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The Future of B-Schools

I read a few interesting articles lately on the purpose and objective of business schools in developing "leaders" or "managers" or "professionals" or "entrepreneurs". It's a pretty interesting debate when you consider how fiercely competitive it is to get accepted to one of these institutions.

This article by James Heskett from HBS refers to a book that's being published this month about how business schools originally wanted to "professionalize" management the way that other graduate institutions have done for law and medicine and theology. But in fact, the real outcomes of these graduate business schools is that they produce people that are not interested in being managers, but instead interested in personal, short-term career opportunities and entrance into the elite networks that being minted at an elite business school allows you. Apparently the schools started out wanting to create "professional managers", but have in fact strayed from that over the years due to what Heskett refers to as "shareholder capitalism" - a process where managers are agents of the shareholders in their quest to maximize shareholder value.

Here's an excerpt that summarizes this move to "agency theory":

This was followed by, among other things, the growing acceptance of a 1970 declaration by Milton Friedman that "the sole concern of American business should be the maximization of profit" and the development of the field of "agency theory" by "Chicago School" alumni which clearly positioned the manager as the agent of the shareholder. They advocated larger performance-based incentives that were necessary to "align" the interests of managers and shareholders. Takeovers were favored as a means of enforcing the urgency of such alignment.

Heskett goes on to discuss the impact this has had on the people that seek out business education and the schools that provide it. Here's a particularly interesting excerpt from that discussion:

The forces described above have led to the hiring of faculty well-trained in economics and math, ready to do battle with issues and phenomena lending themselves to quantification (e.g., finance and agency theory), but "not intrinsically interested in business." It may account for evidence that students today are primarily interested in admission to, rather than study at, the elite business schools to enable them to join the best networks in order to make the most money the fastest. If so, does it help explain why they often don't go to work for organizations seeking managers of other people? In an effort to adapt, Khurana observes that nearly every one of the elite schools has adopted missions in which the development of leaders is paramount. But one might ask whether this is of much interest to students attending such programs or to the firms hiring their graduates.

It's an interesting question. Are business schools really about educating future leaders and managers? Or are they primarily a rubber stamp so that you can join an investment bank or management consulting firm?

There was an interesting comment posted by a current MBA student:

There will not be systematic change as the interests of key stakeholders are currently being met. The business schools are profitable, the students have their entry tickets, and the business world gets an effective, albeit expensive, recruiting service. The losers in this arrangement are all the potential leaders of society who are denied their entry ticket into elite organizations because they lack an MBA. Enterprising individuals master the business disciplines on their own with the aid of public libraries and open source content. These are the entrepreneurs of the world; the John Galts of the world.

Indeed, what about the entrepreneur? Or the social entrepreneur? Or someone genuinely interested in becoming a professional manager?

The new Dean of the Columbia GSB, Glenn Hubbard, seems to think that b-schools have indeed changed to address these audiences and needs, but it's just that they haven't properly marketed themselves. In a speech he delivered several months ago called "The 21st Century MBA", he talks about how the business environment is changing in the 21st century and how MBA programs need to adapt (and from his perspective have already adapted to a great extent) to prepare their students to meet the new challenges that result.

Specifically, he thinks the following changes are occuring in the business world:
  • Employees need to be more entrepreneurially minded
  • Responsibility, accountability, and decision making are more decentralized. Responsibility now comes from the need to solve a problem rather than from formal hierarchical relationships.
  • Employees must have a global perspective. Mental geography must now span the entire globe because of globalization.

The implications for MBA students is that they must now have the following:

  • Ability to think critically (i.e. they must have formed the right habits of problem solving)
  • Ability to build and lead teams across organizational lines
  • Ability to operate and lead in a borderless environment
  • Ability to integrate all their business skills to work in a process to identify and capture opportunity

Hubbard actually goes on to argue that there has been a sea-change in the expectation that schools (and society at large) has for professional managers. He argues that business is itself social development (rather than business having an obligation to promote social development). Here's an excerpt:

The thing that is most different about 21st-century management education is the conviction that business not only has an obligation to promote social development, business is social development .... The 21st-century business school graduate is concerned with eradicating poverty with the most powerful foreign aid program ever devised — investment — and entrepreneurship. The 21st-century business curriculum doesn’t just include entrepreneurship, it requires it.

Sounds nice, doesn't it? But how many b-school grads really care? It's a really interesting debate as I'm in the middle of my b-school applications (for the third time no less). I can certainly atest to the fact that the last two times I applied (certainly the first time), I didn't really have a compelling reason for returning to school nor did I do much research because I was primarily just looking to get accepted rather than thinking about why I really needed to go back. Hopefully this is all worth the effort ...

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