Theory W, Theory X and Theory Y

by Venkat on June 22, 2008

For real estate agents, it is location, location, location. For businesses, it is talent, talent, talent. Neither of Douglas McGregor’s classic pair, Theory X and Theory Y, works anymore, and neither does any clever combination thereof. Whether you are a free agent, or a manager in a larger company, your ability to understand and orchestrate your corner of the talent economy will make or break you and your company. Kicking and screaming, anybody with half a brain has accepted that the “fungible headcount” mental model must necessarily be replaced with a “people are unique” mental model. But this uplifting let’s-all-self-actualize strengths message has brought with it the demanding task of mass-customized management, all in the face of revolving-door dynamics. In this series, I offer up the outlines of a new beta theory, Theory W, that I hope will help, and which you’ll have to help me finish.

Theory W

Theory W is a nice name for the theory of talent management I am starting to make up. It follows the same algebraic-unknown nomenclature scheme of Theory X and Theory Y that suggests that we’ll never really know the whole answer. It also suggests, by being a precursor to X and Y in the alphabet, that we are talking about a theory that is more fundamental. Finally, W is a nice letter that could stand for “Wikinomics,” “We,” “Work,” or “World,” all of which are fine connotations for the theory I am about to describe.

I’ll describe it in detail in the next post (remember to subscribe to the RSS feed to get alerted). In this post, I’ll talk about why existing models of talent management have been undermined to the point that they are completely unworkable today. Besides X and Y, there are no less than nine schools of thought that I’ve been able to find, in researching this topic, which together probably account for 80% of the managerial behavior out there. These theories drive actions in all aspects of talent management – acquisition, retention, turnover-management and development, and apply to managing people down, up or sideways, within corporate walls or “outside” in your ecosystem.

None of them work today, but it is important to start by understanding them.

The Nine Undermined Models of Talent Management

There is a reason why I didn’t call this list the nine myths of talent management. Each of these theories has a real germ of truth within it, that makes it at least slightly true under all conditions. Each also has a sweet spot that makes it strongly true under restricted conditions.

And that’s why there is a crisis in talent management — today’s conditions are not a sweet spot for any extant theory, and their limited ‘always true’ elements are not sufficient to navigate by.

1. Theory X:

  • High concept: “people hate work, and if they can slack off, they will.” This theory arises from classical Western tragic/conservative philosophy which views humans as fundamentally flawed. It was practically true for a long time, even if not psychologically true. It is only recently in history that enough non-crappy work has been created that significant numbers can (and therefore do) aspire to it.
  • Why it is being been undermined: no, managers haven’t figured out how to make everybody love work, or make all work lovable, but theory X cannot even continue on life support anymore. The new economy enables and incentivizes a much more rapid and hopeless grass-is-greener wanderlust among employees. Operate by Theory X and people will simply leave in the forlorn hope of finding something better. An economy consisting of a flow of unhappy people trudging through revolving doors is only slightly better for all than one where they stay put in quiet desperation, and worse for the X-firms.

2. Theory Y:

  • High concept: “people love work, and self-actualize through it; help them build on their strengths and grow.” This theory descends from Maslow and is today represented by the strengths movement.
  • Why it is being undermined: it does not tell you how to decide if it is possible at all to align the optimal growth directions of an individual and an organization (or two individuals in the free-agent economy), and how to do so when it is possible. In its more dangerous manifestations, Theory Y sticks its head in the sand and asserts that alignment is always possible. It is more a reflection of wishful-thinking Boomer ideology than reality.

3. Theory Z:

  • High concept: “the Nanny Corporation.” This theory, which attempted to capture the differentiating elements of Japanese life-time employment models with respect to X and Y, operates on the idea that corporations can use their vast resources to sufficiently satisfy individual non-work aspirations to stem attrition. If this seems laughably paternalistic/maternalistic or Asian-only, check out the recent The Dream Manager, which suggests via an American parable, the creation of a Chief Dream Manager position to help employees reach for their dreams. Or think of the famous Google Buffet.
  • Why it is being undermined: Theory Z, besides making anybody with the slightest individualistic spark (such as us Gen X’ers) throw up, vastly overestimates what corporations can realistically provide by way of incentive structures. It is presumptuous to think corporations can actually help employees enough with their dreams to solve the talent problem. I am not saying corporations can’t help at all, but they cannot help enough.

4. The Only-the-Best Theory

  • High concept: “Good people working with a bad process will beat bad people working with a good process every time.” I recently had a chance to ask a (very very) famous manager, now retired, about how he achieved his phenomenal successes, and was disappointed to get the ‘hire-only-the-best’ theory. The philosophy is driven by the somewhat arrogant “try to hire people smarter than yourself” heuristic.
  • Why it is being undermined: The theory actually isn’t subtle at all, and the most obvious problem kills it — at any given time, only a tiny percentage of people/companies will have the “It” factor, or the burnable money to attract the best and pursue an “only the best” strategy. What are the rest supposed to do? Eat cake? There are also more basic problems around recognizing people smarter than yourself. If you cannot get good work out of less-than-genius level people, you will never get started, and the economy wouldn’t function.

5. The Team-on-a-Bus Theory

  • High concept: “Get the right people on the bus, the wrong people off the bus, and then decide where to go.” This theory, related to ‘Only the best,’ has its roots in the the classic work on teams by Katzenbach, as well as the ideas in Good to Great. Of all the theories in this list, this is probably the most sophisticated one today, and acknowledges the conflict between pre-defined goals and talent.
  • Why it is being undermined: Three reasons. First, it is only in rare windows of opportunity that you have the luxury of choosing objectives to suit a team. In most real situations, you have to work towards existing high-sunk-cost goals of greater or lesser definition. Second, the high-performing, high-chemistry team of people with beautifully-matched strengths is much too rare to drive the bulk of everyday work. Third: every successful effort eventually needs to scale, and the more people you need, the less picky you can be about fit and chemistry.

6. The Radical Individualism Theory

  • High concept: “The firm is dead; everybody go solo.” This is a highly seductive theory, and I was enamored of it for quite a while. Historically, employment by large, organized firms is something of an anomaly. Freelance labor was gradually displaced by wage labor between the 1870s and the 1980s, after which, in a startling reversal chronicled by Dan Pink, it started making a comeback. Reading “should happen” into limited “is happening” data is supported by ideas from Coase economics, that suggests that lowered economic transaction costs should cause the firm to shrink. Taken to its absurd limit, you might imagine that the talent problem simply goes away if everybody is a free agent in a frictionless Darwinian economy.
  • Why it is being undermined: Even if everybody had entrepreneurial strengths, outside a very narrow range of largely self-contained economic roles (such as writers and artists), free agents are no more free from the talent wars than firms.  You still need to enmesh yourself in a community of talent to be the best you can be, whether or not that community is a formal firm. Worse, while there are fundamental economic forces creating a long tail labor market of free agents, other forces are making large firms stronger than ever, perhaps presaging an age of mega-firms. That’s a story for another day. Worst of all, this theory sometimes shows up in the form of a specious fire-your-boss models, vacuous personal-brand models, or immoral pyramid schemes (such as the model in The 4-Hour Workweek).

Seven: The Kool-Aid Theory

  • High-concept: “Create a bandwagon everybody wants to ride on.” The most graphic demonstration I’ve seen of this is a famous goodbye email from Justin Rosenstein, who left Google for Facebook (“Facebook really is That company…I’m serious. I have drunk from the kool-aid, and it is delicious.”).
  • Why it is being undermined: Besides the obvious problem that there can’t be too many “It” companies at any given time, Kool-aid Talent Economics is bad for companies and individuals and worse for the global economy. Kool-Aid companies suffer from the Sons-of-eBay effect, where high-growth and a young and exciting culture attracts too many smart but naive people who eventually spin-off as entrepreneurs due to the frustrations of a strengths-unbalanced pipeline. You don’t hear about it until growth slows and the “It” company needs to control costs like everybody else and manage people more effectively. Non Kool-Aid companies with fantastic opportunities to offer suffer from artificial scarcity. The economy as a whole suffers because of suboptimal use of talent, and individuals suffer as they learn the perils of band-wagonism the hard way. “Be like Google” is not a theory. It is wishful thinking.

Eight: Social-Darwinism

  • High-concept: “If you can’t attract talent you aren’t fit to.” This is a line of reasoning that supports doing nothing. It suggests taking the broad view that the Darwinian logic of the marketplace will allocate labor resources efficiently.
  • Why it is being undermined: Increasingly, we all recognize that the globalized world marketplace is not a pure Darwinian struggle. Enough common issues now bind our destinies — ranging from global warming and terror to scarce oil and AIDS, that we have to figure out how to get beyond this impossible-problem framing. If we don’t we are all doomed.

Nine: Carrot-and-Stick

  • High-concept: “It’s called WORK for a reason.” You’d think the prison-warden school of management was shut down long ago, but every once in a while, somebody will resurrect the theory of talent management that is simple, elegant and wrong — put enough scary punishments in place to get minimal performance out of anybody, reward those who manage to exceed expectations amidst the misery. There is a homey git ‘r done feel of cutting the bullshit to this philosophy that appeals to many. In subtler forms, you get over-simplistic management-by-parable models like the One-Minute Manager.
  • Why it is being undermined: This model hasn’t had any credibility since the mid nineteenth century. It’s the twenty-first century. The nature of organized work has been evolving for several centuries. If you really want to delude yourself that talent management, especially with information workers, is this simple, you probably shouldn’t be in the talent management business.

So that’s it for the roundup of existing theories. Next time, we’ll talk about Theory W. Expect that post when you see it — I’ll try to get it out in the next couple of weeks.

Donny J October 22, 2008 at 1:53 pm

Hi Ven, very nice summary of management theories.

You’ll be interested to know that, 20 years ago, Boehm and Ross coined the term Theory W Management. Find their paper found here:

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