Organizational Environments and Motivational Incentives – Part 3

From a management perspective, people tend to live up to our expectations.  I was recently reading someone’s comments on Theory Y.  He said that people will act responsibly and take individual initiative to solve problems beneficial way in an organization only if the cultural, and the managerial environment was the type that expected and encouraged it.  With private organizations there is an opportunity to establish such an environment if one uses Theory Y assumptions, but it still must be done.  That it doesn’t happen automatically is, I think, McGregor’s point in writing the book.  Why and how this should be done has also been the point of much management literature since he wrote that book in 1960. These comments reminded me of situations that I had the opportunity to experience in my years in management in a large corporation.

In one of these, a man who had been my boss in Tulsa for a couple of years was given the opportunity to manage a small manufacturing subsidiary in Connecticut.  He was originally from the East Coast and was glad for the opportunity to move back to that area.  He also had managed research and service groups most of his career and I think he looked forward to managing a line manufacturing operation.  But the challenge that he was faced with was that the operation had been loosing money for several years and the parent company was considering closing it down if it weren’t turned around in a short period of time.  So he was given a year to have revenues cover expenses.  No one that I knew believed this could be done, but he decided to take the challenge anyway.  When he got there, one of the first thing he said he wanted to do was to talk directly to the manufacturing line workers.  This wasn’t done, he was told.  They were all union employees and management might talk to the union leadership but never directly to the union employees.  He went down on the shop floor anyway, and visited directly with the workers.  One thing he understood was that they probably knew better than anyone else how expenses could be reduced by making operations made more efficient.  He needed them to be a part of the team – the same team as the non-union employees – and they all needed to be able to work together to solve the problem and save the company from being shut down.  Apparently he was succesful, because within the alloted time the operation was in the black, and jobs were saved.  In talking to him later, he said it could not have been done without the positive input and suggestions from the workers on the factory floor.

The second example is my own experience when employer – a major oil and gas company – neede to make yet another pass at reducing expenses in the early 1990s.  At that point, oil prices were down to almost half of what they had been in the boom of the 70s.  The company had too much debt, and even though several cuts in the expense structure in the 89s, more was still needed.  My job at the time was to manage the majority of the corporate administrative services.  Looking at the organization and the functions I was responsible for, less than half the cost was in salaries, so I was able to convince management to let me not reduce my head count, but rather to see if we could save more than 10% in total expenses by cutting the other costs.  I was new to this area, and had no idea exactly what we might be able to do.  There were a myriad of different functions, some of which produced revenue or had the potential to do that, and some which were pure expense.  So I did what my previous boss had done, I enlisted the help of the first line workers.  We found lots of ways to cut our net expense, some larger and some smaller.  But by the end of the 5th year we had managed to reduce our total costs to the company by over 50% without a single lay-off.  And we scored higher on the satisfaction surveys of our customers than we had in the beginning.  I had employees in the mail room reduce their expenses by over 50% based solely on their own ideas and initiative.  Believe me, I had no idea in the beginning that we could cut expenses there by that much.

And the federal government can’t reduce expenses by 2.6% without causing pain to their customers.  I don’t believe it.  But I don’t think that the inherent incentives are there to be able to accomplish things that have been done in the private sector.  Individuals in the private sector and in the government are both, I believe, motivated by self-interest.  But in the private sector it can be channeled in ways that benefit everyone.  Adam Smith made the point several hundred years ago when he talked about the “invisible hand”.  In a free economy, he said, everyone can work to satisfy their individual self-interest, but in doing so, interest of all will be helped.  I don’t know how that can be done with the government.

The biggest problem with the “invisible hand” is that it is invisible.  So we don’t know exactly what it is doing or what the end result will be.  Governments can sometimes be well-intentioned, but as someone once said, “The road to Hell is paved with good intentions.”  What the government says it wants to do always sounds good, and it’s not invisible, so “we the people” often go for it.  But it frequently does not work as well as promised or it is fraught with unintended consequences.  So give this perspective, it’s hard not to conclude that we need to limit government to the things that only government can do.  To use football as and analogy, they need to make the rules and provide the referees, but not be players or coaches.  Most of the playing – including helping people in need – can better be done in the private sector.  Our society and our world are better off having things done in the most effective and efficient way including welfare work.   I was on the board of a non-profit which provided some of the same services to needy individuals that a state agency did.  But the private not-for-profit, by any measure, provided a more effective service at about half the cost.  And there are private non-profits whose primary service is to help people get help from government programs meant to help them.  Doesn’t sound like a good use of people’s time and resources to me.  But worse than that, there are ads on TV every day by law firms offering to help people get “help from government to which they are entitled”.  These law firms are not “non-profit”.

Only the government can make the rules to keep free markets free and open.  We need it  to provide referees to keep playing fields level  and prevent fraud and corruption.  But most everything else is better done in other ways by organizations which are allowed to fail if they do not serve the customer in an efficient and effective way.


About tjc13

BE - Chem Engineering, Vanderbilt Univ, MBA, University of Tulsa - Worked for an energy and chemical company for many years and then started a management consulting business working for both for-profit and not-for-profit organizations.
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