"Why does that suddenly seem ridiculous?"

[unixronin]

Today’s Dilbert strip nails one of my principal problems with the Harvard School of Business and its MBA program.

I will never understand how Harvard managed to slip the ridiculous idea over on American business that having studied how to run an abstract ideal company on paper qualifies anyone to step straight into any company and run it competently without having any substantial in-depth understanding whatsoever of the company, its product, its processes, or its market.

Comments

[ithildae.livejournal.com]

There are certain aspects about business that are absolutely universal for every business. There are aspects to marketing and operations that every business needs to do in order to grow and thrive. Being able to analyze the financials to determine if you are profitable, even if cashflow is good, is really important. If you want to grow your business beyond a Mom and Pop level (You can make a good living with Mom and Pop levels), you need to be able to do the analysis. MBA's are valuable in that they are taught those techniques. (Much like engineering education is almost completely focused on technical analysis, rather than the entire engineering cycle.)

The problem comes into focus when the MBA, by virtue of his training, believes that he knows everything about running the business. It is a lack of perspective and humility that can seriously damage a company. It needs to be a team effort, superior product and industry knowledge are valuable, but you also need to know if you are making a profit, not just money. There are techniques that can amplify the effectiveness of industry specific knowledge. That is a good thing.

I worked with a Harvard MBA, JD who was scary brilliant. He understood what he knew, and he drove that knowledge into the organization to incredible effect. He also understood what he did not know, and worked with the entire management team to fill in those gaps. I know of two counter-examples with just the Harvard MBA, one of whom went from small company to small company, knowing everything, and drove them out of business by the changes he implemented. A serial value destroyer.

When the financial analysis tools of the MBA came into power, in the late 1980's, they made a significant impact on the profitability of the companies that used them. It became hard to compete against companies that used the MBA strategies. Those strategies drove depth of business experience out of the companies, and eliminated the resilience of business knowledge within the companies. Vacations became a major stress factor in departments. If a key person left, the company was screwed.

Long term, the use of those MBA techniques went too far, and is hurting the business world as we speak. They are still valuable to understand. The people that understand the impact of the MBA tools are still very angry at their use, I think it has lowered the standard of living for most Americans. Economics is not a gentle, caring science.

[cipherpunk.livejournal.com]

I blame the CxOs, myself. It used to be the guy at the head of the company got there either by nepotism or extreme competency in the nuts and bolts of the firm. Sometimes, as in the case of the early Ford Motor Company, both. Then, as you point out, complex financial instruments became commonplace and finance professionals were brought on board. So far, so good.

Then the financiers started running the companies. That’s what a CEO is — a financier. Many CEOs have little understanding of the nuts and bolts of their companies and don't especially want to know. They just want to know cashflow: are we profitable? Can we make this buyout? What’s in it for us if we approve this merger?

There’s nothing wrong with that kind of analysis and there’s certainly nothing wrong with having answers to those questions — but the idea that business should be driven by those kinds of questions is, IMO, madness. The closest we have nowadays to a nuts and bolts guy is the Chief Operating Officer. If the COO is competent, they’ll have a strong background in the company’s operations and some math–heavy business school knowledge (Operations Research FTW!). If the COO is incompetent, well — substitute “I once led a Boy Scout troop” for nuts and bolts background and “of course I’m good at math, I’ve got an MBA, right?” for the math.

[ithildae.livejournal.com]

You are exactly right about the madness. The financial aspect were no longer illuminating the business, they were driving decisions. (Never use statistics like a drunk uses a lamppost, for support rather than illumination.) Alaric identifies the other major problem, short term thinking. When CEO compensation changed to market forces rather than salary, the ten year, five year and one year plans disappeared. It was all about quarterly earnings reports and stock price. The MBA's just provided data for where to gut next.

[unixronin.livejournal.com]

Exactly. The worst of it is that it's all short-term thinking.

The most destructive, IMHO, of the Harvard Business School's concepts is the idea that the most important thing is the bottom line on this quarter's balance sheet, and everything else is secondary. Short-term profit over long-term sustainability. It's all about maximizing profit RIGHT NOW, and to hell with the long term.

[ithildae.livejournal.com]

The short term thinking aspect came from the BOD's setting CEO pay based on stock price. Whatever you measure, that is what will change. "If I can double my pay by gutting the company, I can retire and not need to work again. Score!" The MBA's were just enablers.