Do B-School Managers Lack Strategic Vision? Does it Matter?

For many years now, I have been interested in the business of business schools. In 1999, my then Simon School colleague Glenn MacDonald and I wrote a piece entitled, “A Proposal for Transforming the Simon School,” in which we identified several systemic problems looming on the horizon and suggested proactive solutions. Since then, the looming problems have arrived and, by the look of things, could get much worse.

I have written more recently about these issues here and here. My concerns echo those of Glenn Reynolds and others who raise the possibility that we are presently living through a higher education tuition bubble, pointing out that higher education shares some salient features with the pre-collapse housing market. See The Economist andThe Chronicle of Higher Education for related views.

The central question for those of us @strategyprofs.net is: what is the successful business model in which research faculty (i.e., people like us) deliver MBA education? Up until now, I would argue that b-schools have ridden the explosion in demand for MBAs with reckless abandon. After all, when the next class is always larger and willing to fork over higher fees, why trouble oneself over complex questions like this?  However, if the wave we’ve been riding is a bubble and if that bubble bursts, then providing an answer to this question will become a matter of some urgency.

Even if the bubble alarm is overblown, there are plenty of reasons to conclude that the flow of cash spouting from the MBA spigot is in danger of running dry anyway. First, worldwide capacity is expanding at a rapid rate. Not only do existing programs continue to add seats apace, but foreign competitors are working furiously to improve quality and make their programs attractive to domestic candidates (India and China come to mind and Europe already has several programs that rival those of the best US institutions). Second, competition is sprouting up from non-traditional sources, such as “in-house MBAs” offered by businesses and online programs and courses (some of which are offered by places like Stanford). Third, young people are beginning to question the value of the degree (and point to the large percentage of hight-tech moguls who happen to also be college dropouts).

At Rotman, we try to keep student quality up by recruiting heavily from overseas. Even so, the admissions distribution dips further to the left than we’d like. Add to this the fact that we are putting the finishing touches on a building that requires us to increase the number of students by almost 50%. Contrary to the persistent denials of our senior management team, we all know from which side of the distribution that increase must come. Now, if you add to that a smaller population of interested foreign candidates, and things start looking a bit worrisome. Thing is, I don’t think our situation is exceptional. In a industry of high fixed costs, low marginal costs, and softening demand … well, it doesn’t take a Nobel prize in economics to figure out where that ends up.

Over the last several decades — during which tuition money rained from the sky regardless of what we did — we’ve gotten sloppy with our educational strategies. Those running the show seem genuinely confused about the service we are providing. We are here to provide networking opportunities, or signaling value, or interview skills, or “practical” experience. Students have been framed as “customers;” content has been relentlessly dumbed down; grades have been inflated; clubs, parties, case competitions, networking events and a host of other distractions have been granted equal status to academic pursuits.

I raise the question again:  what is the successful business model in which research faculty deliver an MBA education? The research faculty model operates at a cost disadvantage to its alternatives because research faculty require time to do research. So, what is our value proposition? We are not the efficient providers of networking services, pseudo-experience, interview training and so on. If you think about it long enough, I’m fairly sure the answer you inevitably come to is that we must provide an education in which our research plays a central role. That’s the one thing we are uniquely efficient at providing.

Of course, any model build around a research-based education will require that students be treated as students, faculty take their certification role seriously, content and academic standards be raised to a level befitting graduate study, and recruiters and students be brought to understand why state-of-the-art, general academic principles are valuable in practice.

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14 Comments on “Do B-School Managers Lack Strategic Vision? Does it Matter?”

  1. Fgiones says:

    Very interesting, thanks!

    What a tough task to communicate to the market the different value proposition of an MBA research-based education and a MBA experience-based training.

    I’m not sure whether there are different segments in the market, or if actually the MBA concept has been changed forever, should think more of an MBA-DBA style program?

  2. stevepostrel says:

    These are definitely the right questions to be asking.

    One tentative thought–the value-add of research faculty is partly in their “reflective” qualities. These come in two flavors: First, taking logic and evidence seriously, even if the conclusion is unconventional or “ivory tower.” For example, few non-research types take opportunity costs seriously enough to understand why Southwest’s aviation fuel hedges a few years ago did not actually lower their operating costs. Second, being able to parse new fads and trends into useful-old, useful-new, BS-old, and BS-new categories. (We could use more of this flavor actually; I was pretty surprised as a new faculty member in the 1980s that so few of my colleagues were struck by the novelty and importance of lean manufacturing techniques.)

    A second thought. Even if we were giving students 30 or 40 journal articles to read, it doesn’t follow that the people who write those articles are best qualified or most cost-effective at teaching them. In fact, one of the biggest problems we have is that everyone is given incentives to write but no one has strong incentives to read, i.e. only review-article authors seem to get on top of broad areas of scholarship.

  3. JC says:

    Hey! welcome to the BSchool skeptics club – and recall it came into existence a long time ago.

    The current group of much-cited illuminati – Mintzberg, Ghoshal, Pfeffer, Bennis & O’Toole, and Co. – are just the latest taking up a view that has been a persistent undercurrent in our business (management education) since long before it left Germany to emerge phoenix-like in the US at the turn of the 19th century – see:

    Redlich, F. (1957). Academic Education for Business: Its Development and the Contribution of Ignaz Jastrow (1856-1937). Business History Review, 31, 35-91.

    For a previous generation of criticisms from within the US:

    Hayes, R. H., & Abernathy, W. J. (1980). Managing Our Way to Economic Decline. Harvard Business Review, July/August 58(4), 67-77.

    Porter, L. W., & McKibbin, L. (1988). Management Education and Development. New York: McGraw-Hill.

    Perhaps it is time we moved on from simply complaining about BSchools, given that little apart from the 1959 Ford and Carnegie Foundation Reports ever produced recommendations that actually impacted what we get up to?

    So to the fundamental question you ask – what is management education’s business model? Or perhaps more to the point, how come in all the research we claim we do, why have we failed to explain even a smidgeon of the extraordinary growth in the business of business education?

    There’s a sense in which, from the comfort of being specialists in academic rigor, many in the BSchool environment dismiss the BSchool skeptics like myself as as un-rigorous, subjective, opinionated whiners. OK, I am whining – but with the interest of the youngest members of our community at heart.

    So where do we see the contrary statistically valid empirical evidence that business education is of value over, say, the liberal arts-based broadness or the PhD-level technical specialist skills in physics or statistics that are increasingly being sought by the financial services employers?

    Few will argue BizEd is actually a significant determinant of business success – or managerial success come to that (which may, or may not, be the same thing or even highly correlated with it?)

    Or, given that the financial services comprise only around 20% of the economy, what should we do with the explanation expected in the early days of the US BSchool experience, that they would lead to economic growth – on which see Khurana’s noble attempt to inject some historical realism into that debate.

    Khurana, R. (2007). From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession. Princeton NJ: Princeton University Press.

    For a while Peter Theil has been telling us that higher education – in the US and in business especially – is another bubble waiting to burst, but how many have taken note?

    Even without considering the thorny matter of the relationship between research and teaching which being aired in the earlier round of October posts, the most fundamental question is the one you ask.

    I think there are two issues here. One is whether business education has value – whether the muddled discussion about human capital is relevant, etc. I would have thought this a suitable topic for research by the non-skeptics.

    The other is how come ‘business education’ now engages (colonizes, infects?) the HE system to the degree it does. One in five (maybe now even four) US college students is studying business. Aside from the opportunity cost of their missing out on some other forms of education which might have more life-value, it is clear the provision of management education has become a drug on which many institutions are hooked. Indeed many would argue that our inability to justify its value, intellectually or economically, has led them to turn a blind eye to our place in their own academic strategy and simply to say ‘give us the money’.

    BizEd is an amazingly low-cost product – even were its value proven to be considerable – and it seems possible to push prices ever higher, especially when jobs are in short supply. But do we have a business model or a strategy? As an ex-Dean I would also want to point to the gap between Deans (such as Donald Jacobs who brilliantly re-invented the Northwestern operation) and ‘BSchool managers’. We don’t have a good theory of what managers do, of course, but I think ‘being managed’ is not precisely the way any Dean or even Provost would describe what shapes a BSchool’s present or future. Unfortunately it also seems clear that BSchools are not – yet – ‘professional schools’ in the sense that they can be managed as the engineering, medical and even accounting schools can be by a coalition of interests that include national accrediting bodies like the AMA or ASME.

    On the other hand, when the demand for our product declines (collapses?) that will surely precipitate structural change in the HE system overall. Many of these changes are long overdue, of course, given that our principal technologies date back several millennia and that our process and pedagogical theory has more or less remained in place since the invention of the US research university in the late 1800s. The lack of any clear relationship between BSchool research and the BSchool students’ current needs is a ringing alarm bell.

    So even if the BSchool teaching and tenure opportunities for newly minted zero-business experience PhDs return (which seems highly unlikely), the entire product-based structure is seems to be at considerable risk. So to the core of the question about strategy – should we really recommend our young best and brightest to engage in this clearly eccentric form of life – no matter how fun the ride has been for us?

  4. Freek Vermeulen says:

    This was a good read – thanks.
    I guess most (first tier) business schools would describe as their two main activities research and teaching. In any strategy class we would say that for such an organization there must then be clear synergies (or an interaction effect, if you prefer) between these two activities. At present, in most schools, there seems to be little conscious, deliberate, and explicit effort to bring about these synergies.
    Here is a related article I wrote in the Financial Times on this topic:

    http://cachef.ft.com/cms/s/2/cd2233b8-2581-11e0-8258-00144feab49a.html#axzz1byDR4VtJ

  5. JC says:

    Hmm … this is interesting. Thanks for posting this piece from the FT.

    I am especially grateful because for several decades I have been looking for some business school research that we could point towards an as exemplar of the best of this breed.

    As a skeptic – who was in engineering, computing and banking for many years before coming into the BSchool business – I am tempted to challenge chums concerned about these matters to remind me of something useful to practitioners that has come out of BSchool research. Earlier this year Lars Engwall presented a list of the most influential work he could find – Hawthorne studies and so on. For me the most remarkable aspect of his paper was that ALL of the ‘most influential’ work was done using methods other than those on which today’s A-journals insist.

    Now you point to Brenner & Tushman’s ‘finding’ that ISO 9000 hinders innovation. Here, at last, is something that meets Don Hambrick’s challenge and I’m glad to see their paper has 909 hits on Google Scholar (to be compared with the 20,369 hits for Jay Barney’s 1991 paper) which suggests more than a few people have looked at their findings.

    But their findings are true, surely alarm bells should be ringing all over industry and both shareholders and lobbyists far and wide should be pressing for a repeal of ISO9000, as vigorously as they press for a repeal of Sarbanes-Oxley?

    Moving in the same direction, I am wondering if you could help me by identifying some (any) other examples of definitive practitioner-significant findings? I think they would be very clarifying for our younger researchers.

    • For me the litmus test is always “can I talk about this paper in my teaching, executive education, and my keynote speeches?” If so, and people in the audience don’t doze off during it but instead find it interesting, I consider it “relevant”. Relevance for me is not (necessarily) about direct applicability but about “does a practitioner find it useful to help understand his/her own business?”

      I do talk about a lot of academic papers – including Benner and Tushman’s – in my teaching and speaking to practitioners. Most of them I discuss in my book “Business Exposed”; happy to send you a copy if you wish.

      Btw, I find it much easier to talk about quantitative empirical research (such as Benner and Tushman’s) to practitioners than about case based research; they see that much more as “evidence from research” and “empirical facts” than our qualitative stuff. But that can surely also reflect my personal bias, and what I am comfortable with presenting.

      • JC says:

        Hi Freek,

        Thanks for this – but you are giving me some generalities about your criteria for introducing research into the classroom. I’m looking for specific research that could qualify as a BSchool-sourced finding that has had or has some potential to have a real impact on business practice.

        I would think the litmus test should be that of practice, no?

  6. davidburkus says:

    Interesting questions. I’m not sure of the answers but I love the questions. Other questions might not be about the research-based model overall, just, how do we ensure that the research conducted is truly of value (beyond just the “name in a journal” value).

  7. JC says:

    Ah well then – an interesting post from our colleague Julian Birkinshaw in London:

    http://www.managementexchange.com/blog/management-ideology-last-bastion-american-hegemony

    He takes off from Nick Bloom (Stanford) et al who reassure us that American management is the best. No worries, mate!

    Then he comments the US hegemony is coming to an end, with India possibly showing us the way.

    On which, see the details of Rajat K. Gupta’s involvement with the Indian Institute of Technology and much else besides – and check out India’s infrastructural challenges.

    Julian implies that goal-seeking, bureaucracy and efficiency-seeking are the hallmarks of a disappearing American ‘ideology’. Bureaucracy? Excuse me, came from long ago, and the theory via Prussia. Goal-seeking? Not sure we can claim that, though it is implicit in neoliberal rationalism. Efficiency? Well, no question Scientific Management was a US gift to the world:

    Spender, J.-C., & Kijne, H. (Eds.). (1996). Scientific Management: Frederick Winslow Taylor’s Gift to the World? Norwell MA: Kluwer.

    But the methodology Fred and his colleagues used was expressly French – after Comte – as Porter’s remarkably fine research shows us:

    Porter, T. M. (1995). Trust in Numbers: The Pursuit of Objectivity in Science and Public Life. Prineton NJ: Princeton University Press.

    So what’s my point?

    I think that one of the reasons we have these rather circular debates about, say, strategy and does it matter, or about BSchool leaders and their (in)significance, is that our community has little respect for, or knowledge about, its own history.

    Would we think to make suggestions or comments about the present economic and legislative crisis without any awareness of the Depression and the New Deal? Would we dare to comment on the crisis in Europe without bearing the post-WW2 situation in mind? Even today’s libertarians know a great deal about what they are pushing against, the the von Mises Institute’s fine and very economical publications show.

    Likewise how can we really engage the current challenges facing US firms without an awareness of Japan’s ‘lost decade’ and the reasons why Japan after seeming ready to take over the world in the 1970s now seem hopelessly bogged down. Are we going to presume that we have no role to play in helping US managers today avoid the pitfalls that have so stymied Japanese managers – and are we to be bowled over by China-frenzy without thinking about the historical context of their managers’ work?

    And what of Russia?

    I guess my point is that so long as we institutionalize our belief history does not matter we are condemned to repeat it (as someone once said) and that surely a central part of the contributions we might make, were we motivated by managers’ concerns, would be to (a) study the relevant history, and (b) use it to illuminate the context and options which now seem open to them.

  8. When I interviewed Rumelt recently (for this article, whose title was changed when it was repurposed after Steve Jobs resigned: http://www.bloomberg.com/news/2011-08-19/want-to-be-like-apple-lose-the-bafflegab-commentary-by-virginia-postrel.html), he said the following, “If you look at our MBA programs, they’re really optimized around 1980, where we sort of thought we knew what we were doing. Companies were busted into divisions, which ran businesses. Each division had a strategic plan. Each business had a couple of factories. We manufactured stuff. We marketed it. We engineered it. It was a design, a concept, of what firms did, which is increasingly obsolete.”

  9. JC says:

    Hmm … that’s Dick again, with that signally remarkable sense of aloofness. But here’s the thing, if we knew how to optimize in 1980 what is it that we have forgotten? Or does strategy only apply to things engineered and marketed? Does strategy not apply to turning the mobile ‘phone business into a quasi-monopoly, or to holding the nation to ransom by threatening to bring down the entire financial system, or to our adventures in Afghanistan, or …

  10. JC says:

    Further to my Oct 26 post that argued for us to develop a better sense of our discipline’s history and how we come to be doing what we are doing, I have just been reading http://www.sup.org/book.cgi?id=21133.

    This adds usefully to http://press.princeton.edu/titles/8463.html.

    As I said in my AMR review of Khurana’s book, it is a must read for anyone seriously interested in the business of business education. I would add the same tag about the Augier & March book. It tells more specifically of the process via which neoliberal rationalism colonized business education – to use Ben Fine’s term:

    Fine, B., & Green, F. (2000). Economics, Social Capital, and the Colonization of the Social Sciences. In S. Baron, J. Field & T. Schuller (Eds.), Social Capital: Critical Perspectives (pp. 78-93). Oxford: Oxford University Press.

    This whole story, as a way to deal productively with the ongoing criticisms of BSchools, to get to the bottom of the rigor-relevance debate, and to think about such matters as CSR and business ethics, is now coming very much to the fore. It helps break us out of the endless loop of literature in the Mintzberg, Pfeffer & Fong, Ghoshal & Moran, Bennis & O’Toole, etc. loop – to say nothing of previous generations of this very unproductive debate – however noisy it gets from time to time.

  11. JC Spender says:

    Interesting presentation by Dick Rumelt at SMS Miami. Same presentation as that at LSE and now on YouTube. However there were very interesting rejoinders by Marge Peteraf and Jay Barney. One has to ask the question – is Dick’s book really about strategy?

  12. Heidi says:

    Doceniam pozytywy informacji, które publikujesz na swoim blogu.
    Czytanie ich to sama radość. Styl witryny jest
    świetny, i artykuły są w zasadzie znakomite:D Dobra
    robota:) Pozdrawiam.


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