Theory X and Theory Y Are Both Right

I don’t hear as much talk about Douglas McGregor’s Theory X & Theory Y these days. That’s a shame, because it’s a very helpful model for leaders.

If you remember, Theory X sees people as basically lazy and motivated by external rewards and punishments (“the carrot and the stick”). Theory Y sees people as basically industrious and motivated by internal rewards such as work satisfaction and achievement.

Of course both have merit, and all leaders use some combination of the two theories in managing. However, overall I’ve found Theory Y to be more powerful in achieving business results.

Why? Because you as the leader have the power to shape the environment/culture and rewards in your organization, and you’ll inevitably create a self-fulfilling prophecy based on your beliefs about people. You can’t blame people for trying to maximize their rewards within the culture you create (taking care of themselves and their families); anything else would be self-defeating and self-destructive.

If you lean primarily on Theory X and believe that people are basically lazy, then here’s what will happen:

  1. You’ll hire the cheapest employees you can find, since they’re all lazy anyhow.
  2. The best employees won’t join your team since you don’t pay well and you treat people like they’re lazy.
  3.  You’ll have very high turnover (and turnover costs) which will seriously limit your profitability.
  4. Because of your poor-quality team, you’ll often lose in head-to-head competition with your competitors.
If you lean primarily on Theory Y and believe that people are basically industrious, then here’s what will happen:
  1. You’ll hire the best people, pay market value wages or slightly higher, and give people latitude to grow.
  2. You’ll have the best employees, since you pay well and you treat people with respect and empower them.
  3. You’ll have a team of A Players and low turnover cost, which will seriously enhance your profitability.
  4. Because of your top-quality team, you’ll often win in head-to-head competition with your competitors.
A specific example of this is all the complaining I hear about the “work ethic” of Millennials. Three things to consider here:
  1. If your basic plan to achieve success is to outwork everyone else, then you need to invest some time in a more sustainable “working smarter” plan. You only have so much energy to achieve financial success, so use it wisely.
  2. Financial success is only one of the four major sources of success, so if you’re working all the time you won’t have time to achieve the others.
  3. The Millennials are now the majority of the workforce, so it’s to your advantage to figure out some way to work with them instead of ‘the beatings will continue until morale improves.”
High-Performance Habits
  1. Subscribe more heavily to Theory Y than Theory X in your leadership/management planning.
  2. Yes, there are some minority of people who are intrinsically “lazy” and unmotivated; don’t hire them for your team.
  3. Once you hire the best people, treat them with the same respect you’d like to receive and you’ll be amazed at what they’ll achieve.
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