The Crash: Role of Formal B-Education

The value system and paradigm of analysis is something which the schools provide to their pupils and it is on this parameter their standing rests. Not singling a school or the other, it appears that the schools not only taught the business principles but  also taught them the dogma of laissez faire in its most raw form and also drilled in the models of success which shortened the horizon of thought to a quarter. Industry and its compensation models made the long term planning subservient to quarterly performance-battles were won, but the war was lost.

No longer did the schools considered it fashionable to teach what went in to create an enduring business-something which would have run for ages and supported millions of individuals. That business is more than the mathematical models is something every self made businessman understands as no business fully is end-to-end based on machines and mathematics.

Unfortunately the basic lessons were forgotten; every student of physics knows that his work presupposes a set of clearly defined assumptions and the moment you lose sight of these, you may land with untenable conclusions. Business has to address a need of a segment of people who can afford that solution. This relationship is driven purely on the perceived value and that’s why we stress upon value creation and delivery as the raison detre of business. Surely a person who can ill afford a house would love to own it, esp. when the wisest of salesmen assure him that he would get a solution well within his means. The person did see value in it but the targeting was wrong and that’s where the link gave way-wrong make-believe assumptions drove the models to disastrous conclusions.

Compensation models also faulted on the fundamentals-if an undeserving gets a million dollars for doing practically nothing, then be sure that a can of coke will cost us a million dollars. The culpability of business schools lies in the fact that present schools have taken students away from the very basic of business-value creation. We believed that mathematics and financial engineering can drive business, and took the practitioners away from the shops and shop floors. It was easy just to perform complex mathematics and be done with the day’s hard work.

B-Schools have enormous resources and conduct extensive research. They also have close relationship with the Governments and often one finds their senior faculty on various consultative groups which drive the policy and influence precepts of governance. How such impending tectonic shifts missed to be registered on these well endowed and equipped research groups is worrying. Absence of models which would have flagged the festering issues is a painful reminder of what happens when dogma clouds the scientific analysis.

One can’t just blame the MBAs, they were product of a system which suffered from institutional over-reach. Absence of any life threatening catastrophe like the present one made it believe that none existed and were never prepared to handle such an eventuality. Its ability to successfully wriggle out of the earlier financial problems made them perhaps complacent and believe that they had solutions to fix all the problems.

I do see value in financial analysis and theory, but I always believed in the dictum, that a true business leader can’t be a mercenary, true business leader has to understand the domain where he operates-something which is both time consuming and arduous, without shortcuts-and should be able to see the complete business cycle. The present crisis saw the glorified ponzi schemes going bust-scum no matter how well packaged or however named shall eventually stink. I feel a fundamental rethink needs to be done under guidance of some of the self made business leaders and successful entrepreneurs from all over the world. People who have truly created wealth and value and not the ones who were the smart borrowers and who showed off well have to be the anchor figures to bring the B-Schools, their curricula, teaching methods and their research on terra firma. This is direly needed as the B-Schools have a very important role in influencing and de-cluttering public policy all over the world-something which has not been talked about much in the current debate.

(2009-10: On role of B Schools in credit meltdown)


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