What struck me during my deanship was the speed at which we all risk becoming “out of date” in a world in which the rate of transformation is arguably unprecedented…. The environment that graduates enter may bear little or no relationship to that of a few years previously.
- Martin Binks, Former Dean, Nottingham University Business School
Footnote 5
The changes include globalization, technological advances, growing income and wealth inequality, declining social mobility, big data, climate change (see e.g., Phillips 2006; Howard-Grenville et al. 2014; Phillips 2014), the rise of China (and more recently of India), demographic shifts, the sharing economy, and U.S. détente with Iran and Cuba.
Satell (2015) comments,
Competitiveness is no longer determined by how efficiently we move around men and materiel, but in how we connect to informational resources. Enterprises need to manage organizational resources, but no longer derive the same scale advantages they used to.
[Therefore] we are no longer sure what businesses we are in. There was a time when being in banking or electronics or manufacturing had a specific meaning. Now, bankers must understand algorithmic trading, techies lend money, pharma companies invest and manufacturers design computerized devices just to do their work. We often have little idea where the next opportunity or threat may come from. And not knowing what business you are in, from year to year or less, makes it harder to figure out exactly what competitive advantage, exactly, we hope to sustain.
Doing and teaching business will be much more difficult until we can come to a new, and possibly radical, set of perspectives that acknowledge these changes.
The remainder of this section looks at the obstacles and opportunities for a number of business-related disciplines.
Economics
At the current state of knowledge there is no theoretical reason or empirical evidence to support the notion that all the growth of the financial sector in the last forty years has been beneficial to society…. Furthermore, I am not aware of any evidence that the creation and growth of the junk bond market, the option and futures market, or the development of over-the-counter derivatives, are positively correlated with economic growth. – Luigi Zingales (2015)
Should governments spend and borrow more to revive a dreary economy? Or impose austerity? There are established economic theories that argue either way. “Governments unanimously put their faith in the second [of these]. The consequences of this choice are clear. It is now pretty much agreed that fiscal tightening has cost developed economies five to ten percentage points of GDP growth since 2010” (Skidelsky 2012).
Long ago, economist Robert Kuttner wrote that economists, who regard equilibrium as inevitable in commodity markets, then make the mistake of thinking equilibrium is desirable. That is still a problem affecting university curriculum. Economists’ overarching principle, say Atkinson and Lind (2013), has been “maximize efficiency.” But “the goal of economic policy should not be to maximize static efficiency (the ‘right’ allocation of widgets), but to create inefficiency – in the sense of disruptive innovation that makes widgets worthless.”Footnote 6 This view needs to become more current in the classroom, as curriculum now bends further toward innovation and entrepreneurship.
As social and business problems become more complex, students need to gain a “systems” perspective. They are not getting one in the classroom. In a comment under Davies (2012) column, economist Gerald Silverberg wrote, “Most of the shortcomings of mainstream (rational expectations, general equilibrium) theory have been known for years: equilibrium rather than dynamics; lack of agent interaction …; perfect, self-consistent behavior rather than …bounded rationality that is additionally heterogeneous and endogenous; unique stable equilibria vs. combinations of negative and positive feedbacks resulting in multi-equilibria and more complex dynamic behaviors.” Silverberg cites the evolutionary economics work of Simon, Nelson and Winter, Day, Mandelbrot, and the Santa Fe Institute. He notes these works rarely show up in the curriculum, and lays the blame on “the sociology of US graduate education in economics.”
Finance
“I won’t hire from Wall Street any more. All those people know is how to suck value out of a company, not how to add value to it.” – An entrepreneur
Foroohar (2014), citing the “widely known” fact that most mergers and acquisitions knock down shareholder value, wondered why M&A activity was up in 2014. Her answer? “It’s an easy way to make a quick buck and please Wall Street. Increasingly, business is serving markets rather than markets serving business, as they were originally meant to do in the capitalist system.”
Foroohar cites Mukunda’s (2014) finding that 78 % of surveyed CFOs “would give up economic value and 55 % would cancel a project with a positive NPV – that is, willingly harm their companies – to meet Wall Street’s targets.” Otherwise, activist shareholders will agitate for their dismissal, according to Foroohar – despite that the challenges of the new business environment, which we have listed above, are problems “which will take years, if not decades, to resolve…. All this will put American firms at a distinct disadvantage against global competitors with long-term mindsets…. [By] 2025, 7 of 10 of the largest global firms are likely to come from emerging markets, and most will be family-owned [or SEO] businesses not beholden to the markets.”
Strategy
Strategy is stuck. – McGrath (2013).
“As the impact of the technology revolution became evident in the 1990s the days of corporate strategy as a dominant discipline began to wane,” wrote Sull, Homkes, and Sull (2015), “The ability of the organization to execute a strategy - and almost any strategy - surpassed the usefulness of formulating a strategy.”
Sull et al. asked managers why execution fails. Answers: no cooperation across functions and business units, and inability to adapt to changing market conditions.
Though cautioning against undisciplined violation of strategy, Sull et al. do not advise inflexible adherence to outdated strategies. “When managers come up with creative solutions to unforeseen problems or run with unexpected opportunities, they are not undermining systematic implementation; they are demonstrating execution at its best. Such real-time adjustments require firms to be agile.” As McGrath (2013) concludes, “Sustainable competitive advantage is now the exception, not the rule”.
The false mystique of the CEO master strategist who can foretell the future, says Denning (2012), embraces the notion that strategy is a fundamentally different from operational planning and requires a different breed of more highly paid person. In a vicious circle, this fallacy expands the pay gap between top execs and the rank and file, worsens income inequality in America, encourages the rich to invest in paper and land rather than in factories, and thus changes the business environment still further – requiring even more adjustment on the part of business schools. B-schools can end this cycle by changing the way they teach strategy.
Psychology
A recent large meta-study showed the results of most published psychology experiments cannot be replicated (News Staff 2015). The popular press eats up surprising results in psychology, so researchers are tempted to demonstrate surprising results. The meta-study showed that more surprising results showed less replicability than more mundane results.
This follows Henrich’s (2005, 2010; see also Watters 2013) groundbreaking inter-cultural work, which showed that many canonical psychology results, based on experiments on US university students, are contradicted when the experiments are repeated using subjects of other cultures and places. Several recent cases of research fraud have been uncovered (Shea 2011).
We see many of the same problems in empirical research in the traditional business fields. Marginally sufficient sample sizes, convenience-sample studies analyzed and interpreted as if they were random-sample studies, careless claims about scope of a study’s applicability. Researchers then expect industry managers to take the “recommendations” section of the study as a spur to action. It is difficult for a poorly funded researcher under publication pressure to conduct a primary data study with an n of more than several hundred. Yet as one insurance executive told a PhD class, his company would not think of designing a policy on the basis of less than a random sample of twenty thousand.
Entrepreneurship
So, in effect, the Coasean model has been turned on its head. Technology has minimized transaction costs, while organizational costs have become a heavy burden. Nimble startups can access manufacturing resources, talent, financing, computing power and just about anything else you can imagine and still be price competitive with the big guys – Satell (2015).
Satell’s statement implies entrepreneurship is no longer a course subject separate from “conventional” big-company management. Entrepreneurs and MNC CEOs are competing on the same playing fields of information/communication technology and social networking. The difference is that the big firms use their incumbent’s advantage, their wider connections, and their bigger war chests to minimize taxes, influence legislation, and maintain the illusion that they are still different and more deserving.
The Kauffman Foundation showed that venture capitalists’ returns on their funds are (considering their fee structure) inferior to those of stock index funds (Mulcahy et al. 2012). The VCs nonetheless write term sheets giving them a firm upper hand over their entrepreneurs (Mims 2015), sometimes much to the detriment of the latter. The universities feed this unfortunate system. “We prepare entrepreneurs to be eaten by VCs whose returns are no better than those of stock index funds” (Rao 2012).
Management
“The global financial recession and the collapse of investment capitalism (surely not planned by anyone) make it quite clear that top executives are simply not able to choose future directions. Despite this, current management literature mostly continues to avoid the obvious – management’s inability to predict or control what will happen in the future. The key question now must be how we are to think about management if we take the uncertainty of organizational life seriously”.
- Ralph Stacey (2009)
A Gallup survey showed (Otani 2015) that half of all US employees who quit their jobs do so to get away from bad bosses. See also Slaughter (2015). Despite university and corporate training, and company slogans, aimed at flattening org charts, celebrating failure, boldly innovating and so on, “bosses are rewarded for cutting rather than building” – laying off employees, offshoring operations, and reducing benefits. As the resulting cognitive dissonance flows completely up and down the hierarchy, everyone is distressed and “dysfunction is the norm in the American workplace.” As a remedy, Gallup’s chief scientist advocates promoting employees to management based primarily on their “natural talent to motivate others and engage workers.” (We note that he said ‘natural talent,’ rather than ‘business education.’) The results of Sull et al. (2015) agree with those of Gallup.
Human resources
One of the most important problems in technology is hiring qualified engineers, and yet our industry is terrible at it. – Thomas Ptacek (2015)Footnote 7
After roughly 115 years of Human Resources studies, we still do not know how best to make hiring decisions. Employers are conducting varied experiments (e.g., Feintzeig 2015). This is admirable, but the experiments are wild empiricism, with no theoretical underpinning.
Ethics
Harvard Business School… could sooner prevent earthquakes than make a primary contribution to ethics in theory or practice. - Joe Coates
Coates (1994) makes the interesting point that the Greek philosophical tradition and the Abrahamic religions prescribe ethical relationships “in terms of man-to-man, man-to-God, [and] man-to-institution,” as well as nation-to-nation, but are “bereft of an ethics of institution-to-institution and institution-to-man”.
As a result, Coates says, many arguments that we frame in terms of business ethics would be better framed in other terms having firmer philosophical or logical foundations. And due to the limitations of the Western philosophical heritage, he says, we are poorly equipped as educators to teach ethics in an age when corporations are becoming more powerful than nation-states. We are hard pressed to stretch the Golden Rule – perhaps the one ethical principle we can all agree on – to a full semester course.
We will say more about ethics education below.