The most valuable asset

To be successful in the third millennium, an organisation must be flexible, capable of rapidly responding to external stimuli and managed by managers who know how to effectively make wide-ranging and radical changes. It is more and more evident, especially in an industrially and economically advanced western world, that an organisation’s greatest and most valuable asset is its human resources and their contribution of creativity, innovation and empathetic involvement.

Marco Lisi

“(...) then Anu and Bel called me by name, Hammurabi, exalted prince, who feared God, to bring about the rule of righteousness in the land (...) and enlighten the kingdom, to further the well-being of mankind”.

Hammurabi, King of Babylon

A rapidly evolving reality
The birth of modern industry and mass production at the beginning of the twentieth century brought with it the first important scientific studies on managing organisations and human resources. These studies focused on the ambitious aim of defining the universal rules for “the best way of organising” the work of large industrial companies (i.e. to make them more efficient and productive). Nevertheless, the industrial world and organisational models designed by the founding fathers of modern management no longer exist. Today change, a distinguishing feature of the entire history of the post-industrial era, operates at a pace that has never been seen before. Globalisation of the markets has led to an increasingly more aggressive, at times even uncontrolled, competition which is continually being transformed. Technological innovation, especially in the field of information technology and communications, combined with market globalisation, has changed the face of industrial organisations. They have gone from being multinational or transnational companies to “virtual” organisations. This means that many of the theories developed in a not so distant past where the world evolved in a more stable and predictable way, no longer apply. To quote Peter Drucker, one of the greatest gurus of modern management: “Every few hundred years in western history there occurs a radical transformation. Within a few short decades, society rearranges itself, its world view, its social and political structure, its arts, its key institutions. Fifty years later, there is a new world. And the people born then cannot even imagine the world in which their grandparents lived and into which their own parents were born. We are living through such a transformation.” (Peter Drucker, Post-Capitalist Society, 1993). To be successful in the third millennium an organisation must be flexible, capable of rapidly responding to external stimuli and managed by managers who know how to effectively make wide-ranging and radical changes. It is more and more evident, especially in an industrially and economically advanced western world, that an organisation’s greatest and most valuable asset is its human resources, with their contribution of creativity and innovation and their emotional and sympathetic involvement.

From the dawn of mankind to the industrial revolution
The first major undertakings based on the work of the masses (sometimes enormous) and managed by groups of individuals responsible for planning, organising, commanding and controlling activities were accomplished thousands of years ago. Just think of the Egyptian pyramids or the Great Wall of China. It is estimated that it took over one hundred thousand workers and around twenty years to build one pyramid. It is outside all logic and good sense to imagine that a project of this size could be carried out without precise organisation and planning of activities: in fact, it had to be carried out under the guidance of dozens of managers ante litteram, who abided by the rules of common behaviour and procedure.
One of the first historical documents testifying to some type of management of human resource dates back to the eighteenth century, in Mesopotamia. It is the famous Code of Hammurabi, which contains a set of laws and administrative regulations written in Old Babylonian cuneiform on a stone stele. Hammurabi was the sixth ruler of the first Amorite Dynasty of Babylon. He supposedly ruled from 1792 to 1750 BC. Some of the 282 articles of the Code define what we today call the minimum daily wage of a worker: “If any one hire a day labourer, he shall pay him from the New Year until the fifth month (April to August, when the days are long and the work hard) six gerahs in money per day; from the sixth month to the end of the year he shall given him five gerahs per day.”
Apart from the undying texts of “military management” represented by the books of Julius Caesar, Latin literature does not have many literary texts on work organisation. One of these, though not a very good example, is the book De Re Rustica (On Farming or On Agriculture) by Marcus Porcius Cato, the Censor (234 – 149 BC). In this book written in a style that was very different to his orating style (flashy, vis polemica, intelligent and witty), Cato gives a series of good suggestions on how to run a farm and manage the workers, which in his case were slaves. The text is completely permeated with a provincial (it was written during the Punic Wars), utilitarian and traditionalist spirit which was typical of the Romans, “(...) absorbed in the practical interests of the farm, he sees the land only as a means of profit and slaves merely as a means to be exploited in every way.” (Ettore Paratore, Storia della Letteratura Latina, 1950).
Through the more or less dark centuries of the Middle Ages, evolution of forms of payment forms does not emerge until the rules of the Arsenal of Venice in 1436. They introduced the per diem wage (or prevailing wage) and forfait payments (a flat rate), depending on the type of work carried out. Three centuries later, a large epoch-making transformation upset the paradigms of a still rather physiocratic society: the industrial revolution which started in Great Britain during the 18th century and extended to the United States at the end of the civil war. The protagonist of the industrial revolution was not man or the organisation, but the machine. The enormous increase in productive capacity offered by machine tools operated by non-human engines reduced workers to the role of mere appendages to the actual machines and reduced the importance of proper organisation of production (as brilliantly demonstrated by Adam Smith in his truly visionary book, The Wealth of Nations, published in 1776). The need for an effective division of labour and rational organisation of the production process was not felt until towards the end of the nineteenth century. In fact, a series of related events took shape in this period, especially in the United States: the development of large corporations (as for instance in the steel and oil sectors), the birth of mass production (the car industry) and a reduction of transport costs connected mainly with development of the railway system.

The birth of classic management theory (1910-1940)
Modern management theory was born in 1911 when Frederick Taylor published his revolutionary work The Scientific Principles of Management. Taylor spent most of his professional life working in the Midvale and Bethlehem steel companies in Pennsylvania. He was a mechanical engineer who grew up in a Quaker and Puritan family (with strong principles of hard work and efficiency) and was appalled by the inefficiency of workers in the steel industry. In his work, Taylor summarised twenty years of observations and scientific experiments aimed at finding the best way to carry out a specific task. At the base of Taylor’s theory, also called the “scientific theory”, is the hypothesis that since a company is a big machine regulated by universal laws, there is only one ideal way of organising work. In this view of the company, men continued to be considered mere appendages to machines: their movements, fatigue, recovery times and social behaviours are viewed as considerations for analysis and scientific conditioning.
Taylor’s ideas became popular not only in America but in France, Germany, Russia and Japan. Their adoption, especially in the flourishing railway industry of the time, made the United States a world leader in terms of industrial efficiency for the next fifty years. Followers of Taylor’s “scientific theory” included the married couple Frank and Lillian Gilbreth and Henry Gantt. Frank Gilbreth was an engineer and Lillian Gilbreth was an engineer and psychologist. Together they scientifically studied the sequence of actions and the best method for performing certain manual tasks (using chronometers and film cameras). Frank in particular became famous for his experiments aimed at improving the brick-laying process. He effectively succeeded in doubling the laying speed, passing from 120 to 250 bricks an hour. Lillian and Frank Gilbreth are remembered for their impressive scientific work and also for the humoristic and moving description of their family adventures recounted by one of their twelve children in the hugely successful book Cheaper by the Dozen which was later made into a film in the nineteen fifties. The engineer Henry L. Gantt was joined by Taylor in his research. He is famous for inventing a type of graph which represents the planning and process of the activities. The “Gantt chart” is still widely used today. It shows the relationship between the work planned and completed on one axis and the time lapsed on the other.
In 1916, therefore almost parallel to Taylor, Frenchman Henry Fayol laid down the foundations for what came to be called “administrative theory” with the publication of his book Administration Industrielle et Genérale (Industrial and General Administration). One of his followers was the German sociologist Max Weber. Unlike Taylor, who was essentially a management theorist, Fayol was managing director of a large French company which owned numerous coal mines. Therefore, he had practical and direct experience in the theories he personally developed. Similar to Taylor’s theory, Fayol’s administrative theory is based on a mechanistic or Newtonian view of the company. The emphasis is not placed on improving the worker’s performance as he carries out his basic activities, but rather on developing the management capabilities of the managers and on the more administrative and organisational aspects.
With their emphasis on improving efficiency and productivity, both Fayol’s administrative view and Taylor’s scientific view of the classic theory of management give little or almost no consideration to the human factor. The mechanistic view of the company, more or less clearly influenced by coeval and positivist philosophical theories, focuses on a de facto materialism and an overly pessimistic view of man, according to which:
men prefer to be managed rather than being free to decide and act;
their motivation is based only on satisfying their economic needs and consequently, the payment system must be exclusively of a monetary nature;
men inherently dislike working, and so managers must manage them with firmness and impartiality.

Human relations theory (1940-1960)
The management approach based on human resources dates back to the work began by Elton Mayo in 1927. In that year, engineers of the Western Electric Company asked Mayo, a Harvard professor, and his work group to act as consultants in a series of studies conducted at the Hawthorne plant (Cicero, Illinois). Mayo conducted numerous experiments on how different physical factors (lighting, room temperature, layout of the locations, etc.) effected the workers’ productivity. The results showed that physical conditions had little importance and that, on the contrary, the human factor, more specifically motivation, had a prevailing effect on productivity. This is how one of the most important assumptions of the classic theory began to disintegrate. In the following years, the human relations approach was developed as part of the theory based on human resources, which focuses on the importance of worker satisfaction in determining productivity. Dale Carnegie was one exponent of this approach who was not acknowledged in official historiography, but this doesn’t mean he was any less insightful and representative. In 1937, Carnegie published his most famous book entitled How to Win Friends and Influence People, which was read by millions of people in the 1930s, 40s and 50s. It has been translated into dozens of languages and is continually being reprinted. It is a classic of its genre. Carnegie’s basic philosophy was based on the concept that to be successful you had to win the cooperation of others, which was naïve, but at the same time fascinating in its simplicity.
In 1954, the humanistic psychologist Abraham Maslow proposed a theoretical scale of a person’s five fundamental needs in increasing order of importance: 1. satisfaction of basic physical needs; 2. personal and family security and job stability; 3. acceptance in one’s social entourage; 4. self-esteem; 5. self-actualisation. With all the limits deriving from oversimplification, Maslow’s theory was and continues to be credited with having identified payment components other than the purely wage aspect. He also proposed that managers, at least enlightened ones, adapted the form of payment to the specific needs and characteristics of each worker.
In 1960, Douglas McGregor introduced the concepts of Theory X and Theory Y. The first represented an autocratic management style, and the second represented a management style more sensitive to the human factor and interpersonal relationships. Theory X was based on an essentially negative and pessimistic view of the human being. It assumed that men had little ambition, disliked working, tended to flee from responsibilities and needed to be managed closely in order to work effectively. On the other hand, Theory Y is positive and optimistic: workers can self-manage themselves, willingly accept responsibilities and consider work to be something just as natural as resting or having fun. We must add that McGregor’s position was not neutral: he believed that Theory Y best depicted the real nature of the workers and that therefore it should guide management work.

Contingency theory and the humanistic-psychological approach (1960-1970)
At this time, Lawrence, Lorsch and others put forward the conviction, called the Contingency Theory or Situational Approach, that there was no best way to do things and not only one style of management that could be used in all situations. How can management actions be adapted to the particular aspects of various situations and, in particular, to the psychological characteristics of each worker? The experimental method for determining character became popular during this period. It was called the Myers-Briggs Type Inventory (MTBI) and was essentially based on Carl Jung’s psychoanalytic theory and in particular, his book Psychological Types. In those same years, the so-called Management by Objective (MBO) by George S. Odiorne was born and met with initial success. The original aim of the MBO was to provide objective and participatory methodology for planning the activities to be performed by a worker in a certain period and his objectives of professional and personal growth (including wage increases) in the same period.

The systems approach and Total Quality Management (1980- )
The 1980s and 1990s were dominated by the theory of Total Quality Management (TQM) created by a small group of quality experts, the most important of which was the recently-deceased American W. Edwards Deming. It is well known that the success of the Japanese production methods, both in terms of productivity and quality, is largely due to the adoption of TQM. However, few people know that it was an American, precisely Deming, who introduced the TQM to Japan in 1950. Deming developed a 14-point program for transforming organisations which can be summarised as follows:

• customer-focused organisation and customer satisfaction;
• philosophy of continual improvement (TQM is a commitment that can never be satisfied. Quality can always be improved);
• quality of anything the organisation makes must be improved;
• statistical techniques must be used to accurately measure each critical variable in the production process;
• employees must be involved at every level of the quality improvement process.

TQM interprets the transformed characteristics of the market by focusing its attention on reducing cycle time and, consequently, reducing the time needed to place a product on the market (time-to-market). The Zero Defects (ZD) approach comes from the assumption that it is much less expensive to prevent errors or defects than to fix them. It also introduced one of the most famous catchphrases of TQM: “do it right the first time.” Total Quality Management is a systems approach because it does not focus on the organisational and administrative aspects, or on personal and interpersonal relationships, but on a “business system” that includes customers, sub-contractors and all the other factors involved in production activity. And this is how William Ouchi proposed his concept of Theory Z in 1981. It was halfway between McGregor’s X and Y Theories and the American and Japanese styles of management that summed up many fundamental points of TQM with a few variations.
 

A management style for the third millennium
As demonstrated, in the course of history, management theory went from rigid and schematic paradigms to more and more varied and complex models. In particular, the systems approach finally affirmed a concept of management that adapts to different situations with flexibility and discernment. Therefore, it is probable that the management approach must also be differentiated based on geopolitical conditions.
With the advent of globalisation, the industrialised west builds its economic supremacy not so much on the production capacity, which has conveniently moved to second or third world countries, but on the capacity to maintain and further develop its technological and scientific leadership. The focus continues to shift from quantity to quality and from hardware to software. New technologies and innovative ideas in the technical field and the field of organisation, creativity and imagination will be the defiant ground on which the battle for economic supremacy will be fought in the upcoming years. Management itself will go from being a production tool to a product in itself, strategic and exportable in the same way as the most sophisticated electronic chip.
Enlightened management will be able to adapt to these imperative changes and to reinvent the organisation so as to stimulate the creative asset that is human resources, which is sometimes just waiting for the right opportunity to come to the foreground. The manager of the near future must therefore be a sort of pedagogue, an expert in the art of teaching by asking questions, founded by Socrates but only poorly followed and developed in later years. Economic leadership increasingly goes hand in hand with cultural and political leadership, just as Pericles’ Athens or Lorenzo the Magnificent’s Renaissance Florence wielded their economic and commercial influence together with their cultural and scientific influence. Europe is faced with a historic opportunity to reassume its role as peace-time leader of the western world based on culture, invention, creativity and the arts. But to achieve this goal it must be capable of reinventing itself, looking bravely towards the future.

The (so-called) Pareto principle

“Vital few and trivial many”: a few important causes, and a host of lesser, insignificant causes. This is the Pareto principle, otherwise known as the 80/20 rule. Pareto analysis is one of the most widely used instruments in the modern branch of Quality Management, called Statistical Process Control.

Marco Lisi

“Vital few and trivial many”: a few important causes, and a host of lesser, insignificant causes. This is the Pareto principle, otherwise known as the 80/20 rule. The principle, the basis of many contemporary theories on company management and quality control, states that in every organised system, in which a collection of elements contributes to a common effect, most of the final effect (for example, 80%) is due to a relatively small percentage of the contributions (20%).
From this general principle a very powerful analytical method has been derived which, starting with experimental statistical data, enables the main causes of a problem to be identified and thus to focus efforts on these causes.
Pareto analysis (based on the diagram from which it takes its name) is in fact one of the most widely used instruments in the modern branch of Quality Management, called Statistical Process Control or SPC.

A question of fatherhood
The Pareto principle takes its name from Vilfredo Pareto, an Italian economist who lived in the second half of the nineteenth century and the start of the twentieth. Pareto, a creative and, before its time, “system” thinker, noted that in the Italy of the day around eighty percent of wealth was held by twenty percent of the population and vice versa. Subsequently, he undertook more detailed studies on the phenomenon of the unequal distribution of goods (the issue was topical as it was at the heart of newly created Marxism) and confirmed its fundamental existence in all societies during human history, developing a complex mathematical model to describe it.
Nonetheless, we must thank Joseph Juran, the founder of the modern theory of Quality Management, for recognising the Pareto principle’s universal validity, applicable to business organisations and, more generally, to the physical and biological world.
Juran’s intuition derived from a series of studies conducted in the Thirties on the distribution of salaries among workers at General Motors, during which he confirmed that this distribution followed, with surprising accuracy, the mathematical models developed by Pareto.
In 1951, with the first edition of his “Quality Control Handbook” (Ref. 1), Juran recorded in graphs numerous examples of statistical distributions of quality losses, comparing them to Pareto models on the distribution of wealth. The footnote in the text read: “the Pareto principle of unequal distribution applied to the distribution of wealth and the distribution of losses”.
In a subsequent article (Ref. 2) Juran also used for the first time the expression “Vital few and trivial many” in his list of “universal” principles underpinning the theory of “management”.

Vilfredo Pareto: engineer, economist, and sociologist
The due attribution to J. Juran of the 80/20 rule does not detract in the slightest from the creative originality of Pareto’s work, but rather it confirms its modernity and its prophetic foreshadowing of many of the latest economic and sociological theories.
This observation has a point if we consider the not always sufficient level of attention paid to Pareto’s scientific work, above all in Italy. In that Italy where some like to play the snob by giving a French pronunciation to the “o” in Pareto, ignoring the fact that he was in fact Italian and certainly had an Italian surname.
Vilfredo Pareto was born in Paris in 1848, the son of the Genovese Marquis Raffaele Pareto, a civil engineer, and a French mother. The family settled in Italy in 1852, first in Genoa and then in Casal Monferrato. Vilfredo, like his father, studied engineering at Turin University and graduated in 1870. Between 1870 and 1893 he worked as an engineer and lived in Florence.
In sophisticated Florence, which had just experienced the fleeting dream of being the capital of Italy, Pareto studied philosophy and economics in those years and wrote numerous articles in which he first proposed to analyse economic problems through mathematics.
In 1893, Pareto was chosen to take over from Léon Walras (known to the history of economics for his theory on economic equilibrium and for the law which takes it name from him) in the prestigious chair of political economics at Lausanne University in Switzerland. Among his students it is worth recalling a young Italian emigrant who was unknown at the time, but who would soon make a name for himself: Benito Mussolini.
Pareto lived in Switzerland until his death in 1923 at Céligny, in the Canton of Geneva.
Vilfredo Pareto was thus an engineer, economist and sociologist. A renaissance man with an eclectic spirit, an authentic pioneer in the modern theory of systems, with his application of mathematics to economic analysis and the introduction of the mathematical model concept to represent economic and social phenomena, Pareto fully deserves a place in the history of human knowledge.

Increasing productivity is possible
Returning to what we should now perhaps call the Pareto-Juran principle, its application to business organisations leads us to the conclusion, confirmed by statistics and even more so by everyday experience, that only a minority of people (twenty percent or whatever, it is not the precise percentage which is important) are actively and creatively involved in resolving most problems and thus really contribute to increasing productivity; most of the organisation, on the other hand, is rather victim to these problems and dissipates its efforts by fighting against the manifold obstacles of an omnipresent bureaucracy.
At this stage it is worth pointing out that the phenomenon is only partly due to a different level of professional motivation at an individual level; often in fact the opposite is true, i.e. that work motivation is low for those who feel in some way excluded from the most efficient part of the organisation and who sometimes think they are wasting their time.
The phenomenon is in reality more complex and can perhaps be best understood by means of a “thermodynamic” parallel. Thus it would seem that the organisations, just like thermodynamic systems, tend by the laws of nature to see their internal “disorder” grow (this is the well-known concept of entropy); even if wishing to act from within to re-establish the lost order, climbing back, as it were, to the top and fighting against the natural tendency, the success of the effort is destined to be partial and limited (this is the second principle of thermodynamics which defines the maximum efficiency of a thermal machine and shows that it is always well below 100 percent).
It should be noted that in this, perhaps forced, parallel bureaucracy, resistance to change, lack of responsibility and lack of motivation represent in the organisation what attrition represents in the physical world: a force which always opposes, which produces heat, i.e. disorder, inefficiency.
At this point the scenario would seem to paint a bleak picture of impotent pessimism, given the apparent ineluctability of the mechanism described.
And here is a good point at which to abandon the analogy with the world of inanimate objects and to remember that organisations, even the largest and most bureaucratic of them, are in any case always made up of human beings, i.e. individuals endowed (to a greater or lesser extent) with intellect and will.
Using the metaphor of the glass being half full or half empty, the Pareto principle leads us to state that, with the right strategies, productivity and efficiency can and must increase. A few simple lines of arithmetic would enable us to support this conclusion as well as to demonstrate that the margins for potential improvement are surprisingly wide.

Great ambitions, small changes
As we have already stated, productivity and efficiency, therefore, can and must improve. And the awareness of the possible improvement must lead us, beyond pointless and impromptu euphoria, to be ambitious.
It is, moreover, a well-known empirical rule of human psychology that great ambitions can be achieved more readily than small ones. However, great ambitions and great challenges require magnanimous managers who are capable of entertaining them. In fact it is a characteristic of real leaders to be able to conceive of almost unreachable goals, as Bill Hewlett (co-founder of Hewlett-Packard) did when he conceived and obtained in a short period an improvement in overall performance of 50 percent.
Every improvement requires transformation and change. Great improvements will require substantial, sometimes even radical, changes, but, it is worth stressing, not necessarily sudden ones.
It is typical of the Western mentality to associate the concept of innovation with an almost instant change, a great leap forward.
Until a decade ago, Japan was the model to follow in terms of production methods and business management. Today that trend has ended, but it is perhaps wrong to transform into negatives, from the highly-praised positives that they were, all the principles of Japanese managerial culture.
Of these the Eastern concept of “kaizen”, i.e. continuous improvement, is still valid.
The great battle against organisational ”entropy”, against the chaotic and Brownian motion of bureaucracy, against the “attrition” of intellectual schematics, will probably be won by sowing and planting in the organisation a culture based on the concepts of quality, excellence, readiness for change and continuous learning, and, why not, on some essential work ethics.
Pareto perhaps could not imagine how far his studies would have brought us.

References
1. Juran, J.M., Editor, Quality Control Handbook, First Edition, McGraw-Hill Company, New York, 1951, pages 37-41.
2. Juran, J.M., “Universals in Management Planning and Controlling”, The Management Review, November 1954.