As we know and as a Turk we are proud of, Daron Acemoğlu (together with Simon Johnson and James A. Robinson) was awarded this year’s Nobel prize in economics for his work on the role of institutions in economic development. His research on how political and economic institutions affect the welfare of countries through his “Inclusive Institutions Theory” is particularly noteworthy.
When I looked at the details of this study in more detail last weekend, I inevitably thought of companies and employee performance. And I thought about how many times I have seen this throughout my professional life. Many of my colleagues have been able to create wonders in other workplaces they went to after leaving us because they “didn’t fit in”, so to speak. Therefore, the management or executive structure of companies can also have a great impact on the motivation and performance of employees.
Can companies then be thought of as micro-economies?
In other words, Acemoglu’s “Inclusive Institutions Theory” can be adapted to the internal structure of companies (can it?). The corporate culture, decision-making processes, career development systems or rewarding mechanisms that have been shaped over the years by the management structures established in large companies under the name of institutionalism have a great impact on the productivity of employees. Although the dosage varies from sector to sector, an inclusive, transparent and democratic corporate structure generally increases employee motivation and performance, while exclusionary systems can prevent employees from reaching their maximum potential. At least this is my observation.
Inclusive and Exclusionary Systems: Acemoğlu’s research emphasizes that inclusive institutions increase the welfare of societies, while exclusionary institutions undermine welfare. If we apply this to companies, in an inclusive company, employees are included in decision-making processes, their contributions are appreciated, and career opportunities are offered fairly to employees throughout the company. In a very simple example, in a sales department, if the performance of only a few people is taken into account and successes are attributed only to senior management, this means an exclusionary structure and reduces employee motivation. However, when employees are encouraged to participate in all processes and successes are celebrated as a team, an inclusive structure comes into play and employee performance gains momentum.
Management Style and Performance: Another important point emphasized in Acemoğlu’s study is the impact of authoritarian and democratic management styles on results. As you know, in authoritarian governments, decisions are made centrally and the return on these decisions is usually short-term. Isn’t it a similar situation in companies? The decisions of a single leader can reduce employee motivation and productivity. However, an inclusive management style, the ability of employees to express themselves, the functioning of internal democracy and the open management of these processes can both improve performance and increase the sense of responsibility for success (or failure).
Shaping Performance through Organizational Innovation: When companies build inclusive structures to improve performance, it can be likened to creating an environment that fosters innovation. As in Acemoglu’s theory of inclusive organizations, employees should be given as much freedom as possible to bring out their talents. If an employee has autonomy in the projects under his/her responsibility, it means that he/she takes more ownership of his/her work and offers more innovative solutions, which in turn increases the overall productivity of the company.
Actually, all this leads us back to my favorite concept: Humanocracy!
Let’s leave this topic, humanocracy, for another article for now and reiterate the question we asked at the beginning: Can Acemoglu’s theory of Inclusive Institutions in relation to welfare be adapted to Company Management Styles in relation to employee performance?
What do you think about this?