Thursday, February 24, 2005

MBA Education is bad for Society/Business/.... Students?!!!

Here is a formulae for making an explosive - and suicidal - social cocktail:

  • take a bunch of ambitious and intelligent young people, whose primary motivation to join the course was not really to manage business or contribute to any public good - but to make more money than their peers. To be sure, an average candidate to B-School (before s/he starts preparing for the "entrance test") has absolutely no idea of what industry, economy, business or managing is all about (and even if s/he has worked for a couple of years, contributing to make a change is not the main reason for deciding to join an MBA course); the primary criteria to apply for and select a particular B-school is monetary self-interest, i.e., the "placement" - i.e., will it land me in a "good" (read, lucrative) job or not? Will the "opportunity cost" be worth the money and time? Is the "ranking" of the B-School good enough to give me a brand-equity, etc....

  • for two years, give this "consumer" a concentrated intellectual input that organisations exist for the sole purpose for increasing profits/money/shareholder returns/market share - or whatever!... Even if s/he does not (have to) sit through all the classes, this "doctrine of self-interest" has an intrinsic appeal which justifies the ends.

    This posting is about the 2nd point:

    Are B-Schools bad for Society/ Business/... Students?

    A recent item in The Economist quotes Sumantra Ghoshal from his forthcoming article (to be published posthemously) that the:

    "...worst excesses of recent management practices have their roots in a set of ideas that have emerged from business-school academics over the last 30 years."... The article goes on to note:

    "These include supposedly simplistic models of individual human behaviour (rational, self-interested, utility-maximising homo economicus) and of corporate behaviour (the notion that the goal of a firm should be to maximise shareholder value). These assumptions... were simple enough to allow business-school academics to develop grand theories of management supported by elegant mathematical models and empirical analysis that appeared scientific, and thus earned their subject academic respectability, but were, in fact, a pretence of knowledge where there was none."

    To quote from an earlier posting on Alternative Perspective blog, Sumantra Ghoshal had noted:

    "...that agency theory, created by Michael Jensen at Harvard, taught MBA students that managers could not be trusted to maximize shareholder value and therefore managers' and shareholders' interests had to be aligned through incentives such as stock options.

    At Berkeley and Stanford, students were taught transaction cost economics, developed by Oliver Williamson, which argues that the only reason companies exist is because managers can exercise authority to ensure all employees do what they are told. As a result, managers must ensure that staff are tightly monitored and controlled while creating individual performance incentives.

    Michael Porter has argued that to be profitable, a company must actively compete not only with its competitors but also with its suppliers, customers, regulators and employees, striving to restrict or distort competition, "bad though this may be for society."

    Ghoshal concludes that "by incorporating negative and highly pessimistic assumptions about people and institutions, pseudo-scientific theories of management have done much to reinforce, if not create, pathological behavior on the part of managers and companies. It is time the academics who propose these theories and the business school and universities that employ them acknowledged the consequences."

    On a similar theme, a couple of years back, Robert Simons, Henry Mintzberg, and Kunal Basu had published this Note to CEOs about the 5 Half-Truths of Business. To quote excerpts about two of these five half-truths:
    "...As business leaders and academics, we need to challenge what we do and what we teach. For some years now, we've been captured by a questionable set of beliefs -- assumptions about business that are, at best, half-truths.

  • We're only in it for ourselves.
    Think of this as the first law of business: In our finance classes, we are teaching a view of the world that says that each of us is obsessively self-interested and intent on maximizing personal gain. Economic Man, we tell our students, has one goal: more. And to get more, each of us is willing to do anything.

    It is, of course, a half-truth. To some extent, we are all self-interested. And today, perhaps more than ever, there are plenty of people - business leaders, financiers, consultants, athletes, professors - who are willing to sell their integrity for a price. There are people who just want more and who are willing to do whatever it takes -- and take whatever they can get.... But here's the problem: The half-truth of Economic Man drives a wedge of distrust into society. If we truly believe that each of us is nothing more than a calculator, then we become a society of calculations. Business simply won't work if each of us is only in it for ourselves. While we need to have individual initiative, we survive in a context of social engagement.

  • Corporations exist to maximize shareholder value.
    If there is a mantra that CEOs today have learned to repeat almost mindlessly, this is it. Analysts, the media, and institutional stock traders rate, reprimand, and reward companies and their CEOs based on this single standard of performance.... What's remarkable about the current worship at the altar of shareholder value is that it's a reversal of our prior beliefs and behaviors. We used to say that corporations exist to serve society. After all, that was why they were originally granted charters - and why those charters could be revoked. We used to recognize corporations as both economic and social institutions - as organizations that were designed to serve a balanced set of stakeholders, not just the narrow economic interests of the shareholders.... Of course... shareholders need a fair return on their investment. But there is a larger truth to this half-truth: Maximizing shareholder value at the expense of all of the other stakeholders is bad for business and bad for capitalism. It drives a wedge between those who create the economic value -- the employees -- and those who harvest its benefits..."

    ...So, given the profile of aspirants/students (consumerist/ self-interested/ insular) which the MBA progams attracts (point 1)- who are driven by personal selfish goals, a utilitarian attitude , a self-focued ambition and superior intelligence... but ignorant/insensitive etc....

    do B-Schools promote and reinforce these tendencies?...

    ...or as Mintzberg noted: do the B-Schools help developing:

    "...dangerous people, especially in this hyped-up society, are... those whose confidence exceeds their competence. These are the people who drive everyone else crazy. MBA programmes not only attract significant numbers of such people but encourage their tendencies."

    [postscript: A couple of months back, I had posted a note about the "Socialist" countries (alive and thriving) on this blog - which led to a personal mail exchange (not very pleasant, to be honest) with a IIT/IIMB student, who vehementaly and emotionally differed with that viewpoint. I admired him for his intelligence - he was, in fact, selected for the exchange program to Texas A&M - was extremely well-read and intellectually sharp... what stuck me was his parting comment in his mail:

    "I don't give a shit about this country or any other country in the world, I am just a simple good old greedy person who wants to become the richest person in the world and create and exploit discontinuities so please don't ascribe your motives to me (and if my actions indirectly result in wealth creation and benefit to society well that is a side effect I can live with :)."]

    ...Is this the archetypal MBA we - me included - produce in B-Schools??!!!


    Anuradha said...

    Dr Shukla,

    I think they are...based on whatever experience I have had working with MBAs from most of the B-schools, and myself being a non-MBA.Most of the times their confidence does excede their competence and these are my favourite words about them 'They just learn how to package themselves well and sell for more, and for the same reason they keep creating a brand around their institutes'


    Neelakantan said...

    I am sure this argument can be extended to any field of study.
    Nobody studies something in the hope that they dont make money. Doctor, Engineers and anyone else for that matter. After all, we are the "Selfish gene".

    Anonymous said...

    let me quote u a paragraph from an economics book:
    "For what purpose is all the toil and bustle of this world? what is the end of avarice and ambition, of the pirsuit of wealth, of power, and pre-eminence?"Thus wrote Adam Smith, who glimpsed for the social world of economics what Isaac Newton recognized for the physical world of the heavens. Smith answered his questions in "The Wealth of Nations" where he explained the self-regulating natural order by which the oil of self-interest lubricates the economic machinery in an almost miraculous fashion. Smith believed that the toil and bustle had the common effect of improving the lot of the common man and woman. "Consumption is the sole end and purpose of all production".
    Adding here my comments on the issue, selfishness is certainly justifiable if it drives a person towards excellence and greater performance. a selfish person working hard towards his selfish interests is anyday better than an idle and inefficient person incapable of superior thoughts and actions - the mere absence of a selfish motive doesnot glorify this under-achiever.
    A good deal on this view can be found if you browse through Ayn Rand's "Virtue of Selfishness". Her comments on this issue have good logic and great deal of thinking.
    Nevertheless, i think there can be nobler motives than selfishness and greed for power, status and money to drive someone to excellence. Indian history is rich with such examples of great personalities. (this is where philosophy and religion will enter)
    However i donot intend to extend the debate. I also agree wholeheartedly the logic behind the valid points made by the writer. But my question is , so what? who is blaming whom? is it the MBAs who are acting towards selfish interests? isnt it that every man is pursuing their selfish interest through every act of their life? (leave scope for perfected souls and sages here). You fall in luv, that is a selfish act! you help another guy, even that is a selfish act (refer Ayn Rand). you think of spending your life in comfort and bliss, away from the cut-throat competition, and again u r being selfish. where is the way out, my friend? (i have a hint for u - be perfectly selfish!! Go to Himalaya and start working for ur salvation! Or work for the community until death, seeking self-salvation again!)
    well, dear! of so many evils and ills, why r u so worried abt the selfishness of aspiring MBAs who are indeed serving the society much more than the average common man, no-matter what their motives may be? Its surely not to infer that the non-MBAs arent serving, or serving any less. Now come on, tell me frankly, what is ur selfish interest??? where does it hurt ur ego to see a guy craving and reaching for his limits?
    ( -- :-P, so u see where it hurts me, at least!! )
    PS: u remind me of mathematical fallacies,.. they have many logical steps, but suddenly, they divide both sides by zero, and then arrive at an invalid conclusion, like 1=2!!)

    Madhukar said...

    Thanks for the comment...

    Indeed! since "self" is involved, every action and thought can be interpreted as "selfish" - but that will be missing the point by rationalising it.

    A simple test is to ask an MBA to write down two honest lists: "things to have after MBA" and "things to do after MBA".... if you compare the lengths of the list, the difference between the "consumer" and "contributor" will be clear...

    Also, the point of the post was not that is anything "wrong" with the people who do MBA - but what the MBA education teaches and reinforces (including a distortion of what Adam Smith actually wrote;0)

    OTM Put said...

    I think Sumantra has taken an unjustified broad swipe at the academics who indulged in "physics-type" modeling in management science (or art, whatever you call it).

    Physics type modeling has its place in management science and has indeed cured us of many baseless thumbrules in finance, operations, etc. Take Finance for example. People like Markowitz have indeed liberated much of Finance from "vague English prose".
    Sumantra Goshal is one of those who rely completely on vague English prose, that is full of unfalsifiable "guru" utterings.

    Management, as a discipline, suffers from the greater uncertainty principle as all social sciences do, and the academicians job is to do something about it. Modeling is difficult. We make progress by making simple assumptions and gradually complicating them as our toolbox becomes larger. The "people-are-greedy" assumption has stood us reasonably well in finance and economics in terms of insights. A model or theory is judged by its parsimony of formulation and the insights it offers. When our mathematical and computing tools get more powerful, i am sure these assumptions will be relaxed and we will progressively get to a "realistic" assumption based modeling. But then, we had to start somewhere.

    Curtis said...

    "I am sure this argument can be extended to any field of study.
    Nobody studies something in the hope that they dont make money. Doctor, Engineers and anyone else for that matter. After all, we are the "Selfish gene"."

    Yes, but the worst thing about the MBA is that it's only two years of no work to get one . . . don't you think the 8 year medical school requirement largely weeds the "get rich quick" crowd out?

    Madhukar said...

    ..and I can add, it is not about the "natural sefishness" of people. It is also about that unlike other professions, management "science" is the only one which teaches that being selfish is OK and rational - in fact it may be even good for society.

    Arunkumar Balwantrao said...

    It is time for change. Transformation from Information age to Conceptual age. "A Whole New Mind" by Daniel Pink has already indicated the trends. The various existing posts indicate the information age view (Pros and cons). Syllabus and courseware reforms for MBA, Enginering, Medicine, Law and Science educaion is the need of the decade. This effort will may not come forward from existing academic community as it is not in their interest(??)

    John Smith said...

    calling an MBA bad is like calling metals like iron bad as they are used for bullets.
    It is a tool. It is for people to decide how best to use them.

    actually, there are places on the net where you get lots of info about an MBA in the US and Aid and everything else.
    I would say that an MBA remains a very socially responsible career option. NO points for guessing, I am an MBA.

    Kevin said...

    An MBA is great as is the right connections, as is the right experiences.

    I am trying to jump the curve and am applying for Seth's Godins Alternative MBA

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