A SPECTER IS HAUNTING American capitalism. No, it’s not a French economist. The chances that Thomas Piketty will get the 80% global income tax on CEO salaries that he’s advocating is, roughly, zero.
Rather, the specter is the ghost of Frederick Taylor, dressed up in the fashionable clothes of big data and predictive analytics.
Let’s travel back to 1911 to see why. It was the age of political Progressivism. “In the past the man has been first; in the future the system must be first,” Taylor wrote that year in his introduction to The Principles of Scientific Management . Taylor’s thinking echoed that of Woodrow Wilson, who would be elected U.S. President the next year. Wilson believed in social engineering over individual rights.
Taylor put forth a simple idea: You could increase labor productivity if you could spot and then eliminate all the irrational time-wasters. To do that, managers had to watch, record, measure and analyze the actions of their workers. No more employee freelancing on the factory floor. No more “make it up as you go.” Taylor wanted to reduce complex manufacturing processes to the smallest, most repetitive steps that any worker could do.
Taylorism, predictably, required an almost dictatorial level of control over workers and their work practices. Taylor saw his movement as the savior of workers, since more productive workers could earn more money. Workers did indeed earn more money. Taylor’s theories found their greatest realization in the assembly lines of Henry Ford’s auto plants. And, just as Taylor had predicted, Ford paid his most productive workers double the going rate for factory work.
But Ford’s application of rigid Taylor analytics couldn’t adapt to post-World War II market shifts. At General Motors, however, Alfred Sloan had a deeper insight. He knew that analytics alone couldn’t build a strong company. Humans, Sloan understood, want more than utility; they long for meaning. Under Sloan GM segmented the car market by aspiration, from affordable Chevrolets to luxury Cadillacs. GM boomed.
Scientific management–and its tendency toward overreliance on data and analytics–is alluring because it’s measurable, can offer a fast return on investment and is therefore easy to justify. This is especially true today, when the costs of collecting and analyzing data are falling faster than Moore’s Law. Data and analytics seem like a no-brainer way to fix whatever ails your company.
FICKLE BUT NOT STUPID
The danger is not in using data and analytics–managers would be fools not to–but in an overreliance on them. Their advantages soon get competed away. Worse, rigid adherence to data and analytics will always produce a backlash: Employees revolt, customers flee and shareholders wonder what hit them.
GM’s Sloan knew (and Ford didn’t) that humans are messy and irrational. We want what we want, and we don’t always know why. We can be fickle and ungrateful, but don’t mistake us for being stupid.
Taylor’s flaw was a fatal one. He saw employees as lazy, uneducated and lacking in curiosity, and urged managers to think of them as replaceable components. He promoted an extreme level of predictability and managerial control that made the working life of employees both menial and tedious, even as it raised their pay. Taylor saw the tradeoff as worth it. So did the employees–until they didn’t.
Will Taylor’s mistakes be repeated? They’re already starting to be. Amazon has grown like a weed, but it can’t or won’t show a profit, and investors are losing patience. Amazon pledges allegiance to data and analytics, but its employee turnover is the highest in both technology and retail. This means that Amazon’s extraordinary data-driven efficiency is hurt by its higher costs in recruiting, retraining and retention.
By contrast, Apple is the most valuable company on Earth. Its operations and finances are data-driven. But Steve Jobs, who cofounded Apple and led its resurgence, never saw human irrationality as a weakness to be stamped out. Jobs embraced and elevated the messy side of human nature. He was suspicious of market data–and he was rarely wrong.
Rich Karlgaard’s new book is The Soft Edge: Where Great Companies Find Lasting Success.