March 30, 2008

Lessons for Business Schools (1)

Lessons for Business Schoolsby Andrea Gabor
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New books and revisited history illuminate the irrelevance of today’s MBA — and ways to make it compelling again.

Are MBA programs out of sync with the needs of business in the 21st cen­tury? Have they failed to keep pace with global and technological change? Are they too theoretical and removed from the day-to-day challenges faced by managers and entrepreneurs? And do they encourage the silo-ing of such functions as finance and marketing rather than instilling in their students a multidisciplinary view?

These questions are taking on greater importance as the business environment be­comes ever more globalized and competitive. “This is one of those punctuated-equilibrium moments,” says Joel Podolny, dean of Yale’s School of Management. “There’s lots of experimentation, and we have to adopt new models to meet 21st-century challenges.”

Skepticism about the purpose of U.S. business schools has mounted since early in the last century, when institutional economist Thorstein Veblen published The Higher Learning in America: A Memorandum on the Conduct of Universities by Business Men in 1918. In one scathing chapter on vocational training, Veblen inveighed against the incursion of “schools of commerce” into the university, noting that whereas other professional training academies, such as medical schools, serve the needs of the “community at large,” business schools focus on “a facile command of the ways and means of private gain.” Veblen’s criticism foreshadowed de­bates about the proper scope of business education as well as the role of norms and values in business education that carry on to this day.

Since Veblen, efforts to establish and efforts to reform business schools have generally coincided with periods of social upheaval. Veblen’s critique, for example, was a reaction to the social and economic disruptions brought on by industrialization, and followed closely on the decision of Joseph Wharton, an industrialist and devout Quaker, to found an eponymous business school — the nation’s first — as one way to address what he saw as the “social problems incident to our civilization.”

In the 1920s, fear of communism and the continuing disruptions of capitalism inspired the first organized effort among deans of several of the nation’s fledgling business schools — an effort led by Harvard’s Wallace B. Donham — to define their mission in social terms, and to distinguish themselves as professional schools. The Great Depression inspired a new round of soul-searching as business school deans identified the schools’ own “uncritical embrace” of laissez-faire economics as a cause of the economic crisis.

The most important work to come out of these early reform efforts was Chester I. Barnard’s The Functions of the Executive. Published in 1938, the book builds on a series of Harvard Business School (HBS) lectures by Barnard, whose career alternated between leadership positions in government service and at AT&T. Although it is not about business education per se, The Functions of the Executive was published with the encouragement of Harvard’s Donham, who saw it as one answer to growing criticism of the role of business in society. Barnard’s book remains an influential treatise on leadership, and introduced concepts that today look prophetic: Values and ideas often flourish in the informal organization, rather than in the hierarchy; business leaders must balance intuition with reason; the development and training of employees is a paramount responsibility of management; pay-for-performance schemes can be dangerous to the health of a company; and management’s au­thority rests in its ability to persuade, rather than to command.

Why Business School?The postwar years saw a surge in demand for business school education. By 1950, enrollment in graduate business programs had more than tripled since 1939, to 72,000. (Today more than 130,000 people graduate with MBAs each year.) How­ever, the proliferation of new business schools led to a deterioration in education standards and research quality. Most important, business schools still did not have a clear idea of their mission.

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