As management theories fall flat and ‘ideal’ companies go under, B-schools look to change their curricula and corporates are no longer smitten by prodigies from such institutes.
Leading B-schools are looking to overhaul the MBA syllabus. Nitin Nohria, the newly-appointed dean of Harvard Business School (HBS), is said to believe that the way management is taught in B-schools contributed to the recent financial crisis.
Srikant Datar, another HBS professor, and two of his colleagues have authored a book, Rethinking the MBA: Business education at a crossroads, that echoes this theme.
It also laments the fact that MBA students are taking less and less interest in their classes and spending more time on networking and attending recruiting events.
A book that I have just finished reading, The management myth: Why the experts keep getting it wrong, provides pointers to why students in MBA programmes may be switching off. The author, Matthew Stewart, thinks that management theories don’t add up to much, so the MBA course itself means little.
Stewart’s background is interesting. After completing a doctorate in philosophy, he took up a job with a management consulting firm. With no knowledge of or background in management, he found himself advising CEOs of top companies at a billing rate of half a million dollars a year.
Stewart rose to become partner at the consulting firm. The firm itself went bust a few years later. Finding himself unemployed, Stewart decided he would get acquainted with management literature. He caught up with the books that he had acquired when he joined the firm but had never had a chance to open since.
In his book, Stewart dissects some of the more famous management theories and finds them hollow. His assault on management’s claims to being a science rests on a scrutiny of key theories in two areas, organisational behaviour and strategy, and works that focus on the creation of ‘excellence’ in companies.
As an example of how pretentious management theory can get, Stewart cites the Hawthorne effect uncovered by one of the famous names in organisational behaviour, Elton Mayo.
A researcher was studying the effect of workplace illumination on worker productivity at a plant, Hawthorne Works. When the illumination was increased, productivity went up; when it was turned down, again it went up. The same thing happened with various other interventions.
Mayo concluded that the results were not due to an external intervention but to the fact that the employees found they were getting attention. This is the foundation of much that has followed in the field since: about empowerment, teamwork, etc. But Mayo’s finding hardly qualifies as a dazzling insight.
He was merely pointing out that, as Stewart puts it, “If you are nice to other people, they will usually be nice to you.” This is a simple ethical construct. The danger in wrapping it up in management jargon is that students will see through the puffery and switch off — and, perhaps, this is what is happening at B-schools.
Stewart also takes on one of the most hallowed theories in strategy: the Michael Porter framework for analysing industries. Porter came up with a couple of important prescriptions based on the framework. One is that there are only three generic competitive strategies open to firms: cost, quality and focus.
Stewart points out that the Porter theory has not been tested rigorously, say, by comparing firms that adopted these strategies with firms that did not, and seeing whether one sample did better than another.
There are plenty of real-life examples of firms that did not pursue one of these strategies and did well. For instance, several Japanese manufacturers managed to combine quality with low cost, as US firms learnt to their dismay.
Another important conclusion from the Porter theory is that firms end up making excess profits when they can take advantage of market imperfections. But it is not a theory in the sense of having predictive power.
It cannot tell you whether a firm has sustainable competitive advantage or not. The corporate world is littered with the debris of firms that, at one time, were thought to have sustainable advantage.
Other theories of strategy have not fared any better. Gary Hamel and C K Prahalad propounded the idea of core competence and held up the Japanese manufacturer, NEC, as a shining example.
In the years that followed, NEC turned out to be an underperformer. In Competing for the future, Hamel and Prahalad gave several examples of model firms.
Bill Gates said much later that, except for Hewlett-Packard, every example they gave was a ‘total joke’. Hamel had moved on — he was now pronouncing Enron as America’s most innovative company.
Some of Stewart’s sharpest criticisms are reserved for the genre of management books typified by In search of excellence, authored by two ex-McKinsey consultants, Tom Peters and Robert Waterman. The book purported to list the attributes of high-performing companies after evaluating 43 such companies.
Two years later, half of the excellent 43 were in trouble. Five years later, almost all showed signs of decline. Peters responded in his next book by declaring, “There are no excellent companies.” By then, of course, he had made a fortune out of his first book.
There are serious limitations to Stewart’s examination of management theory. He focuses on a few theories in the softer areas of management and some popular books.
A great deal of what is taught in the harder areas at B-schools, such as accounting, finance and quantitative sciences, is based on sound theory and finds wide application in business.
But Stewart is right in saying that most of the hard stuff at B-schools can be picked up fairly quickly. That is why companies have taken to recruiting from admission lists and hiring bright people from streams other than the MBA. They know they can themselves provide the necessary training in hard skills and in a shorter time.
The hard skills constitute training. It is the soft part that constitutes education and makes for a rounded manager. It is not easily imparted through courses, such as ethics or leadership, that are the staple of B-schools.
Soft skills, Stewart points out, are what the old liberal arts education or humanities was all about. This indicates a way forward for remaking the MBA: combining the hard parts with the basic elements of a liberal arts programme.
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