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UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who covered Washington during all or part of ten of America's presidencies and who has edited alternative journals since 1964. The Review, which has been on the web since 1995, is now published from Freeport, Maine. We get over 5 million article visits a year. See prorev.com for full contents of our site

December 23, 2009

HOW BUSINESS SCHOOLS HURT AMERICA'S ECONOMY

Noam Scheiber, New Republic - Since 1965, the percentage of graduates of highly-ranked business schools who go into consulting and financial services has doubled, from about one-third to about two-thirds. And while some of these consultants and financiers end up in the manufacturing sector, in some respects that's the problem. Harvard business professor Rakesh Khurana, with whom I discussed these questions at length, observes that most of GM's top executives in recent decades hailed from a finance rather than an operations background. (Outgoing GM CEO Fritz Henderson and his failed predecessor, Rick Wagoner, both worked their way up from the company's vaunted Treasurer's office.) But these executives were frequently numb to the sorts of innovations that enable high-quality production at low cost. As Khurana quips, "That's how you end up with GM rather than Toyota."

. . . Up until World War I, the archetypal manufacturing CEO was production oriented-usually an engineer or inventor of some kind. Even as late as the 1930s, business school curriculums focused mostly on production. Khurana notes that many schools during this era had mini-factories on campus to train future managers.

After World War II, large corporations went on acquisition binges and turned themselves into massive conglomerates. In their landmark Harvard Business Review article from 1980, "Managing Our Way to Economic Decline," Robert Hayes and William Abernathy pointed out that the conglomerate structure forced managers to think of their firms as a collection of financial assets, where the goal was to allocate capital efficiently, rather than as makers of specific products, where the goal was to maximize quality and long-term market share.

By the 1980s, the conglomerate boom was reversing itself. Investors began seizing control of overgrown public companies and breaking them up. But this task was, if anything, even more dependent on fluency in financial abstractions. The leveraged-buyout boom produced a whole generation of finance tycoons-the Michael Milkens of the world-whose ability to value corporate assets was far more important than their ability to run them.

The new managerial class tended to neglect process innovation because it was hard to justify in a quarterly earnings report, where metrics like "return on investment" reigned supreme. "In an era of management by the numbers, many American managers . . . are reluctant to invest heavily in the development of new manufacturing processes," Hayes and Abernathy wrote. "Many of them have effectively forsworn long-term technological superiority as a competitive weapon." By contrast, European and Japanese manufacturers, who lived and died on the strength of their exports, innovated relentlessly

The country's business schools tended to reflect and reinforce these trends. By the late 1970s, top business schools began admitting much higher-caliber students than they had in previous decades. This might seem like a good thing. The problem is that these students tended to be overachiever types motivated primarily by salary rather than some lifelong ambition to run a steel mill. . .

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3 Comments:

Anonymous Anonymous said...

There's another point that's not mentioned. In most large corporations run by financial types, actually being able to DO something productive is a guarantee to be passed over for promotion. Being able to do something productive is a sign that the individual is spending his/her valuable time on the wrong topics. Valuable topics are money manipulation, stock value manipulation and spending lots of time networking and making sure one is suitably compensated. Concerning one's self with product quality, or any other endeavor involving the manufacture of a tangible product is seen as decidedly blue collar. Such topics are seen as fit for half-wits.

No wonder so many companies in the US are incapable of competing. Such as GM and Chrysler.

December 23, 2009 9:51 PM  
Anonymous Anonymous said...

These business guys might hurt people, but they are absolutely wonderful for the economy. The 'economy' is usually just a euphemism for top few percent's stock portfolios. Which is almost always diametrically opposed to the welfare of the rest of us.

Anytime I hear about some legislation that will 'hurt our economy' I immediately want to vote for it. To hell with the economy. It's a lousy form of measurement.

December 24, 2009 2:41 PM  
Anonymous Anonymous said...

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December 31, 2009 5:22 PM  

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