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Rakesh Khurana’s Business School Mission Critique

Posted on Friday, Sep 28th 2007

I read an interesting piece in the WSJ this week called Business Schools Forgetting Missions.

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Business-school professors are masters at critiquing everyone else’s work. They pick apart Microsoft Corp.’s strategy; they rebuke Enron-era companies for ethics breakdowns. They are so busy gazing outward that it’s unthinkable for them to rip into their own institutions.

Now Rakesh Khurana, an associate professor at Harvard Business School, is about to break that taboo.

Next month, Prof. Khurana is publishing a critique of business schools’ evolution over the past 50 years. His book, “From Higher Aims to Hired Hands,” argues that famous B-schools, including Harvard, have lost track of their original mission to produce far-sighted leaders who can help the economy run better.

As Prof. Khurana sees it, M.B.A. training has deteriorated into a race to steer students into high-paying finance and consulting jobs without caring about the graduates’ broader roles in society. “The logic of stewardship has disappeared,” he says. Panoramic, long-term thinking has given way to an almost grotesque obsession with maximizing shareholder value over increasingly brief spans.

As a result, he declares, getting an advanced degree in business no longer amounts to entry into a full-fledged profession, like law or medicine. It’s just a badge that lets graduates latch onto situations where they can jostle the actual managers of companies and make a lot of money for themselves in the process.

If Prof. Khurana wanted to torment business-school deans, alumni and current students, he couldn’t have picked a better way. For years, the B-school community has taken great pride in repeatedly redefining its mission as job markets change. It stings to be told by anyone — let alone a fellow insider — that many of these adjustments should be a source of shame, not pride.

At the University of Michigan’s Ross School of Business, for example, swarms of graduates once headed for jobs in the car industry. Today, with auto companies locked in an unending struggle to get costs under control, that figure has sunk to just 1.5%. That doesn’t worry Dean Robert Dolan; his school now sends 66% of graduates into service-sector jobs, with consulting and finance leading the way.

At the University of Pennsylvania’s Wharton School, almost half the 800 first-year students attend career chats about what it would be like to work for hedge funds or private-equity firms. Four years ago, such formal briefings didn’t exist. But booming interest in those sectors has led the school to help students prepare for possible jobs in those areas, says Michelle Antonio, Wharton’s director of M.B.A. career management.

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First, It is encouraging to see Prof. Khurana’s guts.

We have arrived at a point in history when grooming leaders capable of creating, building, and growing sustainable enterprises is no longer the central objective of the nation’s premier business schools. Even the enterprises that have been built need to optimize short term profits by short-selling their future. Cutting R&D is a popular means of delivering on earnings forecasts, a fatal technique especially for companies in the tech world. Business Schools, however, have to teach “techniques” for short-term optimization and financial engineering to keep Wall Street happy.

Furthermore, rather than grooming a “leadership” driven value system, Business Schools today are grooming an “avarice” and “opportunism” driven value system.

The finance and consulting industry are indeed full of people with MBA degrees who have never “done it before” reaping grandiose salaries by moving money from here to there, or by dispensing high level, arm waving “advice” that is hardly actionable or rooted in practicality.

I have often wondered about the dysfunctions of the current business world. I am generally not a negative person, so when I see a problem, I tend to try to solve it, rather than digging for dirt.

In subsequent columns, I will try to facilitate some debate on the topic of leadership development and how the current system is mis-channeling what youth talent gravitates towards.

Meanwhile, I encourage you to think about the topic in question, and use this forum to contribute your suggestions.

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[…] started discussing the leadership development problem in my previous post referring to Prof. Khurana’s new book about Business Schools losing sight of their mission of […]

The VC-Entrepreneur Compensation Disbalance - Sramana Mitra on Strategy Friday, September 28, 2007 at 9:14 AM PT

Most large companies have a pyramid structure in which you have a small number of senior executive at the top making strategic visionary decisions. Below this level, you have a much larger number of middle managers making technical decisions, implementing strategy, and providing accurate information for senior managers to make strategic decisions.

What has happened is that MBA programs have ended up being primarily focused at training middle managers who really don’t need too much vision rather than senior managers who do. The first reason for this is that companies require large numbers of middle managers. The second reason for this is that a two year program simply does not qualify you to run a large complex business. What it does is give you enough training so that you can do something useful, while gaining the real world experience that you need for senior management.

Now if you start your own company, you will need a lot of strategic vision along with a large mix of skills. The trouble with this is that the skills needed to start a company are not ones that MBA programs provide. In particular, if you start try to start a company that manufactures widgets, you won’t get out of square one unless you know something about how to manufacture widgets. It’s only after a company gets off the ground that you have a need for specialized managers.

One other factor is that people with the drive, motivation, and craziness to start their own companies also tend to have the drive, motivation, and craziness to learn what they need to learn outside of a formal program.

So my concern is that Prof. Khurana is focused with refocusing B-schools mission to something for which there is no demand for.

Joseph Wang Saturday, September 29, 2007 at 4:41 AM PT

Joseph,

But that is a problem. You are saying Business Schools only train Middle Managers, and not Leaders and Entrepreneurs, and that is okay.

How can that be okay?

Who will train the Leaders and the Entrepreneurs, then?

We are in an era when the awareness about entrepreneurship is very high, the role models are very visible. Bill Gates and Steve Jobs are just as well known as Tom Cruise. I refuse to buy that there is no ‘demand’ for entrepreneurship training IF MBA programs were to offer them.

Ofcourse people learn by themselves. I can tell you, I did. But it is inefficient. Today, when I look back at myself at 25, when I started my first company, if I could have someone give me even a one-year crash course on a set of entrepreneurship related topics, I could have avoided so many mistakes.

Today, the reason I am taking this topic on so aggressively, is that there are many, many of us, who have learned by ourselves, but in that process, a whole discipline has emerged, but no business school has yet bothered to put a framework around all this, capture the knowledge, and develop a curriculum to teach the next generation.

In my opinion, they should. They need to.

Sramana

Sramana

Sramana Mitra Saturday, September 29, 2007 at 12:26 PM PT

Sarmana: But that is a problem. You are saying Business Schools only train Middle Managers, and not Leaders and Entrepreneurs, and that is okay.

Sramana: How can that be okay?

Because honestly the world needs more management drones than entrepreneurs. A few entrepreneurs can change the world, which means that you really don’t need that many. You need huge numbers of management drones to run big companies, and that’s where the B-schools come in.

Sramana: Who will train the Leaders and the Entrepreneurs, then?

Real life.

Sramana: Today, when I look back at myself at 25, when I started my first company, if I could have someone give me even a one-year crash course on a set of entrepreneurship related topics, I could have avoided so many mistakes.

And I think it would work best if you blog about those mistakes, so that someone else who is starting their own company and look things up in google and find the information that they need.

Creating a degree program is I think a bad idea because…

1) You create a academic bureaucracy. You create selection criteria. You create grades and promotion. You create status hierarchies. All of this things are deadly to small companies.

2) You attract people who are in it for the money and not the passion. Most people who go to Harvard and study business are just not passionate people who are willing to bet their lives on a new idea. They are going to Harvard for an MBA because they think it will make them rich, and it probably will.

If you just post your stuff on the internet, then there is no financial incentive for people to read it. No certifications. No guarantees of a nice job after you read it. Read it if you think it is useful, and apply if you think it will work. People who are in for the passion will find it and read it. People who are in for the money just won’t bother.

3) Degrees create a teacher-student relationship where as to teach skills related to entrepreneurship you really need to have a peer-peer relationship. There are things in my life I wish I had done different, but there are other examples where I got advice that was just wrong. The world is vastly different than when I was 25, and some of the lessons I learned at 25 might be wrong today, so that means that if I’m going to be useful to someone that is 25, I have to learn from them. Academia does not promote this type of peer-peer communication. I’m the teacher, you are the student, so shut up and listen to me.

I think the culture of MIT is the closest thing that I’ve seen to an educational experience that promotes enterpreneurship since you are just next to so many people that have started companies, and the knowledge just diffuses. There are also useful things like enterprise forums and alumni clubs which are other arenas for ideas to diffuse.

But entrepreneurship is something I think just can’t be packaged into a degree program since packaging it into a degree program destroys its essence.

Joseph Wang Saturday, September 29, 2007 at 9:42 PM PT

Perhaps B-schools need the equivalent of Olin (see NYTimes coverage or http://www.olin.edu.

rohit Tuesday, October 2, 2007 at 5:33 PM PT

I tend to agree with Joe, entrepreneurs cannot be packaged into a degree program.

Even though multiple schools around the nation offer entrepreneurship courses and entrepreneurship clubs to foster an experience that nurtures fledgling or soon to be entrepreneurs, i do no believe that is sufficient.

Entrepreneurs are CEOs in the basic sense and like most CEOs their decision making comes more from years of experience leading different groups.

I do believe that business schools can improve or change their entrepreneurship programs by offering alumni-student bridge programs that allow students to work under current entrpreneurs and CEOs over a long term (>2years). Such discussions/brianstorming sessions would yield better results for the schools, students, and alumni

Dapo Sunday, December 2, 2007 at 11:34 AM PT

My problem with what is written above is that it is next to pointless to talk about MBA this and MBA that. There are over 100,000 new MBAs being granted annually in North America from hundred’s of schools and a huge variety of reasons for people doing them.

There are opportunities for thoughtful debate about the purpose of this education, and the outcomes, but simplistic generalizations, without providing any data to back up the assertions, – like “most people do it for the money…” are just useless!

Louis Florence Tuesday, January 22, 2008 at 8:35 PM PT

I’m a Stanford EE, and I have met a great deal of Entrepreneurs – most in EE, CS and Medicine, who are taking business courses to learn how to be an entrepreneur by actually doing it. That is much better training than getting an MBA. Maybe there’s something in the water too…

Larry Page said you don’t really need an MBA (at his Michigan graduation address a few years ago). Rather, he recommended you read a bookshelf worth of business books while you’re underway.

I think the only thing an MBA is good for is a rubber stamp that certifies that you are able to handle money – necessary for working on wall street or VC/Private Equity.

Anonymous Wednesday, February 6, 2008 at 6:57 PM PT

You don’t even need that rubber stamp to handle money.

Sramana Mitra Wednesday, February 6, 2008 at 7:00 PM PT

In the US, enterpreneurs have traditionaly “learned by doing” “and learned by exemple”, at home and on the streets, how to succefully create and grow their own companies. Trying to put this into the curriculum, is, in my view, against American culture.

Now, I have a diferent view on basicaly any other nation where there aren´t that many enterpreneurs role models around you.

There, we need teachers who can stand up in class and say: “Now I am gonna start a company and will hit NU$ in so many months or years, watch how I do it.”

If you can find and hire those teachers, then such programs would work, at least outside the US.

Rafael

Rafael Tuesday, February 26, 2008 at 4:20 PM PT

[…] business schools continue to send their best and brightest students into a profession – Trading – which has nothing to do with building, and most certainly nothing to do with leadership […]

Financial Crisis & Short-Selling - Sramana Mitra on Strategy Thursday, September 18, 2008 at 2:40 PM PT

You have hit an a very important point. Business schools like so many other things forget to take the time to really evaluate their goals and place solid and fair metrics against them. They also, in many cases do not make those goals clear enough for students to be able to make intelligent decisions about their school choices. It's like the cobblers shoes. He has time to fix everyone elses, but not his own.

Scott Schreiber Wednesday, October 19, 2011 at 6:07 AM PT
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