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USA Edition | Today Is Friday, March 12, 2010 |
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USA Edition | Today Is Friday, March 12, 2010 |
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| Branding: Concealing Reality | « Scan Content In The Order It Was Published » | Clearing The Fog Of Politics | |
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And Now The World Must Recover
MBA thinking seeks to optimize everything for productivity while overlooking overall goals, accountability to all stakeholders, and long-term survivability. Thus, banks make loans for their transaction-related revenue instead of loan quality. Television broadcasting is optimized for revenue per cluster not value to viewer, service to community or journalistic quality. Everywhere, MBA thinking distorts mission, goals, management style and outcomes in much the same way bank robbers distort banking activities. Based on narrow MBA thinking corporate management has become optimized solely for the benefit of one stakeholder where there are many. The resulting damage to our institutions, economic engine, and governance model is at the core of this nation’s collapsing financial system and failing economy.
Robert Butche
Newsroom Magazine economics contributor George Manev recently offered some fresh insight into the role MBA studies played in perpetuating the irresponsible business models that have brought the world economy to the reality of disaster. Manev is not a newcomer to MBA curricula or focus, for he is himself a generation X graduate ( Michigan State ) with strong credentials in economics — especially as applied internationally. We share Chicago School inclinations and celebrate Milton Friedman’s contributions to understanding the psychology and impact arising from self interest motivation in free market operations.
MBA Theology Benefited Executive Compensation and Union Labor At The Risk Of Long Term Survivability
Earlier this year, about the time Detroit’s big four auto executives testified before congress concerning the impact collapsing credit markets were having on their businesses ( and union ), reality popped into focus. The entire U.S. auto manufacturing industry was on the verge of collapse they assured Congress. The nation may have been astonished to learn that not one of the well-educated, highly experienced and opulently well compensated men who ran Detroit’s Big Three automakers, or the union that priced American labor well above the world market, was responsible.
Don’t Miss . . .
FP Posted: Ray Williams
New York Times: Is It Time To Retrain B-Schools?
London Times: Harvard’s Masters of the Apocalypse
Bloomberg.com: Harvard Begins Case Study as Tainted MBAs Reveal Damaged Brand
The largest and historically most successful segment of American capitalism was at death’s door — and no one was responsible, let alone accountable for decades of failed management — or a union that felt itself above the laws of economics. Money would solve the problem, the executives testified, without changing management or addressing how both union and managers had failed.
When the dust settled, Manev and I exchanged views on the unfolding collapse of Detroit resulting from their steadfast adherence to what had become an unsustainable illusion. At issue, in our exchange, was the role played by what had become a pervasive MBA ideology.
The adverse impact of MBA thinking began to surface during the Jimmy Carter Administration ( 1977 – 1981 ). In the ensuring decades MBA theology grew in popularity as it spread beyond business to include government and collegiate athletics. If you wonder why it can cost upwards of $500 for a family outing for a college football game, or twice that for a New York Yankees game, its because nearly everything in Western society has become business oriented and MBA thinking infected.
MBA thinking told us that a young man who can throw a ball or drop one through a hoop is immensely valuable. Economics is far less romantic about the realities of compensation and economic value. MBA thinking won out until it finally collapsed by way of the failure of the immense economic distortions it fostered.
The emerging theology that would become central to MBA thinking and values was both simple and direct.
More is always better to the exclusion of all other interests or value systems.
Nobody said it this directly, but now that MBA thinking has been discredited, its historical record can no longer be denied. By the time President Reagan proposed significant deregulation of certain aspects of business and commerce in the name of permitting the free market to work its magic, both political parties had already embraced MBA theology. Everyone who mattered openly adopted the MBA mantra: money over all other concerns. From then on, responsibility, honesty, ethical behavior and accountability were largely relegated to little more than complimentary rhetoric.
There was a new way of thinking in America, one that deemed scientific managerial activities aimed at optimizing earnings and wealth the defacto answer to nearly every problem. Given that this mantra had become the centerpiece of business education, especially graduate level, both the ideology and methodology were set loose to spread into nearly every aspect of our lives. With so much value being placed on scientific management techniques aimed at optimizing nearly every institution and business, demand for skilled managers resulted in specialized education aimed at optimizing MBA pay. One result was the immense growth in Master Of Business Administration programs at large numbers of colleges and universities. By the time Bill Clinton entered the White House, an MBA degree from one the more prestigious schools became one of the most coveted degrees for those entering business.
At its heart, MBA thinking supported the notion that the business model could be, and probably ought to be applied to every institution so that it could be managed for optimum efficiency. It also promotes a simplistic value system in which profit is the only measure of success. In the real world, business or public sector, there are other critical measures of success. Public policy matters, as does operating lawfully, serving all stakeholders, being responsible to community and nation, being accountable for decisions and consequences.
Related Newsroom Magazine Resources
To date, Newsroom Magazine has published over fifty articles dealing with short term management and its increasingly bad outcomes. Some of those articles were published in years prior to the collapse that began in 2008. Those interested will find most of Newsroom Magazine articles and essays in this area arranged by date in Newsroom’s Business-Finance section.
As a group these essays and articles argued that MBA thinking was at the heart of the short-term thinking era in American business that has subsumed nearly every corporation and most if not all medium size and small businesses. “MBA thinking is fundamentally flawed,” I assured colleague Manev. “It’s at the heart of what’s so badly distorted corporate goals to where the only thing that matters is earnings growth.
MBA degree holders are the cream of the crop — highly trained, case study driven, and single minded. For over a generation, nearly every organization has sought to employ what was widely believed to be the most intelligent and well disciplined managers and workers. Everybody knew MBAs were the best of the best — the brightest, most skilled, and highly focused. Their success at enhancing the bottom line served to make MBAs essential to institutions responsible for nearly every aspect, activity, or commercial venture in Western civilization.
MBA thinking and education are not inherently sinister. But when MBA theology became the only way to manage, when it went unchallenged, and when it fed on itself, it evolved into a corrupting infection that has effectively brought down banking, fuel production, finance, manufacturing, athletics, publishing, broadcasting, real estate and transportation. No corporation, no institution, no enterprise will go uninfected — for MBA thinking is the only operational philosophy most business people have ever know. It is also an unsustainable belief system.
From the moment MBA theology took root, became respectable, or morphed into everyone’s key to business success, responsibility became optional. Truthfulness thought a weakness. Honor outdated. Ethics were to be applauded, not practiced. Being, or becoming wealthy was all that mattered.
While this view of life was not invented by, nor specifically taught to MBA candidates, they are the underpayment for the last quarter of a century in American business, finance and management style. By failing to teach a more balanced view, to do more than lip service to the importance of ethics and cultural matters, today’s MBAs are the product of a failed education.
Now that the outcome of the world’s massive MBA infection is coming to be known, the MBA brand itself is failing along with those organizations and institutions that MBA thinking has marginalized, or given to fail. It was against this background that I spoke on these issues with Newsroom Magazine economics contributor, George Manev.
“The MBA infection in business has been so widespread, and insidious,” I assured Manev, “that the MBA brand itself has been damaged.”
George did not challenge me, so I continued, “When one examines how the world got into the mess threatening even the biggest and wealthiest countries it’s clear that MBA thinking has had the impact of a horde of gangsters taking over nearly every business. Can you name a single enterprise, or government agency, that has not been infected with the concept that efficiency, and/or profitability, is the only true measure of success?”
George’s response caught me off-guard. “I don’t think we’re alone in assessing the immense damage done by MBA theology.”
“I’ve not found anyone else writing in this area,” I complained.
“How about the Ray Williams article in The Financial Post that you cited in your earlier article MBA Thinking: Enabler Of Catastrophe?”
“That piece spoke only to the disease,” I argued. “I think the whole theocratic foundation for MBA education is flawed. Sometimes I think I’m losing my Milton Friedman view . . .”
“I think you need to stand by your Milton Friedman view of this,” Manev assured me. “His view is well and alive, and it works when things do not fall apart. Once they do however, the invisible hand of Adam Smith breaks down and it needs a bit of help. That is where Keynes comes in and props up the lack of private spending and investment. We will get through this, it may take us some time, because things seem to be more structural than one would like, but we will come out of this. We have done it for the past 200+ years, and we will do so again.”
“But we’re speaking to the contributing causes, not the probable outcome,” I said.
“It seems that with the deregulation-type attitude of the 1980s and beyond,” George argued, “those MBAs coming of age had the mentality that everything was a fair game, with little consequence. The lessons and experiences of a major depression and a world war were lost. We party hard, and the bill never comes due, at least not in our lifetime. That type of behavior may have been reflected, in the school’s curriculum, although I would not know which without further research. Still, with a brief look at history, we can see a similar type of behavior, albeit that time it was in the 1920s — The Roaring Twenties.”
Before the day was over, Manev emailed a link to an article on the subject that was both responsible and credible: Harvard Begins Case Study as Tainted MBAs Reveal Damaged Brand by Oliver Staley. We were not alone. As others speaking on the issue came forward with their own assessments, their perspective painted the the problems in the MBA educational model and unbalanced values in even greater detail.
In our research for this article, we came to believe that Ray Williams summed up the problem so clearly in his FP Posted article that we thought it worthy of summarizing what the world is only now discovering:
So what should business schools focus on that they don’t? I would argue that business school or executive training programs should focus more on developing individuals’ personal growth with an emphasis on values, emotional intelligence and ethical behavior in business. The challenge for business schools is how to develop leaders not managers.
Ray Williams
