As a part of the next phase in management evolution, the differences between those who lead using closed-system versus open-system methods will become blatantly clear. The more mature you grow as a leader, the more you will view the workplace and organizations as systems. Every aspect of organizational life and business process intertwine with one another. They create a network of systems or a meta-system. A change in one system will have a reactive change in another. Organizations are so much more than groups of people who complete procedures to create value from inputs and outputs. They are more than profit-making mechanisms. Corporations consist of living beings, with feelings and needs; each person has a unique reality and experiences at work. As a leader, your role is to guide them, individually, as teams, and in divisions, using your distinctive skills.
In one of my national roles, I was a member of the change management team. I reported directly to the SVP and worked closely with the EVP. The company had a history of being a closed loop system. They had been very successful and ended up closing themselves off from outside influences. This resulted in them lagging behind changes in their industry as well as societal changes. We needed to change the culture to embrace innovation and creativity as well as train the managers and leaders on how to attract and retain top performers in the current employment market.
To shift the company’s thinking on people management, we engaged human resources (HR) and corporate training to educate the leaders on the difference between Human Resource Management (HRM) and Human Capital Theory (HCT), which was what they were practicing. Why is it important to understand the difference between HRM and HCT? One imprisons individual creativity and team power, and one sets them free! Human Resource Management creates a safe environment that empowers teamwork and unlocks creative potential. When employees feel safe, they are not afraid to share their ideas and opinions. Whether individually or in groups, HRM uses positive psychology to encourage employees to bring their best efforts and intentions. HRM and positive leadership psychology are proven methods to maximize organizational performance.
HCT is a traditional form of management and has not been able to resolve inequalities in the workplace. Earlier in the “We Were Cogs in a Machine” section, we talked about how it dehumanizes employees and treats them as objects from which to make a profit. HCT assumes that labor market conditions are gender-neutral, non-biased and that the matching of workers to job roles is efficient. These are faulty assumptions and perpetuate workplace inequality, such as the gender wage gap. Inequalities reduce an organization’s ability to meet workers’ social needs, and thereby produce lower morale. Low morale can result in lower productivity and lower productivity results in poor company performance. Many times, companies who practice HCT adopt unhealthy practices to avoid the lower productivity it produces, which is what happened to the company.
Alternatives to traditional management theories began to surface in the 1950s, ‘60s, and ‘70s. Chris Argyris’ organizational learning, Frederick Herzberg’s motivation, and Douglas McGregor’s X-Y Management theories began applying Organization Development (OD) ideas and democratic rule to the workplace. These social scientists created alternatives to bureaucratic, top-down, centralized management. It wasn’t until the 1960s that Human Resource Management theory (HRM) became widely known. HRM motivates workers by meeting their needs. The original set of needs was Maslow’s Hierarchy of Needs; physiological, security, social, ego, and self-actualizing.
Think about the timing of HRMs arrival in light of the generational shift happening in today’s workforce. The older generations learned HCT. HCT creates a division of labor between management and workers. It then uses the division to justify authoritative management rule, which demoralizes workforces. It squashes creativity and individualism and discourages innovation. It imprisons a workforce, does not appreciate diversity, and is single-loop, closed-system oriented.
Ask yourself and other generations about these HCT characteristics:
How does it make you feel to be treated as an object from which someone else makes a profit, i.e., produces capital?
How does it feel to have your human needs ignored in the workplace?
Is using money and punishment as motivators, the best way to motivate you?
How does not being able to ove