Summary

This is an article summary of, The Human Side of Enterprise written by Douglas McGregor.
Original article was first published in 1957 by MIT and republished in 1966 by MIT, Cambridge.

The author premises that we should learn as to how to take maximum benefit from social
sciences in order to organize humans effectively. So for that matter he sets off with an example
of nature of matter and energy of which scientists were sure that under proper conditions
unthinkable sources of energy will be discovered in future. He compares this analogy with
creative-human energy within an organization which under suitable conditions can also be
discovered and utilized. He uses this example of sources of energy as a framework to build up
his argument.

He starts off with a Conventional View on Management's Task and labels it as Theory X.
According this theory, in order to channelize human energies for achieving organizational goals,
management motivates and controls their employees. Without their active intervention,
employees tend to be laid back and less ambitious. So with these perceptions, in order to get
work done, management has two extreme approaches, a Hard and a Soft approach. Hard
approach involves forced work and threats which naturally invites a backlash. Whereas, in soft
approach employees become less motivated and laid back and expect more from management.
So the author suggests a current accepted practice of Firm but Fair.

The author asks if the Conventional View correct. According to him, social scientists do not
refute this view but they are pretty sure that man by its very nature is not like. Its behavior is a
consequence of organizational philosophy and policies. Hence, the theorists believe, Theory X is
based on wrong perceptions.

Author then asks what is the true nature of man? In what cost-effective ways an organization be
made productive? However, he, himself comes up with proposition of motivation that might help
in developing an adequate theory for managing people. He takes into account Maslow's
Hierarchy of Needs to further his proposition.

At the bottom of hierarchy are Physiological and Safety needs. When the former one is satisfied,
need for safety tends to dominate and motivate a person. But this safety need is relationship
dependent. Every employee is dependent on its company. Behavior of management or company
policies that arouse uncertainty about a job, are strong motivators of safety needs.

After the fulfillment of physiological and safety needs the next motivator of behavior is Social
needs. Studies have shown that a close-group work under proper conditions is more effective
than achieving organizational objectives alone. Managers on the contrary oppose this unity in a
way that might be offending for the employees. A consequence of which is resistance and
uncooperative behavior.

Next are the Ego needs, though rarely satisfied are perhaps the most significant needs of
management and to any man itself. People at lower levels in a typical organization are offered
opportunities to fulfill these needs.

Last is Self Fulfillment needs for realizing own potentials and continued self-development. Due
to the deprivation of previous needs this need remains dormant. The author comments that a
person whose lower level needs is fulfilled is not motivated to satisfy those needs any more since
they no longer exist. Thus in organizations unless there are opportunities to attain higher level
needs, employees will remain deprived and this will be reflected in their behavior.

Author then talks about carrot and stick theory of motivation. According to this theory,
Physiological and Safety needs can be provided by an organization in the form of employment
and working conditions. But fails once a person has reached a required level of subsistence and
is motivated by higher needs.

Taking into account the management by direction and control, Theory X, whether implemented
by soft, hard or firm but fair approach fails since employees whose lower level needs are
satiated; they long to fulfill their social and egoistic needs.

Considering the assumptions of Theory X as inadequate and due to certain other reasons, author
introduces Theory Y. According to this theory management is responsible for a productive
organization. People are not passive or laid-back by nature. It is the responsibility of
management to create conditions or methods so that employees can set goals for themselves by
directing their efforts towards broad organizational goals - known as Management by Objectives
as introduced by Peter Drucker.

Change is always accompanied by some difficulties. People are used to of being directed and
controlled in organizations and finding social, egoistic and self-esteem fulfillments out of the
organization walls. Such a practice fails them to become Industrial Citizens a term coined by
Peter Drucker. So, author differentiates between theory X and Y as treating people as children
and treating them as adults.

Author is hopeful about the constructive human organization and highlights few practices similar
to Theory Y in organizations today 1) Decentralization and Delegation - giving employees a
freedom to control their tasks 2) Job Enlargement - reorganization of work by accepting
responsibilities 3) Participation and Consultative Management - giving them voice in
organizational decision making and 4) Performance Appraisal - involves the employee setting
target for itself and self-evaluating on semi-annual or annual basis. All these mentioned practices
lead to the satisfaction of egoistic and self-fulfillment needs.

In the end, author goes back to the analogy of sources of energy. According to him, this is just
the beginning of understanding the implications of human organization knowledge, if explored
will have positive effects as of energy of atom when released can be used for constructive human
needs.