Home > Articles > Business & Management > Global Business

The Psychology of Business: Selfishness is Not Enough (Part II)

This article, excerpted from the author's novel, Saving Adam Smith: A Tale of Wealth, Transformation, and Virtue (Financial Times Prentice Hall, 2001, ISBN: 0130659045), continues the Adam Smith story, which discusses the "invisible hand" and selfishness as a business motivator.
This chapter is from the book

Adam Smith, the founder of modern economics, proposed that the "invisible hand" of the marketplace would automatically guide resources to their highest uses in society when people pursued their own self-interest within competitive markets. Key to the working of Smith's system—and long neglected by mainstream economics—was Smith's further belief that many people's actions would be guided—disciplined—by an internal moral conscience. This, along with competition, is what allows a commercial society to be viable and sustainable with a minimum of government intervention.

In Part I of this series, we discussed the idea that selfishness alone may not be a powerful enough motivator to succeed in business today. In fact, Adam Smith's psychology of workers, consumers, and even shareholders could mean that some entrepreneurs, tapping into a richer understanding of human motivation and morals, could earn even higher profits by tying their company's success to principles of virtue—by not trying to make the most money possible.

Sound paradoxical? It is—and like many scientific breakthroughs, it might just work for some companies. Below is a continuation of the excerpt from a novel I've recently published [due out November 2001] on these issues.

Setup for Part II

In this second excerpt, our narrator, RICH BURNS, and ADAM SMITH (who has come alive in the present time), visit PETER CHEN'S computer chip factory company in Silicon Valley. They want to see first-hand how a new psychology of business is practiced. Let's listen in.

By eleven o'clock, we arrived on the outskirts of Palo Alto, in the heart of Silicon Valley. Ahead of us, along a long stretch of road, was Hewlett-Packard's headquarters. Massive low-slung buildings and factories were designed to create the feeling of a college campus. Across the road, up a side street, was Hoover Tower, landmark for Stanford University. Tens of high-tech research buildings sprouted around the campus like mushrooms. Farther along, we saw the legion of support industries that make up Silicon Valley, the finance capitalists, consultants, lawyers, and business journalists. We toured, finding the manufacturing giants of the information age: Intel, Sun Microsystems, Cisco Systems, Motorola, and Lockheed Martin. Here is where hundreds of technology start-ups began, such as Apple, Adobe, and Netscape; but not Microsoft, which made Seattle its home.

Peter Chen's specialty chip factory occupied a one-story warehouse building in the neighboring town of Mountain View. Peter greeted us at the door. He had the same gentle smile and warm eyes, but today there were creases on his forehead that weren't there two days before. He ushered us past an open reception area. A woman in her mid-thirties stood by the counter, her eyes red. We entered Peter's small office facing the factory floor.

"We've got a little crisis," Peter said, running his hands through his hair. "Well, why lie? It's a big crisis."

Smith and I looked at each other. "Perhaps we'd best come back," Smith said.

"No, you might as well hear it. Don't want you to get the wrong impression that running a business is only fun and games." Peter stood and shook his head. "Jim Macdonald of Macdonald Semiconductor, our largest customer, called a half-hour ago. He raked our account manager Barbara over the coals." He nodded in the direction of the woman at the lobby desk who'd been crying. "It isn't the first time either. Every time he calls, my staff end up in tears. Not just Barbara, but her assistant, our technicians, everyone. He wants to throw his weight around, like a damn emperor, just to feel people squirm and let them know who's boss."

"What did he want?" Smith asked.

"He demanded that his chips be given priority. He wants them this afternoon, instead of tomorrow as specified by our contract. We're constantly juggling if we can, but today we've got twenty orders ahead of him. Some of these are from small start-ups; they need their products just as badly as Macdonald does."

"You can live without the start-ups," I said. "But Macdonald's the big fish, I guess."

"He's thirty percent of our volume," Peter sighed. "He thinks money rules and he can get away with this bullying. I've asked him to lighten up, many times. He doesn't listen."

"Anyone higher up in his company you can talk to?" I asked.

Peter shook his head. "He's the CEO. Barbara can't take it anymore. Says she's going to quit."

"The consumer is king," I said. "That's the first law of competition. You can't cut off your nose on this one. I guess you'll have to hire a new account manager."

Peter walked to the filing cabinet and rested against it. He expelled a breath of air and thumped his palm against the metal. He straightened and returned to his desk. In a weak voice, he said, "No, I've got to face him."

In a moment he had Jim Macdonald on the line.

"Jim? It's Peter. About your request: I can't push up delivery today. We'll have your product first thing tomorrow...as promised."

Peter took a deep breath. "One more thing, Jim."

In a few sentences Peter laid out the problem with Barbara and finished with, "I'm instructing my staff not to accept any new orders from you."

We could hear yelling emanating from the earpiece. Peter grimaced and punched a button on his receiver. A voice bellowed from the speakerphone, "Cancel my business? I gave you twenty million in orders last year! You can't fire me, I'm the goddamn customer!"

"Jim, we've thought it through and you've had plenty of warning. I'm sorry it has to be like this. That's our final word."

Peter hung up. He was pale. He got to his feet and swung to face the factory floor. He rested his forehead against the plate glass window, his breath fogging the pane. He said softly, "Our company lives by its productivity," Peter said. "We have virtually no absenteeism, low turnover, no pilfering, and our people thrive in the constant chaos of this industry because we face problems together. The old way of doing business, of hiring and firing people like cogs of interchangeable steel, leads to terrible morale. Fear serves as the motivator. People become too scared to risk, too frozen to innovate or cooperate. The culture becomes stifled with sycophants, bureaucrats, and spongers."

"Still, it took courage to fire your largest customer," I said.

"Barbara is like a sister to us. She'll be around long after Macdonald's workers jump ship."

Peter turned again to point out the window onto the factory floor. "I know I sound mystical, but consider how our company would be different if we let Jim Macdonald go on terrorizing us. And not just him, but think of all the hundreds of other small and large encounters of each week, each one giving us the chance to signal what our values are? If we chose profits ahead of everything, even ahead of our core values, then we'd make different decisions: We'd install safety and pollution equipment only to the minimum letter of the law; we'd tie workers to rigid schedules regardless of their personal emergencies. You know what would happen? Our workers would figure out pretty quick they're just pieces of meat, disposable items on the bottom line. The level of tension around here would mount. Workers would call in sick, from ulcers and mental stress, or just plain meanness. Our production crew would start making mistakes, and when we needed something special from our crew, they would have nothing special to give us. What had we given them that was special? We would start downhill, little by little. So that's why there's a paradox. We follow our higher aspirations for what kind of 'family' we want at work, and customer service and profit are natural by-products of doing that well."

As suddenly as he had gotten up, Peter sat in the chair and covered his face with his hands. He stayed that way for half a minute before drawing his palms slowly across his features, squeezing his cheeks, eyes, and nose. He looked like he'd seen a ghost.

"I may have just made the biggest mistake of my career," he said. "It's all very fine to talk about empowering workers, but that means little if this company goes belly-up. That's hardly caring for workers in the long run."

Peter stood again. "Make no mistake, we can't be doing what we do unless we keep making a good profit." He motioned around the room. "You see how we're frugal. No fancy offices. No company cars. No management cafeteria or health club. We fly coach, except for Paula, who is five months pregnant. We keep health insurance down by reducing negativity and stress on the job. We struggle like all companies, and we have our share of problems. I just hope to God we make it through this one."

Peter headed for the door. "I need to tell people what's happening. We'll have to make some big adjustments without Macdonald's business."

He went out into the reception room, and we saw him talking to Barbara. She hugged him. Peter motioned us outside and we entered the plant. "It's going to be tough, but I know we'll survive." Peter said. He sounded happier and more confident than he did twenty minutes ago.

"Doing the right thing has a deep effect on all the people involved," Peter said as we walked down a white corridor. "Good energy is unleashed and life expands. It's not just Barbara who's now willing to walk on coals for us, it's everyone else who hears about this. I mean, people learn fast that we don't bull."

"Your approach sounds pretty idealistic," I said.

"Yeah. We've had to let people go who needed fear as a motivator," Peter said. "They're so wounded, they can't think for themselves; they wanted someone to tell them what to do every moment, and someone to watch them to see it gets done. No question our model won't work for everyone. But it's made us profitable, until now."

We entered a large production area with vats of cleaning acids. Peter cautioned us to not get too near.

"We're in competition with the world's leading companies," Peter said. "That forces us to be different. We do it by creating relationships, genuine ones."

Smith looked at him with a dreamy gaze. "A 'fellow-feeling' with others, is it?"

"Yes, but it has to be real. You can spot a phony in a heartbeat. I don't lecture this, I just do it. The beauty is, once you have relationships, everyone looks out for others."

Smith interjected softly, as if reciting something he had put to memory, "All is not lost when one puts the people in a condition to see it has intelligence. On the contrary, all is lost when you treat it like a herd of cattle, for sooner or later it will gore you with its horns."

Peter turned to Smith, gazing at him. "That's beautiful."

Smith nodded. "The great Voltaire."

"Poetry aside, business can't be run by being nice," I added.

"No one said anything about being nice," Peter replied. "Nice is the falsity that gets people killed on the job from sloppy procedures. You've got to be forthright, straight out, in the moment."

We reached the design area where computer chips were being etched. Four or five workers looked up and nodded as Peter entered. Peter went over and picked up a silicon wafer. The intricate pathways were a beautiful contrast of emerald green and gold.

Peter smiled, "If we can make it work here, what's stopping others in less competitive arenas? I can't help but think we're a harbinger of things to come."

"You don't think conditions here are unique?" Smith asked.

"Not anymore," Peter said. "Today everything is custom orders, short production runs, quick set-ups and turnarounds. That means even in factory jobs you need workers who can handle constant change, think for themselves, take responsibility, be proactive in finding solutions. If you can motivate employees, you can cut out layers of high-paid managers and supervisors telling workers what to do every step. Think what you'll save in time, money, and productivity. And if this is true in manufacturing, double what I've just said for service jobs."

I mulled these ideas as we walked back to the entrance. "Your breakthrough is simply realizing that worker productivity depends critically on how a worker feels about the job?" I asked.

Smith prodded me. "Good heavens, I pointed that out in Wealth of Nations. Seems hardly worth debating that a worker should work better in good spirits than disheartened."

Peter nodded assent. "Absolutely. But getting a worker to feel excited, loyal, and dedicated may mean turning a traditional company's management style on its head. You don't learn this in an MBA program and you can't put it in a memo; you have to live it."

"We show benevolence and justice to our friends, our families," I said. "It's not something economists typically put in economic models for running a business."

"Do you want to live your life in an isolated box?" Peter replied. "Is that the path to wisdom?"

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020