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•106 The 100 Greatest Business Ideas of All Time

report by how many of these ‘assets’ they have been able to lay off during the year’s
cost cutting exercises. The current scandal of directors’ pay is another indication of
inconsistency, where the pay rises in the boardroom are running at an average of 7–
8%, leaving the employees’ 3–4% looking second best.

And yet it must be better than it was, say, before the war. The culture change of
how management thought about their people was expressed by Douglas McGregor
in his book The Human Side of Enterprise (1960).

In this book McGregor invented theory X and theory Y as two distinct ap-
proaches to managing people. Theory X describes the traditional stick and carrot
approach to managing built on what McGregor calls ‘the mediocrity of the masses’.
This theory regards workers as lazy and unmotivated, seeing their jobs as a neces-
sary evil to earn the money to live.

The premises of theory X, McGregor writes, are:

‘1 that the average human has an inherent dislike of work and will avoid it if he can
‘2 that people, therefore need to be coerced, controlled, directed and threatened

with punishment to get them to put forward adequate effort toward the organi-
sation’s ends
‘3 that the typical human prefers to be directed, wants to avoid responsibility, has
relatively little ambition and wants security above all.’

McGregor saw the implementation of this theory as a huge influence on the effec-
tiveness of businesses. ‘If there is a single assumption which pervades conventional
organisational theory it is that authority is the central, indispensable means of mana-
gerial control.’ He then goes on to show that theory X is not a reflection of the
people being managed, but actually the result of the management mode itself. It is,
so to speak, a self-fulfilling prophecy.

The other extreme is the theory Y company, whose assumptions are: