McKinsey Quarterly Top 10 of 2012

The McKinsey Top Ten Articles of 2012 (registration required) contains a few items of interest for strategy folks.

First, it looks like the “s-word” is coming back into style in the endless wheel of business language faddism. Four of the articles have strategy in the title, and some of the others make heavy use of the term in the text. Birshan and Carr in “Becoming More Strategic” say

We are entering the age of the strategist. As our colleagues Chris Bradley, Lowell Bryan, and Sven Smit have explained in “Managing the strategy journey,” a powerful means of coping with today’s more volatile environment is increasing the time a company’s top team spends on strategy. Involving more senior leaders in strategic dialogue makes it easier to stay ahead of emerging opportunities, respond quickly to unexpected threats, and make timely decisions.

Second, we have Cynthia Montgomery’s rumination on “How Strategists Lead,” which makes a decent complement to Dick Rumelt’s Good Strategy, Bad Strategy and is based on a forthcoming book. It’s mostly wisdom-talk, but of a refreshingly skeptical and thoughtful type that fits many of my prejudices, so I’m endorsing it. One part that will be of interest to many of our readers is her insight that since going into executive teaching she’s found that her students are largely incapable of allowing their analyses to temper their optimism or to link their business plans to their analysis of competitive forces. We want executives with a can-do spirit, but we also want executives who are good at the Serenity Prayer and have the wisdom to know the difference between the things they can change and the things they cannot.

Third, we have “How Leaders Kill Meaning at Work,” worked up from a 2011 book, which is based on a large diary study (“…nearly 12,000 daily electronic diaries from dozens of professionals working on important innovation projects at seven North American companies.”). The article is based on “entries in which diarists mentioned upper- or top-level managers—868 narratives in all.” It turns out that “killing meaning” is equivalent to “interfering with success on projects and thereby demoralizing team members,” so the worker-motivation angle isn’t really necessary to their catalogue of upper-management dysfunction. The main quibble I have with the article is that they make no allowance for the possibility that experimentation and/or creating options might be the right way to go, although in the examples they give, if that was what was going on, communication with the front-line troops was inadequate.

All in all, might be worth registering for.

New Resource: Carpenter’s Strategy Toolbox

Some of you may remember Mason Carpenter’s old teaching web page with experiential exercises, videos, and other tips for teaching strategy. I’ve repackaged his content, added some of my own materials, and it can now be found at:

A quick tip is that you can now sort the resources by topic (click the category list on the right). I included the most common broad topics in a core strategy course so this should get you to something useful quickly. Probably most importantly, there is a mechanism so people can submit new tools and comment on exiting tools to keep the site fresh.

To give you a feel for it, here are links to a few exercises and resources that you might find particularly useful:

Marginalism and the Higher Ed Paradox

By now, you may be getting sick of reading articles and blog posts about the crisis in higher education. This post is different. It proposes an explanation of why students have been willing to pay more and more for undergraduate and professional degrees at the same time that these degrees are becoming both less scarce and more dumbed down. And that explanation rests on a simple and plausible economic hypothesis.

Read the rest of this entry »

Higher education disruption update

This online education thing seems to be picking up steam:  Stanford Professors Daphne Koller & Andrew Ng Also Launching a Massive Online Learning Startup. The missing piece is still certification. Once that exists, bricks-and-mortar delivery of higher ed will face some nasty competition … and we’ve seen how people feel about BaM — just ask Best Buy, Borders, or Blockbuster.

Of course, retail shopping is not the same thing as getting educated. There are similarities. For example, BaM is expensive and inconvenient in both cases. Also, in both cases, the younger generations are extremely comfortable with the online technology. Yet, it’s the differences that should be most concerning. Education-on-demand has the potential to solve many problems. This feature will be highly appealing to most potential students. Even more threatening to the traditional model:  the price of online education taught by professors from top schools is not just lower by the savings in BaM distribution costs — it’s zero. Think about that – zero.

Most of the colleagues with whom I discuss these developments argue that there is simply no substitute for the real-time, in-person, interactions available in the traditional classroom setting. They believe that this will continue to motivate students to pay a premium for the experience. I wonder. It is not obvious to me that students get some special utility premium from classroom interactions. Ask yourself this: do your students consider “cold-calling” a welcome feature of sitting in your class? In my judgment, most students would actually pay to avoid it.

Besides the assessment problem, there is another hurdle for the online education model. Clearly, no professor can answer the specific questions of 100,000 students. The online institutions are going to have to find a way to staff some form of virtual office hours in which students can get answers to their questions. My sense is that there is plenty of well-trained talent in India to staff office hours for these courses. Heck, in ten years, online course providers will be able to pick up highly experienced, unemployed domestic PhDs to man the chat rooms on the cheap.

UPDATE:  Elite Universities’ Online Play (HT: Instapundit)

Higher Ed Tuition Bubble Update

The drumbeat continues: MIT launches free onine “fully automated” course. Aside from the fact that these innovations have major implications for the livelihoods of my friends and I, the economics are interesting per se.

With the elimination of capacity constraints on the distribution side, will brick-and-mortar education providers go the way of Blockbuster and Borders? The market does not like brick-and-morter. It is inefficient – costly and inconvenient.

What happens when one professor can serve the entire market? Will superstars play an even larger role in academia? Will there be a market for top researchers (scarce) or good teachers (less so)? The same question holds at the institution level. Will everyone get a degree (and work for) HBS one day?

UPDATE: Megan McArdle provides a more thoughtful essay on this event at the Atlantic.

MBA tuition bubble update: Thoughts on the brave new world of MBA education

Here it is: MIT Announces Platform for Free Online Courses

MIT is planning to launch an open platform for free online classes, complete with certification for those who demonstrate mastery of their topics.

The key part of that sentence is the, “complete with certification” bit. I have to admit, that came faster than even I expected. As many who read this site will know, MIT has been running the OpenCourseWare site for 10 years which, according to this article, boasts 2,100 courses and has been used by 100 million people. Offering actual courses with instructor interaction and evaluation is new.

In related news, my good friend Scott Page (Leonid Hurwicz Professor of Complex Systems at Michigan) is going to teach a free online course on modeling in January that presently has over 10,000 people signed up. I understand the free online course in Technology Entrepreneurship being offered in Jan. by Stanford’s Chuck Eesley beats that by a factor of 3+. A couple of days ago, I commented to a colleague, “Well, when they figure out how to add the certification function, we’re in trouble.”

It is now official: we’re in trouble. In case it is not obvious, let me explain why. This technology removes a significant number of capacity constraints. Now, basically every student interested in, e.g.,  technology entrepreneurship can sign up for a course offered by one of the best researchers and most outstanding teachers at one of the world’s the top business schools … and obtain evidence of having completed it satisfactorily. Admittedly, the certification is not, for the moment, what it needs to be. For example, my guess is that verification of who is actually being assessed is not airtight. However, this technology will certainly evolve. At that point, why does Stanford need an admissions policy? Just let everyone who wants to take a shot at learning enroll and, then, let the chips fall where they may. Let’s face it, admissions procedures are notoriously inaccurate anyway.

Here’s a prediction about what will happen in the near future. With places like Stanford and MIT racking up tens of thousands of students for their free online courses, top-tier wannabes will have to follow suit. I can pretty much guarantee that sometime soon your dean will figure out that having thousands of students enrolled in your free online courses will be a necessary component of marketing the bricks-and-mortar program. The fear will be that schools that don’t offer such programs won’t be taken seriously. And, ultimately, I think, that fear will be well-founded. Also, given the fact that every university enjoys government subsidies of some kind or another, there will be major political pressure to provide the social good of low-cost, open access courses.

Then, eventually, the marketing device will actually become the core educational product. What will that wold be like? Will we see Stanford or HBS or Chicago become the of MBA education? At p = 0 pricing, does everyone but a few super-programs go out of business? If so, would that have the perverse effect of turning university-based b-schools into pure, state-supported research institutions?

Folks have long argued whether MBA education is more about learning things versus providing aspiring business managers with a signaling device (see, e.g., Ezra Zuckerman’s comments to my related post over at . If I had to make a conjecture, at least for the medium-term, I believe that the online course technology is going to make the split between the signaling and actual learning functions more pronounced. The bricks-and-mortar programs will be all about signaling and the online courses will be mostly about learning content. In their refined role, the bricks-and-mortar MBA will continue to be pricey and even more about being accepted into one’s aspirational social network, much like the private mens clubs of the 18th and 19th centuries. At the same time, those who are interested in learning graduate-level business content will be able to do so at relatively little cost online (though, this too will serve as a signal in its own right and may even be a requirement to admission to the social club, er, full-time MBA program).

What happens in the long-run is less obvious.  After all, once the local, full-time MBA experience becomes pure signaling and social networking, it will face numerous substitutes. After all, there are lots of ways to burn money … and bona fide social clubs still exist. What then?

Finally, there is the question of what happens to the business research community? While I can easily imagine a superstars market evolving, in which the Scott Pages and Chuck Eesleys of the world educate a massive share of the market, I also see an educational role for those doing relevant, state-of-the-art research. Those of us who manage to establish international research reputations are, almost by definition, in possession of scarce, valuable knowledge.  Therefore, I am reasonably optimistic that most of us will continue to make a living doing some facsimile of our present jobs. Whether richer or leaner, I can’t say — the monetization model of the future is opaque.



Mastering Strategic Management

I have to be careful with this post as four-five good friends have written textbooks in strategy — all of them, I’m sure, are excellent.   So, Flat World Knowledge now has a strategy textbook forthcoming, Mastering Strategic Management.   Flat World’s model is to deliver a low-cost alternative to existing textbooks: online access to the textbooks is free and then a fee is charged for downloading (and there are also audio versions etc).

I haven’t personally used a textbook in my teaching for six-seven years.  I frankly prefer the flexibility that comes from putting together a set of readings that fits my own teaching style and agenda.  But, it is nice to see additional alternatives popping up for teaching.  Flat World Knowledge also has a Principles of Management, Organizational Behavior and an International Business textbook.

Can entrepreneurship be taught?

“Entrepreneurship can only be self-taught. There are many ways to do it right and even more wrong, but it cannot be processed, bottled, packaged, and delivered from a lectern”, one of our readers – Michael Marotta – commented on an earlier post.  

I am not sure I agree with the suggestion of that statement, namely that “entrepreneurship can only be self-taught”. Of course we hear it more often – “you cannot teach entrepreneurship” – but I have yet to see any evidence of it. Granted, this is a weak statement, since the evidence that business education helps with anything is rather scarce (although there is some)!

However, the fact that the majority of entrepreneurs did not have formal business education does not tell me anything. Suppose out of 1000 attempted entrepreneurs indeed only 100 had formal business education. It might still be very possible that out of the 100, 50 of them became successful, where out of the 900 others only 300 became successful. This means that out of the 350 successful entrepreneurs, a mere 50 had formal business education. However, 50% of business educated entrepreneurs became successful, while only 1/3 of entrepreneurs without business education did. 

My feeling about the potentially influence of business education on the odds of becoming a successful entrepreneur are quite the opposite of Marotta’s. I see quite a few attempted entrepreneurs with good business ideas and energy, however, they make some basic mistakes when attempting to build it into a business. The sheer logic of how to set up a viable business – once you have had a good idea – is something that is open to being “processed, bottled, packaged, and delivered from a lectern” (although that is hardly what we do in B-school).

Having a great idea and ample vision and energy perhaps is a necessary condition for becoming a successful entrepreneur, but it is not sufficient; this requires many other skills, and for some of them, education helps. Out of the 10 different skills needed to become a successful entrepreneur, perhaps only 5 can be taught or enhanced through business education, but those 5 will clearly improve your odds of making it. 

Perhaps the majority of successful entrepreneurs do not have formal business education, but I have yet to meet a successful enterpreneur who did go to business school who proclaims his/her education was not a great help in becoming a success. Invariably, those people claim their education helped them a lot. In fact, many of such business school alumni donate generously to their alma mater. For example, one of London Business School’s successful alumni entrepreneurs, Tony Wheeler (founder of Lonely Planet travel guides) regularly donates very substantial amounts of money to the School, because he believes his education there helped him greatly in making his business a success, and he wants others to have the same experience and opportunity.

In the absence of any formal evidence on whether business school education helps or hinders becoming a successful entrepreneur, I am inclined to rely on their judgement: business school education helps, if you want to become a successful entrepreneur.

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 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.

Does Corporate Strategy Still Matter?

Teppo recently asked us whether the fundamental questions of strategy have changed since Rumelt, Schendel & Teece’s classic work. Relatedly, Mike wondered if strategy has lost sight of foundational questions and is now ceding territory to Economists.

One critical shift has been away from corporate strategy (multi-business firms and M&A). To an extent, this was fueled by debates over whether industry matters (see classic articles by Rumelt and McGahan and Porter) as well as the rise of the resource-based view. Lost in the shuffle were the prospects for corporate strategy research…

This has practical implications. I’m about to begin a module on corporate strategy (can you tell it’s my teaching semester) and this question looms large. I need to justify to my students why, given miniscule corporate effects, I am spending so much time on this topic. I think it points to a fundamental flaw in the way some of this research has been interpreted. Read the rest of this entry »

Moneyball and Strategy

The book Moneyball seemed to be all the talk at some academic strategy and orgs conferences around 2004-2005.  It annoyed me: why all the buzz about some practitioner book about baseball? Please.

Some time later I was the faculty advisor for a small MBA readings group and one of the books we decided to read was Moneyball.  I quickly discovered that the book indeed is a good introduction and case study of some central issues in strategy: human capital, appropriation and competitive advantage.  Billy Beane and Paul DePodesta’s strategy was brilliant.  As the students read the book, they immediately understood the power of a more scientific approach to managing human capital (e.g., selection) and the power of differentiation.  It seems, though I’m no baseball fan (it’s hockey or soccer for me, since I grew up in Finland), that the game of baseball has changed as a result.  (Though, of course sabermetrics had been around for quite some time).

I have also now seen the movie.  I quite liked it.  And the movie stayed relatively true to the book.  I may use the movie in future classes, as some sort of extra assignment.

There are certainly some more academic-y strategy issues to discuss related to Moneyball – but perhaps I’ll highlight those in a later post.  As Google Scholar shows, Moneyball seems to have influenced research in various disciplines (psychology, decision-making, human resources, economics).

Here are some academic blogs that have recently reviewed Moneyball, the movie: