Business Schools

'Silo' Thinking Let Us Down


Actions that made sense in isolation guaranteed a financial crisis when added together

Abraham Lincoln once said, "I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts." Business schools set out to prepare people to manage by telling them the truth about business, so does the present crisis prove that they have failed us?

As with bankers, this is a time for business school professors to show some humility. What most business schools do best is teach disciplines, such as accounting, finance, strategy, organizational behavior, and human resource management. Strengths vary, and employers have been adept at tapping into the richest veins buried in the leading schools. Thus there is a very real sense in which the best business school thinking in finance ended up being implemented in the most creative banks, that the best business school thinking in strategy ended up being sold by consultants to the world's leading corporations, that the best business school thinking in organizational behavior and human resource management ended up being applied to the recruitment and performance management of employees at the highest levels.

This thinking let us down. The current economic crisis is a crisis of financial analysis, a crisis of strategic thinking, and a crisis of employee management. Bankers and dealers sold products whose risks they either did not understand or did not care for; their senior managers approved strategic plans neither understanding nor caring about the risks that were being run, and the whole show was underpinned by incentive management schemes that made no sense in anything other than the very short term. These actions made sense taken in isolation, but when added together they more or less guaranteed a crisis. In other words, the coordination failure of the banks reflects a coordination failure inside business schools, a "silo" mentality in which the value of specifics with strictly limited applicability outweighs the value of a broader wisdom.

Teaching Facts vs. Teaching Wisdom

The problem is that teaching "wisdom" is tricky and elusive, whereas facts, however limited in scope, are unarguably facts. Most schools attempt to integrate disciplines in some way or another but faculty often find it difficult to reach common ground, and the danger is that this common ground may be little more than motherhood and apple pie. But there are signs that the disciplines are starting to converge. Economics, psychology, and finance are finding common frameworks and databases for testing theories, and these are starting to feed into the classroom.

If actions taken in isolation guaranteed a crisis when added together, they only did so eventually. Economists teach that markets work because they bring benefits to all; the current crisis has left many people feeling that markets are just pyramid schemes in which a lucky few get rich and the majority must lose. We have been here before. The collapse of Enron caused business schools everywhere to introduce courses in corporate social responsibility—morality had never sold so well. But ask yourself this: If you didn't know the difference between right and wrong by your late 20s, did you really think you would learn it at a business school?

The truth is that business schools taught managers to be profit maximizers on the grounds that self-interest works. As Adam Smith said, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest." Rather than recognizing the moral dimension of human behavior, business schools seemed to reduce every aspect of a life to a business plan, as if the joint stock company were the only legitimate form of human associativity; charities, partnerships, cooperatives and so on came to be treated as quaint anomalies. But this, too, is changing. Most business schools are increasingly interested in entrepreneurship and organizational forms that allow students to reach their full potential.

Reinvention Under Way

So where do we go from here? The truth is that business schools work because they enable individuals to acquire a set of skills that significantly enhance their productivity and job market prospects. Business schools will reinvent themselves as educators of more responsible managers if that is what employers want; business schools are already preparing courses for a new generation of financial markets regulators. Can we prepare people better? Only if we can break down barriers between the disciplines and create an integrated image of the business world in all that we teach. Visit any business school today, and you will find that faculty are already actively engaged in mapping out that future.

Stefan Szymanski is Associate Dean of MBA Programmes at Cass Business School in London.

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