Like many terms that come up in strategy discussions, Value Added is one of those things that sound simpler than they really are. In fact, in recent years it has often been hijacked as part of those strategy statements that are mostly a collection of buzzwords and obscure jargon, and don’t actually mean anything. So let’s take a look at what the term really means.
In many cases, when we attempt to sell something, the largest problem we are going to encounter is than many other vendors are selling the same product, or at least something from which the purchaser can get the same functionality. In extreme cases, of course, we are selling a literally identical product – table salt is going to have the same chemical formulation no matter who has packaged and labeled it, for example. Products that the consumer can’t possibly tell apart without a label are generally called commodities, and most of the time the only way to gain a competitive advantage in selling them is to offer a lower price than the competition.
But suppose we can convince the consumer that our version of the product has something going for it that the (supposedly identical) competition does not. Perhaps our table salt has a “fresh, clean” flavor to it, or our gasoline has “detergents” that prevent “engine knock.” Suddenly, we have the basis for selling our product as superior (and therefore worth more) than the competition. It doesn’t matter that all table salt tastes the same, or that all gasoline sold in the United States has the same additives (and is in fact often bought and sold among the oil companies themselves as needed), so long as the customer believes that there is a difference in the products.
This process is generally called differentiation of the product, and one of the classic ways of doing this is to offer the customer something extra. If I offer to provide free car washes and free oil changes to anyone who buys a car from my dealership, customers are more likely to buy from me than from the dealership down the road that is selling exactly the same vehicles (but not offering the freebies). If our company includes a free printer, monitor, scanner and set-up service with every computer, we can argue (correctly) that despite the fact that both machines have the identical Intel™ chip, our product is a better value to the customer, particularly if we are charging the same price as the competition.
This is the classic definition of Value Added, and forms the basis of the Value Added Strategy, in which a company attempts to portray its product as being more valuable than the competition. This can take the form of improved quality or safety (Volvo and Mercedes-Benz come to mind); lower operating costs or efficiency (Toyota, particularly the hybrids), or additional product at the same price (consider any computer product bundle). Some familiar examples even include intangible factors, such as the case of automobiles and clothing lines that add prestige to the obvious value of basic transportation and/or not being arrested for public nudity.
Of course, caution must be taken to insure that the expense of adding value to a given product does not consume the additional profit to be made from increased sales… But that’s a topic for another day.
Friday, August 31, 2007
Thursday, August 30, 2007
The “Bigger Idiot” Principle
A while ago, somebody asked me why anyone would pay $20 a share for stock that was clearly only worth a few cents per share. Or, for that matter, why people will pay several hundred dollars per share for stocks that are only worth $20. The short answer is that stock prices are not based on the actual book value of the issuing company, but rather on what people are willing to pay for those shares. But since that answer does not really explain the situation, let’s take a closer look at it.
In theory, at least, everything has two prices: what it is actually worth, and what people are willing to pay for it. Most of the time, the item being sold has one or more intangible values that increase the selling price. For example, a meal at a fast-food restaurant may only include a few cents worth of ingredients, but it has the added value of having been prepared by someone else, the added value of being convenient, and (hopefully) the added value of tasting good. A pair of designer jeans may involve no more raw material than any other pair of pants, but may have the added values of prestige, superior comfort, or superior aesthetics.
In the case of a share of common stock, the inherent value of the share is the book value of the company that issued it divided by all of the share currently in existence. If the company is worth $100 million and it issues 100,000,000 share of stock, then each share should have a value of $1, and so on. But suppose we know that the company’s book value is about to double. That means that each share we purchase at $1 will be worth $2 in the near future. In that case, we might be willing to spent $1.25 or even $1.50 per share, even though we know it isn’t currently worth that much, because we know it will be. Or at least, we expect that it will be.
Where this sort of calculation becomes difficult to follow is when the item being sold has little or no intrinsic value, and the only added value comes from the expectation that its price will eventually rise. A familiar example from the past decade would be the Beanie Baby fad. If you missed it, in the late 1990s people all over the world were purchasing small stuffed toy animals from the Ty corporation, called Beanie Babies, sometimes for thousands of dollars, in the hopes that the price would rise enough for them to resell the toys and recoup their investment. In some cases, this resulted in collectors paying in excess of $10,000 for a toy with a retail price of less than $10 and a total production cost of well below $1.
In Business School, this was informally referred to as the “Bigger Idiot” Principle; in other words, the idea of paying a ridiculous price for something on the principle that someone, somewhere was an even bigger idiot than you and would pay an even more preposterous price for that item. If you’ve ever purchased something at a thrift shop or a garage sale that you know has no value but which you suspect you can resell for a higher price than you paid, you have engaged in this behavior. If you’ve guessed correctly, you may have netted a lot of money doing it, too.
But the problem with this business model is that eventually you will reach a price point that even a complete idiot will not pay, and since the entire market for these items depends of the price continuing to rise ever higher, once that breaking point has been reached, the market will collapse. In the case of the Beanie Babies, there have been documented cases of people losing their homes, businesses, or retirement funds when the toys they purchased at thousands of dollars each were suddenly worth their original $10 again.
The most famous historical example is probably the “Tulip Mania” phenomenon which occurred in the Netherlands in the 17th Century, during which time speculation on the future potential price of tulip bulbs began running amok. The exact impact of this disaster on the Dutch economy remains in dispute (since the country was also dealing with a plague epidemic and the after-effects of the 30 Year’s War at the time), but the similarity to the Beanie Baby boom and bust, or the Dot-com Crash a few years later, is chilling to say the least.
Speculation based on the potential future price of commodities purchased in the present is the basis for much of our free-market economy, particularly when we consider the concept of Value Added to be merely one of the factors involved in such speculation. There is no way to prevent such business dealings, and no need to do so, really; provided of course that we take care not to become the bigger idiot ourselves…
In theory, at least, everything has two prices: what it is actually worth, and what people are willing to pay for it. Most of the time, the item being sold has one or more intangible values that increase the selling price. For example, a meal at a fast-food restaurant may only include a few cents worth of ingredients, but it has the added value of having been prepared by someone else, the added value of being convenient, and (hopefully) the added value of tasting good. A pair of designer jeans may involve no more raw material than any other pair of pants, but may have the added values of prestige, superior comfort, or superior aesthetics.
In the case of a share of common stock, the inherent value of the share is the book value of the company that issued it divided by all of the share currently in existence. If the company is worth $100 million and it issues 100,000,000 share of stock, then each share should have a value of $1, and so on. But suppose we know that the company’s book value is about to double. That means that each share we purchase at $1 will be worth $2 in the near future. In that case, we might be willing to spent $1.25 or even $1.50 per share, even though we know it isn’t currently worth that much, because we know it will be. Or at least, we expect that it will be.
Where this sort of calculation becomes difficult to follow is when the item being sold has little or no intrinsic value, and the only added value comes from the expectation that its price will eventually rise. A familiar example from the past decade would be the Beanie Baby fad. If you missed it, in the late 1990s people all over the world were purchasing small stuffed toy animals from the Ty corporation, called Beanie Babies, sometimes for thousands of dollars, in the hopes that the price would rise enough for them to resell the toys and recoup their investment. In some cases, this resulted in collectors paying in excess of $10,000 for a toy with a retail price of less than $10 and a total production cost of well below $1.
In Business School, this was informally referred to as the “Bigger Idiot” Principle; in other words, the idea of paying a ridiculous price for something on the principle that someone, somewhere was an even bigger idiot than you and would pay an even more preposterous price for that item. If you’ve ever purchased something at a thrift shop or a garage sale that you know has no value but which you suspect you can resell for a higher price than you paid, you have engaged in this behavior. If you’ve guessed correctly, you may have netted a lot of money doing it, too.
But the problem with this business model is that eventually you will reach a price point that even a complete idiot will not pay, and since the entire market for these items depends of the price continuing to rise ever higher, once that breaking point has been reached, the market will collapse. In the case of the Beanie Babies, there have been documented cases of people losing their homes, businesses, or retirement funds when the toys they purchased at thousands of dollars each were suddenly worth their original $10 again.
The most famous historical example is probably the “Tulip Mania” phenomenon which occurred in the Netherlands in the 17th Century, during which time speculation on the future potential price of tulip bulbs began running amok. The exact impact of this disaster on the Dutch economy remains in dispute (since the country was also dealing with a plague epidemic and the after-effects of the 30 Year’s War at the time), but the similarity to the Beanie Baby boom and bust, or the Dot-com Crash a few years later, is chilling to say the least.
Speculation based on the potential future price of commodities purchased in the present is the basis for much of our free-market economy, particularly when we consider the concept of Value Added to be merely one of the factors involved in such speculation. There is no way to prevent such business dealings, and no need to do so, really; provided of course that we take care not to become the bigger idiot ourselves…
Thursday, August 16, 2007
Tactical Offense
Almost any discussion of tactics and tactical operations is probably going to start with a bad analogy, so let me offer the reader one of mine. Consider, if you will, the blade of a saw. It can be a huge lumberjack saw, or a tiny diamond-toothed saw, but it will almost by definition have a number of small, sharp extensions (teeth) that do the actual cutting. By the same token, any military formation, whether it’s a division of thousands or a squad of ten, is made up of individual soldiers who do the actual fighting. This is a key concept to the American Airborne divisions, for example, who refer to it as “Little Groups of Paratroopers” or the rule of LGOPS.
After the D-Day invasion, most of the paratroopers who had been dumped into Normandy were scattered, cut off from their battalions and often even from their squads. Most military units would have been utterly disrupted, unable to function, and would have spent all of their time trying to find their officers and re-form their units. What the Airborne troops did was to form ad hoc groups of whoever they encountered, regardless of their comrades’ unit of origin, engage the enemy, and fight. It drove the Germans to distraction, and the very fact that no one ever knew where or when a little group of American paratroopers might suddenly appear and attack definitely contributed to the success of the landings.
What sometimes gets overlooked in these historical discussions is that all human endeavors come down to the same factor. A company may consist of a dozen different divisions, employ hundreds of thousands of people on five continents, and own more property than some developing countries, but ultimately all of the work is going to be accomplished by individual workers, and the key directives that will accomplish that work will come from the team leaders, foremen, supervisors and group managers on the spot, not from the Executive Offices in some other time zone. If we consider that the function of Army corps, divisions, brigades and so on is to get the individual troops into the position where they can do the fighting, then by logical extension, the purpose of the Management team, the Forward Planning shop, the Human Resources department, the Marketing personnel and the entire Finance section is to get the organization’s line personnel into the right position to do what they do.
Of course, by the same token, the line manager’s job is to determine the requirements of the actual tasks at hand, and direct his or her people to do them (just as the unit commander’s traditional “first duty” is to engage the enemy and fight). In viewing our company operations, it is critical that we as managers remember that for all of our grand strategic planning for the missions we wish to accomplish, the goals we intend to fulfill, and the objectives we want to meet, our “offense” is also inherently tactical in nature, and all of the work will eventually be accomplished by those individual workers on the line…
After the D-Day invasion, most of the paratroopers who had been dumped into Normandy were scattered, cut off from their battalions and often even from their squads. Most military units would have been utterly disrupted, unable to function, and would have spent all of their time trying to find their officers and re-form their units. What the Airborne troops did was to form ad hoc groups of whoever they encountered, regardless of their comrades’ unit of origin, engage the enemy, and fight. It drove the Germans to distraction, and the very fact that no one ever knew where or when a little group of American paratroopers might suddenly appear and attack definitely contributed to the success of the landings.
What sometimes gets overlooked in these historical discussions is that all human endeavors come down to the same factor. A company may consist of a dozen different divisions, employ hundreds of thousands of people on five continents, and own more property than some developing countries, but ultimately all of the work is going to be accomplished by individual workers, and the key directives that will accomplish that work will come from the team leaders, foremen, supervisors and group managers on the spot, not from the Executive Offices in some other time zone. If we consider that the function of Army corps, divisions, brigades and so on is to get the individual troops into the position where they can do the fighting, then by logical extension, the purpose of the Management team, the Forward Planning shop, the Human Resources department, the Marketing personnel and the entire Finance section is to get the organization’s line personnel into the right position to do what they do.
Of course, by the same token, the line manager’s job is to determine the requirements of the actual tasks at hand, and direct his or her people to do them (just as the unit commander’s traditional “first duty” is to engage the enemy and fight). In viewing our company operations, it is critical that we as managers remember that for all of our grand strategic planning for the missions we wish to accomplish, the goals we intend to fulfill, and the objectives we want to meet, our “offense” is also inherently tactical in nature, and all of the work will eventually be accomplished by those individual workers on the line…
Friday, August 10, 2007
Strategic Defense
I was starting work on a post about the Strategic Defense/Tactical Offense concept a while back, when it occurred to me that unless the reader is a strategy scholar, the concept is probably a bit confusing. After all, there are tactical as well as strategic aspects to both offense and defense, and many management professionals dislike the comparison between military operations and business in the first place, claiming that war is inherently about destruction (and is thus entropic) while the purpose of business is to create wealth (or in the case of non-profits, value). Unfortunately, this is another one of those concepts that has some validity regardless of whether or not we like it, and is probably with a closer look.
The origin of the phrase “Strategic Defense – Tactical Offense” is probably lost in the depths of History, although you can find excellent examples of what it means in the Belisarius series by Eric Flint and David Drake. It should be fairly self-evident, however, that many aspects of a military defense do need to be strategic in nature, or at the very least, worked out far in advance. If our defense requires large ditches to slow down vehicle traffic, for example, we will need time and equipment to dig them; if we require improved armor to protect vehicles or people from new weapons, or bio-chemical gear to protect our troops from germs or nerve gas, we will need time to design, build, test, manufacture and deploy them; if we need to shoot down airplanes or intercept missiles, we will need to give a huge amount of money to defense contractors who will take it and buy large estates in the country and hire expensive lobbyists…
All right, that last bit was uncalled for, but you get the idea. In business terms, many of the same issues apply. Changes in market conditions may require us to produce cheaper, more efficient products, offer different services or levels of customer support, or adapt to new technologies. No single employee or work group can handle issues like these on an ad hoc basis; if the customer wants to buy fuel-efficient vehicles and all we have are 1950s era gas guzzlers, we can’t meet our sales goals no matter how good we are at selling. If government regulations are going to require us to drop our carbon emissions by 50 percent, we’d better have that planned out well in advance; it’s going to require equipment upgrades, procedural changes, and compliance audits.
The ideal form of Strategic Defense is to develop a position where you can’t lose, no matter what your offense does. The classic example is probably the American Colonial forces in the Revolutionary War. The British needed to win outright to recapture the breakaway colonies, while the Colonial government only needed to prevent this – in effect, not to lose would mean winning. People claim that this can’t be done in business without first establishing a monopoly on a specific market, but I doubt that the people who are trying to compete with the iPhone using last year’s tech products would agree with that. Or, for that matter, that the companies that are trying to compete with Google would pay much attention.
If our Strategic Defense has done its work properly, our business units (and individuals) will be going to work with the training, equipment, skills and products needed to successfully compete for our share of the market. Taking advantage of opportunities to generate income and/or take market share away from our competition is still going to come down to the day-by-day operations of our line business units, however, which will always be tactical in nature,
But that’s going to be my next topic…
The origin of the phrase “Strategic Defense – Tactical Offense” is probably lost in the depths of History, although you can find excellent examples of what it means in the Belisarius series by Eric Flint and David Drake. It should be fairly self-evident, however, that many aspects of a military defense do need to be strategic in nature, or at the very least, worked out far in advance. If our defense requires large ditches to slow down vehicle traffic, for example, we will need time and equipment to dig them; if we require improved armor to protect vehicles or people from new weapons, or bio-chemical gear to protect our troops from germs or nerve gas, we will need time to design, build, test, manufacture and deploy them; if we need to shoot down airplanes or intercept missiles, we will need to give a huge amount of money to defense contractors who will take it and buy large estates in the country and hire expensive lobbyists…
All right, that last bit was uncalled for, but you get the idea. In business terms, many of the same issues apply. Changes in market conditions may require us to produce cheaper, more efficient products, offer different services or levels of customer support, or adapt to new technologies. No single employee or work group can handle issues like these on an ad hoc basis; if the customer wants to buy fuel-efficient vehicles and all we have are 1950s era gas guzzlers, we can’t meet our sales goals no matter how good we are at selling. If government regulations are going to require us to drop our carbon emissions by 50 percent, we’d better have that planned out well in advance; it’s going to require equipment upgrades, procedural changes, and compliance audits.
The ideal form of Strategic Defense is to develop a position where you can’t lose, no matter what your offense does. The classic example is probably the American Colonial forces in the Revolutionary War. The British needed to win outright to recapture the breakaway colonies, while the Colonial government only needed to prevent this – in effect, not to lose would mean winning. People claim that this can’t be done in business without first establishing a monopoly on a specific market, but I doubt that the people who are trying to compete with the iPhone using last year’s tech products would agree with that. Or, for that matter, that the companies that are trying to compete with Google would pay much attention.
If our Strategic Defense has done its work properly, our business units (and individuals) will be going to work with the training, equipment, skills and products needed to successfully compete for our share of the market. Taking advantage of opportunities to generate income and/or take market share away from our competition is still going to come down to the day-by-day operations of our line business units, however, which will always be tactical in nature,
But that’s going to be my next topic…
Thursday, August 9, 2007
The Gong Show Gambit
I’m not sure how many people out there remember watching the Gong Show from 1976 to 1980; a combination of talent contest and self-parody of such competitions. Hosted by Chuck Barris (who may or may not have been a CIA assassin during the 1960’s and 1970’s), it featured a lot of rather dubious “talent” and the occasional real performer (including Andrea McArdle, Cheryl Lynn, Paul Reubens, RuPaul, Mare Winningham, impressionist Michael Winslow, and bands like Oingo Boingo and Green Jelly). At the time it was widely considered one of the worst shows in the history of television; today it is often held up as the inspiration for the wave of “reality” television that has appeared over the past decade – meaning that Mr. Barris still has a lot to answer for, even if he never actually killed anyone.
For our purposes, the important point to recognize about the Gong Show was actually made during its own genesis story, staring the regular cast and crew. The basic concept is that while a talent show depending on good performances and solid talent will eventually run out of performers willing to compete for $516.32 (the grand prize; allegedly the SAG minimum for a day’s work at the time), a talent show featuring bad performers would NEVER run out of contestants. This has proven to be true, giving us the initial stages of “American Idol” and similar competitions, yet it also has applications for other types of programming.
Take, for example, the Food Network’s travel-themed show, Diners, Drive-ins and Dives, which I have also had occasion to watch recently. Technically, this show is scouring America looking for GOOD food, but the web page offering viewers the opportunity to suggest new venues to visit means that quite a few subjective favorites – things the recommender loves that are not, actually, very good – will come to the attention of the Food Network. And while the show to date has raved about everything they encounter, there is a definite comedic element about the program, starting with the name and moving on to the host’s interactions with the proprietors, which are often over the top.
My point here is that there is no way for this show to ever run out of potential segments. Every community in America has a “greasy spoon” somewhere that is actually wonderful – and which only the locals really know about. Even if they do run out of good diners (which seems unlikely), they can still feature “dives” that have only character and location to recommend them. Even better, a lot of people go into the restaurant business in the first place because they like interacting with customers, which means that on almost every episode, the show encounters genuine characters for its energetic host to interact with – something else they will probably never run out of.
How does this translate to other (non-television) types of business, I hear some of you asking? The exact model does not, of course; very few of us will become television producers if we aren’t already. The concept, however, is quite sound. The number of customers in any field who are already superbly trained, professionally equipped, correctly marketed and ideally capitalized is going to be very small; the number of people who are going to need help in one or more of these areas is going to be proportionally large. As an integral part of the Planning cycle, we as managers must ask where we can find these large groups of potential customers/business partners who need something we have, who require help with something we can teach them, or whom we can promote, employ, or capitalize on in order to achieve our goals.
And if there are no such groups of people in our field – then we need to rethink our business model altogether…
For our purposes, the important point to recognize about the Gong Show was actually made during its own genesis story, staring the regular cast and crew. The basic concept is that while a talent show depending on good performances and solid talent will eventually run out of performers willing to compete for $516.32 (the grand prize; allegedly the SAG minimum for a day’s work at the time), a talent show featuring bad performers would NEVER run out of contestants. This has proven to be true, giving us the initial stages of “American Idol” and similar competitions, yet it also has applications for other types of programming.
Take, for example, the Food Network’s travel-themed show, Diners, Drive-ins and Dives, which I have also had occasion to watch recently. Technically, this show is scouring America looking for GOOD food, but the web page offering viewers the opportunity to suggest new venues to visit means that quite a few subjective favorites – things the recommender loves that are not, actually, very good – will come to the attention of the Food Network. And while the show to date has raved about everything they encounter, there is a definite comedic element about the program, starting with the name and moving on to the host’s interactions with the proprietors, which are often over the top.
My point here is that there is no way for this show to ever run out of potential segments. Every community in America has a “greasy spoon” somewhere that is actually wonderful – and which only the locals really know about. Even if they do run out of good diners (which seems unlikely), they can still feature “dives” that have only character and location to recommend them. Even better, a lot of people go into the restaurant business in the first place because they like interacting with customers, which means that on almost every episode, the show encounters genuine characters for its energetic host to interact with – something else they will probably never run out of.
How does this translate to other (non-television) types of business, I hear some of you asking? The exact model does not, of course; very few of us will become television producers if we aren’t already. The concept, however, is quite sound. The number of customers in any field who are already superbly trained, professionally equipped, correctly marketed and ideally capitalized is going to be very small; the number of people who are going to need help in one or more of these areas is going to be proportionally large. As an integral part of the Planning cycle, we as managers must ask where we can find these large groups of potential customers/business partners who need something we have, who require help with something we can teach them, or whom we can promote, employ, or capitalize on in order to achieve our goals.
And if there are no such groups of people in our field – then we need to rethink our business model altogether…
Wednesday, August 1, 2007
A Couple Days Off
The question came up a couple of days ago after a death in our family about why so many employers are as rigid about bereavement leave as they are. My wife works for an organization that allows time off in the event of the death of a family member, including parents, grandparents, siblings, aunts, uncles, children, and step- and in-law versions of all of the above; however, many (perhaps most) employers will only recognize the original versions of these people (not in-laws or step-relatives), and some limit this benefit to “immediate family” – e.g. parents, children, or spouses. Why on Earth would anyone be such a hard case as to deny someone who has just lost a grandparent – or a step-parent – time off of work?
It’s tempting to assume that this sort of policy is the result of managers who are either too lazy to work out a more enlightened method or too mean-spirited to try to work with their people instead of treating employees as the enemy. Some people would point out that given a liberal bereavement leave policy, there are workers who would experience a loss every Monday before work – or at least claim to have done so, in order to gain more paid time off.
As usual, this issue is a bit more complicated than it initially appears to be. What is really at the heart of the matter is the question of whether employees are inherently lazy (and will avoid work if they can), or whether employees may also be ambitious and self-motivated. In management science, these two concepts are called Theory X and Theory Y, and were first suggested by Douglas McGregor at MIT in 1960. Theory Y is often considered to be the practical application of the Humanistic School of Psychology developed by our old friend Abraham Maslow (see my prior ramblings about the Hierarchy of Needs).
It’s worth noting that McGregor himself did not claim that either Theory X or Theory Y were in any way “correct” descriptions of humanity in general; indeed, he believed that both of them were merely generalizations applicable to SOME employees, and hoped that managers would investigate both sets of beliefs as a means of developing new and better management strategies. The fact is that some people will take advantage of any system and abuse any benefits offered to them, while others will attempt to work within the system and take only those benefits to which they are legitimately entitled. It is the manager’s job to keep the Theory X people in line, just as much as it is to make sure the Theory Y people take the leave to which they are entitled (not refuse it “for the good of the company”).
Ultimately, policy can not replace the work of the management team, no matter how liberal or employee-friendly that policy happens to be. One large company I worked for had no set leave policy of any kind – sick leave, bereavement leave, and family leave were all purely at the discretion of the management team at the local level. Only vacation time was computed according to a set formula, and even then, scheduling was at the manager’s discretion. It takes an extremely capable manager to handle that kind of responsibility without creating bad feelings, conflicts or lawsuits, but I can tell you for a certainty that no one in my work group or my division was ever denied a few days off to be with their family in a time of loss…
It’s tempting to assume that this sort of policy is the result of managers who are either too lazy to work out a more enlightened method or too mean-spirited to try to work with their people instead of treating employees as the enemy. Some people would point out that given a liberal bereavement leave policy, there are workers who would experience a loss every Monday before work – or at least claim to have done so, in order to gain more paid time off.
As usual, this issue is a bit more complicated than it initially appears to be. What is really at the heart of the matter is the question of whether employees are inherently lazy (and will avoid work if they can), or whether employees may also be ambitious and self-motivated. In management science, these two concepts are called Theory X and Theory Y, and were first suggested by Douglas McGregor at MIT in 1960. Theory Y is often considered to be the practical application of the Humanistic School of Psychology developed by our old friend Abraham Maslow (see my prior ramblings about the Hierarchy of Needs).
It’s worth noting that McGregor himself did not claim that either Theory X or Theory Y were in any way “correct” descriptions of humanity in general; indeed, he believed that both of them were merely generalizations applicable to SOME employees, and hoped that managers would investigate both sets of beliefs as a means of developing new and better management strategies. The fact is that some people will take advantage of any system and abuse any benefits offered to them, while others will attempt to work within the system and take only those benefits to which they are legitimately entitled. It is the manager’s job to keep the Theory X people in line, just as much as it is to make sure the Theory Y people take the leave to which they are entitled (not refuse it “for the good of the company”).
Ultimately, policy can not replace the work of the management team, no matter how liberal or employee-friendly that policy happens to be. One large company I worked for had no set leave policy of any kind – sick leave, bereavement leave, and family leave were all purely at the discretion of the management team at the local level. Only vacation time was computed according to a set formula, and even then, scheduling was at the manager’s discretion. It takes an extremely capable manager to handle that kind of responsibility without creating bad feelings, conflicts or lawsuits, but I can tell you for a certainty that no one in my work group or my division was ever denied a few days off to be with their family in a time of loss…
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