Historical Foundations for the Second Principle of Process Management

In the late 1700s in his book The Wealth of Nations, Adam Smith coined the phrase Division of Labor to explain specialization of manual labor. The Second Principle expands that concept into the realm of decision-making. Since decision-making is the heart and soul of effective organizations, the Second Principle is crucial for far-reaching success.

The Wisdom of the Second Principle

Division of Labor is the framework for all aspects of decision-making. It must be clearly understood to separate the strategic, tactical, and policy decisions. Operations makes the tactical decisions of running the facility. Management makes the strategic decisions of assessing the facility’s suitability for the job. Executives make the policy decisions of providing the vision for the business.

Division of Labor drives the decision-making process. It dictates who will be in charge of the different kinds of decisions (policies, strategies, or tactics). We are doomed to failure if we do not grasp the Division of Labor.

Policies provide the vision to guide the organization. Executives must develop and define this vision. This vision must be communicated so that the strategists can build a facility that supports the policy vision. Capability is a major strategic issue associated with management, customer, and sales concerns.

Tactics are defined as “accomplishing the goal using available means.” Control is a major tactical issue associated with operational duties. Operations makes the tactical decisions of running the provided facility.

Tactical execution is required for strategic decisions to be effective. If operations fails to correctly run the facility, no strategy will work. Our strategic decision-makers must count on our tactical decision-makers to do their job, for only then can the strategic decisions be effective. Many strategic options are available, but they will work only if the operation runs smoothly.

My next post will continue our discussion Division of Labor and decision types.

If you would like to learn more about this topic you will find my book Optimize your Operation (available in hardback, soft back, and kindle versions) helpful.