Successful business principles: The power of division of labour

Business principles to follow after starting your business – Part 2

The first business principle that is related to organization is based on the concept of “Division of Labour”.

Adam Smith, the famous economist, in his seminal work “An Inquiry into the Nature and Causes of the Wealth of Nations” published in 1776, describes the amazing productivity increase caused by the division of labour in making pins.

He mentioned that if a person works like a craftsman, and makes the entire pin on his own, he would be able to make around 20 pins/day as shown in Figure 1. 

Figure 1: Craftsman

But when the work is divided amongst several workers in such a way that one worker draws out the wire, another straightens it, a third cuts the wire, a fourth makes the point and so on, 10 workers are able to make 48,000 pins/day, which is equivalent to one worker making 4,800 pins/day.

Figure 2: Factory

Thus, in this case of pin manufacturing, division of labour has caused productivity of a single worker to increase from 20 pins/day to 4,800 pins/day i.e. a 240 times increase in productivity, which is astounding!

This division of labour is the main driver of the economic prosperity over the last 250 years as it reduced the labour cost of most products drastically, and enabled the employment of a large number of semi-skilled workers at a good wage.

Figure 3: Functional Structure

Although some management experts have tried to re-arrange organisation structures of businesses into Profit Centres, SBU’s etc, the basic structure of any business unit beyond a minimum size is still a functional structure based on division of labour or specialisation.

The author is the founder and CEO of Results Consulting Group. He is a recognized thought leader on helping entrepreneurs build and implement significant and lasting competitive edges in India and the GCC. The views expressed are personal. Email: [email protected], website: www.we-deliver-results.com