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What’s Best For Employees Is Best For Business

In the early 1850s, Daniel McCallum, the General Superintendent of the New York and Erie Railroad, had a problem. At the time, the New York and Erie Railway was the largest railroad in the world. It moved trains over one million miles a year and employed hundreds of people – locomotive engineers, conductors, mechanics, station agents and more. For the first time in history it was impossible for a single person to personally manage every one of his employees. The solution was an historic innovation: the middle manager. With it, the first administrative hierarchies in American business were born and the gap between the owner and the entry-level employee inevitably widened. The corporate ladder received its first rungs.

With the manager came the modern organization chart. McCallum grouped employees into divisions and connected each division to a manager and each manager to a boss.The purpose of the chart, Ray Fisman and Tim Sullivan explain in their book The Org, was to“create… an organization with clear divisions of responsibilities, power conferred on bosses in the chain of command, channels of communication to report on whether duties had been carried out, and the means to allow the superintendent… to have a clear view on what was going on through the org and the power to act on it.”

Since then, different management theorists have moved in and out of favor, from Frederick Taylor to Jack Welch. Despite surface diversity, however, one question underpins each theory: how do you manage and motivate an employee?

A fundamental problem with business is the mismatch between human nature and the nature of an organization. Humans crave community and friendship, a sense of purpose or meaning, and a feeling of control. Most businesses – especially large bureaucratic ones – deprive employees of each: cubicles are isolating, assembly lines are unavailing, and steep corporate hierarchies make progress elusive. The good news is recent (and classic) psychological research outlines how we might align business needs with human needs. In fact, this task might not be a zero-sum endeavor: sometimes what’s best for business is best for employees.  

For starters, consider a field study conducted by Wharton professor Adam Grant, now of Give and Takefame. Grant brought a student into a call-center that raised money to fund scholarships. The student had directly benefited from the fundraising, and he spoke to employees for 10-minutes about how his scholarship changed his life and helped him land a job as a teacher for Teach for America. He couldn’t have succeeded without their effort. Did the 10 minute confession matter? Grant found that workers spent 142 percent more time on the phone and brought in 171 percent more revenue a month after the testimonial – despite the fact they used the same script.

In other words, performance increased when the spotlight shifted from the employee to how their efforts benefited other people. An article in Bloomberg Businessweek by Nick Tasler lists a few companies that have implemented similar anti-Sisyphean measures.

Medtronic (MDT) [has] for years invited customers to give testimonials at their annual meetings. Qualcomm (QCOM) collects and shares stories with employees about how cell phones have saved people’s lives in emergency situations… The message these practices send to people inside the company—from the shop floor to the C-suites—is that “without your work, the world would be a worse place.”

Community – the feeling that you are part of a collective – matters as well. To see how, let me tell you about a piece of research conducted by Hal Hershfield, a professor at NYU, and three of his colleagues. Imagine that someone asks you to write an “alternative universe” story about a company you work for. In this story, you must imagine what the world would have been like if key events that were responsible for the inception of your company did not happen. If you work for Apple you might think about Steve Jobs never meeting Steve Wozniak; if you work for Google you might imagine Alta Vista wining the search engine war.

Hershfield found that compared to a control group that simply wrote about the factual origins of their company (participants were MBA students), the “counter-factual reflection group demonstrated higher commitment to their organizations.” That is, envisioning a universe without your company elicits a sense of camaraderie – it sparks an urge to give back and contribute to the greater good. (We might term this the George Bailey effect after the movie It’s a Wonderful Life, in which George Bailey realizes the impact he had on Bedford Falls only after he sees it without him.)

Finally, a sense of agency – the feeling that you are in control – is critical. Here’s the classic experiment. In the 1970s, the psychologists Ellen Langer and Judith Rodin went to a nursing home and created two groups, choosers and non-choosers. They gave the choosers the responsibility to water plants and schedule movie night and non-choosers no responsibilities. Langer and Rodin found that people in the “no-choice” condition died, on average, 18 months sooner than those in the “choice” condition. As the two psychologists put it: “control proved to be a potent variable.”

Charles Duhigg provides a workplace example of this effect his book The Power of Habit:

One 2010 study at a manufacturing plant in Ohio… scrutinized assembly-line workers who were empowered to make small decisions about their schedules and work environment. They designed their own uniforms and had authority over shifts. Nothing else changed. All the manufacturing processes and pay scales stayed the same. Within two months, productivity at the plant increased 20 percent. Workers were taking shorter breaks. They were making fewer mistakes. Giving employees a sense of control improved how much self-discipline they brought to their jobs.

We’ve come a long way from a time when inhumane management systems like Taylorism and Fordism – which sacrificed employee well-being for efficiency – dominated the economy. What changed? The transition from an industrial economy to a service economy was crucial. But our understanding of the human condition also played an important role.

I’ve outlined three components to employee well-being: purpose, community, and control. These enduring needs might sound obvious, but psychologists largely ignored the science of well-being for first half of the 20th century. Freud claimed that we are plagued by anxieties and suppressed sexual desires. Skinner demonstrated the power of conditioning, concluding that behavior is simply about reinforcing or inhibiting certain stimuli. Identifying and attempting to cure mental illness was also popular.

This changed in the last few decades. Psychologists started studying the rosier aspects of human nature: creativity, achievement, passion, and motivation. One result was the idea that humans are not endlessly malleable – that under certain conditions we are driven to achieve more. In Search of Excellence (1982) was the first mega-popular business book to advocate this. Co-authors Tom Peters and Robert Waterman rightfully advised managers to provide meaningful tasks, value intrinsic motivation, cultivate passion, and ensure that employees maintain a sense of control over their work. It was a monumental departure from Taylor and Ford.

Today, companies like are attracting headlines (and employees) by not only applying “positive psychology” research but making it the bedrock of its operations. Happiness is the Zappos ethos. CEO Tony Hsieh’s insight is that a happy employee is a productive employee who makes happy customers. Happy customers, in turn, are good for business. The implication is this: what’s gained on employee well-being is gained on the bottom line. Productivity and efficiency are not a zero-sum game with respect to happiness.  

This might sound strange to McCallum if he was alive today, but in a post-industrial world, it makes sense. A business, like a fraternity or church, can fulfill the three enduring human needs outlined above: purpose, community, and control. When it does, as Zappos demonstrates, employees are happy and business is good. The exciting part is that psychology is showing us how we might accomplish this. If we can learn one thing from Hsieh, it is that human happiness might be the business model of the future.   

Image via Wikipedia Creative Commons


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