Friday, May 22, 2009

Comment on MBA's persona non grata status

Businessweek had this article MBAs: Public Enemy No. 1? After flipping through the slides (MBAs gone bad) you see a common theme (not the degree) and you wonder if the original title was "Harvard Business School - Public enemey number uno?", but got edited in the final draft.

There is a lot of discussion going on in the business schools (bschools) about the way management is being taught and if they are to be blamed for the current financial crisis. Is the bschool to be blamed in the first place?

Sure the short-term minded MBA’s may have caused the crisis. But there is another cause related to short-term-ism and that is the failure of managers (not just managers with MBAs) to recognize the risks associated with innovative new products (CDO’s, Credit Default Swaps, etc) and general lack of experience in nurturing innovation.

Managers bought into the idea that they could wait for innovative new products to grow in someone else’s backyard and move to acquire it at the right time (Wachovia purchase of Golden West's World Savings Bank, Merrill Lynch exposure to sub-prime). This strategy reduces the cost of development and reduces the risk of failure. Managers decides the right time to acquire by following there stock options spread which in theory is as good as listening to the customers or taking a long-term view, given the fact that markets are always forward looking.

Timing based on market, as we realize now, can often be guided by a shortsighted market chasing high returns only acheived in a market bubble (God forbidding we should remember the bust). In that case you sure will get your timing and risk assessment wrong.

A non-market measure will require a subjective decision which will be based on past experience in innovation management, deep knowledge of the product and the available skill set within your organization, usually such wealth of knowledge is trapped in human capital of your organization

Managing and nurturing innovation requires a long-term view and a wiliness to keep experienced and skilled human capital (people) within your organization. In the long run it will help create timely new products and services while retaining the capital for future growth. If a manager’s greatest asset is managing quarterly expectation then the manager shouldn’t be in the CEO’s office, a press secretary’s post will match her skill set.

CEO/manager who acquired the “in thing” and don’t seem to know how to make it work, will have to fight the permeating argument “look it’s working for someone” and will do the next best thing they learned (in bschool) transfer fixed cost to variable cost. Right sizing the organization to make it work, usually to meet quarterly forecast, though a good method if you know what to right size. Managers are rewarded to “make it work”, and they do exactly that “make it work” in the short-term or what I call the “duct tape managers”. Long term view is always in the sideline (waiting for Steve Jobs or someone like that to show up) and wrong decision too big to fail are made to work at the expense of the stakeholders.

This leads to the next issue what is truly driving leader’s (CEO) decision? Bschool training and/or markets.

Here are some reference website
Henry Mintzberg website
Productivity2008 (pdf) by Mintzberg

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