McWane and Nucor represent opposite poles in a perennial debate about the relationship between people and organizations. One side sees individuals as objects to be exploited by organizations. The opposing camp holds that the needs of individuals and organizations can be aligned, engaging people's talent and energy while the enterprise profits. This dispute has intensified with globalization and the growth in size and power of modern institutions. Can people find freedom and dignity in a world dominated by economic fluctuations and an emphasis on short-term results? Answers are not easy. They require a sensitive understanding of people and their symbiotic relationship with organizations.

The human resource frame evolved from early work of pioneers such as Mary Parker Follett (1918) and Elton Mayo (1933, 1945), who questioned a century-old, deeply held assumption—that workers had no rights beyond a paycheck. Their duty was to work hard and follow orders. Pioneers who laid the human resource frame's foundation criticized this view on two grounds: it was unfair, and it was bad psychology. They argued that people's skills, attitudes, energy, and commitment are vital resources that can make or break an enterprise. The human resource frame is built on core assumptions that highlight this linkage:

Organizations ask, "How do we find and retain people with the skills and attitudes to do the work?" Workers want to know, "How well will this place meet my needs?" These two questions are closely related, because "fit" is a function of at least three different things: how well an organization responds to individual desires for useful work; how well jobs enable employees to express their skills and sense of self; and how well work fulfills individual financial and life-style needs (Cable and DeRue, 2002).

Human Needs

The concept of need is controversial—at least in some academic circles. Some theorists argue that the idea is too vague and refers to something difficult to observe. Others say that people have needs that are so variable and strongly influenced by their surroundings that the concept offers little help in explaining behavior (Salancik and Pfeffer, 1977). Goal-setting theory (Locke and Latham, 2002, 2004) suggests that managers may do better by emphasizing specific performance goals than by worrying about employees' psychic needs. Economists like Jensen and Meckling (1994) argue that people's willingness to trade off one thing for another (time for money or sleep for entertainment) disproves the idea of need.

Despite this academic skepticism, needs are a central element in everyday psychology. Parents worry about the needs of their children, politicians promise to meet the needs of constituents, and managers make an effort to understand the needs of workers. Wegmans, a grocery chain that perennially finishes at or near the top of Fortune magazine's list of best places to work, states its philosophy in those terms: "We set our goal to be the very best at serving the needs of our customers. Every action we take should be made with this in mind. We also believe that we can achieve our goal only if we fulfill the needs of our own people" (Wegmans, n.d.).

Common sense tells us that needs are important because we all have them. But identifying what needs we have at any given time is more elusive. A horticultural analogy may help clarify. A gardener knows that every plant has specific requirements. The right combination of temperature, moisture, soil, and sunlight allows a plant to grow and flourish. Plants do their best to get what they need. They orient leaves sunward to get more light and sink roots deeper in search of water. A plant's capabilities generally increase with maturity. Highly vulnerable seedlings become more self-sufficient as they grow (better able to fend off insects and competition from other plants). These capabilities decline as a plant nears the end of its life cycle.

Human needs are similar. Conditions or elements in the environment allow people to survive and grow. Basic needs for oxygen, water, and food are clear; the idea of universal psychic needs is more controversial. A genetic, or "nature," perspective posits that certain psychological needs are essential to being human (Maslow, 1954; McClelland, 1985; White, 1960). A "nurture" view, in contrast, suggests that people are so shaped by environment, socialization, and culture that it is fruitless to talk about common psychic needs.

In extreme forms, both nature and nurture arguments are misleading. An advanced degree in psychology is not required to recognize that people are capable of enormous amounts of learning and adaptation. Nor do we need specialized training in biology to recognize that many physical attributes and psychological characteristics, such as temperament, are present at birth.

A majority of scholars see human behavior as resulting from the interplay between heredity and environment. Genes initially determine potential and predispositions. Research has identified, for example, connections between certain genetic patterns and behavioral tendencies such as antisocial behavior. But learning profoundly modifies innate directives, and research in behavioral genetics regularly concludes that genes and environment interact in complex ways to determine how people act (Baker, 2004).

The nature-nurture seesaw suggests a more powerful way of thinking about human needs. A need can be defined as a genetic predisposition to prefer some experiences over others. Needs energize and guide behavior and vary in potency at different times. We enjoy the company of others, for example, yet sometimes want to be alone. Since genetic instructions cannot anticipate all situations, both the form and the expression of each person's inborn needs are significantly tailored by experiences after birth.

What Needs Do People Have? The existential psychologist Abraham Maslow (1954) developed one of the most influential theories about human needs. He started with the notion that people are motivated by a variety of wants, some more fundamental than others. The desire for food dominates the lives of the chronically hungry, but other motives drive people who have enough to eat. Maslow grouped human needs into five basic categories, arrayed in a hierarchy from lowest to highest (Exhibit 6.1).

In Maslow's view, basic needs for physical well-being and safety are "prepotent"; they have to be satisfied first. Once lower needs are fulfilled, individuals are motivated by social needs (for belongingness, love, and inclusion) and ego needs (for esteem, respect, and recognition). At the top of the hierarchy is self-actualization— developing to one's fullest and actualizing one's ultimate potential. The order is not ironclad. Parents may sacrifice themselves for their children, and martyrs sometimes give their lives for a cause. Maslow believed that such reversals occur when lower needs are so well satisfied early in life that they recede into the background later on.

Maslow's Hierarchy of Needs.

Attempts to validate Maslow's theory have produced mixed results, partly because the theory is hard to test (Alderfer, 1972; Latham and Pinder, 2005; Lawler and Shuttle, 1973; Schneider and Alderfer, 1973; Wahba and Bridwell, 1976). Some research suggests that the theory is valid across cultures (Ajila, 1997; Rao and Kulkarni, 1998), but there is still little evidence to support the premise that people have the needs Maslow posited or that the satisfaction of one need leads to activation of another.

Despite the modest evidence, Maslow's view is still widely accepted and enormously influential in managerial practice. Take, for example, the advice that the Manager's Guide at Federal Express offers employees: "Modern behavioral scientists such as Abraham Maslow ... have shown that virtually every person has a hierarchy of emotional needs, from basic safety, shelter, and sustenance to the desire for respect, satisfaction, and a sense of accomplishment. Slowly these values have appeared as the centerpiece of progressive company policies, always with remarkable results" (Waterman, 1994, p. 92). Chip Conley, founder of a California hotel chain, put it simply, "I came to realize my climb to the top wasn't going to be on a traditional corporate ladder; instead it was going to be on Maslow's Hierarchy of Needs pyramid" (Conley, 2007). Academic skepticism didn't prevent him, or FedEx, from building a highly successful management philosophy based on Maslow's theory, because the ideas carry a powerful message. If you manage solely by carrot and stick, you'll get only a part of the energy and talent that people have to offer.

Theory X and Theory Y Douglas McGregor (1960) built on Maslow's theory by adding another important idea: that managers'assumptions about people tend to become self-fulfilling prophecies. McGregor argued that most managers harbor "Theory X" assumptions, believing that subordinates are passive and lazy, have little ambition, prefer to be led, and resist change. Most conventional management practices, in his view, had been built on either "hard" or "soft" versions of Theory X. The hard version emphasizes coercion, tight controls, threats, and punishments. Over time, it generates low productivity, antagonism, militant unions, and subtle sabotage—conditions that were turning up in workplaces across the United States at the time. Soft versions of Theory X try to avoid conflict and keep everyone happy. The usual result is superficial harmony with undercurrents of apathy and indifference.

McGregor's key point was that a hard or soft Theory X approach is self-fulfilling: if you treat people as if they're lazy and need to be directed, they conform to your expectations. Managers who say their experience proves that Theory X is the only way to get anything done are missing a key insight: the fact that people always respond to you in a certain way may say more about you than about them. McGregor advocated a different way to think about people that he called Theory Y. Maslow's hierarchy of needs was the foundation:

Theory Y's key proposition is that "the essential task of management is to arrange conditions so that people can achieve their own goals best by directing efforts toward organizational rewards" (McGregor, 1960, p. 61). If individuals find no satisfaction in their work, management has little choice but to rely on Theory X and external control. Conversely, the more managers align organizational requirements with employee self-interest, the more they can rely on Theory Y's principle of self-direction.

Personality and Organization

Like his contemporary McGregor, Chris Argyris (1957, 1964) saw a basic conflict between human personality and prevailing management practice. Argyris argued that people have basic "self-actualization trends" —akin to the efforts of a plant to reach its biological potential. From infancy into adulthood, people advance from dependence to independence, from a narrow to a broader range of skills and interests. They move from a short time perspective (interests quickly developed and forgotten, with little ability to anticipate the future) to a much longer-term horizon. The child's impulsivity and limited self-knowledge are replaced by a more mature level of self-awareness and self-control.

Like McGregor, Argyris felt organizations often treated workers like children rather than adults—a view eloquently expressed in Charlie Chaplin's 1936 film Modern Times. In one scene, Chaplin's character works furiously on an assembly line, trying to tighten bolts on every piece that slides past. Skill requirements are minimal, and he has no control over the pace of his work. An efficiency expert uses Chaplin as the guinea pig for a new machine designed to feed him lunch while he continues to tighten bolts. It goes haywire and begins to assault Chaplin with food—pouring soup on his lap and shoving bolts into his mouth. The film's message is clear: industrial organizations abuse workers and treat them like infants.

Argyris and McGregor saw person-structure conflict built into traditional principles of organizational design and management. The structural concept of task specialization defines jobs as narrowly as possible to improve efficiency. But the rational logic often backfires. Consider the experience of autoworker Ben Hamper. His observations mirror a story many other U.S. workers could tell:

Following in his father's and grandfather's footsteps, Ben Hamper became an autoworker—the pay was good, and he didn't know anything else. He soon discovered a familiar pattern. Though his career began decades after Argyris and McGregor questioned the fallacies of traditional management, little had changed. Hamper held down a variety of jobs, each as mindless as the next: "The one thing that was impossible to escape was the monotony. Every minute, every hour, every truck, and every movement was a plodding replica of the one that had gone before" (1992, p. 41).

The specialization Ben Hamper experienced in the auto plant calls for a clear chain of command to coordinate discrete jobs. Bosses direct and control subordinates, thus encouraging passivity and dependence. The conflict worsens at lower levels of the hierarchy—narrower, more mechanized jobs, more directives, and tighter controls. As people mature, conflict intensifies. Leann Bies was forty-four with a bachelor's degree in business when she started work as a licensed electrician at a Ford truck plant in 2003, and "for two years they treated me as if I were dumber than a box of rocks. You get an attitude if you are treated that way" (Uchitelle, 2007, p. 10).

Argyris argued that employees try to stay sane by looking for ways to escape these frustrations. He identified six options:

Hamper himself found an escape: he started to moonlight as a writer during one of automaking's periodic layoffs. Styling himself "The Rivethead," he wrote a column about factory life from the inside. His writing eventually led to a best-selling book. Most of his buddies weren't as fortunate.

Researchers in the 1960s began to note that children of farmers grew up believing hard work paid off, while the offspring of urban blue-collar workers did not. As a result, many U.S. companies began to move facilities away from old industrial states like Michigan (where Ben Hamper worked) to more rural states like North Carolina and Tennessee, in search of employees who still embodied the work ethic. Argyris predicted, however, that industry would eventually demotivate even the most committed workforce unless management practices changed. In recent decades, manufacturing and service jobs have been moving offshore to low-wage enclaves around the world, continuing the search for employees who will work hard without asking for too much in return.

The powerlessness and frustration that Hamper experienced are by no means unique to factory work. Bosses who treat office workers like children are a pop culture staple — including the pointy-haired martinet in Dilbert and the pathetically clueless boss in the television series The Office. In public education, many teachers and parents lament that increasing emphasis on high-stakes standardized tests alienates teachers and turns them into "deskilled clerks" (Giroux, 1998). Batstone sees frustration as pervasive among workers at every level: "Corporate workers from the mailroom to the highest executive office express dissatisfaction with their work. They feel crushed by widespread greed, selfishness, and quest for profit at any cost. Apart from their homes, people spend more time on the job than anywhere else. With that kind of personal stake, they want to be part of something that matters and contribute to a greater good. Sadly, those aspirations often go unmet" (2003, p. 1).

Argyris and McGregor formed their views on the basis of observations of U.S. organizations in the 1950s and 1960s. Since then, investigators have documented similar conflicts between people and organizations around the world. Orgogozo (1991), for example, contended that typical French management practices caused workers to feel humiliation, boredom, anger, and exhaustion "because they have no hope of being recognized and valued for what they do" (p. 101). She depicted relations between superiors and subordinates in France as tense and distant because "bosses do everything possible to protect themselves from the resentment that they generate" (p. 73).

Early on, human resource ideas were often ignored by scholars and managers. The dominant "assembly-line" mentality enjoyed enough economic success to persist. The frame's influence has grown with the realization that misuse of human resources depresses profits as well as people. Legions of consultants, managers, and researchers now pursue answers to the vexing human problems of organizations.

In recent years, the person-organization relationship has become even more problematic as global trends have pushed organizations in two conflicting directions. On one hand, global competition, rapid change, and shorter product life cycles have produced a turbulent, intensely competitive world, placing an enormous premium on the ability to adapt quickly to shifts in the environment. One way to do that is to minimize fixed human assets. Beginning in the late twentieth century, more and more organizations turned to downsizing, outsourcing, and using part-time and temporary employees to cope with business fluctuations. Universities, for example, have shifted to more part-time adjunct instructors and fewer full-time faculty. Volkswagen opened a manufacturing plant in Brazil in which subcontractors employed 80 percent of the workforce. Even in Japan, traditional notions of lifetime careers have eroded in the face of "a bloated work force, particularly in the white collar sector, which proved to be an economic drag" (WuDunn, 1996, p. D8). Around the world, employees looking for career advice have been told to count on themselves rather than employers. Give up on job security, the advice often went, and focus instead on developing skills and flexibility that will make you marketable.

On the other hand, some of the same global forces push in another direction—toward growing dependence on well-trained, loyal human capital. Organizations have become more complex as a consequence of globalization and a more information-intensive economy. More decentralized structures, like the networks discussed in Chapter Three, have proliferated in response to greater complexity and turbulence. These new configurations depend on a higher level of skill, intelligence, and commitment across a broader spectrum of employees. A network of decentralized decision nodes is a blueprint for disaster if the dispersed decision makers lack the capacity or desire to make sensible choices. Skill requirements have been changing so fast that individuals are hard-pressed to keep up. The result is a troubling gap: organizations struggle to find people who bring the skills and qualities needed, while individuals with yesterday's skills face dismal job prospects. In 2006, telephone giant AT&T committed to bringing five thousand off shored jobs back to the U.S. Two years later, CEO Randall Stephenson said only fourteen hundred had come back, because "we're having trouble finding the numbers that we need with the skills that are required to do these jobs" (Forsyth, 2008). He blamed public schools for turning out a defective product.

The shift from a production-intensive to an information-intensive economy is not helping to close the gap. There used to be more jobs that involved making things. In the first three decades after World War II, high-paying jobs in developed nations were heavily concentrated in blue-collar work (Drucker, 1993). These jobs generally required little formal training and few specialized skills, but they afforded pay and benefits to sustain a comfortable and stable lifestyle. No more. Workers in manufacturing jobs accounted for more than a third of the U.S. workforce in the 1950s. By 2004, they were only a tenth of the workforce and their share was still declining (Congressional Budget Office, 2004).

Surviving production jobs often require much higher skill levels than in the past. When U.S. automobile manufacturers began to replace retiring workers in the mid-1990s, they emphasized quick minds more than strong bodies and put applicants "through a grueling selection process that emphasized mental acuity and communication skills" (Meredith, 1996, p. 1).

This skill gap is even greater in many developing nations. China's population of 1.4 billion people consists largely of farmers and workers with old-economy skills. Beginning in the 1980s, China began a gradual shift to a market economy, reducing regulations, welcoming foreign investment, and selling off fading state-owned enterprises. Results were dramatic: China's economy shifted from almost entirely state-owned in 1980 to 70 percent private by 2005. China became one of the world's fastest-growing economies, with compound growth at approximately 8 percent a year in the early twenty-first century, but unemployment mushroomed as state-owned enterprises succumbed to nimbler— and leaner— domestic and foreign competitors.

Pressures to increase flexibility and employee skills simultaneously create a vexing human resource dilemma. Should an organization seek adaptability (through a downsized, outsourced, part-time workforce) or loyalty (through a long-term commitment to people)? Should it seek high skills (by hiring the best and training them well) or low costs (by hiring the cheapest and investing no more than necessary)?

Lean and Mean: More Benefits Than Costs?

The advantages of a smaller, more flexible workforce seem compelling: lower costs, higher efficiency, and greater ability to respond to business fluctuations. Many analysts have argued that U.S. competitive success in recent decades is directly related to corporate willingness to shed unnecessary staff (Lynch, 1996). For some companies, downsizing has worked: "The formula of cutting staff and investing heavily in computerized equipment has paid off particularly in manufacturing, which enjoys a much greater productivity growth rate—more than 3 percent a year on average in the 1990s—than business as a whole" (Uchitelle, 1996, p. 1).

Downsizing works best when new technology and smart management combine to enable fewer people to do more. Yet even when downsizing works, it risks trading short-term gains for long-term decay. As mentioned in Chapter Two, "Chainsaw Al" Dunlap became a hero of the downsizing movement. As chief executive of Scott Paper, he more than doubled profits and market value. His strategy? Cut people — half of management, half of research and development, and a fifth of blue-collar workers. Financial outcomes were impressive, but employee morale sank, and Scott lost market share in every major product line. Dunlap did not stay around long enough to find out if he had sacrificed Scott's future for short-term gains. After less than two years on the job, he sold the company to its biggest competitor and walked away with almost $100 million for his efforts (Byrne, 1996).

Companies have eliminated millions of jobs in recent decades, yet many firms have found benefits elusive. Markels and Murray (1996) reported that downsizing has too often turned into "dumbsizing": "Many firms continue to make flawed decisions—hasty, across-the-board cuts—that come back to haunt, on the bottom line, in public relationships, in strained relationships with customers and suppliers, and in demoralized employees." In shedding staff, firms often found that they also sacrificed knowledge, skill, innovation, and loyalty (Reichheld, 1993, 1996). Recent research confirms that cutting people hurts more often than it helps performance (Cascio, Young, and Morris, 1997; Gertz and Baptista, 1995; Love and Kraatz, 2005; Mellahi and Wilkinson, 2006). Nevertheless, more than half of the companies in a 2003 survey admitted that they would make cuts that hurt in the long term if that's what it took to meet short-term earnings targets (Berenson, 2004).

Downsizing and outsourcing also have a corrosive effect on employee motivation and commitment. A 1996 poll found that 75 percent of U.S. workers felt that companies had become less loyal to their employees, and 64 percent felt that employees were less loyal to their companies (Kleinfeld, 1996). Workers reported that the mood in the workplace was angrier and colleagues were more competitive. A more recent study (Walker Information, 2005) found a modest uptick in loyalty—34 percent of employees said they were truly loyal, up from 30 percent in 2003—but there is still plenty of room for improvement.

Employee loyalty was a big issue during Robert Nardelli's roller-coaster tenure as chief executive of Home Depot from 2001 to 2007 (discussed in Chapter One). Home Depot's founders had built the company on fun, family, and decentralization. Managers ran their stores using experience and intuition, and customers counted on helpful, knowledgeable staff. But Nardelli was a dyed-in-the-wool structural-frame manager who put heavy emphasis on measurement and control. Where the founders had preached "make love to the customers," Nardelli cut staff, including many veterans who knew their way around paint and power tools. Customer complaints mushroomed, and by 2005 Home Depot's ratings of customer satisfaction were dead last among American retailers.

Nardelli's board pushed him out at the beginning of 2007 but cushioned the blow with a $210 million severance package. His successor, Frank Blake, reversed course in a hurry. Blake abolished the catered lunch for top executives that Nardelli had instituted, telling his colleagues to pay their own way in the employee cafeteria. He brought back the "inverted pyramid" organization chart that the founders liked but Nardelli didn't. It showed customers and employees on top and the CEO at the bottom. To reinvigorate Home Depot's playful spirit, he gave every store $3,000 for a "fun fund" to be spent at employee discretion (Barbaro, 2007).

Investing in People

Few employers invest the time and resources necessary to develop a cadre of committed, talented employees. Precisely for that reason, a number of authors (including Cascio and Boudreau, 2008; Lawler, 1996; Lawler and Worley, 2006; Pfeffer, 1994, 1998, 2007; and Waterman, 1994) have made the case that a skilled and motivated workforce is a powerful source of strategic advantage. Consistent with core human resource assumptions, high-performing companies do a better job of understanding and responding to the needs of both employees and customers. As a result, they attract better people who are motivated to do a superior job.

The most successful company in the U.S. airline industry in recent decades, Southwest Airlines, paid employees a competitive wage but had an enormous cost advantage because its highly committed workforce was so productive. Competitors tried to imitate Southwest's approach but rarely succeeded because "the real difference is in the effort Southwest gets out of its people. That is very, very hard to duplicate" (Labich, 1994, p. 52).

Ewing Kauffman started a pharmaceutical business in a Kansas City basement which he grew into a multibillion-dollar company (Morgan, 1995). His approach was heavily influenced by his personal experiences as a young pharmaceutical salesman:

Few managers in 1950 shared Kauffman's faith, and many are still skeptics. An urgent debate is under way about the future of the relationship between people and organizations. The battle of lean-and-mean versus invest-in-people continues. In pipe manufacturing, two of the dominant players are crosstown rivals in Birmingham, Alabama. One is McWane, discussed at the beginning of the chapter for its abysmal record on safety and environmental protection — 9 deaths, 400 safety violations, and 450 environmental violations between 1995 and 2002 (Barstow and Bergman, 2003b). The other is American Cast Iron Pipe (Acipco), which has appeared on Fortune's list of the best places to work in America (Levering and Moskowitz, 2003). Barstow and Bergman write that "several statistical measures show how different Acipco is from McWane. At some McWane plants, turnover rates approach 100 percent a year. Acipco — with a work force of about 3,000, three-fifths the size of McWane — has annual turnover of less than half a percent; 10,000 people recently applied for 100 openings. McWane has also been cited for 40 times more federal safety violations since 1995, OSHA records show" (2003c, p. A15).

Which of these two competing visions works better? Financially, it is difficult to judge, since both companies are privately held. Both companies have achieved business success for roughly a century. But in January 2003, at the same time that Fortune was lauding Acipco for its progressive human resource practices, the New York Times and a television documentary pilloried McWane for its callous disregard of both people and the law. Stay tuned for further updates; this story continues to evolve.

The human resource frame highlights the relationship between people and organizations. Organizations need people (for their energy, effort, and talent), and people need organizations (for the many intrinsic and extrinsic rewards they offer), but their respective needs are not always well aligned. When the fit between people and organizations is poor, one or both suffer: individuals may feel neglected or oppressed, and organizations sputter because individuals withdraw their efforts or even work against organizational purposes. Conversely, a good fit benefits both: individuals find meaningful and satisfying work, and organizations get the talent and energy they need to succeed.

Global competition, turbulence, and rapid change have heightened an enduring organizational dilemma: Is it better to be lean and mean or to invest in people? A variety of strategies to reduce the workforce—downsizing, outsourcing, use of temporary and part-time workers—have been widely applied to reduce costs and increase flexibility. But they risk a loss of talent and loyalty that leads to organizations that are mediocre, even if flexible. Emerging evidence suggests that downsizing has often produced disappointing results. Many highly successful organizations have gone in another direction: investing in people on the premise that a highly motivated and skilled workforce is a powerful competitive advantage.