Is what we do good or bad and how can we tell?

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There’s a video floating around on Twitter that shows Elon Musk and other technology leaders slamming MBAs and saying that they don’t hire them.

Do they have a point?

Sumantra Ghoshal, in a paper titled Bad management theories are destroying good management practices, sets out an argument that business schools are doing more bad than good when it comes to teaching their students about how organisations should work in the real world.

Then again, practical people who think that they are different from academics in their ivory towers need to remember the words of Keynes, who wrote Practical men, who believe themselves to be quite exempt from any intellectual influences are usually the slaves of some defunct economist.

Ideas and theory have more power than many realise.

Ghoshal argues that academics working in management suffer from physics envy.

The physical sciences have been able to come up with theories that explain how things work around us very well.

When can all roll a ball down an inclined plane and see how its speed increases over time to understand the principles behind acceleration.

Social scientists, looking over the fence, have tried to come up with similar principles to explain human behaviour.

So, for example, they come up with assumptions like the only purpose of a business is to make as much profit for their shareholders as possible and that people will only work when supervised.

Ghoshal calls these assumptions gloomy – and points out that they lead to claims pretending to be truth based on selective analysis.

In physics just claiming that something works in a particular way doesn’t make it true.

In social systems it can – the feedback between ideas, practice and reinforcement can make a bad idea real enough to believe as truth.

Take, for example, the idea that people will only work in their own interests – managers are agents in the principal-agent theory.

This means that to get managers to behave there must be more independent directors on boards, power sharing between a CEO and chair and stock-option based compensation.

But Ghoshal points to studies that show that none of these seem to have any correlation with corporate performance, yet we continue to believe they will have an effect.

There are many examples of where management theory leads to flawed practice – we only need to read Warren Buffett’s letters to find examples.

Running a business is more like being a detective than being a scientist.

We have to look for clues to see what’s going on.

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