Tuesday 8 August 2017

Role of Business Schools in Preparing 21st Century Managers

It is obvious that business education is one of the most sought after degrees in the world, for corporate job-seekers. Business schools pride themselves in preparing managers for the business world – those who can manage, and lead, in a complex environment. Thus, business schools demand respect, both from prospective students and from the academicians – with success of alumni getting directly linked to quality of business school’s programme.

One of the challenges facing business schools is a simple one, is education their business and students their customers, or do the schools have responsibility towards quality of managers supplied from their stable. If it is simply the former, then teaching will mean one-way knowledge imparting, end of matter! However, it is quite unlikely that such a business school will manage world repute and rankings. Knock-on effect will be fewer applicants, lower quality intake, poorer managers being supplied to corporate world, and finally business school not getting the benefit of successful alumni.

It is, thus, clearly understood that business schools’ success is closely related to the quality of managers they produce. Thus, it is in their own best interest to invest in preparing managers who not only know how to manage businesses, but also are prepared to operate in the complex, uncertain and shaky business environment of the 21st century.

As our world is becoming more complex, due to socio-economic challenges, political uncertainty and technological developments, and social media becoming a tool in the hands of general masses, we see that managers are under unprecedented pressure. If the world is becoming more complex, indeed business management is becoming more challenging as well.

Lastly, there is a concept of corporate psychopaths and bullies in workplace that bring harm to not only teams they work in, but also to organisations (as a whole) that they work for. Although, quite few, corporate psychopaths and bullies are known to exist, and are destructive in nature.

Questions that need consideration are: has business education changed with changing times, can business schools identify potential psychopaths and / or bullies before they reach out to the corporate world, are business schools doing enough to prepare managers for some of the management challenges that will be faced only in the 21st century, and finally, is the challenge greater in lack of business acumen / understanding or more to do with people - their behaviour, attitude, and biases?

When some of the businesses fail, and many do, impact of failure is not felt beyond people who were directly involved with these businesses – such as, the owners, the investors and the employees. Most of these failures have little to no impact on suppliers and customers. However, in last two decades, there have been failures of greater magnitude – Enron and the subprime mortgage crisis are two examples of business failures that had a widespread impact – not only on the people involved in these businesses, but also on their suppliers (Arthur Anderson, in the case of Enron) and world economy.

Are we to assume that managers at Enron, Arthur Anderson and all the financial institutions dealing with subprime mortgages were ill-equipped to manage businesses or that all these people were pure evil? There must be some other explanation to these failures.

Bazerman and Tenbrunsel have given a possible explanation in their book – Blind Spots. As per them, these failures are more due to ethical failures and biases going unchecked. It is interesting to observe here that in their book, Blind Spots, Bazerman and Tenbrunsel have made a note for the possibility of managers not seeing their decisions (and behaviour) as unethical, and directing the discussion towards “blind spots” or sub-conscious biases. As per the authors, these blind spots are essentially gaps between the person, an individual thinks he / she is, and the actual person he / she really is.

Daniel Kahneman, in his book Thinking, Fast and Slow, provides some additional concepts that help us understand why managers may take decisions that are not in best long-term interests (neither for their companies, nor for public at large). Kahneman’s description of Systems 1 (automatic) & 2 (conscious) and his concept of WYSIATI help us understand decision making better. Post-event, hindsight bias and outcome bias, are some other important concepts that Kahneman brings to life in his book.

Subprime mortgage crisis is unique in a way that it involved not only managers from the business world, but also general public. Failure to think through the eventual outcome of the bubble that was getting bigger (and bigger), is a good example of Kahneman’s concept of – What You See, Is All There Is (WYSIATI). Members of general public got mortgages, when their System 2 (conscious) was incapable to computing their own worthiness to get a mortgage. This inability led them to believe the rosy picture shown to them, by mortgage agents, and decisions were made solely on the discretion of System 1 (automatic) – and that is quintessential WYSIATI.

Managers at financial institutions, sales agents and insurance companies were smart enough to know (and understand) the bubble, and its implications. For them, it is not that their System 2 was incapable or failed, but WYSIATI, clubbed with overconfidence and short-termism, led them away from checking, controlling and stopping the bubble from becoming bigger.

Importance of post-event hindsight bias and outcome bias is a strong one, especially to understand whether it was an individual, an organisation or an entire system that was at fault. Post-event investigations, evaluations, recommendations and conclusions are all for one purpose – know what happened, why it happened, what needs to be in future in order the same doesn’t happen again (for a failure related issue). However, if all this analysis is done with hindsight bias (that suggests so-called experts “knew” there was a problem – essentially that they know all variables involved), and outcome bias (that suggests if the outcome is bad, someone must be at fault) then the output of the analysis would be neither fair nor accurate.

Discovering that such blind spots exist, and accepting individual fallibility due to these blind spots / biases are the first steps managers need to take to improve their chances of succeeding. Although the works of Bazerman and Tenbrunsel, and Kahneman, provide just that – it is critical to know what should be done now that this knowledge is acquired. It is also important to know all institutions involved, at various stages, that hold power to influence sound decision-making and improve managers’ ability.

It is for this that one should look at Nudge – a book co-authored by Thaler and Sunstein. Their views on choice architecture, nudge-in-the-desired-direction, and priming help explain some of the ways managerial decision making can be improved – both in public and private sector.

Finally, another important area to understand is that of corporate psychopaths. Research conducted about corporate psychopaths by Clive Boddy, shows that “26% of bullying is accounted for by 1% of employee population, those who are Corporate Psychopaths”. Boddy describes workplace bullying as – “repeated unethical and unfavourable treatment of one person by another in the workplace.”, which costs UK economy nearly £18 billion due to staff turnover and loss in productivity. In another study, conducted by a forensic psychologist, Mr. Nathan Brooks, it is suggested that 1 in 5 CEOs are psychopaths, while this number is 1 in 100 in general public.

With nearly 1 in 3 CEOs, of FT500 companies (as of December 2015), having studied at a business school for their MBA, one cannot but think there is some responsibility that resides with business schools to prepare better managers (and leaders). With business failures (some examples discussed above) and corporate psychopaths costing billions, business schools cannot separate business education from how business is practiced.

There are two clear areas that are still lacking in business school education – firstly, the curriculum is prepared and taught in vertical silos (marketing, finance, HR etc.) and secondly, behavioural sciences as a subject is still not treated as a core module by majority of business schools.

Many economists have cited “working in silos” as a major reason for general failure to predict financial crisis that hit the world economy in 2008. A letter, written by eminent economists, explaining why this financial crisis was not caught and controlled well in time, was sent to Queen Elizabeth II. This group of economists suggest that although everyone was doing the job they were paid to do, and doing a good job, but no one could see the whole picture. A typical environment of everyone working in their respective silos, without a concern towards how their decisions have an impact on others or other departments. One cannot help but think, this is yet another case of WYSIATI.

As long as business schools do not prepare a way of teaching that cuts across the departmental verticals, these silos would continue to exist and problems would occur. A marketing manager will continue to blame the production manager for poor turn-around time of new designs, and production manager would continue to blame marketing manager of irrational promises and impossible time-lines. There will be, and are, many similar inter-departmental business problems that frequently occur.

Another way to look at it is concept of System 1 & System 2. When work life forces employees to think in silos, and business schools teach students in silos – for an individual who starts working after completing undergraduate studies, works for a few years and decides to enrol for a business degree – his / her System 2 (conscious) is only prepared for operating in silos – there is no input that suggests otherwise. Needless to say, System 1 (automatic) is not built to think of all possible implications or repercussions of decisions. An individual ends up reacting, rather be proactive.

The second missing aspect from business school education, as noted earlier, is lack of focus on behavioural sciences as a core subject. Business schools still believe they, first, need to prepare future-leaders by teaching them subjects of business – such as, marketing, finance, HR etc. – but not behaviour sciences. For most schools, business ethics is talked about – only as a topic, not a subject. If ethics are just a topic, inherent biases and their impact is only a sub-topic.

As cited by Bazerman and Tenbrunsel, in their book Blind Spots, in 2009, after the financial crisis of 2008, 33 second-year students of Harvard Business School wrote an oath of ethicality – an example of how business school missed talking about ethics on its own, and students picked it up. There are obvious doubts on the success of such an oath, or even the sincerity of students who are signing it, however Thaler and Sunstein suggest in their book, Nudge, that such an oath when signed can work on brain’s automatic system – they called this effect as “priming”.

There is some weight in this concept – the comparison is between an oath being signed and no oath being signed. The concept of priming would affect some, if not all, however it will have an impact on improving overall ethicality of managers – which, in this case starts at a business school.

A strong argument in favour of promoting behaviour sciences as a subject, from elective to core, is the cost to businesses (and economies) due to poor judgement calls, unethical decisions, or bullying. It is no longer enough to go to a business school and learn how to manage a business, but it is increasingly becoming important to go to a business school to become a better manager.

Once again, taking from Thaler and Sunstein’s book, Nudge, this is a matter of choice architecture. By making behavioural science an elective, business schools send a message that this subject is not critical for business manager’s work-life. A message of this kind suggests problems arising due to biases and ethical dilemmas are either not difficult to manage, or not frequent enough to cost individuals much in their respective careers.

So far the discussion has been about what is taught in a business school, and what should be made more prominent than it is today. The curriculum changes will not be enough to manage harm of corporate psychopaths. As noted earlier in this essay, 1 in 5 CEOs are psychopaths and 1 in 3 CEOs (in FT500) have MBAs, thus 1 in 15 CEOs with MBA degree is a psychopath. Can, and should, business schools feel safe with this statistic? Given that within FT500, there will be a small number of business schools producing managers to become CEOs, this statistic is obviously higher for these “premier” business schools.

Although it is not reasonable to expect all prospective students to be made to take a psychopath test, however controlling it via change in curriculum and other priming tools (such as the oath) will definitely help.

Another way to identify such individuals early on could be group-work, with coach / facilitators that are trained to spot such behaviour. Group work puts individuals under pressure and brings out their true instincts. However, any such programme must be closely monitored and proper plan of action should be in place in case any individual is identified as a potential psychopath.

Although different business schools have different approaches to teaching - western world is more discussion oriented than eastern world, American schools focus for on class-participation than British schools etc. – there is a commonality of pushing students towards silo-thinking. Kahneman’s concept of WYSIATI is a limiting factor towards making good, long-term, judgement calls, and silo-thinking doesn’t allow the decision maker to think beyond the departmental / divisional problem he / she is trying to resolve.

It is time that business schools make use of Thaler and Sunstein’s concepts of choice architecture and priming, to not only improve regular curriculum but also to increase chances of their students avoiding unethical pitfalls on returning to the corporate world. Creating an Ethics committee, which could have participation from both the student body and professors, may be one way to inculcate importance of business ethics.

With the amount of research done for this essay, I am of the view that business schools have not understood (and accepted) the need to change, in order to prepare managers for the challenges business world faces. It is worth noting here that since I have personal experience of just one business school, this has led me to gather data from secondary sources and make use of some intelligent guess-work.

Finally, to me, it is clear that the current business school education format needs some creative inputs and additions...status quo isn't enough, and it can be more harmful than helpful in not-so-distant future. Whether an overall change is required or not, that depends on different business schools and their own philosophies, however change they must...all wouldn't just fall in place magically!

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