered business for 20 years, I learned that there are intellectual fashions in management theory as in everything else.

Once the key to success was thought to be vertical integration.  The idea was that a corporation should control every aspect of its business, from raw materials to distribution, in order to guarantee quality and eliminate the middleman.

Then the key was supposed to be diversification.  The idea was that a corporation should engage in varied lines of business so that a downturn in one line of business was offset by continued gains in others.

Then it was core competency.  The idea was that a corporation should limit itself to whatever it did best and enjoyed a competitive advantage, and outsource everything else.

The path of least resistance for any manager has been to follow the fashion of the day.  Failing by doing the same thing everybody else was doing has always been more acceptable than failing by doing something different.

I recently read a book, THE MANAGEMENT MYTH: Why the Experts Keep Getting It Wrong by Matthew Stewart (2009)that validity of these management theories ranges from highly uncertain to completely bogus.

I was surprised to learn that the ideas of Frederick W. Taylor, founder of scientific management, and Elton Mayo, discoverer of the so-called Hawthorne effect, were based on fake experiments.

F.W. Taylor

Frederick W. Taylor claimed that there was one best way to perform any physical task.  It was the job of the manager or industrial engineer to discover the best way and to micro-manage workers so that they followed it, mindlessly and repetitively.

He claimed to have taught a Bethlehem Steel worker he called “Schmidt” the most efficient way of loading pig iron onto a freight car, and made that a standard method for loading pig iron.

The reality was that, one day in 1899, he gathered a group of Hungarian immigrant workers and challenged them to load as many 92-pound ingots as they could in 14 minutes.  He then extrapolated this to a 10-hour work day, discounted the total by 40 percent.  The total was 47.5 tons.

He offered a wage incentive if they could do this all day.  This would have been quadruple their normal output.  They declined.

Taylor then recruited another group of workers and challenged them to meet the target.  The only one who could was a German immigrant named Henry Noll—the “Schmidt” in Taylor’s tale.  Bethlehem Steel did not adopt Taylor’s method, but it became famous anyhow.

Taylor’s system eliminated the need for skilled workers.  They were undesirable because they might have ideas of their own.  It was up to managers and industrial engineers, not the workers themselves, to determine how each job can best be done.

His method was the same as the Soviet Stakhanovite system: Take a strong and efficient worker, determine the most he can accomplish under ideal conditions and make that the target for every worker.  Lenin praised Taylorism.

Elton Mayo

Elton Mayo claimed that workers could be managed by offering them psychological and emotional rewards.

He claimed to have found by accident that workers at Western Electric’s Hawthorne plant became more efficient as a result of being the center of attention—the so-called Hawthorne effect.

The reality was that in 1924, an engineer named Henry Hilbert at Western Electric’s Hawthorne plant ran an experiment to determine whether increased illumination would increase worker efficiency.  The study was subsidized by the electric power industry.

He gathered seven women employees in a separate room and had them assemble telephone relays under different lighting conditions.  He also experimented with work breaks.  Efficiency seemed to increase no matter what he did.

Mayo learned of the results of the experiment and decided that the real Hawthorne effect was treating these women as though they were special and making them feel they were members of a team.

But Stewart pointed out that the factor he ignored was that the assemblers were given a group wage incentive to achieve greater efficiency.  Also, two members of the original team were fired for being shirkers and malcontents, and one of their replacements strongly wanted the higher wage and pushed her co-workers to do more.

Hilbert later repeated the experiment.  One group of workers were given the same special treatment, but no wage incentive.  Their efficiency did not improve.  Another were given a group wage incentive, but no special treatment.  They achieved the same efficiency gains as the original group.

So it was the pay, not the special treatment that mattered.  But the whole point of Mayo’s method was to avoid the need for increased pay.

Both Taylor and Mayo had a political agenda—to empower management, dis-empower employees and eliminate labor unions.  While Taylor’s system treated workers like robots, Mayo’s system treated them like children.

While Taylor separated labor from thought, Mayo separated emotion from thought.  Both assigned the thinking function to management.

Neither treated workers as rational beings who might understand their work and might be able to figure out how to work more efficiently if they were rewarded, or even not punished, for doing so.  Neither treated workers as rational beings who understood their self-interest and might be negotiated with instead of micro-managed or manipulated.

Michael Porter

The next big topic of Stewart’s book is business strategy—methods of gaining competitive advantage.  Stewart wrote about a number of thinkers, including Igor Anstoff, Bruce Henderson and Michael Porter, who emerged after World War Two.

Anstoff advocated strategic planning, based on forecasts of how markets for different kinds of products would develop.  He advocated diversification, with each division of a corporation treated as if it were a separate business.  Top corporate managers, in his view, should concentrate on assessing potential and allocating resources to the different lines of business.  Running the businesses was the job of division managers.

Henderson advocated concentrating on gaining the biggest share of the market rather than immediate profitability.  Once you achieve dominance, you realize economies of scale that cut your costs below what your smaller-scale competitors could achieve.

Porter advocated trying to dominate markets in which it was hard for new companies to break in, or to create such barriers to entry.  Exploiting competitive advantage meant coming as close as you legally can to breaking the anti-trust laws without actually breaking them.  U.S. government policies from the late 1970s onward made anti-trust laws less and less of a consideration.

If Porter is right, it means that once a business achieves a competitive advantage, it can lock in the advantage indefinitely and freeze out new competitors.  There will be a few winners and many losers.  The result will be higher profits for the winners and higher prices for the public.

Tom Peters

The book concludes with Tom Peters, co-author of In Search of Excellence in 1982 and author of many subsequent books.  Stewart said it is more like a typical self-help book than any of the older management theory books.

Peters co-wrote his book after talking to managers of successful companies and other experts and compiling a list of the characteristics of the successful companies.   If he had been trying for a rigorous study, he would have matched his list with a list of the characteristics of unsuccessful companies.  Then he would have tried to figure out which of the characteristics were the cause of success, and which were the result.

One of Peters’ attributes of successful companies is “staying close to the customer.”  Does anyone advocate keeping your distance from the customer?  Another is “simultaneous loose-tight properties.”  What does that even mean?

The value of Peters’ books and lectures is inspirational.  He tells people that they have it in themselves to strive for greatness.  That’s not nothing, but it isn’t science.

∞∞∞

Now it is a good thing, not a bad thing, to analyze data, as Taylor tried to do; to be concerned with human relations, as Mayo tried to do; to look ahead, as Anstoff, Henderson and Porter tried to do; and to inspire people to be the best they can be, as Peters tried to do.  But trying and doing are two different things, and in any case, none of these things guarantees success.

There are good and bad business leaders, just as there are good and bad military, political and religious leaders, but there is no formula for making a good leader, and no assurance that even a good leader will be a success.

The attributes of a good manager are the same as the virtues of a virtuous individual—wisdom, courage, temperance and justice.  These attributes can be taught, up to a point, but not by management theorists.

Management is an art, not a science.

LINKS

Matthew Stewart | An American Philosopher and Author.

The Management Myth by Matthew Stewart for The Atlantic

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