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Chris Argyris' work was driven by a fundamental faith in human nature. His optimism was bolstered by his considerable intellect. Argyris was a formidable thinker - even by the lofty standards of his employer, Harvard Business School.

Argyris was brought up in the New York suburbs and spent some time in Greece with his grandparents. Prior to joining Harvard he was at Yale where he was a professor of administrative science. His qualifications embraced psychology, economics and organizational behavior. He became the James Bryant Conant Professor of Education and Organizational Behavior at Harvard Business School in 1971.

Argyris' early work concentrated on the then highly innovative field of behavioral science. Indeed, his 1957 book, Personality and Organization became one of the subject's classic texts. Argyris argued that organizations depend fundamentally on people and that personal development is and can be related to work. The problem, Argyris believed, in many organizations is that the organization itself stands in the way of people fulfilling their potential. The task for the organization is to make sure that people's motivation and potential are fulfilled and well-directed.

Argyris was part of the human relations school of the late 1950s and involved in the work of the National Training Laboratories which had a mesmeric attraction for a host of other important thinkers. 'He was bespectacled, dark-complexioned, and slender, with a narrow face that tended, almost despite himself, to break into a delighted grin when arguments grew hot, as if he was overjoyed at the chance to test himself,' says Art Kleiner in The Age of Heretics. 'His voice was distinctively mild-mannered and reedy with a slight European tinge. His style of debate was analytical - indeed, his approach to life was passionately devoted to inquiry, reasoning, and theory. But he was drawn to the kinds of problems that most analytical people eschew, the riddles of human nature. In particular, why did people fail to live up to their own professed ideals? Why was so much human behavior so self-frustrating, particularly in organizations?'

These are questions which Argyris continued to ask with dogged persistence. Central to his process of inquiry was the entire concept of learning. Argyris examined learning processes, both in individual and corporate terms, in huge depth. 'Most people define learning too narrowly as mere problem solving, so they focus on identifying and correcting errors in the external environment. Solving problems is important, But if learning is to persist managers and employees must also look inward. They need to reflect critically on their own behavior,' he said. Problems with learning, as Argyris revealed, are not restricted to a particular social group. Indeed, it is the very people we expect to be good at learning - teachers, consultants and other 'professionals' - who often prove the most inadequate at actually doing so.

His most influential work was carried out with Donald Schön (most importantly in their 1974 book, Theory in Practice, and their 1978 book, Organizational Learning). The combination of the psychologist, Argyris, and the more philosophical, Schön, produced some original perspectives on age old problems.

Argyris and Schön originated two basic organizational models. The first was based on the premise that we seek to manipulate and form the world in accordance with our individual aspirations and wishes. In Model 1 managers concentrate on establishing individual goals. They keep to themselves and don't voice concerns or disagreements. The onus is on creating a conspiracy of silence in which everyone dutifully keeps their head down.

Defense is the prime activity in a Model 1 organization though occasionally the best means of defense is attack. Model 1 managers are prepared to inflict change on others, but resist any attempt to change their own thinking and working practices. Model 1 organizations are characterized by what Argyris and Schön labeled 'single-loop learning' ('when the detection and correction of organizational error permits the organization to carry on its present policies and achieve its current objectives').

In contrast, Model 2 organizations emphasized 'double-loop learning' which Argyris and Schön described as 'when organizational error is detected and corrected in ways that involve the modification of underlying norms, policies, and objectives'. In Model 2 organizations, managers act on information. They debate issues and respond to, and are prepared to, change. They learn from others. A virtuous circle emerges of learning and understanding. 'Most organizations do quite well in single-loop learning but have great difficulties in double-loop learning,' concluded Argyris and Schön.

In addition, Argyris and Schön proposed a final form of learning which offered even greater challenges. This was 'deutero-learning', 'inquiring into the learning system by which an organization detects and corrects its errors'.

While defensiveness has remained endemic, corporate fashions moved Argyris' way. With the return of learning to the corporate agenda in the early nineties, his work became more fashionable. This did not temper the rigor of his output or of his arguments. The questions remained. 'Any company that aspires to succeed in the tougher business environment of the 1990s must first resolve a basic dilemma: success in the marketplace increasingly depends on learning, yet most people don't know how to learn. What's more, those members of the organization that many assume to be the best at learning are, in fact, not very good at it,' he noted in an article.

The challenge - and mystery - of learning remained profound. The riddle of human nature remained as intractable as ever; and Chris Argyris' curiosity was undiminished. 'Many professionals have extremely brittle personalities. When suddenly faced with a situation they cannot immediately handle, they tend to fall apart,' he said. 'There seems to be a universal human tendency to design one's actions consistently according to four basic values:

1. To remain in unilateral control;

2. To maximize winning and minimize losing;

3. To suppress negative feelings; and

4. To be as rational as possible - by which people mean defining clear objectives and evaluating their behavior in terms of whether or not they have achieved them.'

In his book Flawed Advice and the Management Trap: How Managers Can Know When They're Getting Good Advice and When They're Not, Argyris turned his attention towards the field of organizational change. He was clearly unimpressed with much of the current advice, opinion and commentary handed down by academics, consultants and commentators believing that it, "does not work. . . . It is simply too full of abstract claims, inconsistencies, and logical gaps to be useful as a concrete basis for concrete actions in concrete settings." Never one to pull punches he used some of the better known books on the subject, such as Stephen Covey's Seven Habits of Highly Effective People and John Kotter's Leading Change, in an attempt to demonstrate how many commentators fail to avoid discrepancies between principles espoused and courses of action advised.

Chris Argyris was one of the first thinkers installed in the Thinkers50 Hall of Fame. His right to be there was unarguable as his impact on management was lengthy and substantial.

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Chris Argyris (1923-2013): An Appreciation - Thinkers 50

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Chris Argyris' work was driven by a fundamental faith in human nature. His optimism was bolstered by his considerable intellect. Argyris was a formidable thinker - even by the lofty standards of his employer, Harvard Business School. Argyris was brought up in the New York suburbs and spent some time in Greece with his grandparents.

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Early in 1984, the Houston-based COMPAQ Computer Corporation, manufacturer of IBM-compatible microcomputers, faced a decision that would profoundly affect its future. Recognizing that IBM would soon introduce its version of the portable computer and threaten COMPAQ's dominance in this profitable market, the company had two options. It could elect to specialize in this product line and continue to market its highly regarded portables aggressively, or it could expand market offerings to include desktop microcomputers. The latter move would force the year-old company to confront IBM on its home ground. Moreover, COMPAQ would have to make a substantial investment in product development and working capital and expand its organization and manufacturing capacity.

COMPAQ's management faced several important unknowns, including the potential market's size, structure, and competitive intensity. Management recognized that the company's vitality might seriously erode if it did not expand its product line. If the expansion were successful, COMPAQ might enjoy economies of scale that could help ensure its survival in a dynamic and very competitive industry. If COMPAQ's market assumptions were incorrect, however, its future might be bleak.

Many of today's managers face similar new market realities and uncertainties. Continually confronted with issues critical to their companies' competitive future, they must deal with novel and rapidly changing environments. In short, they must judge a broad range of dissimilar influences.

For more than a decade, new forecasting techniques have theoretically helped managers evaluate these varied factors. Much of the promise of these techniques has been unrealized, however, even as a quickening succession of related advances have been overwhelming decision makers with new alternatives.

As the number of techniques proliferates, management also realizes that some of its crucial assumptions and projections about the economy have become quite tenuous. Equipped only with a little history, meager and questionable data, and frail and changing theoretical tools, the forecaster must nevertheless make critical decisions about altered futures.

As an example, COMPAQ Computer's quandary was further complicated because new technologies, competitors, and products were already transforming a market that had been only recently established. COMPAQ's forecast of the size, direction, and price trends of the 1984 microcomputer market was confounded by uncertainties about the market's response to several vital factors:

Manager's Guide to Forecasting Brief descriptions of methods

The entry of IBM's new portable computer.

IBM's 23% price cut in June 1984 and its potential erosion of margins.

The entry of lap portables introduced by Hewlett-Packard and Data General.

The launch of IBM's new PC AT, complicated by unexpected delivery delays and compatibility problems.

The introduction of desktop computers by Sperry, NCR, ITT, and AT&T.

Eventually, COMPAQ entered the desktop segment of the market, even though 1984 was unforgiving and rampageous. Several large competitors restricted their programs; many smaller companies went into-or to the edge of-receivership. Financially and competitively, COMPAQ succeeded. During 1984, sales rose from $111 million to $329 million and earnings increased from $4.7 million to $12.8 million.

The market's dynamics, however, make such results increasingly difficult to achieve; positive and negative events-both expected and unforeseen-have a decisive effect. Even when managers anticipate outcomes, grave uncertainties about timing, form, and impact persist.

Despite the difficulty, the vice president of marketing and the CEO-the two executives most directly involved with the decision-demonstrated what can be done. They used an extended series of consumer and dealer surveys coupled with periodic evaluations of the technology to assess the future market and to guide the development of products and programs to accommodate the industry's fluid and rapidly evolving needs. Managers can use forecasting techniques to help them reach important decisions. A large and fast-growing body of research deals with the development, refinement, and evaluation of forecast techniques. Managers also have greater access to both internal and external data and can benefit from a multitude of computer software programs on the market, as well as easier access to computer capabilities for analyzing these data.

Forecaster's Chart

While each technique has strengths and weaknesses, every forecasting situation is limited by constraints like time, funds, competencies, or data. Balancing the advantages and disadvantages of techniques with regard to a situation's limitations and requirements is a formidable but important management task.

We have developed a chart to help executives decide which technique will be appropriate to a particular situation; the chart groups and profiles a diverse list of 20 common forecasting approaches and arrays them against 16 important evaluative dimensions. We list techniques in columns and dimensions of evaluation in rows. Individual row-column intersections (cells) reflect our view of a technique's characteristics as they apply to each dimension. Brief descriptions of the forecasting methods are given on the chart.

We have used different shades of gray to show which dimensions represent a strength for a particular technique and which represent its weaknesses. The strengths are highlighted in light gray; weaknesses are indicated by a dark gray cell. Naive extrapolation, for example, is strong in internal consistency in that it easily reflects changes in management decisions. It is weak, however, in forecast form. It is important to keep these distinctions in mind when you are using the chart.

The chart is useful in two ways. The first is in deciding which technique will suit your particular needs as a forecaster. The second is in deciding how to combine techniques to further improve the result. In this section, we discuss the simpler approach; we talk more about combining methods later.

To use the chart, look at the 16 questions listed in the first column after the dimensions. They are the most common questions a manager will ask when deciding to use a certain forecast. The first question sets out the various time spans a forecast would have to cover. Everyone who uses the chart will have to answer question 1. But each of the following questions can be answered with a yes or no. If you answer no to a question, you don't have to look across that row.

In responding to question 1, make note of those techniques whose time span matches your needs. We have found it easiest for forecasters to write down the technique's column letter. The row number of each dimension and the column letter of each technique are written along the horizontal and vertical axes. With regard to question 1, for example, if your forecast horizon is short-term, you can write down the cell letters for naive extrapolation (A), sales-force composite (B), jury of executive opinion (C), and so forth. But you would ignore the letters for scenario methods (D), Delphi technique (E), historical analogy (F), and so on.

The columns you have now listed represent techniques that are qualified for further consideration. Next read down the column of each of these techniques and note any gray cells. If these gray cells are associated with questions to which you have answered yes, then the dimension either precludes use of the technique or the technique can be used but it has difficulty accommodating that dimension. Such precautions will help you determine whether you must-or wish to-eliminate certain techniques from further consideration. An arrow in a cell indicates that its evaluation is the same as the cell to its left.

After you have answered all the questions and have a list of surviving techniques, note the cells that are highlighted in light gray. Those cells represent specific strengths of a technique and can guide you in making a final selection.

In the course of the exercise, you may have eliminated a technique that you like, have heard about, or routinely use. You can go back to that one and compare its strengths and weaknesses with those of the methods that the chart has indicated would be best for you. You can then decide whether you would rather proceed with the technique that the chart indicates corresponds most closely to your specific requirements or whether you can accommodate the eliminating factors in order to use the technique that you initially favored.

Important Considerations

When considering each question, you should remember some "tricks of the trade" concerning:

Time horizon. Most managers will want the forecast results to extend as far into the future as possible. Too long a period, however, may make the technique selection process even more confusing because of the varying abilities of the techniques to accommodate different time spans. In choosing an extended time horizon, the forecaster increases the complexity, cost, and time required to develop the final product.

You can break down the time needed to produce a forecast into development (Dev) and execution (Ex) time. Development time includes the gathering and entry of data, the modification of programs to the company's specific requirements, and the start-up of the system. Execution time is the time it takes to produce a forecast with a particular technique. Initially, of course, development time is a significant concern for the forecaster; once the forecast technique is firmly established, however, execution time is a more appropriate concern.

Technical sophistication. Experience shows that computer and mathematical sophistication is integral to many techniques. Although many executives have improved their skills in this area, not all have sharpened their quantitative skills enough to be comfortable with some of the forecast results a computer will spill out.

Cost. The cost of any technique is generally more important at the beginning when it is being developed and installed; after that, any technique's potential value to a decision maker usually exceeds the expense of generating an updated forecast.

Data availability. Before choosing a technique, the forecaster must consider the extensiveness, currency, accuracy, and representativeness of the available data. More data tend to improve accuracy, and detailed data are more valuable than those presented in the aggregate. Because a technique's ability to handle fluctuations is important to a forecast's success, the manager must match the sensitivity and stability of a technique to the random and systematic variability components of a data series.

Variability and consistency of data. Beyond changes that might occur in the company's structure or its environment, the manager must look at the kind of stable relationships assumed among a model's independent variables (represented by the "external stability" dimension). For example, while most historically oriented quantitative forecasts might use expected levels of automobile production as a basis for determining demand for steel, the forecast model may not reflect changes over time in the average amount of steel used in automobiles. These relationships sometimes do change, but any variation is usually so gradual that it will not affect a short-term forecast. When the forecasts are long-term, however, or when the company expects a substantial change in a vital relationship, the forecaster should either apply judgment in a quantitative technique or use a qualitative method.

Amount of detail necessary. While aggregate forecasts are easy to prepare, the manager will need specific information (including individual product classes, time periods, geographic areas, or product-market groupings, for example) to determine quotas or allocate resources. Since forecasts vary widely in their ability to handle such detail, the manager may want a technique that can accurately predict individual components and then combine the results into an overall picture. Otherwise, the forecaster can use one technique to provide an overall picture and then use past patterns or market factors to determine the component forecasts. ¹

Accuracy. While accuracy is a forecaster's holy grail, the maximum accuracy one can expect from a technique must fall within a range bounded by the average percentage error of the random component of a data series. Also, because of self-defeating and self-fulfilling prophecies, accuracy must be judged in light of the control the company has over the predicted outcome and within the time and resource constraints imposed on the forecaster.

Remember also that accuracy alone is not the most important criterion. The forecaster may wish to forgo some accuracy in favor of, for example, a technique that signals turning points or provides good supplemental information.

[There are] three basic strategies of forecasting... The deterministic strategy assumes that the present has a close causal relation to the future. This is the strategy that would be used by a cardsharp, who had stacked the deck of cards, to predict the deal. In economic forecasting, the strategy would be used to predict construction expenditures by a knowledge of construction contract awards already made.

The symptomatic strategy assumes that present signs show how the future is developing; such signs do not "determine" the future but reveal the process of change that is already taking place. Thus, a falling barometer may reveal a coming storm, or a rising body thermometer an incipient illness. In economic forecasting, this strategy calls for the spotting of "leading indicators"-time series whose movements foreshadow rises or declines in general business activity.

The systematic strategy assumes that, though changes in the real world may seem accidental or chaotic, careful analysis can reveal certain underlying regularities (sometimes called principles, theories, or laws). The way to find these regularities is to black out much of reality and hold only to the abstractions that make up a system, such as a solar system, or a nuclear system, or an economic system.

Though the theories that result from this process of abstraction are "unreal," they may nevertheless possess the power to affect the real world-provided, of course, that the theories are sound. The test of the soundness of a theory is how it measures up when applied to reality: An atomic explosion confirms Einstein's . Similarly, a price cut that leads to increased sales confirms the hypothetical demand curve that no man has ever seen outside an economics textbook.

To be sure, economic "laws" do not have the consistency of those in the physical sciences. Nevertheless, economic relations or theories, derived from a study of the past, may be useful tools for prediction, within some acceptable range of probable error.

Turning points. Because turning points represent periods of exceptional opportunity or caution, the manager will want to analyze whether a technique anticipates fundamental shifts. Some techniques give false turn signals, so the forecaster must keep in mind not only a technique's ability to anticipate changes but also its propensity to give erroneous information.

Form. Final form varies greatly; it is always advisable to use a technique that provides some kind of mean or central value and a range of possible outcomes. If even remotely accurate, such information helps the manager determine more explicitly risk exposure, expected outcomes, and likelihood distributions.

Improving the Forecast

Because no dramatic breakthroughs in technique development have occurred during the past several years, efforts to improve forecasts have shifted to searching for a better approach to technique selection. In part, these attempts have explored the strengths and performance characteristics of various techniques. ² Our chart extends this approach by helping the forecaster match different techniques' strengths and characteristics to the needs and constraints of the required forecast.

Managers can improve their projection in the following ways:

Simulating a range of input assumptions.

Selectively applying judgment.

Combining forecasts

The research on combining forecasts to achieve improvements (particularly in accuracy) is extensive, persuasive, and consistent. ³ The results of combined forecasts greatly surpass most individual projections, techniques, and analyses by experts. Because top-rated experts and the most popular techniques cannot consistently outperform an approach that combines results, and because the manager cannot predetermine which experts or techniques will be superior in any situation, combining forecasts-particularly with techniques that are dissimilar-offers the manager an assured way of improving quality.

The forecasting chart can help the manager select the best combination of techniques. As the chart shows, each method has strengths and weaknesses. By carefully matching two or more complementary techniques, the forecaster can offset any technique's limitations with the advantages of another, all the while retaining the strengths of the first. Simply compare an approach's highlighted cells against those of other qualified methods. Various techniques incorporate very different underlying notions. Not knowing which of these will ultimately prove to be most accurate in a particular economic environment, forecasters can add to their awareness of possible outcomes by evaluating the range and the distribution of the projections produced by the various methods. ⁴

Simulating various outcomes

The manager can also establish a range of probable outcomes by varying the combination and the levels of inputs of a particular technique. Such sensitivity analysis can underscore the most critical variables, the range and distribution of expected outcomes, and the probable outcomes from different assumptions.

Using judgment

While many quantitative forecasts incorporate some subjectivity, forecasters should rely more heavily on the output of a quantitative forecast than on their own judgment. Forecasting research has concluded that even simple quantitative techniques outperform the unstructured intuitive assessments of experts and that using judgment to adjust the values of a quantitatively derived forecast will reduce its accuracy. ⁵ This is so because intuitive predictions are susceptible to bias and managers are limited in their ability to process information and maintain consistent relationships among variables. ⁶

The forecaster should incorporate subjective judgments in dynamic situations when the quantitative models do not reflect significant internal and external changes. Even in these cases, the forecaster should incorporate the subjective adjustments as inputs in the model rather than adjusting the model's final outcome.

When confronted with extended horizons or with novel situations that have limited data and no historical precedent, judgment or counting methods should be used. Applying judgment in such situations, however, should be done on a structured basis. The forecaster should also employ judgment to stimulate thought and explore new relationships but, where possible, quantitative techniques should be incorporated to test and support assumptions. The two-part article on scenario forecasts by Pierre Wack in the September-October 1985 and November-December 1985 issues of HBR provides a good example of this.

A version of this article appeared in the January 1986 issue of Harvard Business Review.

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Early in 1984, the Houston-based COMPAQ Computer Corporation, manufacturer of IBM-compatible microcomputers, faced a decision that would profoundly affect its future. Recognizing that IBM would soon introduce its version of the portable computer and threaten COMPAQ's dominance in this profitable market, the company had two options.

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John P. Kotter - Faculty - Harvard Business School

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John P. Kotter is internationally known and widely regarded as the foremost speaker on the topics of Leadership and Change. His is the premier voice on how the best organizations actually achieve successful transformations.

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McClelland's theory of needs: achievement, power, and affiliation.

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Using Maslow's Hierarchy of Needs to Redesign a Business Plan - Chip Conley (Joie de Vivre)

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"Conley explains his own interpretation of Maslow's Hierarchy of Needs, learned in the context of the hospitality industry. As an entrepreneur, he realized that just as people strive to ""be all they can be"", so too can companies.Conley suggests that there are three steps toward elevating to a transformative ""self-actualization"".

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course: free online improving workplace performance training | businessballs.com

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Course: Free Online Improving Workplace Performance Training | businessballs.com

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Team Management Performance Management Building Relationships Communication Skills Strategy and Innovation Change Management Project Management Finance Self Awareness Self Management Problem Solving and Decision Making Coaching and Mentoring

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Rensis Likert has identified four main styles of leadership.

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Here is an introduction to basic communication skills to help you communicate more effectively at work and in your personal life.

For a step by step approach, download our Communications Pack.

1. Body Language

Have you ever had a conversation with someone who couldn't speak your language? It is possible!
Body language can account for over 55% of how we communicate.
If you have something important or sensitive to say, meet the other person face to face if possible. You can check their body language, to see how they are reacting to your message.

Be conscious of your own body language, as Perception is Greater Than Reality..

You may be slumped in a chair because you are tired after a long day. The other person might pick that up as a lack of interest in what they have to say. Eye contact, facial expressions, posture, gestures, dress etc. will have an impact on how your message is received.

2. Tone of Voice

Focus on the following four aspects to improve this important basic communication skill:

Pitch. A lower pitch can sound more authoritative and knowledgeable. Politicians often work to lower their voice pitch.

Volume. If you are naturally quiet spoken, it can be interpreted as a lack of confidence and timidity in certain situations. Similarly, if you normally speak at a high volume, reducing it may make you sound less aggressive to some people. If you find yourself in conversation with someone who is shouting, raise your voice to match theirs and gradually reduce it - they will follow.

Inflection. Put emphasis on certain words when you speak, to convey passion, enthusiasm and add meaning to what you are saying.

Pace. Take care that you pace what you are saying to allow the message to sink in. Avoid racing through the message or speaking so slowly that the other person loses interest.

Your tone of voice can account for over 37% of how you communicate in a typical work environment.

3. Words

Although in a complex communication setting, words may only account for approximately 8% of how you get your message across, you can still make a better impact with the words you use. Here are some tips:

Speak in metaphors. Connect better with others by helping them to visualise what you are saying. For example, instead of:

"The task is going to be difficult, but it will be worth it when it's done." you could try:

"We have a difficult mountain to climb but the view from the top will be great!"

Write using short, simple sentences (less than 20 words) to help understanding. Instead of:

" I would be extremely grateful if you would return the product at your earliest convenience.." say:
"Can you please return the product as soon as possible?"
Ask questions that are positive and specific. Your brain is like a Google Search Box; the better the questions, the better the response. So instead of:
"How can we reduce costs?" say: What steps can we take t o make even greater cost savings?"
Use emotive language. For example:

Instead of "We train individuals", say: "We empower individuals through training"

4. Empathy

So what is empathy? This is a basic communication skill which involves putting yourself in another person's shoes. You recognise the feelings and the situation that the other person finds themselves in.

It doesn't mean that you agree with them, it means that you understand where they are coming from.

Empathy involves being trustworthy, confidential and non-judgemental. You can develop empathy with someone if you share common values and experiences.

It is not sympathy, where you may end up supporting a negative frame of mind and making the situation worse.

It is also not apathy, where you show no interest in the situation or the feelings of the other person.

Check our Empathy Blockers page for more advice on building your empathy skills.

5. Active Listening

Active Listening involves reflecting back the feelings and the situation that you believe the other person is experiencing, to check that you have understood them correctly.

It is closely linked to empathy (above) and is a basic communication skill that can be developed with practice, and is very useful in an emotionally charged situation.

It allows the other person to vent, and as you are not adding your point of view at this stage, you avoid the danger of "saying the wrong thing" and making the other person even more upset.
Return to Top of Basic Communication Skills Page Return to What is Communication Overview Page Return to Home Page
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Here is an introduction to basic communication skills to help you communicate more effectively at work and in your personal life. For a step by step approach, download our Communications Pack. Have you ever had a conversation with someone who couldn't speak your language? It is possible!

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Faculty Page | UCLA Psychology Department

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Albert Mehrabian came to psychology with B.S. and M.S. degrees in engineering from the Massachusetts Institute of Technology. He received his Ph.D. from Clark University and in l964 commenced an extended career of teaching and research at the University of California, Los Angeles.

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Have you ever been in a group where someone took control of the situation by conveying a clear vision of the group's goals, a marked passion for the work, and an ability to make the rest of the group feel recharged and energized? This person just might be what is called a transformational leader.

Transformational leadership is a leadership style that can inspire positive changes in those who follow.

Transformational leaders are generally energetic, enthusiastic, and passionate. Not only are these leaders concerned and involved in the process; they are also focused on helping every member of the group succeed as well.

Quick Background

The concept of transformational leadership was initially introduced by leadership expert and presidential biographer James MacGregor Burns. According to Burns, transformational leadership can be seen when "leaders and followers make each other to advance to a higher level of moral and motivation."

Through the strength of their vision and personality, transformational leaders are able to inspire followers to change expectations, perceptions, and motivations to work towards common goals.

Later, researcher Bernard M. Bass expanded upon Burns's original ideas to develop what is today referred to as Bass's Transformational Leadership Theory. According to Bass, transformational leadership can be defined based on the impact that it has on followers.

Transformational leaders, Bass suggested, garner trust, respect, and admiration from their followers.

Components

Bass also suggested that there were four different components of transformational leadership.

Intellectual Stimulation - Transformational leaders not only challenge the status quo; they also encourage creativity among followers. The leader encourages followers to explore new ways of doing things and new opportunities to learn.

1. Individualized Consideration - Transformational leadership also involves offering support and encouragement to individual followers. In order to foster supportive relationships, transformational leaders keep lines of communication open so that followers feel free to share ideas and so that leaders can offer direct recognition of the unique contributions of each follower.

2. Inspirational Motivation - Transformational leaders have a clear vision that they are able to articulate to followers. These leaders are also able to help followers experience the same passion and motivation to fulfill these goals.

3. Idealized Influence - The transformational leader serve as a role model for followers. Because followers trust and respect the leader, they emulate this individual and internalize his or her ideals.

So what are some typical signs of a transformational leader? Groups led by this type of leader tend to be both successful and loyal. They give a lot to the team and care deeply about the groups ability to accomplish its goals. Turnover tends to be quite low as transformational leaders are able to inspire a great deal of committment in their followers.

Effects

In their classic text, Transformational Leadership, authors Bass and Riggio explained:

"Transformational leaders...are those who stimulate and inspire followers to both achieve extraordinary outcomes and, in the process, develop their own leadership capacity. Transformational leaders help followers grow and develop into leaders by responding to individual followers' needs by empowering them and by aligning the objectives and goals of the individual followers, the leader, the group, and the larger organization."

Researchers have found that this style of leadership can have a positive effect on the group.

"Research evidence clearly shows that groups led by transformational leaders have higher levels of performance and satisfaction than groups led by other types of leaders," explained psychologist and leadership expert Ronald E.

Riggio in an article for Psychology Today.

The reason, he suggests, is that transformational leaders believe that their followers can do their best, leading members of the group to feel inspired and empowered.

What can you do to become a more transformational leader? Leadership experts suggest that having a strong, positive vision of the future plays a critical role. Not only is it important to believe in this vision yourself; you've also got to inspire others to buy in to your vision as well. Being genuine, passionate, supportive, and trustworthy are all key characteristics that will help motivate followers to support your goals for the group.

Link to Well-Being

According to the results of one study, this style of leadership can also have a positive influence on employee well-being.

The study published in the Journal of Occupational and Environmental Medicine involved surveying workers at several different German information and communication technology companies. Researchers asked participants to answers questions about their employer's leadership style. A score for transformational leadership was then determined based on qualities such as providing intellectual stimulation, giving positive feedback for good performance, leading by example, and helping employees feel like they were making a contribution toward the goals of the group.

The researchers discovered that employees who identified a higher level of transformational leadership in their employers also had higher reported levels of well-being. The effect stayed significant even after researchers controlled for factors that are linked to well-being such as job strain, education, and age.

"The results of this study suggest that a transformational leadership style, which both conveys a sense of trust and meaningfulness and individually challenges and develops employees, also has a positive effect on employee well-being," the authors summarized.

Real-World Applications

So what impact could such results have for managers and workers?

The study's authors suggest that the results are important and can help companies develop leadership training programs that can be used to teach transformational leadership skills. Acquiring communication skills such as resolving conflicts in the workplace and recognizing the needs of employees are an important part of transformational leadership.

"Such training programs can be seen as another essential component of workplace health promotion and prevention efforts and therefore should receive wide support," explained the study's authors.
A Word From Verywell
The transformational style of leadership can be highly effective when used appropriately, but it might not necessarily be the best choice for every situation. In some cases, groups may require a more managerial or autocratic style that involves closer control and greater direction, particularly in situations where group member are unskilled and need a lot of oversight.

One way to improve your own leadership skills is to assess your own current leadership style and think about ways in which your strengths can benefit the group you are leading. By evaluating your own skills, you will be better able to play to your strengths and work on improving your areas of weakness.
Bass, B. M. & Riggio, R. E. Transformational Leadership. Mahwah, New Jersey: Lawrence Erlbaum Associates, Inc; 2008.
Jacobs C; Pfaff H; Lehner B, et al. The Influence of Transformational Leadership on Employee Well-Being: Results From a Survey of Companies in the Information and Communication Technology Sector in Germany. J Occup Environ Med. 2013;55(7):772-8. ​

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How Do Transformational Leaders Inspire and Motivate Followers?

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Have you ever been in a group where someone took control of the situation by conveying a clear vision of the group's goals, a marked passion for the work, and an ability to make the rest of the group feel recharged and energized? This person just might be what is called a transformational leader.

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TYPES OF AUTHORITY : LINE & STAFF ROLES

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Authority is the right to perform or command. It allows its holder to act in certain designated ways and to directly influence the actions of others through orders. It also allows its holder to allocate the organization's resources to achieve organizational objectives. AUTHORITY ON THE JOB : Barnard defines authority as the character of communication...

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Changing an organization's culture is one of the most difficult leadership challenges. That's because an organization's culture comprises an interlocking set of goals, roles, processes, values, communications practices, attitudes and assumptions.

The elements fit together as an mutually reinforcing system and combine to prevent any attempt to change it. That's why single-fix changes, such as the introduction of teams, or Lean, or Agile, or Scrum, or knowledge management, or some new process, may appear to make progress for a while, but eventually the interlocking elements of the organizational culture take over and the change is inexorably drawn back into the existing organizational culture.

Changing a culture is a large-scale undertaking, and eventually all of the organizational tools for changing minds will need to be put in play. However the order in which they deployed has a critical impact on the likelihood of success.

In general, the most fruitful success strategy is to begin with leadership tools, including a vision or story of the future, cement the change in place with management tools, such as role definitions, measurement and control systems, and use the pure tools of coercion and punishments as a last resort, when all else fails.

Frequent mistakes in trying to change culture include:

Overuse of the power tools of coercion and underuse of leadership tools.

Beginning with a vision or story, but failing to put in place the management tools that will cement the behavioral changes in place.

Beginning with power tools even before a clear vision or story of the future is in place.

These lessons are evident in successive efforts to change the organizational culture of the World Bank over a period of almost half a century.

The challenge of culture change at the World Bank

The World Bank represents a particularly difficult case of organizational culture change. Its formal goal-development-is ambiguous. The institution itself is a peculiar mix of a philanthropic foundation, a university and a bank. As an international organization, it is owned by the governments of the world, with a resident board of directors and their staffs who are ever present and ready to second-guess the management.

In a broad sense, the World Bank is a great success. It's easy to forget that fifty years ago, India, China and Korea were seen as basket cases requiring Western charity in perpetuity: today, they are independent economic powers in their own right, as a result in part to the implementation of economic policies that the World Bank has been coaching them over many years.

But the remaining development problems in the poorest countries, particularly in Africa, remain intractable. And the new global issues such as the environment present new challenges for the World Bank to play a different role from the past.

Successive presidents have come and tried to change it, mostly with little success.

Robert McNamara: World Bank President 1968-1981

The most successful president by far in terms of changing the culture was Robert McNamara. After a career at the Ford Motor Company, of which McNamara became head in 1960, he was the U.S. secretary of defense from 1961 to 1968 and president of the World Bank from 1968 to 1981.

His most lasting accomplishment at the World Bank is, for better or worse, that he introduced hierarchical bureaucracy, with its attendant goals, roles, accountabilities, values and communications.

And we know how he did it. On his arrival at the World Bank in May 1968, McNamara quickly took charge. John Blaxall, a young economist at the time, recalls being summoned to McNamara's office shortly after his arrival, being handed a stack of annual reports, and asked to assemble multiyear financial statements-something that hadn't been done before. McNamara penciled in his left-handed scrawl on a white-lined pad the headings that he wanted. The columns across the top were the past five fiscal years, and the rows were the standard balance sheet and income statement items. How soon could he have it ready? Blaxall gave him a date and observed with concern that McNamara carefully wrote it down.

Within six weeks, McNamara had a set of tables covering all major aspects of the Bank Group's activities, with totals for each five-year period and detail for the past five years. Blaxall recalls McNamara poring over the sheets full of numbers, exclaiming with some animation: "This is really exciting, John!"

McNamara then asked the senior managers in the President's Council of the bank to fill in the numbers for the next five years for the activities under his responsibility. The immediate reaction was that it couldn't be done, to which McNamara replied that they should do it anyway-and have it ready within a month.

It is not surprising that the five-year lending plans submitted by the geographical units had little correspondence to the five-year plans prepared by the technical units. And the financial projections put forward by the disbursement department were unrelated to either.

It was at this point, in early summer 1968, that McNamara announced to the senior managers that in the future, the World Bank would have only one sheet of music from which everyone would play. Ensuring the necessary consistency would be a key role of the programming and budgeting department. The game plan was not a narrative but rather a set of standard tables-a bunch of numbers-through which McNamara managed the organization for the next thirteen years.

As a result, McNamara transformed the World Bank from a small, sleepy, financial boutique into a large, bustling, modern corporation, expanding lending more than tenfold in the course of his thirteen-year tenure. He dramatically increased the World Bank's role in agriculture and education and opened up new lines of business in health, population, nutrition, and urban development. He articulated a new role for the World Bank in alleviating global poverty, passionately calling attention to the plight of the poorest 40 percent of the world's population who had been essentially untouched by development lending. But his most lasting accomplishment is that he introduced hierarchical bureaucracy.

It's interesting to note what McNamara didn't do to bring about the culture change:

He didn't change the managers or bring in his own staff. He basically worked with people who were already there. When he needed something he couldn't get from the existing management, he drew on young people from within the organization like Blaxall.

He didn't start by reorganizing: It was only four years after his arrival (in 1972) that McNamara finally got around to a reorganization, which was needed in any event because the organization had grown so much. By this time, his management systems and philosophy were firmly in place.

McNamara thus arrived with a clear vision for the organization: it was to be a lending organization that was lending a great deal more money. He had a clear idea of the management he wanted introduced: hierarchical bureaucracy. He introduced systems and processes that focused everyone's attention on his vision of the World Bank as a rapidly growing lending organization and the type of management required. Those systems are still largely in place today and still guide management action.

Tom Clausen: 1981-1986: Strategic planning

Tom Clausen came from being head of the Bank of America, in which role he was named as the "best manager in America". After his stint at the World Bank, he returned to the Bank of America, where he was once again voted "best manager in America".

However at the World Bank, he found it difficult to make his mark. He spent much of his time trying to figure out how the organization functioned. He could see that the organization lent a great deal of money, but the goal of lending-development-remained fuzzy.

Clausen's response was to launch a major strategic planning exercise, of which the end result, like most such corporate exercises, was essentially to continue with "more of the same".

Clausen relied principally on management tools, and lacked any clear vision of where he wanted the organization to go. As a result, it kept going in the same direction.

Barber Conable: 1986-1991: Reorganization

Barber Conable's background as a Republican congressman from New York led him to approach his new job as a political challenge. The organization that he inherited had become slow, bureaucratic and unresponsive to its stakeholders. Conable's response was a massive reorganization, combined with mild downsizing. The hope was that the reorganized organization would emerge lighter, nimbler and more client-focused. The reality was that the old culture quickly reemerged, despite the new managers and the new structures. The culture easily survived.

Here the reliance of power tools resulted in short term disruption but no long term change.

Lew Preston (1991-1995) came from being head of JP Morgan. As a banker, he accepted the World Bank as a bank, and in the four years that he served as president, he made no significant effort to change it.

James Wolfensohn: 1995-2005: New structure, new managers

James Wolfensohn came from a career of investment banking. Unlike his predecessors, he had spent a number of years thinking about the World Bank and in fact trying to become its president. He was a candidate when McNamara retired in 1981, but he was told he was ineligible as an Australian citizen. He adopted U.S. nationality and succeeded in becoming president in 1995.

Upon his appointment, it was reported in the press that he intended to remove the entire cadre of senior managers. He denied the report at the time, but over the next couple of years, he did exactly that.

He also launched a massive reorganization that preoccupied managers and staff for several years, though as in earlier reorganizations, the culture re-emerged largely unscathed from the experience, despite the changes in personnel and structures.

More importantly, he also took steps to clarify the goal of the organization. In 1996, he espoused knowledge management as a strategic goal of the organization, calling it "the Knowledge Bank". (I served as director of knowledge management from 1996-2000.)

In 1998, he succeeded in introducing a World Bank mission statement -the first in its entire life.

To fight poverty with passion and professionalism for lasting results. To help people help themselves and their environment by providing resources, sharing knowledge, building capacity and forging partnerships in the public and private sectors.

The goal was for the first time clearly focused on fighting poverty. However as all of the management systems and processes remained focused on getting out the lending program, the mission statement has still had little operational impact.

Thus Wolfensohn's ten-year term was marked by a lot of energy and effort to introduce change. The organization became more decentralized, with a younger and less experienced staff, but not fundamentally different. It was a still a bank lending money for development, in accordance with the systems that McNamara had put in place almost forty years before.

Wolfensohn did have a vision for the organization as an organization dedicated to relieving poverty, but failed to put in place the management systems that would support and reinforce that vision.

Paul Wolfowitz: 2005-2007: New blood from outside

As a leading neoconservative, and Deputy Secretary of Defense, Paul Wolfowitz was a major architect of President Bush's Iraq policy and its most hawkish advocate. His appointment as president of the World Bank was controversial.

Wolfowitz arrived with a change agenda to move the organization towards a more conservative stance. He tried to do this by bringing on board some of his neoconservative lieutenants as managers. By and large, the organization, which has no tradition like the US government of bringing in new managers from outside, responded like an immune system reacting to invading pathogens.

In effort to identify and put an end to corruption, Wolfowitz brought on two US nationals formerly with the Bush administration, whom he appointed as close advisors to flush out fraud. Their work proved divisive.

Another appointee ran into problems when he tried change policies on family planning and climate change towards a conservative line.

After serving a tumultuous two years, Wolfowitz resigned, following revelation of a promotion that he had arranged for his companion. Obviously, a personal scandal brings any change effort to a screeching halt.

After the tumult of the brief Wolfowitz era, Zoellick's calm tenure with no bold moves was a relief to many. His recent discovery of the World Bank's role in providing data to the world shows how long it can take an incoming president to understand, let alone manage, this intricate organization. As he enters the final year of his five-year term, there is no indication from President Obama as to whether he wants the former Bush hand to stay on. Zoellick has made no statement about his own plans.

Meeting the challenge for the future

As of mid-2011, the World Bank remains a slow-moving traditional hierarchical bureaucracy, with an inward-looking perspective. The mission statement of 1998 dedicating the organization to the relief of poverty is largely unsupported by the management roles, systems and structures which still drive the organization to focus mainly on lending for individual development projects. While filled with talented staff, the organization as a whole is underperforming. It lacks the agility to cope with the diverse challenges that the world now faces.

Overall, the World Bank is desperately in need of a radical change in management. If no change occurs, it will become less and less relevant.

Lessons for the next president

If the next president is to achieve the needed change, he or she should learn from the success of Robert McNamara and the failures of his successors, as well as other successful change efforts in large organizations, such as Alan Mullaly at Ford [F] or even Steve Jobs at Apple [AAPL]:

come with a clear vision of where you want the organization to go and promulgate that vision rapidly and forcefully with leadership storytelling.

communicate horizontally in conversations and stories, not through top-down commands.

Don't start by reorganizing. First clarify the vision and put in place the management roles and systems that will reinforce the vision.

Don't parachute in a new team of top managers. Work with the existing managers and draw on people who share your vision.

_________________

Steve Denning's most recent book is: The Leader's Guide to Radical Management: Reinventing the Workplace For the 21st Century (Jossey-Bass, 2010).

Follow Steve Denning on Twitter @stevedenning

Join the Zurich Gathering For C-Suite Leaders with Steve Denning Zurich Sep 12, 2011

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How Do You Change An Organizational Culture?

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Changing an organization's culture is one of the most difficult leadership challenges. That's because an organization's culture comprises an interlocking set of goals, roles, processes, values, communications practices, attitudes and assumptions. The elements fit together as an mutually reinforcing system and combine to prevent any attempt to change it. That's [...]

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What is delegation? I'm sure you've heard the word 'delegation' bandied around the workplace. But have you ever asked (or thought to yourself) ' what is delegation '? and 'why does it matter?' Here's a short answer

What is delegation? The short answer!

Delegation (in a people management context) happens when you give one of your staff members a task (or part of a task) to complete which, currently, you undertake

When delegation works successfully three things happen:

You are allowed the time and space to do the most important parts of the job really well.You do the work only you can do

Your staff members take charge of some work which develops their ability and potential

Delegation is a key tool in the effective management of time, people and resources yet managers are often reluctant to delegate. Why? Because;

Sound familiar? OK, then let me ask you a question (with thanks to Stephen Covey)

What is Delegation: A Key Question
'What are the activities that you know would get you great results - if only you had time to do them?'
Would your answers be anything like these (from the managers I've recently been working with in a London PR firm):

What is Delegation: Identifying 'High Value Activities'

Thinking / reflecting / challenging so driving improvements

Proactive - developing contactsso gaining more new business

Building better relationships with staff

Debriefingso identifying better working practices / learning

Networkingso generating more new business

This list is what those managers called 'High Value but Low Time Activities'. They could see that these activities would get them great results but they were struggling to find the time to undertake those activities. When we want to answer the question ' what is delegation '? we need to understand the 'why' of delegation...

Why Delegate - A Simple Principal

Here's a simple principal. If you want to focus more on the types of activities that will get you great results - high value activities - you've just got to find yourself some extra time. A very effective way to gain yourself that time is by delegating some of the work you currently undertake. And, of course, delegation not only gains you time but also (done well) it improves employee performance and satisfaction

No we have answered 'what is delegation' we can ask - is it now time to delegate?

Would you like to learn - In just 10 minutes! - some new strategies for how to delegate?

Then why not take a look at my kindle book 'Learn in Just 10 Minutes...How to Delegate. A step-by-step guide to effective delegation'

'I would recommend this book to all new managers who want to learn how to delegate and experienced managers who want a quick refresher' (Nora K)

This book is for managers who want a proven step-by-step guide to effective delegation - and who only have 10 minutes to read it! Check it out on Amazon HERE

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What is delegation? I'm sure you've heard the word 'delegation' bandied around the workplace. But have you ever asked (or thought to yourself) ' what is delegation '? and 'why does it matter?'

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Learn About Max Weberâ€™s Theory of Bureaucracy - Online MBA, Online MBA Courses, Max Weber, theory of Bureaucracy, Fixed division of labor, Hierarchy of offices

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Strategic Planning is a comprehensive process for determining what a business should become and how it can best achieve that goal.

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In his book Innovation and Entrepreneurship, Peter Drucker made this observation about industries that rely on knowledge-based innovation: "For a long time, there is awareness of an innovation about to happen....Then suddenly there is a near-explosion, followed by a few short years of tremendous excitement, tremendous start-up activity, tremendous publicity....Later comes a 'shakeout,' which few survive."

The problem, Drucker argues, is that knowledge-driven innovations are "almost never based on one factor but on the convergence of several different kinds of knowledge." The initial breakthrough generates a spate of activity, but meaningful progress occurs only after all the pieces are in place.

I cannot attest to the scientific merit of Drucker's claim, but I consider it to be a remarkably accurate description of the field of strategy. In its early days strategy was a loose affair. Content originated either from commonsense approaches such as SWOT analysis or from frameworks like the Boston Consulting Group's growth-share matrix. In 1979, however, Michael Porter's five forces model changed the field forever. It masterfully synthesized the practical implications of economic research on industrial organizations from the 1960s and 1970s. Knowledge-based innovation put strategy on the map as a field of study, virtually overnight. Competitive Strategy, Porter's practitioner-oriented book, became an enormous success.

Porter's ideas generated immediate excitement. They prompted interest from researchers in other fields and the establishment of the Strategic Management Society and the peer-reviewed Strategic Management Journal. A flurry of papers made informally reasoned claims about the causes of persistent performance differences across firms. Theories such as the resource-based view, dynamic capabilities, and transaction-cost economics appeared, and an avalanche of empirical work quickly followed. Another seminal concept, though not as popular with practitioners as Porter's proved to be, came in 1996, when Harvard Business School's Adam Brandenburger and Harborne Stuart Jr. proposed "value-based business strategy." That work has bred an extensive body of literature on strategy by mathematical economists.

From that backdrop, a general model of competitive strategy, which I call the value capture model (VCM), has emerged. It uniquely applies the mathematical concept of cooperative game theory to research on business strategy. ("Cooperative" is a misnomer, as the math focuses on competitive dynamics.) As such, the VCM has an explanatory, predictive potential that no other theory of competitive strategy, including Porter's, can claim. The model is a work in progress, but scholars are starting to use it to explain the dynamics of competition and to identify practical implications for strategic decision making. At the VCM's core is this axiom: "The value that any party can capture from engaging in transactions with a given set of parties is bounded by the value each of them can add to parties outside the set."

In this article I will explain the axiom and its implications for how we need to think about strategy.

Redefining Competition: From Five Forces to One

In most industries, a firm, its suppliers, and its customers all have choices about how and with whom they create value. To produce more value, they may change how they engage in transactions with existing suppliers and customers or may switch to other suppliers and customers. Those agents, in turn, have similar alternatives in how they transact with the original firm and with their own suppliers and customers.

That reality suggests a formal definition of competitiveness that applies equally to all the firms, suppliers, and customers in an industry: a tension between the value generated from transactions that a firm undertakes with a given set of agents and the forgone value it could have generated from transactions with other agents. That definition enables you to assign formal identities to the agents involved; to place them in a mathematical game-theory model; and, with given measures of competitive tension, to examine the payoffs from their investments in resources and capabilities. You can also bring big data-from enormous databases that track consumer behavior and spending, stock prices, company accounts, and so on-to bear on this work. No other current theory of strategy offers the ability to model the effect of strategic decisions so precisely or to use data to test hypotheses about what kinds of management processes or investments improve a given firm's ability to capture value in its industry. (See the sidebar "Strategy's Missing Link.")

The first generation of strategy scholars after Michael Porter raised many interesting questions yet did not move much beyond relatively informal reasoning. Lacking a complementary body of unambiguous, analytically sophisticated theory, empirical researchers were unable to discover more than broad correlations between firm performance and the variables thought to be related to it. The inability to identify causal relationships or define general principles about firm performance in the face of competition reduced the field to a perpetual "in search of excellence" syndrome, with one "next big idea" giving way to another.

The field lacked a general mathematical model capable of synthesizing and refining the jumble of early theoretical ideas. Why the lack of convergence? The real-world causes of persistent performance heterogeneity are complex, subtle, and difficult to articulate. A mathematical model that captures highly interactive, dynamic competitive environments-with realistic constraints on agents' rationality-is a tall order. It was not obvious precisely which mathematical techniques were up to the task, nor was there a critical mass of mathematically trained theorists who were up to the job.

Contrast this state of affairs with what was happening in finance, where many technologies converged at once. Finance was revolutionized in the 1970s by the introduction of the (mathematical) capital-asset-pricing model and the Black-Scholes-Merton option-pricing model. Virtually simultaneously, the Center for Research in Security Prices database was established. A healthy interplay between theory and empirical verification quickly arose, creating a robust, general understanding of variation in returns on stocks and their derivatives. That led to refinement of models that boast explanatory accuracy of well over 90%. Similar progress was made in operations science and in some areas of marketing science.

In 1996 Adam Brandenburger and Harborne Stuart Jr. uncovered the missing mathematical link in the field of strategy: Cooperative game theory could be applied effectively in studying competitive dynamics. Built on that finding, the value capture model (VCM) of competition allows you to identify potential payoffs to investments in resources and capabilities, bolstered by the power of big data. The field of strategy is now on the cusp of a productive interplay between theory and data, just as we have seen in finance, with all the value-creating possibilities that such progress portends.

The VCM model differs from Porter's framework in two significant ways. First, Porter defines the opportunities of a firm largely by the power that other agents may or may not have over it (buyer power, supplier power, threat of entry by new agents, threat of substitute products brought by existing or other agents, and rivalry from other similar firms). The idea that other agents might compete for the firm remains buried as a moderating factor of each agent's power over that firm. By bundling competition with different types of players, Porter creates unnecessary complexity. The VCM definition, by contrast, has only one force of competition that works transparently in multiple directions: Suppliers compete for firms, and vice versa; firms compete for customers, and vice versa. In sum, each player in an industry (whether a firm, a customer, or a supplier) experiences a single force of competition for itself. The intensity of that force is measured by the tension between the value the player creates with a given set of parties and the value it could create with others. The greater the alternative value relative to the value actually created, the greater the intensity. The relative intensities of the force determine how much value each player stands to win.

Second, the VCM makes a clear distinction between the value created by the transactions of market participants and the value appropriated by each participant. To be sure, a VCM analysis relies on the former to derive implications about the latter, but the distinction is crucial. Again, Porter buries the distinction so deeply that it is almost lost. Indeed, many people perceive his framework (probably unfairly) as a value-appropriation model, which may explain why many competing informal theories of strategy (such as Christensen's disruptive innovation or Kim and Mauborgne's blue ocean strategy) emphasize value creation rather than value appropriation.

From Value Chain to Value Network

The VCM offers a new way for practitioners to map a firm's competitive landscape. Traditionally, and certainly in Porter's framework, value is seen as the product of a chain of activities: A firm takes material from suppliers, adds some value, and sells a product to customers. It haggles with suppliers and customers over price, and its profitability depends on the appeal of its value-price proposition to customers relative to that of other companies.

The VCM framework replaces the firm's value chain with what I call a value network map -essentially, a productive social network with linkages defined by actual and potential transactions. The map has two major components, as shown in the exhibit "A Different View of Value Appropriation." The first is the firm's value network, which comprises the agents (typically, suppliers and customers) who conduct actual, value-creating transactions with the firm. If no opportunities to create value exist beyond the network itself, there is no competition. Competition renders undeniable certain claims on the value produced. Without competition, the parties are left haggling among themselves, each attempting to persuade the others of the value they merit.

A value network map illustrates the relationship among the players involved in creating and delivering a product or service: a firm, its suppliers, and its customers.

How a Value Network Map Works

Value creation is traditionally conceived as a chain of activities. Instead, think of a value network-one in which a firm, its suppliers, and its customers engage in transactions that create a given amount of value (represented by the pie at the center of the network). How much value each player captures depends on the level of interest in each player from parties outside the network (the competitive periphery) and on how well a given player persuades others in its network to part with value.

Amazon's Early Value Network

In the early days of online book retailing (1994-2001), Amazon's value network comprised the company, its suppliers (publishers), and its customers. Amazon's customers had other places to buy books, most notably from Barnes & Noble online. Those customers were therefore guaranteed a hefty slice of the value pie. But because Amazon dealt with everybody who wanted to deal with it, no unsatisfied demand for Amazon's services remained. Therefore, Amazon was not guaranteed a slice of the pie; the best it could hope for was to appropriate a share of the meager amount left over by competition.

Competition arises from the second component of the value network map: agents outside the network that wish to transact with agents inside the network but that, for some reason, are not currently allowed to engage in such activity. For example, suppose that manufacturer A wants to sell through retail outlet B, but scarce shelf space prevents the transaction from occurring. In the VCM, the collection of all such agents is the value network's competitive periphery. When agents in the periphery wish to transact with a firm, that firm's capture of the value created by the network is likely to increase. That's because if the firm is offered too little in return for its activities within the network, it can choose to cut its transactional ties and form a new network with agents in the periphery.

Who occupies the competitive periphery? All the entities identified by Porter are certainly there: A firm's rivals offer alternative opportunities to its suppliers and its customers, as do potential entrants and substitute firms in nearby industries. That reality erodes the firm's ability to appropriate value, as Porter emphasized. But the periphery also includes the rivals of current suppliers and customers (those the firm does not deal with now but could) and potential entrants and firms from nearby industries. The credible threat to replace a supplier or customer with a well-poised substitute increases the firm's appropriation from its suppliers and customers.

Consider Amazon in the early years of online book retailing (1994-2001), when it experienced persistent losses despite rapid sales growth and revolutionary technology. (See the exhibit "A Different View of Value Appropriation.") Any buyer who cared to transact with Amazon could do that, so Amazon's competitive periphery (the agents that might compete for it) was empty. Interestingly, this problem stemmed directly from Amazon's innovation: The shift from brick-and-mortar to online retailing effectively eliminated capacity constraints. For example, I was an early Amazon customer, as it was a terrific source of mathematics monographs not typically stocked by its brick-and-mortar rivals. I never had to stand in line to buy a book, put in a bid for a limited customer slot, or worry that another Amazon enthusiast might jostle me out of my relationship with the company.

To make matters worse, the online arm of Barnes & Noble happily offered Amazon's customers alternative transactions of comparable value. Back then, so little differentiation between the online book retailers existed that small price discrepancies could induce switching within seconds, a few mouse clicks away. Thus, the periphery of the buyers provided strong competition for them. Not surprisingly, markups for Amazon's service were low, allowing customers to appropriate the lion's share of the value in the market at that time.

Factoring In the Strategic Decision

So far, my description of the VCM has focused on variables beyond the control of individual firms-specifically, the agents in their existing value networks and the degree of competition for those agents as determined by the presence of alternative network partners. But those variables rarely dictate the exact value a firm ends up capturing. Rather, they set an upper and a lower limit for the share of value in a network that a firm can capture. Although the effects of competition can sometimes be subtle, the intensity of competition for the firm's partners in the network determines the upper boundary, and the intensity of competition for the firm dictates the lower boundary.

The value actually captured is, of course, a consequence of the firm's strategic decisions. We all intuitively know that firms can affect competitive opportunities and outcomes through their choices about which capabilities and resources to invest in. Formal applications of cooperative game theory mathematics to VCM-type strategy models not only confirm that intuition but also allow us to understand and predict how strategic decisions affect outcomes. That's where the VCM's distinction between value creation and value appropriation becomes important.

A firm's strategic investments in capabilities and resources can be measured on two dimensions: the effect of the capabilities and resources on the actual and potential value that partners in a network create, and the extent to which they enhance the ability of a firm to pry value from its transaction partners. Resources and capabilities that influence value, whether actual or potential, are deployed with competitive intent. By contrast, resources and capabilities developed to persuade a firm's transaction partners to give up value, beyond what competition dictates, are deployed with persuasive intent.

Typically, a firm uses competitive capabilities and resources to increase the range of value (the minimum, the maximum, or both) that is available for capture, consistent with the competitive intensities of its situation. So a deployment of resources that drives a minimum value up to the level of a maximum value benefits the firm, especially if its persuasive resources are weak. Competitive resources are usually easy to identify. A firm's products and services, productive assets, innovation skills, and customer service quality all affect the value that the firm creates within its network and that it could create with agents in its competitive periphery.

Advertising is also competitive: It may be designed to increase customers' willingness to pay for the firm's own product (by enhancing brand image, for instance) or to reduce customers' willingness to pay for a competitor's product, thereby weakening competition for the customers from entities in their peripheries. Such activity usually increases a firm's maximum capturable value. Alternatively, comparative advertising may increase the willingness to pay of potential buyers who are not current customers of the firm, thereby intensifying competition for the firm from the periphery and increasing the firm's minimum capturable value.

In practice, ads are often designed to achieve both effects. For instance, when General Motors touts its OnStar service in an advertisement and points out that other automakers don't offer it, the company is aiming to increase the attractiveness of its cars and decrease that of its rivals' vehicles. Similarly, ads for a sleep aid that mention the product is "not habit-forming" provide a not-so-subtle dig at rival products.

Persuasive resources and capabilities become relevant when competitive intensity is sufficiently loose to create a gap between a firm's minimum and maximum levels of capturable value. In such situations, a firm may make investments in resources and capabilities to get network partners to relinquish value; such activity may even be the prime driver of profits. For example, car dealers often use elaborate sales techniques to get buyers to part with value.

To see how these types of resources come together, consider Apple, whose own foray into online sales yielded a very different outcome from Amazon's. Apple launched iTunes in 2001, and by 2010 it was the largest global music vendor. According to some estimates, the company earned a 30% gross margin on $1.4 billion in iTunes revenue for 2011.

When it comes to physical goods, like those sold by Apple, firms can use capacity as a competitive resource to keep their peripheries populated by limiting the number of agents with which the firm can transact. For example, Apple limited the supply of iPods when it introduced them in 2001 and thereby ensured competition for itself. The proprietary iTunes song format also linked the scarcity of Apple's physical devices to its digital content, and the appeal of the design of Apple's products kept buyers unusually loyal. The buyers' own peripheries were populated with other digital music and device providers, but loyalty to Apple lowered the relative value of transacting with them, thereby weakening competition for Apple's customers. The complementary nature of Apple's product ecosystem has been much discussed; in VCM terms, the increased value from the iTunes store, particularly for buyers with multiple Apple devices, and the weakening of Apple's competitive periphery increased the company's maximum value available for capture.

The stories of Amazon and Apple illustrate an important contrast. In Amazon's case, book suppliers shipped physical products that were limited in number through a distributor with more or less unlimited transaction capacity. In Apple's case, the content suppliers provided licenses for music, an activity with no inherent capacity, so the suppliers' commitments to keep their peripheries populated were not credible. Meanwhile, Apple capped distribution by tying its digital content to its own products using proprietary file formats.

Apple established some distance between its minimum and maximum quantities of capturable value, and its persuasive resources also came into play. Persuasive resources get a firm's transaction partners to relinquish value beyond the amount proscribed by competition. One way to achieve this aim in a mass retail market is to control pricing at the point of sale, which permits the firm to make credible take-it-or-leave-it offers to its buyers. That technique unravels when it becomes economically attractive for buyers to haggle, as with big-ticket purchases like cars, or if the gap between the minimum and the maximum appropriable value decreases. Indeed, Amazon's control of the point of sale had little advantage because the similarity of Barnes & Noble's online offering kept the gap very narrow.

Quantifying the Outcome

The exact effects of strategic choices on a firm's value network and competitive periphery are hard to predict. But armed with a VCM-based mathematical model, managers can estimate those effects more precisely. Indeed, in the VCM model, a firm's minimum and maximum value-appropriation levels (defining the range of value the firm can capture) are the solutions to problems in linear programming, a very well understood analytical technique that can be conducted in Excel.

A useful real-world example comes from a case study, which I am coauthoring, on Evan Kristen Specialty Foods (EKSF). In it, a venture capitalist must evaluate a business plan from EKSF, a start-up that plans to sell washed, de-stemmed, fresh herbs in the produce section of retail grocery stores year-round. EKSF aims to create a value network with nontraditional participants. Those include FedEx as the distributor (bypassing standard produce warehousing and shipping requirements), original equipment manufacturers as suppliers of custom processing equipment and in-store refrigerated displays, the maker of an IP-protected shipping refrigerant, an in-house staff of retail merchandisers (unheard of in produce), and a collection of growers in a location amenable to year-round production, near Watsonville, California.

Standard industry rules of thumb do not apply in this unusual scenario. The VCM, however, allows the venture capitalist to assess competitive intensity for all players in EKSF's innovative value network. Comparing the resulting analysis with the financial projections in the business plan enables the potential investor to distinguish the amount of projected profit, given the predictable competition, from the amount that would come from persuasive resources. (Investors usually perceive profits locked in by competitive forces as less risky.)

The analysis provides insight into the balance and evolution of competitive intensities affecting all the agents in the value network. Tight capacity constraints for the start-up imply strong competition for it from customers in its competitive periphery. Upstream, the periphery is essentially empty for several of the nontraditional suppliers mentioned above, as it is (on the supply side) for EKSF. In other words, EKSF and the suppliers have no alternative but to form a network with each other.

However, a medium-term threat emerges, just as the venture capitalist is thinking about an exit strategy. Specifically, the VCM reveals that if EKSF succeeds, the efficacy of its innovative value network will be proven, and the competitive peripheries of its unusual suppliers will fill up more quickly than its own, thereby squeezing profits. Planning for that possibility is therefore important, and that means acquiring a patent license from the refrigerant supplier. Strategy is a complex domain, and social science progresses in fits and starts. Therefore, it might be a decade before the VCM can provide practitioners with a turnkey managerial tool. Nevertheless, work on the VCM is already revealing important insights for leaders who aim to chart a strategic direction for their firms. If scholars in the field of strategy do succeed in creating a streamlined version of the model with a reasonably full complement of input variables, it will become an important theoretical paradigm. Empirical research findings will then refine the model, which will illuminate the way to better business practices in a virtuous, recursive cycle of discovery and innovation.

A version of this article appeared in the June 2013 issue of Harvard Business Review.

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In his book Innovation and Entrepreneurship, Peter Drucker made this observation about industries that rely on knowledge-based innovation: "For a long time, there is awareness of an innovation about to happen....Then suddenly there is a near-explosion, followed by a few short years of tremendous excitement, tremendous start-up activity, tremendous publicity....Later comes a 'shakeout,' which few survive."

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The idea of management by objectives (MBO), first outlined by Peter Drucker and then developed by George Odiorne, his student, was popular in the 1960s and 1970s. In his book "The Practice of Management", published in 1954, Drucker outlined a number of priorities for the manager of the future. Top of the list was that he or she "must manage by objectives". John Tarrant, Drucker's biographer, reported in 1976 that Drucker once said he had first heard the term MBO used by Alfred Sloan, author of the influential "My Years with General Motors".

With the benefit of hindsight, it may seem obvious that managers must have somewhere to go before they set out on a journey. But Drucker pointed out that managers often lose sight of their objectives because of something he called "the activity trap". They get so involved in their current activities that they forget their original purpose. In some cases it may be that they become engrossed in this activity as a means of avoiding the uncomfortable truth about their organisation's condition.

MBO received a boost when it was declared to be an integral part of "The HP Way", the widely acclaimed management style of Hewlett-Packard, a computer company. At every level within Hewlett-Packard, managers had to develop objectives and integrate them with those of other managers and of the company as a whole. This was done by producing written plans showing what people needed to achieve if they were to reach those objectives. The plans were then shared with others in the corporation and coordinated.

Bill Packard, one of the two founders of Hewlett-Packard, said of MBO:

No operating policy has contributed more to Hewlett-Packard's success ... MBO ... is the antithesis of management by control. The latter refers to a tightly controlled system of management of the military type ... Management by objectives, on the other hand, refers to a system in which overall objectives are clearly stated and agreed upon, and which gives people the flexibility to work toward those goals in ways they determine best for their own areas of responsibility.

MBO urged that the planning process, traditionally done by a handful of high-level managers, should be delegated to all members of the organisation. The plan, when it finally emerged, would then have the commitment of all of them. As the plan is implemented, MBO demands that the organisation monitor a range of performance measures, designed to help it stay on the right path towards its objectives. The plan must be modified when this monitoring suggests that it is no longer leading to the desired objective.

One critic claimed that MBO encouraged organisations to tamper with their plans all the time, as and when they seemed no longer to be heading towards their latest objective. Many firms came to prefer the vague overall objectives of a mission statement to the firm, rigid ones demanded by MBO.

After a while, Drucker himself downplayed the significance of MBO. He said:

MBO is just another tool. It is not the great cure for management inefficiency ... Management by objectives works if you know the objectives: 90% of the time you don't.

Management by objectives is now largely ignored. Its once widely used abbreviation, MBO, has been taken over by management buy-out, the purchasing of a company by a group of its managers with the aim of making as much money for themselves as possible.
Further reading
Drucker, P., "The Practice of Management", Harper, New York, 1954; Heinemann, London, 1955; revised edn, Butterworth-Heinemann, 2007

Levinson, H., "Management by Whose Objectives?", Harvard Business Review, July-August 1970

Odiorne, G.S., "Management by Objectives: a System of Managerial Leadership", Pitman Publishing, 1965
More management ideas
This article is adapted from "The Economist Guide to Management Ideas and Gurus", by Tim Hindle (Profile Books; 322 pages; £20). The guide has the low-down on over 100 of the most influential business-management ideas and more than 50 of the world's most influential management thinkers. To buy this book, please visit our online shop.

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The idea of management by objectives (MBO), first outlined by Peter Drucker and then developed by George Odiorne, his student, was popular in the 1960s and 1970s. In his book "The Practice of Management", published in 1954, Drucker outlined a number of priorities for the manager of the future.

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BRITAIN has never been too keen on tying the knot with Europe. It sat aside in the 1950s as Germany, France, Italy and the Benelux countries forged a single market in coal and steel, which became a broader common market. It eventually joined, in 1973, largely because Europe seemed to be where the money was. Britons still think of their relationship with Europe as a transaction. But their feelings about the costs and benefits of membership have changed utterly.

Europe is no longer the thriving economic club that Britain joined 40 years ago. The euro-zone crisis has exposed the lack of dynamism in much of Europe (though Britain itself is hardly booming) and the British also feel sidelined, as countries that use the single currency are pulled more tightly together. Britons have come to associate the EU with the uncontrolled immigration of Poles and other east Europeans, seemingly to every village. Although many political leaders are determined to stop it happening, a British exit from Europe is coming to seem ever more possible.
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If Britain falls out of the EU, it may find itself completely outside the single market. It might try to stay in the European Economic Area (EEA), a free-trade club that also includes Iceland and Norway. Or it could leave both the EU and the single market, but attempt to recreate a free-trade relationship through bilateral agreements. In this article we explain what each would mean for British business and the economy. But, first, how could an exit happen?
Almost by accident
The likeliest trigger is a referendum. David Cameron, Britain's prime minister, is under enormous pressure to call one from his own Conservative Party, which dominates Britain's coalition government. Last year 81 Tory MPs voted for a referendum on Britain's EU membership. "It's moved very fast," says John Redwood, a veteran critic of the EU. "People used to call me an extreme Eurosceptic. Now I'm a moderate."

Truly fervent Eurosceptics seek a referendum because they want to quit the EU. Other Tories want one to spike the guns of the UK Independence Party (UKIP), which campaigns for an exit. UKIP, a once-minor party that came second to Labour in two by-elections on November 29th, takes votes from all parties but most terrifies Conservative MPs. If the party does well in the next European Parliament elections, due in 2014, the pressure on Mr Cameron will increase.

He is already bending. In September the prime minister hinted that Britons might have an opportunity to give "fresh consent" to their country's place in a looser union-a rather fuzzy suggestion that is unlikely to dampen calls for a starker question. Some Tory cabinet ministers now expect the party to include a promise of an "In-Out" referendum on Europe in its 2015 general-election manifesto.

That might persuade Labour to follow suit-which is the second referendum scenario. Although the party is broadly pro-European, some Labour strategists have been urging Ed Miliband, its leader, to promise a referendum all the same, chiefly to pile pressure on Mr Cameron but also to stay on the right side of public opinion. "Whatever our position on Europe, we cannot be seen as the anti-referendum party," a senior Labour figure says.

The third scenario is already in play, thanks to the 2011 European Union Act. Passed by the coalition, this dictates that a referendum must be held on any new EU treaty that shifts power from Westminster to Brussels. The EU is acutely aware of this obstacle, so where treaty change is envisaged, it is trying to focus it as narrowly as possible on the euro zone, of which Britain is not a member. But the EU's creeping claim on its constituents' sovereign powers suggests that this "referendum lock" could be activated. The next treaty change, which could take place in 2015 or 2016, will be the moment for Mr Cameron (if he is re-elected) to try to repatriate some powers from Brussels in the "new settlement" he seeks with Europe. If Britons voted to reject the revised treaty there would be redoubled pressure for a second referendum, on their membership of the European club.

There is a fourth scenario: simple diplomatic miscalculation. A year ago, at a summit where they agreed on a fiscal compact, almost all other EU leaders banded together to sidestep a British veto. If that were to happen again on an issue that Britons care more deeply about, Mr Cameron may face irresistible pressure to call an early referendum.

The early signs are that Britons would opt to push off. YouGov's latest poll on the issue suggests that 49% would vote to leave, whereas only 32% would choose to stay (the rest are unsure). One senior Tory, who wants Britain to stay in, says blankly that it would be impossible to win a referendum at the moment.

The leaders of all three main parties, backed by business and trade unions, could try to woo Britons to Europe. But they would have plenty of opposition, and not just from other MPs. When Britain last voted on Europe, in 1975, every national newspaper except the Morning Star campaigned for an "In" vote. That will not be repeated. Britain's two biggest-selling dailies, the Daily Mail and the Sun -combined circulation, 4.5m-are deeply Eurosceptic.

What would make the vote unpredictable is that Britons cannot have what they really want. If offered a "detached relationship that is little more than a free-trade agreement", according to the same YouGov poll, only 26% would still opt for the exit. The biggest group of respondents, 46%, would accept those looser terms. But continental leaders are unwilling to grant Britain full access to the single market without the costly bits. Germany's chancellor, Angela Merkel, says she dearly wants to keep Britain in the EU-but "as a good partner". In the run-up to a promised referendum, Mr Cameron could win only trifling concessions. That might convince some Britons that life outside the EU would be difficult; but it might equally inflame Eurosceptic opinion and make an "out" vote more likely.

Very well, alone
If Britain walked away entirely-the most extreme scenario-it would quickly see some benefits. The country would no longer have to transfer funds to the EU to subsidise farm incomes or poorer regions. Treasury figures suggest it would be £8 billion ($13 billion) better off each year. Food could become cheaper. Under WTO rules, countries may slash import barriers unilaterally as long as they do not favour some countries over others. Britain could do this for agricultural produce. It would regain control over fishing rights around its coast.

Some irksome regulations could be ditched, too. First to go (if the Tories are in power when Britain leaves) would be the working-time directive. This limits how long people can be at work without a break or a holiday and caps the working week at 48 hours. The scrapping of the EU's agency-worker directive, which gives temporary staff the same rights as regular employees, would be cheered by business, too. Britain would be free to set itself a less exacting target for green-power generation than it is bound to under the EU's renewable-energy directive. That could mean cheaper power.

London's financial district would look to past glories. It thrived as an offshore centre for deposit-taking and loan-making in dollars long before Britain joined the EU. Outside the club, it would be freer to market itself as a freewheeling hub for emerging-market finance-a sort of Singapore on steroids. Free of the obligation to abide by ever-changing EU rules on alternative investments, hedge funds that have left London might be lured back. The burden of impending European Solvency 2 regulations on the insurance industry would become less onerous.

Yet a bonfire of regulations would smoulder rather than blaze. Domestic and global commitments to greenery constrain Britain's energy policy, for example. And EU regulations bite less hard than is commonly supposed. Britain already has one of the most flexible labour markets in the rich world (employees can opt out of the 48-hour week). This helps to explain why the unemployment rate is as low as in America or Canada, despite a more sluggish economy.

Product regulations would be harder to junk than labour laws. The British suppliers to Airbus, the Franco-German aircraft manufacturer, have to comply with exacting standards. But these exist not because of meddling by Brussels, but to ensure aircraft are safe. Similarly, a minimum standard of food safety stops a race to the bottom by competing firms. British ones would still have to observe Europe's product regulations in order to export there. A separate set of regulations tailored for the home market would only add to red tape.

That goes for the City, too. Global finance favours common standards, such as the Basel accords on bank capital. And, far from racing to the bottom, countries with large financial sectors are now as likely to create even tougher rules. The Bank of England has hinted that Basel is not strong enough.

And some immediate gains would evaporate as special-interest groups redirected their attention from Brussels to Westminster. British farmers would lose £2.7 billion in EU subsidies once Britain left. They are a noisy lobby group, and it is unlikely that the government would hang on to all that cash. The farming lobby would also try to stand in the way of lowering tariffs on food imported from beyond Europe, potentially depriving the government of a bargaining chip in trade negotiations with big emerging markets such as Brazil and India.

If the benefits of leaving the single market are qualified, what of the costs? The price of exclusion is much smaller than when Britain joined in 1973. Tariff barriers across the world have been steadily lowered in trade deals brokered by GATT and its successor, the WTO. If import tariffs are weighted by the volume of trade in each product, the average faced by exporters from outside the EU into the single market has fallen to around 3%. Exporters routinely have to absorb cost increases of this size caused by a surge in the oil price or a jump in the exchange rate.

Even so, the impact on industries such as food and textiles, where tariffs are much higher than the average, would be far from mild. British dairy exports would incur an import tax of 55% to reach the EU market, with tariffs on some items of more than 200%. Cheddar cheese would face a tariff of €167 per 100kg; the mark-up on Stilton would be €141. Average tariffs on clothing would push up their price in European markets by 12%.

Parts of Britain's car industry would move out. British-based producers would face a 4% tariff on car-equipment sales to the EU, and there would be pressure to impose tariffs on components imported from it. Factories owned by carmakers with plants and supply chains in other parts of the EU would be most at risk. Vital car components might be held up by customs as they leave the continent. A cheap pound and a flexible workforce may not be enough to keep GM in Britain, for instance, even though it sells many cars there.

The calculation would be slightly different for other carmakers. Only a small fraction of the 300,000 cars Jaguar Land Rover makes in Britain are destined for the EU market. A lot of Minis, made in Britain by BMW, are also sold outside Europe, where they attract an import tariff anyway. Much of what distinguishes a Jaguar from a Mercedes is that it is designed and made in Britain (as are lots of components). There would be little benefit, but huge costs to the brand, in shifting production elsewhere. Japanese carmakers would suffer: most of their British output is sold in the EU, says John Leech of KPMG, a consultancy. But they cannot easily switch production to continental factories, and many of their supplies come from Japan. They would stick around longer than many think.

Over time, though, the general drift of business investment would be away from Britain and towards the continent. That goes for finance, too. If London wants to be the regional hub for trading China's currency, it will need to retain its position as the main centre for settling trades of cash and derivatives in euros. Some in Europe resent this: the governor of France's central bank complained this week that euro deals should be done in euroland. Without the shield of single-market rules, London could lose out to rival EU centres.

Financiers from today's rising economic powers, in Asia and Latin America, are keener on access to a European market of 500m than on the light regulation that drew American banks to London in the 1950s and 1960s. TheCityUK, a lobby group, studied 147 siting decisions between 2006 and 2012. It found that more than two-fifths of finance firms gave access to European markets as a core reason for choosing London. Although the single market in financial services is still a work in progress, "passporting rights" entitle investment firms, banks and insurers based in Britain to establish branches or provide services throughout the EEA.

Aerospace is another industry that relies on frictionless trade with the rest of the continent. Britain has the world's largest industry outside America, but it would lose ground to France. The high-tech bits of production, such as the making of carbon-fibre wing spars, could not speedily be replicated elsewhere. But suppliers of basic parts, such as metal brackets, would be vulnerable. Big manufacturers like Airbus prefer to keep supply chains simple. They might sponsor entry by new suppliers in the EU to avoid a customs barrier.

These reallocations of fixed capital would take years or decades. By contrast, Britain and its erstwhile EU partners would have to decide quickly how people on the wrong side of newly erected barriers to the free movement of labour should be treated. Around 2.3m people from EU countries were living in Britain in 2011, up from 1.1m in 2004; around 1.7m Britons have gone the other way. The rights of residency for such migrants would no longer be automatic. Forced repatriation would be damaging to all countries.

The simplest solution would be to offer citizenship to all those resident in Britain at a particular date, in return for a similar offer to Britons living in other parts of Europe. Anticipation of such an amnesty would spur a rush to and from Britain in the run-up to its exit. As the drawbridge eventually rose, businesses would suffer. London's growing tech cluster, as well as the City, relies heavily on the free flow of young workers from other parts of Europe.

Another huge disruption would be to trade beyond Europe. Britain would swiftly have to negotiate bilateral deals with dozens of countries. The experience of Iceland, Liechtenstein, Norway and Switzerland, which make up the European Free Trade Association (EFTA), a club of European refusers loosely linked to the EU, suggests it is usually possible to obtain similar terms to those won by EU negotiators. The EFTA countries tend to rush in behind the EU, though in some cases-South Korea, for example-they go first. But the bigger club can win slightly better terms. "The EU is more powerful than we are," says Didier Chambovey of Switzerland's state secretariat for foreign affairs. A deal with Britain would be top of few countries' priorities.

Britain would have less diplomatic and military clout, too. For the Americans, a Britain that is disengaged from the rest of Europe would be a much less useful and influential ally. For NATO, a Britain that is semi-detached from Europe would weaken the ties that bind the continent and its defence to the United States at a time when those ties are already under strain because of slashed defence budgets and America's strategic "rebalancing" towards Asia. Another likely casualty would be the budding Anglo-French defence treaty, seen by both countries as a way to help themselves continue to punch above their weight.
Viking spirit, or Swiss rules?
Although a complete exit from Europe is certainly possible, few British Eurosceptics want it. They view the common market as a pearl surrounded by a dismal encrustation of European bureaucracy and regulation. What they would really like to do is pull back until Britain's relationship with Europe becomes one based on free trade, with the minimum necessary regulation. In effect, they want to create the kind of Europe that British Conservatives fought to join in the 1970s. Once it became clear that Britain was falling out of the EU, they could grab at two halfway options: a Norwegian one and a Swiss one.

Together with Iceland and Liechtenstein, oil-rich Norway is about as close to the EU as it is possible to be without actually becoming a member. It simply belongs to the EEA. The EU is broadly happy with the arrangement, partly because Norway pays into its coffers (indeed, it pays slightly more per head than Britain). A similar arrangement might well be obtained.

Many businesses would hardly notice the difference. But a few would suffer minor irritation. Although EEA countries are part of the single market, businesses must complete customs and VAT forms when goods are shipped into and out of the EU. For big companies serving big customers, this is no problem. For smaller ones it can be a nuisance. Moods of Norway, an echt-Norwegian fashion company (its logo is a tractor), has solved the problem by setting up a small subsidiary in Sweden, which is a member of the EU. The subsidiary handles customs clearance for the European boutiques that carry Moods of Norway's clothes. Small, export-oriented British businesses would end up doing the same.

If Britain were to join the Norwegian club, though, it would remain bound by virtually all EU regulations, including the working-time directive and almost everything dreamed up in Brussels in future. Once out of the EU, the country would have little say in the regulations and laws that would continue to bind its industry. It would be consulted by the European Commission but would have no voice in the increasingly powerful European Parliament, and no vote. In Euro-jargon, it would be a decision-shaper, but not a decision-maker.

Officials and lobbyists would frequently be unaware of discussions about legislation that could affect British industry, except at second hand, through officials in a friendly nation. "We take our Scandinavian colleagues out to lunch and ask them what happened," explains Petter Brubakk of NHO, Norway's main business lobby. It would depend on other countries to fight its corner, as Norway now relies on Britain to resist proposed EU legislation on offshore oil-drilling. It would be as though Britain maintained a golden fax machine linked to Brussels, which cost billions of pounds a year to run and from which regulations issued ceaselessly. It could ignore the faxes about farming and fishing: members of the EEA are allowed to run their own agriculture policies. But it would have to obey the others.

The Norwegian option could well fail for domestic reasons. As soon as British MPs learn that Norway has to swallow almost every regulation that comes out of Brussels, despite having virtually no power to shape them, they will waver. When they also learn that Norway has to pay for the privilege, they may reject it outright.

Britain might, however, seek a more distant relationship. It could steer clear of the EEA but join EFTA, which it helped to set up in 1960. Optimistically, it could come to look rather like Switzerland.

Switzerland does business with EU countries through bilateral deals, and by routinely aligning its regulations with those made in Brussels. To an extent, it can pick and choose. In the same position, Britain could drop some irksome labour rules. It could also move to co-operate more, and trade more freely, in some areas than in others. Switzerland has a comprehensive bilateral agreement with the EU covering trade in goods, but no equivalent agreement for financial services.

Switzerland has got into the occasional trade dispute with the EU, over Gruyère cheese for example. Still, for the most part it has secured good access to European markets so far. Its firms have subsidiaries in EU countries through which they can trade freely. And non-membership of the EEA means Switzerland has remained partly aloof from financial regulations emanating from Brussels. But the Swiss have come up with their own, often extremely stringent, financial regulations, partly in fear of losing access to EU customers.

And the country is not beyond the reach of Brussels. The Swiss are currently exercised over several European directives, including those covering finance, chemical factories and the movement of labour. Switzerland is hampered by the lack of an accord with the EU on financial services and by its lack of representation in Brussels. In the broader fight against protectionism and financial over-regulation in Europe, it relies on an informal alliance with another country that also has a big financial-services industry, as well as a valuable seat at the negotiating table: Britain.

In any case, it is unlikely that Britain could get similar treatment. The EU is already trying to muscle Switzerland out of its special niche and into an arrangement more like Norway's, where EU legislation would be speedily taken up by the country. Relations have become more fraught since the EU expanded eastward. The EU used to be a club of Western nations which share a broad culture with Switzerland (many share a border with it, too) and tolerated its peculiarities. The club is now bigger and more bureaucratic, and includes east European countries which were forced to swallow much unpalatable stuff as the price of entry to the club. There is little chance that Britain, a far bigger country with a history of being difficult, would be allowed to squeeze in alongside Switzerland.
And don't come back
No country has ever left the European Union (though Greenland, an autonomous dependency of Denmark's, voted to leave in 1982). The halfway options of Norway and Switzerland were offered largely in hopes of tempting both to become full members one day. Britain would be travelling in the opposite direction, without a map. In this, as in so many other ways, leaving the EU would be a colossal gamble.

The British would doubtless try to negotiate a special deal with their former partners, using the argument that trade benefits both sides and that Britain is itself a large market for many. But the process could take many years (it took a decade for the much smaller Switzerland). Europe might well be more of a fortress with Britain outside. And even the country's closest friends, who would rather keep Britain in to bolster liberal voices inside the EU, would be unlikely to be generous to a country that had chosen to leave.

The most likely outcome would be that Britain would find itself as a scratchy outsider with somewhat limited access to the single market, almost no influence and few friends. And one certainty: that having once departed, it would be all but impossible to get back in again.

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BRITAIN has never been too keen on tying the knot with Europe. It sat aside in the 1950s as Germany, France, Italy and the Benelux countries forged a single market in coal and steel, which became a broader common market. It eventually joined, in 1973, largely because Europe seemed to be where the money was.

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Robert Scoble via Flickr
Last night there was a huge party at the New York Stock Exchange honoring the top 25 multinational corporations (where 40% of a company's workforce is stationed outside its headquarters).

The event was put on by the Great Place to Work Institute, which determined the list by surveying 2.5 million employees from more than 5,500 companies worldwide.

Employees were asked about workplace culture, and how much faith they have in their company.

Guess who's No. 1?
Great Place to Work determined rankings based on the average score from surveys sent to employees. Countries must be mentioned on lists from at least five countries to be considered a best multinational company.

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The 25 Best Multinational Companies To Work For

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Last night there was a huge party at the New York Stock Exchange honoring the top 25 multinational corporations (where 40% of a company's workforce is stationed outside its headquarters). The event was put on by the Great Place to Work Institute, which determined the list by surveying 2.5 million employees from more than 5,500 companies worldwide.

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Introduction

The North American Free Trade Agreement, or NAFTA, is a three-country accord negotiated by the governments of Canada, Mexico, and the United States that entered into force in January 1994. NAFTA's terms, which were implemented gradually through January 2008, provided for the elimination of most tariffs on products traded among the three countries. Liberalization of trade in agriculture, textiles, and automobile manufacturing was a major focus. The deal also sought to protect intellectual property, establish dispute-resolution mechanisms, and, through side agreements, implement labor and environmental safeguards.

NAFTA fundamentally reshaped North American economic relations, driving an unprecedented integration between Canada and the United States' developed economies and Mexico, a developing country. NAFTA enjoyed bipartisan backing-it was negotiated by Republican President George H.W. Bush and passed through Congress and implemented under Democratic President Bill Clinton. It encouraged a more than tripling of regional trade and cross-border investment between the three countries also grew significantly. Yet NAFTA has remained a perennial target in the broader debate over free trade. President Donald J. Trump says the deal has shifted U.S. manufacturing production, and jobs, to Mexico, and in August 2017 his administration reopened negotiations with Canada and Mexico with the aim of reforming it.

How does NAFTA fit into the broader debate over trade policy?

When negotiations for NAFTA began in 1991, the goal for all three countries was the integration of Mexico with the highly developed, high-wage economies of the United States and Canada. The hope was that freer trade would bring stronger and steadier economic growth to Mexico, providing new jobs and opportunities for its growing workforce and discouraging illegal migration from Mexico. For the United States and Canada, Mexico was seen both as a promising new market for exports and as a lower cost investment location that could enhance the competitiveness of U.S. and Canadian companies.

While the United States had completed a free trade agreement with Canada in 1988, the addition of Mexico was unprecedented. Opponents of NAFTA seized on the wage differentials with Mexico, which had a per capita income just 30 percent [PDF] that of the United States. U.S. presidential candidate Ross Perot argued in 1992 that trade liberalization would lead to a "giant sucking sound" of U.S. jobs fleeing across the border. Supporters like Presidents Bush and Clinton countered that the agreement would create hundreds of thousands of new jobs a year, while Mexican President Carlos Salinas de Gortiari saw it as an opportunity to modernize the Mexican economy so that it would "export goods, not people."

NAFTA's goal was the integration of Mexico with the highly developed economies of the United States and Canada.

How has NAFTA affected the U.S. economy?

In the years since NAFTA, U.S. trade with its North American neighbors has more than tripled, growing more rapidly than U.S. trade with the rest of the world. Canada and Mexico are the two largest destinations for U.S. exports, accounting for more than a third of the total. Most estimates conclude that the deal had a modest but positive impact on U.S. GDP of less than 0.5 percent, or a total addition of up to $80 billion dollars to the U.S. economy upon full implementation, or several billion dollars of added growth per year.

Many economists also assert that the recent troubles of U.S. manufacturing have little to do with NAFTA, arguing that manufacturing in the United States was under stress decades before the treaty. Research by David Autor, David Dorn, and Gordon Hanson published in January 2016 found [PDF] that competition with China had a much bigger negative impact on U.S. jobs since 2001, when China joined the WTO. Hanson, an economist and trade expert at the University of California, San Diego, says that the steepest decline in manufacturing jobs, which fell from seventeen million to eleven million between 2000 and 2010, is mostly attributable to trade with China and underlying technological changes. "China is at the top of the list in terms of the employment impacts that we found since 2000, with technology second, and NAFTA far less important," he says.

In fact, says Hanson, NAFTA helped the U.S. auto sector compete with China. By contributing to the development of cross-border supply chains, NAFTA lowered costs, increased productivity, and improved U.S. competitiveness. This meant shedding some jobs in the United States as positions moved to Mexico, he argues, but without the pact, even more would have otherwise been lost. "Because Mexico is so close, you can have a regional industry cluster where goods can go back and forth. The manufacturing industries in the three countries can be very integrated," he says. These sort of linkages, which have given U.S. automakers an advantage in relation to China, would be much more difficult without NAFTA's tariff reductions and protections for intellectual property.

Edward Alden, a senior fellow at the Council on Foreign Relations, says anxiety over trade deals has grown because wages haven't kept pace with labor productivity while income inequality has risen. To some extent, he says, trade deals have hastened the pace of these changes in that they have "reinforced the globalization of the American economy."

How has it affected the Mexican economy?

NAFTA gave a major boost to Mexican farm exports to the United States, which have tripled since NAFTA's implementation. Hundreds of thousands of auto manufacturing jobs have also been created in the country, and most studies have found [PDF] that the pact had a positive impact on Mexican productivity and consumer prices.

The pact was the continuation of a decade of economic liberalization that saw the country transition from one of the world's most protectionist economies to one of the most open to trade. Mexico had reduced many of its trade barriers upon joining the General Agreement on Tariffs and Trade (GATT), the precursor to the WTO, in 1986, but still had a pre-NAFTA average tariff level [PDF] of 10 percent.

Mexican policymakers saw NAFTA as an opportunity to both accelerate and "lock in" these hard won reforms to the Mexican economy. In addition to liberalizing trade, Mexico's leaders reduced public debt, introduced a balanced budget rule, stabilized inflation, and built up the country's foreign reserves. Thus while Mexico was hard hit [PDF] by the 2008 U.S. recession due to its dependence on exports to the U.S. market-in 2009 Mexican exports to the United States fell 17 percent while its economy contracted by over 6 percent-its economy was able to bounce back relatively quickly. Mexico returned to growth in 2010, its GDP expanding over 5 percent, and subsequently falling to around 2 percent in 2014 and 2015.

But Mexico's NAFTA experience has suffered from a disconnect between the promises of some of its supporters-that the pact would deliver rapid growth, raise wages, and reduce emigration-and the deal's more mixed outcomes. Between 1993 and 2013, Mexico's economy grew at an average rate of just 1.3 percent a year during a period when Latin America was undergoing a major expansion. Poverty remains at the same levels as in 1994. And the expected "wage convergence" between U.S. and Mexican wages didn't happen, with Mexico's per capita income rising at an annual average of just 1.2 percent in that period-far slower than Latin American countries such as Brazil, Chile, and Peru.

Mexican unemployment also rose, which some economists have blamed on NAFTA for exposing Mexican farmers, especially corn producers, to competition from heavily subsidized U.S. agriculture. A study led by CEPR economist Mark Weisbrot estimates that NAFTA put almost two million small-scale Mexican farmers [PDF] out of work, in turn driving illegal migration to the United States. (Migration to the United States, both legal and illegal, more than doubled after 1994, peaking in 2007. However, the flow reversed after 2008 as more Mexican-born immigrants began leaving the country than arriving. Experts attribute this to stricter border enforcement, changing demographics in Mexico, and the combination of fewer available jobs in the United States along with more in Mexico.)

Many analysts explain these divergent outcomes by pointing to the " two-speed" nature of Mexico's economy, in which NAFTA drove the growth of foreign investment, high-tech manufacturing, and rising wages in the industrial north, while the largely agrarian south remains detached from this new economy. As University of Pennsylvania economist Mauro Guillen argues, Mexico's rising inequality stems from NAFTA-oriented workers in the north gaining much higher wages from trade-related activity.

Ultimately, many experts caution, Mexico's recent economic performance has been affected by many non-NAFTA factors. The 1994 devaluation of the peso drove Mexican exports, while competition with China's low-cost manufacturing sector [PDF] likely depressed growth. Unrelated public policies, such as land reform, made it easier for farmers to sell their land and emigrate. As UCSD's Hanson has argued [PDF], Mexico's struggles have largely domestic causes: poorly developed credit markets, a large and low-productivity informal sector, and dysfunctional regulation.

What impact has it had on Canada?

Canada has seen strong gains in cross-border investment in the NAFTA era: Since 1993, U.S. and Mexican investments in Canada have tripled. U.S. investment, which accounts for more than half of Canada's FDI stock, grew from [PDF] $70 billion in 1993 to over $368 billion in 2013.

However, the most consequential aspect for Canada-opening its economy to the U.S. market, by far Canada's largest trading partner-predated NAFTA, with the 1989 entry into force of the Canada-U.S. Free Trade Agreement (CUSFTA). Overall Canada-U.S. trade increased rapidly in the wake of Canada's trade liberalization. Post-NAFTA, Canadian exports to the United States grew [PDF] from $110 billion to $346 billion, while imports from the United States grew by almost the same amount.

Agriculture, in particular, saw a boost. Canada is the leading importer of U.S. agricultural products, and one of NAFTA's biggest economic effects for Canada has been to increase bilateral U.S.-Canada agricultural flows. Canadian agricultural trade with the United States more than tripled since 1994, as did Canada's total agriculture exports to NAFTA partners.

Neither the worst fears of Canada's trade opponents-that opening to trade would gut the country's manufacturing sector-nor its highest hopes-that it would spark a rapid increase in productivity-came to pass. Canadian manufacturing employment held steady, but the "productivity gap" between the Canadian and U.S. economies wasn't closed: Canada's labor productivity remains at 72 percent [PDF] of U.S. levels.

What's next for NAFTA?

In May 2017, President Trump made good on his campaign promise to renegotiate NAFTA, officially informing Congress that talks would be reopened with Canada and Mexico. The three countries kicked off formal negotiations in August 2017, stating that they hope to conclude them by early 2018, before Mexican presidential elections in July of that year. While details of the talks are classified, the Trump administration has said it will focus on reducing the U.S.-Mexico trade deficit, tightening rules-of-origin requirements, reforming the investor-state dispute resolution mechanism, and updating the pact to include digital services and intellectual property. Even as negotiations proceed, Trump has reiterated his threat to withdraw the United States altogether.

Among policy experts, much of the debate has centered on how to mitigate the negative effects of deals like NAFTA, whether by compensating workers who lose their jobs or providing worker retraining programs to help them transition to new industries.

There are pockets that have felt lots of pain. The existence of those pockets highlights our policy failures.

Professor Gordon Hanson,

In particular, expanding the federal Trade Adjustment Assistance (TAA) program, which helps workers pay for education or training to find new jobs, could help quell anger directed at trade liberalization. Introduced in the 1960s, TAA was cut sharply in the 1980s, and many economists argue that its current funding levels are far from sufficient to address the increase in trade-related job losses. "There are pockets that have felt lots of pain," says UCSD's Hanson. "The existence of those pockets highlights our policy failures in helping regions and individuals adjust to the impact of globalization."

Another policy pressed by some economists, as well as by President Obama, is expanded wage insurance, which would guarantee laid-off workers a portion of their previous salaries for a set period, usually several years. Such insurance would be especially relevant for many older workers who may struggle to find work in new industries without taking a steep pay cut.

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The North American Free Trade Agreement, or NAFTA, is a three-country accord negotiated by the governments of Canada, Mexico, and the United States that entered into force in January 1994. NAFTA's terms, which were implemented gradually through January 2008, provided for the elimination of most tariffs on products traded among the three countries.

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The Hawthorne effect is named after what was one of the most famous experiments (or, more accurately, series of experiments) in industrial history. It marked a sea change in thinking about work and productivity. Previous studies, in particular Frederick Taylor's influential ideas, had focused on the individual and on ways in which an individual's performance could be improved. Hawthorne set the individual in a social context, establishing that the performance of employees is influenced by their surroundings and by the people that they are working with as much as by their own innate abilities.

The experiments took place at Western Electric's factory at Hawthorne, a suburb of Chicago, in the late 1920s and early 1930s. They were conducted for the most part under the supervision of Elton Mayo, an Australian-born sociologist who eventually became a professor of industrial research at Harvard.

The original purpose of the experiments was to study the effects of physical conditions on productivity. Two groups of workers in the Hawthorne factory were used as guinea pigs. One day the lighting in the work area for one group was improved dramatically while the other group's lighting remained unchanged. The researchers were surprised to find that the productivity of the more highly illuminated workers increased much more than that of the control group.

The employees' working conditions were changed in other ways too (their working hours, rest breaks and so on), and in all cases their productivity improved when a change was made. Indeed, their productivity even improved when the lights were dimmed again. By the time everything had been returned to the way it was before the changes had begun, productivity at the factory was at its highest level. Absenteeism had plummeted.

The experimenters concluded that it was not the changes in physical conditions that were affecting the workers' productivity. Rather, it was the fact that someone was actually concerned about their workplace, and the opportunities this gave them to discuss changes before they took place.

A crucial element in Mayo's findings was the effect that working in groups had on the individual. At one time he wrote:

The desire to stand well with one's fellows, the so-called human instinct of association, easily outweighs the merely individual interest and the logic of reasoning upon which so many spurious principles of management are based.

Later in life he added:

The working group as a whole actually determined the output of individual workers by reference to a standard that represented the group conception (rather than management's) of a fair day's work. This standard was rarely, if ever, in accord with the standards of the efficiency engineers.

Fritz Roethlisberger, a leading member of the research team, wrote:

The Hawthorne researchers became more and more interested in the informal employee groups, which tend to form within the formal organisation of the company, and which are not likely to be represented in the organisation chart. They became interested in the beliefs and creeds which have the effect of making each individual feel an integral part of the group.
Further reading
Gillespie, G., "Manufacturing Knowledge, A History of the Hawthorne Experiments", Cambridge University Press, 1991

Mayo, E., "The Human Problems of an Industrial Civilisation", Macmillan, 1933; 2nd edn Harvard University, 1946

Mayo, E., "The Social Problems of an Industrial Civilisation", Routledge and Kegan Paul, 1949; later edn with appendix, 1975

Roethlisberger, F.J. and Dickson, W.J., "Management and the Worker: An Account of a Research Program Conducted by the Western Electric Company, Hawthorne Works, Chicago", Harvard University Press, 1939
More management ideas
This article is adapted from "The Economist Guide to Management Ideas and Gurus", by Tim Hindle (Profile Books; 322 pages; £20). The guide has the low-down on over 100 of the most influential business-management ideas and more than 50 of the world's most influential management thinkers. To buy this book, please visit our online shop.

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The Hawthorne effect is named after what was one of the most famous experiments (or, more accurately, series of experiments) in industrial history. It marked a sea change in thinking about work and productivity. Previous studies, in particular Frederick Taylor's influential ideas, had focused on the individual and on ways in which an individual's performance could be improved.

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Early Management Theory

Today's managers have access to an amazing array of resources which they can use to improve their skills. But what about those managers who were leading the way forward 100 years ago?

Managers in the early 1900s had very few external resources to draw upon to guide and develop their management practice. But thanks to early theorists like Henri Fayol (1841-1925), managers began to get the tools they needed to lead and manage more effectively. Fayol, and others like him, are responsible for building the foundations of modern management theory.

Background

Henri Fayol was born in Istanbul in 1841. When he was 19, he began working as an engineer at a large mining company in France. He eventually became the director, at a time when the mining company employed more than 1,000 people.

Through the years, Fayol began to develop what he considered to be the 14 most important principles of management. Essentially, these explained how managers should organize and interact with staff.

In 1916, two years before he stepped down as director, he published his "14 Principles of Management" in the book "Administration Industrielle et Générale." Fayol also created a list of the six primary functions of management, which go hand in hand with the Principles.

Fayol's "14 Principles" was one of the earliest theories of management to be created, and remains one of the most comprehensive. He's considered to be among the most influential contributors to the modern concept of management, even though people don't refer to "The 14 Principles" often today.

The theory falls under the Administrative Management school of thought (as opposed to the Scientific Management school, led by Fredrick Taylor).

Fayol's 14 Principles of Management

Fayol's principles are listed below:

1. Division of Work - When employees are specialized, output can increase because they become increasingly skilled and efficient.

2. Authority - Managers must have the authority to give orders, but they must also keep in mind that with authority comes responsibility.

3. Discipline - Discipline must be upheld in organizations, but methods for doing so can vary.

4. Unity of Command - Employees should have only one direct supervisor.

5. Unity of Direction - Teams with the same objective should be working under the direction of one manager, using one plan. This will ensure that action is properly coordinated.

6. Subordination of Individual Interests to the General Interest - The interests of one employee should not be allowed to become more important than those of the group. This includes managers.

7. Remuneration - Employee satisfaction depends on fair remuneration for everyone. This includes financial and non-financial compensation.

8. Centralization - This principle refers to how close employees are to the decision-making process. It is important to aim for an appropriate balance.

9. Scalar Chain - Employees should be aware of where they stand in the organization's hierarchy, or chain of command.

10. Order - The workplace facilities must be clean, tidy and safe for employees. Everything should have its place.

11. Equity - Managers should be fair to staff at all times, both maintaining discipline as necessary and acting with kindness where appropriate.

12. Stability of Tenure of Personnel - Managers should strive to minimize employee turnover. Personnel planning should be a priority.

13. Initiative - Employees should be given the necessary level of freedom to create and carry out plans.

14. Esprit de Corps - Organizations should strive to promote team spirit and unity.

Fayol's Six Functions of Management

Fayol's six primary functions of management, which go hand in hand with the Principles, are as follows:

Key Points

Henri Fayol's "14 Principles of Management" have been a significant influence on modern management theory. His practical list of principles helped early 20th century managers learn how to organize and interact with their employees in a productive way.

Although the 14 Principles aren't widely used today, they can still offer guidance for today's managers. Many of the principles are now considered to be common sense, but at the time they were revolutionary concepts for organizational management.

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Henri Fayol's Principles of Management: Early Management Theory

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Early Management Theory Today's managers have access to an amazing array of resources which they can use to improve their skills. But what about those managers who were leading the way forward 100 years ago? Managers in the early 1900s had very few external resources to draw upon to guide and develop their management practice.

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Most managers accept that employers benefit from a diverse workforce, but the notion can be hard to prove or quantify, especially when it comes to measuring how diversity affects a firm's ability to innovate.

But new research provides compelling evidence that diversity unlocks innovation and drives market growth-a finding that should intensify efforts to ensure that executive ranks both embody and embrace the power of differences.

In this research, which rests on a nationally representative survey of 1,800 professionals, 40 case studies, and numerous focus groups and interviews, we scrutinized two kinds of diversity: inherent and acquired. Inherent diversity involves traits you are born with, such as gender, ethnicity, and sexual orientation. Acquired diversity involves traits you gain from experience: Working in another country can help you appreciate cultural differences, for example, while selling to female consumers can give you gender smarts. We refer to companies whose leaders exhibit at least three inherent and three acquired diversity traits as having two-dimensional diversity.

By correlating diversity in leadership with market outcomes as reported by respondents, we learned that companies with 2-D diversity out-innovate and out-perform others. Employees at these companies are 45% likelier to report that their firm's market share grew over the previous year and 70% likelier to report that the firm captured a new market.

2-D diversity unlocks innovation by creating an environment where "outside the box" ideas are heard. When minorities form a critical mass and leaders value differences, all employees can find senior people to go to bat for compelling ideas and can persuade those in charge of budgets to deploy resources to develop those ideas.

Most respondents, however-78%-work at companies that lack 2-D diversity in leadership. Without diverse leadership, women are 20% less likely than straight white men to win endorsement for their ideas; people of color are 24% less likely; and LGBTs are 21% less likely. This costs their companies crucial market opportunities, because inherently diverse contributors understand the unmet needs in under-leveraged markets. We've found that when at least one member of a team has traits in common with the end user, the entire team better understands that user. A team with a member who shares a client's ethnicity is 152% likelier than another team to understand that client.

Inherent diversity, however, is only half of the equation. Leaders also need acquired diversity to establish a culture in which all employees feel free to contribute ideas. Six behaviors, we have found, unlock innovation across the board: ensuring that everyone is heard; making it safe to propose novel ideas; giving team members decision-making authority; sharing credit for success; giving actionable feedback; and implementing feedback from the team. Leaders who give diverse voices equal airtime are nearly twice as likely as others to unleash value-driving insights, and employees in a "speak up" culture are 3.5 times as likely to contribute their full innovative potential.

These findings constitute a powerful new dimension of the business case for diversity.

A version of this article appeared in the December 2013 issue of Harvard Business Review.

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Most managers accept that employers benefit from a diverse workforce, but the notion can be hard to prove or quantify, especially when it comes to measuring how diversity affects a firm's ability to innovate. But new research provides compelling evidence that diversity unlocks innovation and drives market growth-a finding that should intensify efforts to ensure [...]

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How hiring a gender-diverse workforce can improve a company's bottom line

Men and women have different viewpoints, ideas, and market insights, which enables better problem solving.

Gender diversity is vital to any workplace. Not just because it's a laudable goal; it simply makes bottom-line business sense. If you need proof, look no further than a recent Gallup study, which finds that hiring a demographically diverse workforce can improve a company's financial performance.

The study of more than 800 business units from two companies representing two different industries -- retail and hospitality -- finds that gender-diverse business units have better financial outcomes than those dominated by one gender:

Gender-diverse business units in the retail company have 14% higher average comparable revenue than less-diverse business units (5.24% vs. 4.58%).

Gender-diverse business units in the hospitality company show 19% higher average quarterly net profit ($16,296 vs. $13,702) than less-diverse business units.

And if the gender-diverse business units are also highly engaged, financial performance improves dramatically. Retail units that are diverse and engaged have a 46% higher increase in comparable revenue. Similarly, diverse and engaged units in the hospitality company have a 58% higher net profit than single-gender and less-engaged units. These results show the additive effect of gender diversity and engagement on a company's bottom line.
The advantages of gender-diverse teams
Our research suggests that gender-diverse teams perform better than single-gender teams for several reasons:

Men and women have different viewpoints, ideas, and market insights, which enables better problem solving, ultimately leading to superior performance at the business unit level.

A gender-diverse workforce provides easier access to resources, such as various sources of credit, multiple sources of information, and wider industry knowledge.

A gender-diverse workforce allows the company to serve an increasingly diverse customer base.

Gender diversity helps companies attract and retain talented women. This is especially relevant as more women join the labor force around the world. Companies cannot afford to ignore 50% of the potential workforce and expect to be competitive in the global economy.

For these reasons and others, it makes sense for businesses to make gender diversity a priority.
What companies should do
A key finding of this study is that gender-diverse and engaged business units outperform those that are less diverse and less engaged. Managers not only need to increase gender diversity in business units but also create workplaces that engage employees. Open, trusting, and supportive relationships among coworkers and supervisors unleash the power of diversity by enabling employees to turn their differences in thought, behavior, skills, knowledge, and talent into innovative ideas and practices that can drive a company forward.

Secondly, the study finds that gender diversity varies substantially across business units within a company, which in turn affects the business performance of these units. To achieve the real benefits that diversity can bring, leaders and managers must look carefully at the gender balance in specific business units when designing and implementing a strategy to increase diversity. A blanket policy designed to increase overall gender diversity at a company, for example, is unlikely to achieve the desired results or to increase financial performance.

Making gender diversity a business priority can lead to financial benefits and help a company realize its full potential. To reap the bottom-line benefits that diversity can bring, business leaders must:

Identify business units that are less gender diverse.

Develop a hiring strategy that increases gender diversity in these units without reducing or ignoring merit. For example, studies indicate that when women feel they are hired to fill quotas, it negatively affects relationships between coworkers.

Create an engaged culture that enables men and women to form trusting relationships and motivates them to perform at a high level.

Set inclusiveness goals, and hold managers accountable for diversity.

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The Business Benefits of Gender Diversity

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How hiring a gender-diverse workforce can improve a company's bottom line Men and women have different viewpoints, ideas, and market insights, which enables better problem solving. Gender diversity is vital to any workplace. Not just because it's a laudable goal; it simply makes bottom-line business sense.

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Diversity management is the key to growth in today's fiercely competitive global marketplace. No longer can America's corporations hide behind their lack of cultural intelligence. Organizations that seek global market relevancy must embrace diversity - in how they think, act and innovate. Diversity can no longer just be about making the numbers, but rather how an organization treats its people authentically down to the roots of its business model. In today's new workplace, diversity management is a time-sensitive business imperative.

To better understand this fast-changing terrain, I reached out to three notable diversity executives -- pioneers within their respective industries - to share their insights and perspectives regarding the future of diversity and some of the new best practices that will allow diversity to play a more strategic role in cultivating sustainable business growth:
Make it Real or Lose Your Authenticity
Corporate leaders pay lip service to diversity, but they don't really live it. Diversity is more than employee demographics and support for a few non-profits. You can't buy diversity, and organizations that continue to embrace this approach will tarnish their brand. America is changing, and the new population carefully evaluates how organizations relate to it. If you are not authentic, consumers and employees will begin to question the authenticity and leadership of your organization.

As Rohini Anand says, "The traditional representation perspective originated from the Civil Right era. This will never go away entirely. However, diversity must go beyond this mentality. At Sodexo, diversity is embedded in our brand. The Sodexo brand is synonymous with diversity. Though the Sodexo brand is not a known consumer brand, diversity leadership defines our brand - it's all about talent. Diversity is about responding to the needs of our clients in a holistic way.

And Kathy Hannan adds, "Companies must take a long term strategic approach to engage diverse talent. Companies must define their role in the global marketplace. The train has left the station. You may not be where you want to be with your diversity strategy, but you need to get started!"
How would you grade the authenticity of your diversity business strategy? Executives are Still Short-Sided
I'm reminded of a pre-recession discussion I had with a consumer goods executive who said: "Diversity is another way of saying affirmative action and we are forced to support it in order to protect our brand in the trade and amongst our consumer audience. Diversity has no real value tangible to the growth of our business." Unfortunately, many executives still share this opinion today.

As Rohini Anand says, "Consumer Packaged Goods (CPG) companies have been particularly effective with diversity from a marketing initiative standpoint. However, this is different from embracing diversity holistically. Companies must think about diversity beyond addressing niche needs. Diversity is not just about accessing multicultural markets. Companies must look more broadly to reinvent the way we think about how business is done. How can diversity be pulled out of this commoditized mentality? Diversity leadership must drive innovative perspectives. Companies have not yet figured out how to unlock the potential within markets and processes that must be enabled globally."
Do your top executives still adhere to the traditional rules of the workplace? Has their approach lost its relevancy?
Diversity is much more than just a multicultural issue. Diversity is about embracing many different types of people, who stand for different things and represent different cultures, generations, ideas, and thinking. As Ron Glover says, "Innovation is about looking at complex problems and bringing new views to the table. Diversity has allowed IBM to be innovative and successful for and to work across lines of differences in 172 countries, amongst 427,000 employees."

For example, are you paying attention to the Internet and how online communities continue to grow and represent different voices and points of view?

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race and ethnicity in the united states census

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Diversity Management Is the Key to Growth: Make It Authentic

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Diversity management is the key to growth in today's fiercely competitive global marketplace. No longer can America's corporations hide behind their lack of cultural intelligence. Organizations that seek global market relevancy must embrace diversity - in how they think, act and innovate.

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I write about how organizations can get the best from their people. Opinions expressed by Forbes Contributors are their own.

Business ethics have certainly been in the spotlight over the last couple of years - with scandals involving Libor-fixing, failing to prevent money laundering, and breaking the rules around defaulted mortgages to name a few. Recently major organizations have been lumped with hefty fines for questionable moral practices. Are dubious morals inevitable for successful business?

In his recent paper on ethical reasoning, eminent psychologist Robert Sternberg suggests that organizations suffer from ethical drift - a gradual, unconscious lowering of moral standards. While businesses compete for profit, the boundaries between right and wrong become blurred and people's ethical frame of reference shifts. Human biases like being unrealistically optimistic about an outcome, believing ourselves to be all-powerful, all-knowing and invincible, and the tendency to justify our own behavior no matter how morally hollow (finessing my expenses is OK because I pay for lots of things which I forget about) means that few people recognize the problem, let alone know how to tackle it.

Rules and legislation aren't the answer - there's always a loophole to be found and the focus becomes navigating the system, rather than doing what's right. Instead we need leaders with a strong moral compass. They, in turn, need to teach not just right vs. wrong, but a way of negotiating ethical dilemmas so that their followers always act with integrity.

Sternberg suggests that to behave ethically, you have to first go through a series of stages of reasoning:

1. Recognize that there's an event to react to, that it has an ethical dimension and that it's serious enough to require an ethical response. Ethical drift means that questionable behavior is simply the norm and therefore not questioned at all. One leader I know who has a huge amount of integrity asks the question, 'If this situation was printed on the front page of the New York Post or the UK's Sun, would you be comfortable with it?'

2. Take responsibility for generating an ethical solution. Even if employees recognize there's a moral issue at stake, the typical response is 'it's none of my business'. We assume that if it's OK with the boss, it's OK with us. With all the other competing priorities - revenue, profit, quality, customer service, team engagement - ethical decision making can be demoted to a footnote.

3. Figure out what ethical rules apply. What are the principles that apply here? Organizations often develop values statements or charters to support leaders in making these decisions. Johnson & Johnson, who frequently top the charts in terms of being a reputable brand, constantly refer to their Credo.

4. Decide how to apply those abstract rules to the situation in order to suggest a concrete solution. This is where it gets interesting as it involves managerial judgment. It's also perhaps the hardest step, as values statements and credos can quickly become inane platitudes plastered on mouse mats and canteen posters. Instead leaders and managers have to judge the dilemma. In one values project I worked on with a global consultancy we set up dilemmas that the leaders had to resolve. Two of the values were, and I'm paraphrasing here, 'Caring for people' and 'Delighting clients'. No one would disagree with either. We then collected real situations where these values collided. One dilemma was: 'You are working on one of the firm's most important clients. On Friday afternoon, the CEO unexpectedly calls an emergency board meeting on a Sunday morning. The lead consultant is the only person with the knowledge to effectively put together the papers for the board meeting. The lead consultant is the best man at a wedding on Saturday. What do you do?' A second dilemma involved the discovery that a consultancy project had run a significantly negative ROI for the client. What's the appropriate course of action here? It was in these conversations that the values and the practice of ethical decision making came to life.

5. Prepare for the repercussions. There's no shortage of whistle-blowers who've been ostracized, ridiculed or even attacked. Look at Greg Smith, the former Goldman Sachs employee who famously penned a New York Times article branding the organization's culture 'toxic' and 'morally bankrupt'. Goldman Sachs investigated his claim and responded by revealing that he was 'off the charts unrealistic' about his own ability.

6. Act.

Of course, for all the chaste codes of conduct, being good is a lot harder in practice than in theory. Leaders need to take an approach of doing well by doing good, otherwise the ethical drift shows little sign of slowing.
Follow @DrSebBailey on twitter or on Forbes at the top of this post.

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Business Leaders Beware: Ethical Drift Makes Standards Slip

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Business ethics have certainly been in the spotlight over the last couple of years - with scandals involving Libor-fixing, failing to prevent money laundering, and breaking the rules around defaulted mortgages to name a few. Recently major organizations have been lumped with hefty fines for questionable moral practices. Are dubious morals [...]

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Are you a money-making personality? Apple co-founder Steve Jobs (1955-2011) certainly was, but so also are the lesser-known creators of abundant value in the business sector who sustain the world economy like the Atlas who holds up the globe.

These are the 1% of us, the rare giants of industry, commerce and finance who occupy Wall Street suites, Silicon Valley campuses, and all great cities in between. These are the best and the brightest, not the worst and the dimmest, those who don't whine that others owe them jobs or handouts but practice the virtues of rationality, honesty, integrity, independence, productiveness, and pride.

Jobs' recent death elicited the requisite commendations and eulogies, the most worthy of which came from those who knew best his character, life, work, and achievements. Interviewed last August, Apple co-founder (in 1976) Steve Wozniak said "He's always going to be remembered, maybe for the next hundred years, as probably the greatest business leader - or at least technology business leader - of our time, or ever." Like Bill Gates, Jobs and Wozniak were college drop-outs (from Harvard, Reed College, and U.C. Berkeley, respectively) - proof to young aspirants that great success can come without over-priced college degrees.

Steve Jobs seemed to be one-part Ben Franklin, one-part Thomas Edison, one-part Henry Ford. He was a superlative, productive dynamo, a technology genius, and someone who learned from his own management failures and set-backs to become a worthy corporate executive too, who focused on the bottom line and on the commercial viability of his products, whether in user-friendly computers, animated motion pictures, online music or smart phones.

Returning to Apple in 1996 after a decade-long absence in which he founded Next Inc., Jobs knew the stock (AAPL) hadn't performed well, despite the boom of the late 1980s and 1990s. Indeed, it had badly under-performed Microsoft and IBM. Not until 1998, two years after his return as CEO, did Apple's stock march ahead, amid a proliferation of new products. Jobs transformed Apple from a mere computing company into a revolutionary digital products firm.

Despite the past decade of U.S. economic stagnation, Jobs and Apple have grown continuously, and the stock price has advanced to the point where Apple is now the world's most valuable firm, with a market cap of $391 billion, followed by Exxon-Mobil ($380 billion), IBM ($230 billion), and Microsoft ($228 billion). Jobs left a personal net worth of $7 billion, which is a mere fraction of the total value he created - a result typical of great creators.

Entrepreneurship is rarely studied, taught or emulated anymore. Academia and the popular media alike have long since demonized the productive giants of the Gilded Age as "robber barons," and still today unjustly portray "white collar" executives, middle-managers and bankers as thieves or parasites who build personal fiefdoms or else surreptitiously dismantle firms, instead of founding them or building them up. In fact, entrepreneurs in particular and businesspeople in general are some of the most intelligent, honest, hardworking and productive individuals on this planet - and indirectly they make wealth, capital, technology and job opportunities available for millions of inferior others who lack the requisite talent or ambition.

Above all, successful entrepreneurship requires a spirit of independence - a willingness and eagerness to see things through one's own eyes and unique values, to make controversial decisions and take bold actions that less-creative others perpetually doubt, question, or oppose. To the extent someone succeeds in business "without really trying," that is, by accident or pull, or by special favors and handouts from government, they are not independent but instead conformists and parasites.

Steve Jobs was a great creator and entrepreneur largely because he was a creative and independent spirit - an individualist who trusted his own rational judgment. Even some economists sympathetic to free markets miss the point, by claiming the "consumer is king" and that the best business leaders are mere order-takers who "serve" customers. In fact, capitalism entails neither robber barons nor kings nor obsequious serfs but independent beings who trade the products of their effort to mutual advantage. Earlier this year Jobs was asked what consumer research Apple had conducted in developing the iPad tablet. "None," he said. "It isn't the consumers' job to know what they want." Correct - and it's only producers who truly innovate, create and make our modern world possible.

What motivated the young Steve Jobs? What book most influenced him? What explains his eager pursuit of profit? Listen to Steve Wozniak, who was Jobs' boyhood friend, business partner and co-founder of Apple:

We were in our young twenties and Steve was very fast-moving . . . He couldn't stop talking about things; he had lots of ideas flowing out. He wanted to do things, while I was more the engineer-technologist who wanted to build things. We had different wants in life, in the end, and he did want to have a successful company and he had a lot of ideas. He must have read some books that really were his guide in life, you know - and I think Atlas Shrugged might have been one of them that he mentioned back then - but they were his guides in life as to how you make a difference in the world. It starts with a company and you build products and you've got to make your profit, and then that allows you to invest the profit and then make better products and make more profit. I would say how good a company is, it's fair to measure it by its profitability.

In short, Steve Jobs had the money-making personality. To "make money" means to make a profit, to create a net economic value above and beyond the value of what's used up or transformed in the process of producing. In a free market profits are no "accident" - and no vice. They reflect virtues. They are earned. Those who disdain profit-making only posture as moralists, for at root they decry the net creation of valuable wealth (production); for such critics the "moral" act isn't to produce wealth but to surrender it (philanthropy), or to have "non-profits," or worse, to generate negative net value (destruction), as occurs with "green jobs." What's sorely needed in our world is not green jobs but more "Green Jobs," more entrepreneurs like the Apple co-founder who was so focused on making ever-more "green" - that is, more money and more profits.

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Steve Jobs and the Money-Making Personality

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Are you a money-making personality? Apple co-founder Steve Jobs (1955-2011) certainly was, but so also are the lesser-known creators of abundant value in the business sector who sustain the world economy like the Atlas who holds up the globe.

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Management > Scientific Management

Frederick Taylor and Scientific Management

In 1911, Frederick Winslow Taylor published his work, The Principles of Scientific Management, in which he described how the application of the scientific method to the management of workers greatly could improve productivity. Scientific management methods called for optimizing the way that tasks were performed and simplifying the jobs enough so that workers could be trained to perform their specialized sequence of motions in the one "best" way.

Prior to scientific management, work was performed by skilled craftsmen who had learned their jobs in lengthy apprenticeships. They made their own decisions about how their job was to be performed. Scientific management took away much of this autonomy and converted skilled crafts into a series of simplified jobs that could be performed by unskilled workers who easily could be trained for the tasks.

Taylor became interested in improving worker productivity early in his career when he observed gross inefficiencies during his contact with steel workers.

Soldiering

Working in the steel industry, Taylor had observed the phenomenon of workers' purposely operating well below their capacity, that is, soldiering. He attributed soldiering to three causes:

1. The almost universally held belief among workers that if they became more productive, fewer of them would be needed and jobs would be eliminated.

2. Non-incentive wage systems encourage low productivity if the employee will receive the same pay regardless of how much is produced, assuming the employee can convince the employer that the slow pace really is a good pace for the job. Employees take great care never to work at a good pace for fear that this faster pace would become the new standard. If employees are paid by the quantity they produce, they fear that management will decrease their per-unit pay if the quantity increases.

3. Workers waste much of their effort by relying on rule-of-thumb methods rather than on optimal work methods that can be determined by scientific study of the task.

To counter soldiering and to improve efficiency, Taylor began to conduct experiments to determine the best level of performance for certain jobs, and what was necessary to achieve this performance.

Time Studies

Taylor argued that even the most basic, mindless tasks could be planned in a way that dramatically would increase productivity, and that scientific management of the work was more effective than the "initiative and incentive" method of motivating workers. The initiative and incentive method offered an incentive to increase productivity but placed the responsibility on the worker to figure out how to do it.

To scientifically determine the optimal way to perform a job, Taylor performed experiments that he called time studies, (also known as time and motion studies). These studies were characterized by the use of a stopwatch to time a worker's sequence of motions, with the goal of determining the one best way to perform a job.

The following are examples of some of the time-and-motion studies that were performed by Taylor and others in the era of scientific management.

Pig Iron

If workers were moving 12 1/2 tons of pig iron per day and they could be incentivized to try to move 47 1/2 tons per day, left to their own wits they probably would become exhausted after a few hours and fail to reach their goal. However, by first conducting experiments to determine the amount of resting that was necessary, the worker's manager could determine the optimal timing of lifting and resting so that the worker could move the 47 1/2 tons per day without tiring.

Not all workers were physically capable of moving 47 1/2 tons per day; perhaps only 1/8 of the pig iron handlers were capable of doing so. While these 1/8 were not extraordinary people who were highly prized by society, their physical capabilities were well-suited to moving pig iron. This example suggests that workers should be selected according to how well they are suited for a particular job.

The Science of Shoveling

In another study of the "science of shoveling", Taylor ran time studies to determine that the optimal weight that a worker should lift in a shovel was 21 pounds. Since there is a wide range of densities of materials, the shovel should be sized so that it would hold 21 pounds of the substance being shoveled. The firm provided the workers with optimal shovels. The result was a three to four fold increase in productivity and workers were rewarded with pay increases. Prior to scientific management, workers used their own shovels and rarely had the optimal one for the job.

Bricklaying

Others performed experiments that focused on specific motions, such as Gilbreth's bricklaying experiments that resulted in a dramatic decrease in the number of motions required to lay bricks. The husband and wife Gilbreth team used motion picture technology to study the motions of the workers in some of their experiments.

Taylor's 4 Principles of Scientific Management

After years of various experiments to determine optimal work methods, Taylor proposed the following four principles of scientific management:

1. Replace rule-of-thumb work methods with methods based on a scientific study of the tasks.

2. Scientifically select, train, and develop each worker rather than passively leaving them to train themselves.

3. Cooperate with the workers to ensure that the scientifically developed methods are being followed.

4. Divide work nearly equally between managers and workers, so that the managers apply scientific management principles to planning the work and the workers actually perform the tasks.

These principles were implemented in many factories, often increasing productivity by a factor of three or more. Henry Ford applied Taylor's principles in his automobile factories, and families even began to perform their household tasks based on the results of time and motion studies.

Drawbacks of Scientific Management

While scientific management principles improved productivity and had a substantial impact on industry, they also increased the monotony of work. The core job dimensions of skill variety, task identity, task significance, autonomy, and feedback all were missing from the picture of scientific management.

While in many cases the new ways of working were accepted by the workers, in some cases they were not. The use of stopwatches often was a protested issue and led to a strike at one factory where "Taylorism" was being tested. Complaints that Taylorism was dehumanizing led to an investigation by the United States Congress. Despite its controversy, scientific management changed the way that work was done, and forms of it continue to be used today.

Management > Scientific Management

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Frederick Taylor & Scientific Management

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Management > Scientific Management In 1911, Frederick Winslow Taylor published his work, The Principles of Scientific Management, in which he described how the application of the scientific method to the management of workers greatly could improve productivity.