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.

The stupidity theory of organizations

This was originally posted on April 30, 2013.

Stupidity in big organizations is not a bug. It’s a feature. So say two scholars, Mats Alvesson of Lund University in Sweden and Andre Spicer of City University in England, in their recent paper, The Stupidity Factor in Organizations.

They say organizations need “functional stupidity,” which is a willful lack of recognition of the incompleteness of knowledge and a willful refusal to question the organization’s goals and policies. This builds confidence and loyalty which helps the organization to function smoothly.

Alvesson and Spicer discuss how managers use vision statements, motivational meetings and corporate culture as “stupidity management” to develop loyalty and suppress critical thinking. They discuss how employees use “stupidity self-management” to suppress doubt and get with the program.

In Herman Wouk’s novel, The Caine Mutiny, a recruit decides that the U.S. Navy is an organization designed by geniuses to be operated by idiots. When in doubt, he asks himself, “What would I do if I were a idiot?” That is a gross exaggeration, but an exaggeration of truth.

Managers want employees who are intelligent enough to carry out orders competently, but not so intelligent that they question the orders. Critical thinking creates friction that prevents the organization from running smoothly. Over time the organization’s tendency is eliminate that friction, and become more disconnected from reality.

You can see this in how Washington officials and journalists understand public policy. They treat the processes of government, such as the 60-vote rule in the Senate or the revolving door between corporate and government employment, as if they were objective and unchangeable facts, like the laws of thermodynamics. They treat actual problems, such as unemployment or global climate change, as if they were matters of personal preference.

The trouble with ignoring reality is that sooner or later it catches up with you. Then crisis generates what Alvesson and Spicer call the “How could I have been so stupid?” syndrome.

Click on A Stupidity Based Theory of Organizations for a PDF of Alvesson’s and Spicer’s paper. If you read it with close attention, I think you will see the dry humor beneath their social science jargon.

Click on Understanding Organizational Stupidity for Dmitry Orlov’s summary of their paper and his comments.

Chipotle profits by investing in employees

The Chipotle Mexican-style restaurant chain enjoys good profits and good growth, while paying its employees generously and promoting from within.

Its current policy began about nine years ago when founder Steve Ells and then-COO Monty Moran visited the restaurants, and notice that the one that were best-run were all managed by employees who had started as restaurant crew members and worked their way up.

They decided to make that into a system, and reward restaurant managers, not for achieving set targets of holding wages and other costs down, but for mentoring employees and training them to be managers.

Click to enlarge.

Why do so many managers ignore the examples of Chipotle, Costco and other companies and instead grind their employees down instead of building them up?  

I am reminding of a saying Bertrand Russell once made about human nature, When people are mistaken as to what is in their interest, the course they believe to be wise is more harmful to others than the course that really is wise.

The minus-$18 billion-dollar man

Double click to enlarge

Alex Tabarrok, an economist at George Mason University, pointed out that the market value of Microsoft increased by $18 billion Friday when CEO Steve Ballmer announced his retirement.   Tabarrok made an interesting argument that if the choice of a CEO really changes the value of a company by $18 billion, then it isn’t unreasonable to pay the CEO an eight-figure salary.

Steve Ballmer

Of course if you valued corporate employees by the damage they could potentially do, many of us would be paid more than we are.   When I was a newspaper reporter, I saved my company millions of dollars by not writing anything that was libelous, but I don’t think that ever was reflected in my paycheck.

One of Ballmer’s bad innovations was “stack ranking,” which meant ranking employees in order of some performance standard and firing the ones at the bottom.  One thing wrong with that is that it gave the employees an incentive to undermine each other rather than working together to make Microsoft a good corporation.  The other is that, as W. Edwards Deming noted, rank order is meaningless.  What counts is whether your performance meets or exceeds the desired standard.

Click on The Value of a CEO for Alex Tabarrok’s post on Marginal Revolution.

Click on How Microsoft lost its way for my earlier post on Microsoft and stack ranking.

The stupidity theory of organizations

Stupidity in big organizations is not a bug.  It’s a feature.   So say two scholars, Mats Alvesson of Lund University in Sweden and Andre Spicer of City University in England, in their recent paper, The Stupidity Factor in Organizations.

They say organizations need “functional stupidity,” which is a willful lack of recognition of the incompleteness of knowledge and a willful refusal to question the organization’s goals and policies.  This builds confidence and loyalty which helps the organization to function smoothly.

Alvesson and Spicer discuss how managers use vision statements, motivational meetings and corporate culture as “stupidity management” to develop loyalty and suppress critical thinking.  They discuss how employees use “stupidity self-management” to suppress doubt and get with the program.

In Herman Wouk’s novel, The Caine Mutiny, a recruit decides that the U.S. Navy is an organization designed by geniuses to be operated by idiots.  When in doubt, he asks himself, “What would I do if I were a idiot?”   That is a gross exaggeration, but an exaggeration of truth.

Managers want employees who are intelligent enough to carry out orders competently, but not so intelligent that they question the orders.   Critical thinking creates friction that prevents the organization from running smoothly.  Over time the organization’s tendency is eliminate that friction, and become more disconnected from reality.

You can see this in how Washington officials and journalists understand politics.   They treat the processes of government, such as the 60-vote rule in the Senate or the revolving door between corporate and government employment, as if they were objective and unchangeable facts, like the laws of thermodynamics.  They treat actual problems, such as unemployment or global climate change, as if they were matters of personal preference.

The trouble with ignoring reality is that sooner or later it catches up with you.  Then crisis generates what Alvesson and Spicer call the “How could I have been so stupid?” syndrome.

Click on A Stupidity Based Theory of Organizations for a PDF of Alvesson’s and Spicer’s paper. If you read it with close attention, I think you will see the dry humor beneath their social science jargon.

Click on Understanding Organizational Stupidity for Dmitry Orlov’s summary of their paper and his comments.

A crazy idea from Walmart management

Sam Walton, the founder of Walmart, was a business genius.  But his heirs, to put it as kindly as possible, are not.

Walmart has been foundering of late because it is so understaffed that its employees are not able to keep the shelves of its stores fully stocked.  This is wrongheaded.

Now Walmart management is seriously thinking about giving its customers discounts in return for delivering on-line orders within their ZIP codes.  This is deeply crazy.  No doubt their lawyers and insurance companies will talk them out of actually attempting this.

The Walton heirs are a good argument for keeping estate taxes high enough that important business enterprises do not fall into the hands of the idiot children of great entrepreneurs.  The operation of the free market will catch up with Walmart eventually, but not until a lot of good, hard-working people are hurt.

Click on Walmart faces the cost of cost-cutting: Empty shelves for a report from Bloomberg Business News about the company’s troubles.

Click on Wal-Mart may get customers to deliver packages to online buyers for a report from Reuters about management’s bogus solution.

How organizations decline

Double click to enlarge.

This chart is from a review of a book entitled Tribal Leadership, whose subject how to bring an organization from the bottom Stage 1 (“Life Sucks”) to the top Stage 5 (“Life is Great”).  But as I see it, most enterprises go in the opposite direction.  They start at Stage 5 and gradually decline to Stage 1, and the chart is a great illustration of that devolution.

In the case of business, the great entrepreneurial pioneers start out by doing something new and important for the love of it, then figuring out how to make money from it.  After the founders’ generation passes away, the enterprise eventually falls into the hands of people who care only about the money.  If money is your only objective, it is hard to see why you should put the good of the enterprise ahead of your own personal ambition.  That puts the organization in Stage 3 and on the way to Stages 4 and 5.

Ranking of employees for the purpose of reward and punishment, as is done at Microsoft, almost forces the employees to think of themselves first and the enterprise second.  Of course this kind of devolution is not just limited to business.  High-stakes testing in the public schools is another example.

Click on A Step-By-Step Guide to Tribal Culture for the original review on the Emergent by Design web log.

Ten truths of management

1. Think before you act. It’s not your money.
2. All good management is the expression of one great idea.
3. No executive devotes effort to proving himself wrong.
4. Cash in must exceed cash out.
5. All organizations have too little management capability.
6. Either an executive can do his job or he can’t.
7. If sophisticated calculations are required to justify an action,
don’t do it.
8. If you are doing something wrong, you will do it badly.
9. If you are attempting the impossible, you will fail.
10. The easiest way to make money is to stop losing it.