Strategy (86 page)

Complementing the efficient physical engineering of the ordinary worker by Taylor, Mayo offered a psychological revival. Like Taylor, Mayo also had a story about how he realized this could be done, this time based on a flash of inspiration as he pondered the meaning of experiments with a small group of workers at Western Electric's Hawthorne plant. The research, which had begun well before Mayo joined, was designed to see whether changes in physical conditions, such as better illumination, made much difference to productivity. In this regard, the most important stage in the experiments involved a group of six women working on relay assembly. The aim was to ascertain the impact of rest periods and hours of work. Eventually it was decided to consider them on a group rather than an individual, so that there was a shared bonus for higher productivity. The researchers found a 30 percent increase of productivity over two and a half years, along with greater work satisfaction.

Explanations of exactly why this had happened were uncertain until, as Mayo reported, he had his “great éclaircissement” and realized what made the difference was that the researchers were actually showing interest in them. His large conclusion was that psychological conditions were more important than the physical and that workers responded to their own group dynamics and informal social networks. Motivations went beyond self-interest into seeking recognition and security. The recommendation was that management should seek a good working relationship with their staff, and that happy workers would be more productive. As with Taylor, the original story was embellished and interpreted within Mayo's own preconceived notions. Once again a simple explanation was offered to make sense of a complex set of facts. In retrospect, the best explanation for the improvements in productivity was a combination of pay incentives (in a non-unionized plant and against the background of the depression) and the attitudes of individual workers. The replacement of two women who had not joined in the spirit of the experiment by two who did was a turning point.
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Mayo's conclusion was not in itself preposterous. It fit in with the theories of Follett in encouraging managers to view their workers in more rounded, softer, human terms and
was widely considered to have encouraged a turn for the better in management practice.

In this way the so-called human relations school was founded, attending to the informal aspects of the organization and the social conditions of the workplace. Mayo's place was assured in the history of industrial sociology, though were it not for the Hawthorne experiments he would by now be forgotten. He had exaggerated his own qualifications, including his psychiatric training, and was considered by colleagues to be snobbish, lazy, and uninterested in teaching, with only the occasional publication to his name. As we have seen, Mayo's underlying philosophy was deeply conservative, seeing conflict as in effect a “social disease” to be remedied by healthy cooperation across the supposed divides.
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By the same token, cooperation among workers for their own ends was unhealthy. Because he saw politics as aggravating the problem, and was generally reluctant to consider the problem of power, any solution was the responsibility of the administrative elite, who must be trained to develop social competence to match their technical competence.

In the Hawthorne Studies, the claimed positive response had been to inadvertently enlightened researchers rather than truly enlightened managers. In the mid-1930s, Mayo made acquaintance with Chester Barnard, president of New Jersey Bell, a cerebral man and a voracious reader with hard experience in industry and practical administration. By 1938 he was giving lectures at Harvard. With some rewriting, these were turned into what is now considered to be a seminal text on management thought,
The Functions of the Executive
. Barnard forged an extraordinary bond with the physiologist Lawrence Henderson, a leading figure in the university and a colleague of Mayo's. This was based on their shared interest in the Italian sociologist and notable elitist Vilfredo Pareto.

Having discovered Pareto in the mid-1920s, Henderson became something of an evangelist in the 1930s, establishing what became known as the “Pareto Circle” at Harvard. To Henderson's scientific mind, Pareto's notions of social equilibrium struck a chord as well as matched his own conservative inclinations. Although he dominated the circle, with a seminar technique that was said to be “only feebly imitated by a pile-driver,” the group did include people such as Talcott Parsons and George Homans among the most influential of their generation of sociologists.
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It was also a refuge for conservative academics seeking an alternative to Marx and attracted by the underlying treatment of society as an interdependent and largely self-correcting system. Henderson was impressed by Barnard as a man who not only had read Pareto originally in French but had sought to apply his ideas in the real world.

Pareto's influence can certainly be detected in Barnard. This was evident in his stress on nonlogical factors in human decision and action, on how choice was shaped by the logic of situations, and on the circulation of elites. Pareto is there in the idea of organizations as social systems analogous to human bodies seeking some sort of equilibrium. To achieve equilibrium, the organization needed to achieve both effectiveness and efficiency, and he emphasized how many declined because they failed both tests. By efficiency he meant the ability to satisfy the individuals who made up the organization; effectiveness involved the ability to meet goals. Management must formulate the organizational goals and decide how to meet them, but it must do so in a way that kept all members involved, not least through forms of direct and accessible communications. He emphasized the importance of respect and cooperation, suggesting—in line with Mayo—that the former was more important than material incentives and that the latter was put at risk by divisive ideologies and forms of political action. In both these aspects, the workforce was prone to mistaken notions about their interests and therein lay the special leadership role of management.
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In addition to their technical and social skills, managers should work actively to create a cooperative organization underpinned by appropriate values. Otherwise the organization would fail.
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It was therefore important “to educate and to propagandize” people to “inculcate” appropriate motives and perceptions. The executive must not only conform to a moral code but also create moral codes for others which would be reflected in high morale. To this end, “points of view, fundamental attitudes, loyalties to the organization or cooperative system, and to the system of objective authority” must be inculcated to encourage the subordination of “individual interest and the minor dictates of personal codes to the good of the cooperative whole.”
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Barnard also had a story to illustrate his point. In a popular lecture he referred to an episode involving a riotous situation at New Jersey in 1935 when he was director of the New Jersey Emergency Relief Administration. He claimed that he defused the situation by respecting the dignity of the rioters.
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According to Barnard's account, a meeting with representatives of Trenton's unemployed in his office had to be adjourned when some two thousand unemployed demonstrators, who had been urged on by New York radicals, clashed with the police in the street outside, leading to a number being arrested and some taking a beating. Barnard saw that publicity such as this could harm the cause of the unemployed by increasing taxpayer animosity to the relief program. This was the point he made when the delegation returned, after he had first carefully listened to a litany of their grievances,
and a degree of harmony was restored. According to Barnard's account, picked up enthusiastically by his friends at Harvard, the problem was solved through human relations rather than by economics. Dignity was important to the unemployed, even more than food for themselves or their families.

It may well be that Barnard's sensitivity and tact did make a difference, but once his account was checked against contemporary reports of the episode it became evident that this was only part of the story.
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There was in fact a strong economic dimension: the unemployed were demanding a substantial increase in food allowances and Barnard had promised to help. Nonetheless, Barnard's argument that more mayhem would put the whole program at risk was a serious political point. This reflects the observation made earlier about Follett's promotion of group dynamics. There are groups within groups, and Barnard's strategy in this case was to make common cause with the unemployed in support of the relief program against those who resented the subsidies when their own economic circumstances were so tight. Talking about groups rather than classes or parties or states did not remove the problem of conflict. Unless society could be reshaped as one big amorphous group, individuals were going to identify with some groups against others, and the interests of these groups were going to clash. The more inter-group conciliation became necessary, the more intra-group harmony was likely to be put under strain.

The original role of managers was to manage the workforce. Their understanding of what this required was shaped by the social theories of the time, many of which encouraged unflattering views of ordinary people as essentially simple-minded, suggestible, and manipulable. At best, they could be encouraged to be efficient cogs in the machine by more pay, tempered by threats of dismissal. At worst they could be swayed by agitators, drawing on the psychology of crowds. As the century progressed, the possibilities of maintaining a docile, regimented workforce receded with the growing strength of labor unions and the increasingly demanding and specialist nature of much work. Moreover, while the original inspiration for the human relations school might have been to draw workers away from socialism and unions, it encouraged managers to recognize that their organizations were complex social structures rather than simple hierarchies and that their workers might respond positively to being treated as rounded human beings. The approach risked replacing autocracy with paternalism as it struggled to work out what these developing views of organizational life meant in terms of structures of power. The more these structures had to be addressed, and the more they had to be related to the wider social and economic changes underway, the more managers would need a strategy.

The business of business is business
.

—Alfred P. Sloan

B
EFORE WE CONSIDER
how the next generation of management theorists discovered strategy, we need first to explore the issues of power being faced by business over this period. The important developments in theorizing about business strategy after the Second World War reflected the forms taken by large industrial corporations in the United States, at a point when the tensions between capital and labor were subdued if not eliminated. The origins of these corporations, however, were to be found in a much more turbulent period in the country's industrial development, marked by labor unrest and arguments over the excessive power of the large trusts.

Against the expectations of Marx, capitalism transformed itself as the nineteenth century turned into the twentieth. Capitalists found means of coping with the volatility of the system that produced cycles of growth followed by recession. One of the most important coping mechanisms appeared to be size. Very large companies were capable of surviving sudden changes in economic conditions. In this effort they were increasingly supported by layers of management. The process which led to those changes began at about the same time as Marx was arguing with Bakunin over how to prepare for revolution and then what to make of the Paris Commune.

The story of John D. Rockefeller and Standard Oil is well known.
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In 1865 as an ambitious 26-year-old in Cleveland, Ohio, Rockefeller bought out his partner in the town's largest oil refinery. Taking advantage of the economic expansion that began with the end of the Civil War, he added to his refineries and the profits rolled in. Unfortunately, others had the same idea and soon refinery capacity far outstripped demand for kerosene and other oil products. To survive, Rockefeller determined to be the most efficient producer, improving quality while keeping costs down and then, more imaginatively, by integrating the business, controlling both supply and distribution. In addition, he made sure that he had enough cash so he would not be caught short by sudden market fluctuations. He then strengthened his position by controversial links with the railroads, gaining discounted rates in return for shipping a guaranteed number of carloads a day.

Rockefeller did not accept for one second that it was improper to tamper with market forces. He was convinced that it was too easy to open a refinery resulting in an overcrowded industry and a chaotic, chronically unstable market. Instead of living by the market's capricious disciplines, Rockefeller decided to exert control. “The oil business was in confusion and daily growing worse.” As each refiner “struggled hard to get all of the business … he brought to himself and the competitors nothing but disasters.”
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Supply and demand might never reach equilibrium. Rockefeller's strategy was one which in other circumstances would have seemed wholly appropriate: he sought cooperation as a sensible alternative to a wasteful and disruptive competition.

Given the state of the oil industry, Rockefeller may well have been correct in his assumption.
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This was nonetheless a challenge to the prevailing ideology of free markets. In the case of Rockefeller, the challenge was aggravated by his methods. He normally offered prospective partners reasonable terms and at times helped his erstwhile competitors out of a desperate position. Those who did not wish to combine, however, would often be harried into submission, their position worsened by means of aggressive price cuts by Standard Oil. In 1870, when it incorporated, Standard Oil controlled a tenth of America's refining capacity; by the end of the decade, the figure was 90 percent.