The Human Side of Enterprise

In the 1957 article “The Human Side of Enterprise,” Douglas McGregor contrasted two approaches to managing the human resources of an organization. His analysis hinged on two different understandings of human nature and resulting employee behaviors.

According to McGregor, the conventional view, which he labeled as Theory X, operates under a negative or deficit-based view of human nature. This conventional view describes employee behavior as passive, irresponsible and unintelligent. On the other hand, the new theory of management, which McGregor labeled as Theory Y, operates under a positive or strengths-based view of human nature. This new view describes employee behavior as motivation-seeking, willing to engage and filled with potential for growth and development.

McGregor accepted the fact that the negative employee behaviors outlined by the conventional view may well exist within organizations. However, he posited that these negative employee behaviors result from misguided management practices. In short, the organization is at fault for creating a negative management environment that seeks to direct and control employee behavior.

From this point of departure, McGregor argued for a new view of management that addresses the higher-level needs of employees, including but exceeding physiological, safety and social needs. Positive employee behaviors result from a management environment that provides work-related opportunities for employees to meet their higher level egoistic and self-fulfillment needs.

McGregor offered a few cursory steps to more closely align management practices with higher-level employee needs. Strategies include decentralization, job enlargement, participatory approaches, self-guided performance appraisals and others. These strategies seek to cultivate - not mitigate - human nature, thereby aligning human potential with the achievement of management objectives. Such a shift toward a positive management environment, however, may be slow. McGregor concluded that progress toward a more positive approach to management requires ongoing exploration and creative imagination on the part of organizations.

The tenets outlined by Douglas McGregor in “The Human Side of Enterprise” provide a lens for analyzing my professional experience related to the performance management process.

Through the lens of Theory X, the performance management process focuses on top-down control of employee behavior. Such an approach assumes that employees must be regulated, rewarded and/or punished by an external manager or an external system in order to perform. Employees are “cogs in the machine” of enterprise to be externally controlled according to the achievement of organizational objectives.
I have personally experienced such an approach to the performance management process as degrading, ineffective and naive. Let’s take the example of pay for performance. In my experience, the organization sets an “objective” standard of performance, then “measures” the employee’s level of achievement. The organization then rewards different levels of achievement by different levels of pay.

However, the organizational logic behind pay for performance is self-defeating. If the organization assumes that an employee is primarily driven by pay for performance (i.e. lower level need), then a reasonable corollary is that the employee will use whatever means necessary to “demonstrate” achievement of the “objective” standards in order to attain the highest level of pay possible (i.e. meet safety needs).

In non-technical terms, two can play that game. An oversimplification of performance based on “objective” measures established by the organization in order to control employee behavior is easily manipulated by the savvy employee with any rudimentary knowledge of evaluation and interpersonal politics. Negative employee behavior, as engendered by the management environment, becomes a self-fulfilling prophecy. As a result, the organization may incur the expense of greater pay for “performance” without making any meaningful gains in organizational effectiveness.

What if that same employee’s energy and savvy could be directed toward higher needs - such as self-fulfillment - that are skilfully and collaboratively aligned with organizational objectives?

Through the lens of Theory Y, the performance management process focuses on a collaborative approach to directing employee tasks and appraising their achievement. The performance management process provides employees a voice in the conversation and recognizes the limitations of any one perspective, including that of the organization. It operates under the assumption that “self-fulfillment” can only be achieved when directed by the self being fulfilled.

Aligning with the Theory Y approach, I personally adopted a different performance management strategy this past year. At the beginning of the performance cycle, I created an opportunity for employees to explore their own professional mission - the what, why and how behind their daily grind on the job. Through the use of an Ikigai Venn diagram, employees then explored the intersection of professional mission, organizational objectives, individual strengths, and challenging tasks. Working within the spaces of convergence, we then discussed and co-created employee goals or touchstones for the year. Each month, we conversed about progress and challenges related to those goals or touchstones. For the annual review, employees completed a written reflection to self-assess their level of “achievement,” whatever that looked like to them. I then used these self-reflections to guide open-ended questions and conversations about ongoing growth of both the employee and the organization.

Based on my experience, I recognize that an employee-driven approach to performance management based on the need for self-fulfillment comes with its own set of challenges. There is a level of fear and ambiguity in letting go of control as a manager and bringing additional voices into the process of organizational development. In addition, the notion of replacing an “objective” standard of performance with a subjective standard of employee experience can lack the hard edges needed to equitably compare employee performance. Creative and open-ended collaborative processes may meander and lead to the unexpected. A modus operandi of “efficiency” is replaced with one of “engagement.” In the short term, this may slow the production of goods or services. These challenges noted, I nevertheless experience a Theory Y approach to performance management to be superior in its ability to unearth human potential and direct it toward the long-term success of the organization.