Adam Smith: managerial insights from the father of economics

Abstract

PurposeThe paper aims to apply the ideas found in the paper of Adam Smith, the pre‐eminent eighteenth century economist, to the field of management.Design/methodology/approachThe paper provides a brief biography of Smith, summarizes his main contributions, and then applies them to contemporary management practices.FindingsAdam Smith was the first person to identify specialization and the division of labor 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 labor with the goals of the firm.Practical implicationsSmith's contributions provide a foundation for the division of labor and demonstrate the importance of establishing the right “institutions” within a firm.Originality/valueThe paper arrives at practical implications for managers from the paper of an eighteenth century economist.