A Brief History of Psychology in Business

Management Science is a concept and body of practice that has been around since the 1890s. In the early days of research, psychological factors were often relegated after more easily measurable behaviours that contributed to the profitability of a corporation. Psychological factors were gradually categorized and recognized as 'Industrial Psychology'.

Theories and bodies of practice that acknowledged the 'human factor' in business could be said to have begun with Adam Smith at the end of the 18th century and Marx in the mid-19th, - but, without strong measurable indicators to guide decision making, the analyses of business generated by these theories failed to make an impact during the rise of Western industrialism.

However, the drive to maximize every factor of production all leads back to an acknowledgement that 'people' are a basic factor. Early theory maintained that people were uniform (a small part of Adam Smith's invisible 'hand of the market') and replaceable in work-flow and balance sheets that provided information to decision makers at all levels of organizations - the board, senior management, middle management; but seldom to employees themselves.

With the rise of psychology as a discipline in the late 19th and early 20th century the individual and individuals in groups began to become measurable in ways that could be used by decision makers - they became more than just factors of production.

Over the next century a range of individuals strove to satisfy the need for greater clarity. They are mainly characterised by their natures - all embraced interdisciplinary research and acknowledging their unique life experiences.

The pioneering work of Hugo Munsterberg, the hugely influential psychologist and seventh President of the American Psychological Association (in 1898), helped redefine psychology from a pure experimental process to a process more embedded in everyday life and, by definition, to organizational life - applied psychology. To those in the legal profession he is known as the father of forensic psychology (a century before CSI). He was researching the unreliability of witnesses because of perception bias and the elasticity of memory, and the use of force in extracting confessions. He was a renowned academic researcher but fully linked to 'the real world'. His book, 'Psychology and Industrial Efficiency' (1913) has often been cited as one of the first books on Industrial Psychology.

William Dill Scott, wrote the first book on the infant discipline of advertising, 'The Psychology of Advertising', in 1903. But he spent the majority of his distinguished career (another President of the American Psychological Association - in 1919) measuring and applying the results of his human research to businesses looking for greater corporate and human efficiencies, first laid-out in his 1911 book 'Increasing Human Efficiency in Business - A contribution to the psychology of business'. His work was instrumental in psychologically profiling American soldiers in both World Wars and fundamentally changing the nature of that huge organization, the American Forces. His research and applications enabled transfer of knowledge bases that created the format of recruitment and training practices in all organizations, many still existing over 100 years later. He was one of first to define common practical factors linking human indicators inside and outside the organization.

The science of applied psychology as practiced within the field of organizational development is called 'Industrial and Organizational Psychology', commonly abbreviated as I/O.

Industrial and organizational psychology resembles a coin with two sides.

Industrial psychology is one side of that coin. Its main focus is to understand human behavior in order to improve organizational efficiency, employee selection, employee training and to design jobs more efficiently.

The organizational side of the coin is the inverse of this. It focuses on understanding behavior in order to enhance employee satisfaction and well-being within the workplace. Its main foci include topics like employee attitudes, employee behavior, job stress, and supervisory practices.

During the interwar years many different approaches were theorized and measured in the search for greater insight.

Fredrick Winslow Taylor moved away from a psychological orientation towards a more behaviourist approach with his extensive measurements of 'time and motion', which help identify significant ergonomic factors that could lead to more efficiencies and productivity - sometimes good for individuals but at other times creating habitual behaviours that could have unintended consequences. For example, Henry Ford found that he could attract more people to work for him in the highly competitive market in Detroit in the 1920s and 1930s by using the methods of Taylorism to produce efficiencies - the assembly line - that enabled him to pay his employees twice as much as the average wage at that time. Sounds like a good use of research - but the problem was that Taylor also identified that if the assembly line workers talked with each other the production was not as quick compared to a focused and silent assembly line. This observation turned into a policy that made it forbidden to lean against machines, sit, squat, whistle or talk while working.

This was a win for Industrial Psychology. But it was a disaster for Organizational Psychology.

In Detroit is was said you could always recognize a Ford employee - they had the 'Ford Whisper', a way of talking out the side of their mouth; or the 'Fordized Face', able to talk without moving their lips.

Eventually this dehumanizing but efficient method of management became more and more ineffective as the Ford workers (non-unionized) were a fertile source of members for the newly emerging unions seeking new members through negotiating better pay and better working conditions - which eventually changed the nature of the whole industry.

If Henry had been more attuned to Organizational Psychology he would have worked with the concepts and practices developed by the 'Mother of Organizational Management', often also called the 'Mother of Conflict Resolution', Ruth Parker Follet.

Trained at Harvard University in the late 19th century, her book 'The Speaker of the House of Representatives', based on her studies, was immediately acknowledged as seminal at a time when female academics were few and far between.

Her studies of power were then used during the next 20 years of her life organizing disadvantaged communities through street level education processes to empower them to be able to talk and use the language of power to redefine power relationships with organizations and institutions that affected their lives - changing the dialogue from 'power-over' to 'power-with'.

These lived experiences informed her work, from the 1920s onwards, into management and business practices and redefining conflict resolution from 'domination' (winner takes all) or 'compromise' (each competitor loses something) to 'integration' (each competitor gains something new).

Her 1923 book, 'Creative Experience', brought a pragmatic philosophy to the field of organizational psychology. Introducing concepts like 'win-win' and 'fluid leadership' she observed and taught how individuals could communicate in different ways within their groups and provide the voice of diversity between groups looking to establish new power relationships - away from coercive power to co-active power - presaging the concept of co-creation.

She created the first purposeful Learning Organizations in disadvantaged communities and translated that into practices for groups within corporations - over 100 years ago. Largely forgotten after her death, Peter Drucker, the founding father of the modern concept of management consultancy, called her the 'prophet of management'.


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