Contribution of Adam Smith into management thought

Abstract

Adam Smith was the first person to identify specialization and the division of labour as the main drivers of productivity. He also conceptualized the “invisible hand principle” which explains how, under the proper set of incentives, self-interested individuals are directed to pursue activities that benefit the whole of society. Both ideas are of utmost importance in the field of management. Specifically, successful managers are those who are able to create good “rules of the game” which align the incentives of labour with the goals of the firm. Smith’s contributions provide a foundation for the division of labour and demonstrate the importance of establishing the right “institutions” within a firm, calling it a fair reward system. The paper arrives at practical implications for managers from the paper of an eighteenth-century economist. The major goal of the paper is to reflect over the decision making process which requires vast time consumption.

Keywords

• time
• economy
• labour market
• management
• society