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Why Are You Here and Not Somewhere Else
By Harry L. Davis
THE UNIVERSITY OF CHICAGO PRESSCopyright © 2013 The University of Chicago
All rights reserved.
Rethinking Management Education: A View from Chicago with Robin M. Hogarth
Uncertainty has always played a major role in business. And in recent years managers have had to grapple with an additional source of uncertainty: the challenge to redesign—even reinvent—their organizations and businesses on a continuous basis. The pace of change has accelerated. We live in an increasingly interdependent world. Product development times and life cycles are shorter. There is greater diversity in the workplace. Few firms can cling to fixed beliefs about products, markets, and operating procedures and expect to succeed.
This onrush of change has forced management to rethink assumptions about how to organize employees. Of particular importance are issues of breaking down functional silos and the flattening of organizational structures. Among factors fueling this trend are the need to react swiftly to changes in the market, to incorporate quality in products and services, and to utilize fully the expertise of those employees closest to customers and products.
Given these trends, many firms face a key strategic question: How to develop and nurture managerial talent capable of thriving in the new environment?
Here, we consider the role business schools can play in helping firms meet these challenges. In doing so, our major focus is on MBA education, although many of our comments also apply to various forms of executive education. While MBA education has blossomed over the past forty years, it is in danger of becoming irrelevant unless it can respond to the evolving needs of the business community. In partnership with firms, business schools should offer the education and self-development opportunities managers need. But to do this requires understanding the components of effective managerial performance.
MBA Education in the New Millennium
Since its inception at the beginning of the twentieth century, MBA education has gone through distinct phases. Many of today's most prestigious institutions were created between 1900 and 1955. Yet during this initial period they remained a relatively unimportant source of managers for U.S. corporations.
Between 1955 and 1960, the business community challenged business schools to "get serious." The schools responded by upgrading the faculty and other resources and succeeded in becoming first-class institutions. A significant component of this coming of age was a closer alignment of MBA curricula with traditional university values.
During the next twenty-five years, MBA education boomed. The annual number of graduates nationwide exploded, going from about 5,000 to 70,000. Business schools became important suppliers of managerial talent to U.S. firms, and despite large fluctuations in economic and business conditions, the schools flourished. Today, MBA degrees adorn the walls of many office suites at top U.S. corporations.
Starting around 1985, business leaders and students challenged schools to make MBA programs more relevant to their needs. Businesses require a broad range of skills and effectiveness from the people they hire. Students also want more. MBA candidates today are older than their earlier-counterparts, and the real-world work experience they bring to the classroom makes them impatient with the academic concerns of their teachers.
Today we stand on the threshold of a fifth phase in the development of MBA education. Schools have two options. They can continue to do business as usual and risk growing irrelevance. Alternatively, they can reevaluate their mission and operations and devise educational agendas that have significant added value for both students and businesses.
Components of Effective Performance
In evaluating our activities at Chicago, we have asked two questions: How can we enable our students to achieve exceptionally high levels of performance on a consistent basis? How can we add value to our students in a way that endures throughout their careers?
In our view, high performers are smart, savvy, and insightful. Smart means they have a lot of knowledge and know how to apply it. Being savvy means knowing what they want to achieve and how to do it. And insightful means they can learn and grow from their experiences. To explain the choice of these particular terms, consider the components of effective performance.
Effective performance is the result of actions. But what determines the quality of actions? Figure 1 provides a schematic representation of three important determinants of action in business settings, namely, conceptual knowledge, domain knowledge, and action skills.
Conceptual knowledge is acquired through the formal instruction and learning experiences typically associated with educational institutions. It includes the formal education students receive in business school, such as training in economics, accounting, finance, statistics, marketing, organizational behavior, and so on. This body of transmitted wisdom constitutes the bulk of most MBA programs. It covers both pertinent business concepts and ways of thinking in a rigorous, logical fashion. The value of conceptual knowledge is that it develops the ability to think broadly and rigorously in business settings.
A solid foundation of conceptual knowledge is essential to effective performance and is acquired most effectively within educational institutions. Medical students, for example, do not have to rediscover through observation and experience how blood circulates. Where knowledge already exists, it makes eminent sense to use classroom instruction.
Even if the body of theory and concepts is incomplete, a solid grounding in conceptual knowledge has numerous advantages. In 1929, Alfred North Whitehead wrote: "The really useful training yields a comprehension of a few general principles with a thorough grounding in the way they apply to a variety of concrete details."
Consider the economic concepts of sunk cost or discounted cash flow. A thorough grounding can prove invaluable if students are able to recognize situations in which the concepts are applicable in their subsequent careers.
In 1932, G. K. Chesterton argued even more strongly for the value of conceptual or theoretical training. He said, "The more serious is the trouble, the more probable it is that some knowledge of scientific theory will be required; and though the theorist will be called unpractical, he will probably be also indispensable."
A thorough grounding in theory has long been a hallmark of the University of Chicago Booth School of Business and is much valued by both our alumni and the business community. In a 1956 paper titled "The Chicago Approach to Business Education," James H. Lorie articulated the rationale for providing theory within an educational institution. He justified this approach using the economic concept of comparative advantage:
A university has its greatest comparative advantage in teaching underlying scientific knowledge and procedures; it has least advantage in trying to teach the detailed application of this knowledge....
We believe that this method of formal education best equips students to continue their education through experience once they have left the educational institution. They are better equipped to put their untidy and unpredictable experience into a meaningful framework; they are enabled to learn better from their reading and to know what to read; they are acquainted with sources of new knowledge; they are sensitized to important questions implicit in what they see and do during the course of their business careers.
While we agree that universities enjoy considerable comparative advantage in teaching conceptual knowledge, we do not believe this is their only advantage. Business schools can—and should—go beyond the teaching of conceptual knowledge.
Individuals acquire this knowledge by working at their jobs in particular firms and industries. It is pertinent to specific spheres of activity and may be acquired by experience or through formal firm or industry training programs. In addition, it can include knowing customers and suppliers of a particular business, a network of people in the work environment, a company's specific operating procedures, and an understanding of corporate culture. The key point is that domain knowledge is acquired through hands-on training and experience in particular job settings and is relevant to that domain.
Many studies have demonstrated that domain knowledge takes time to acquire and is not necessarily transferable to other areas. It takes years of grueling practice to become a tournament-class tennis player, but this will not make one an outstanding golfer or squash player even though all three sports require considerable physical coordination. Similarly in business, expertise in finance does not necessarily mean success in sales; and effectiveness in, say, the trucking business does not guarantee effectiveness in banking. Domain knowledge does not transfer well from one sphere of activity to another. Yet such area-specific, "practical" expertise is critical to performance. As stated by Roger Peters,
You've got to know the territory. Jobs and Wozniak could not have created the Apple without expertise gained through years of experience with small computers and other electronic devices. We become creative not by working on creativity as such but by mastering a domain.
Business schools should not attempt to teach domain knowledge. There is no consensus on what specific domain knowledge should be covered; the acquisition of such expertise is a lengthy process, and employers are much better able to impart this knowledge according to their specific needs. On the other hand, business schools should teach students to respect the importance of domain knowledge in taking effective action. Moreover, they can impart skills that accelerate the ability to acquire appropriate domain knowledge.
Conceptual and domain knowledge are critical for high levels of performance, but they are not sufficient. Knowledge must be translated into action, and that requires action skills. These are the skills that enable individuals to set goals, to sell others on the value of those goals, and to work with and through others in their implementation. The value of action skills lies in the ability to achieve desired outcomes. Without action skills, conceptual and domain knowledge cannot lead to high levels of performance.
Where and how are action skills acquired? Most managers acquire them on the job, although business schools and firms often provide specific training in skills such as communication and presentation. To a large extent, it's a haphazard process. Yet there is no reason why the acquisition of action skills should be left to chance. Hard science can still be used to impart soft action skills. R. W. Revans's many writings on action learning programs make the argument that, in the arena of practical action, the scientific method is a powerful tool for business education.
Effective performance is a function of conceptual knowledge, domain knowledge, and action skills. Colloquially, we describe managers with high levels of conceptual and domain knowledge as smart, and we describe them as savvy if they have good action skills. But that's not enough. Knowledge and skills need to evolve across time, and this depends heavily on how managers learn through experience.
An old adage tells us that experience is a person's oldest and best teacher, and there's little doubt that we learn from experience. The questions are: What do we learn? And are the lessons of experience helpful or harmful to good performance?
To explore this issue, consider figure 2. This is an extension of figure 1 and emphasizes several points. Conceptual knowledge, domain knowledge, and action skills reside within a person. Actions take place within a job setting. In turn, the outcomes of actions affect the job setting in which they occur. This may be precisely the intent behind the action and is illustrated by the feedback loop linking the outcome back to the job setting on the left-hand side of figure 2. For example, imagine an action taken to handle a customer complaint that changes the customer's attitude toward the firm.
Finally, feedback not only affects the job setting but, as illustrated on the right-hand side of figure 2, has an impact on the person taking the action through his or her interpretation of the outcome. What then affects the interpretation of outcomes and how people learn from experience?
Many studies have demonstrated that people develop great facility in encoding or interpreting experience by simply associating actions with outcomes. Moreover, for most tasks, this process occurs automatically in a passive and undisciplined way that requires little or no conscious effort. It is highly efficient behavior—people have learned how to learn.
Still, passive learning has its limits. It requires feedback that is timely, accurate, and relevant to the issues under consideration. Consider, for instance, the development of motor skills involved in learning to ride a bicycle. Here, feedback is both pertinent and immediate. Failure to correct an imbalance causes the rider to fall. Now imagine learning to ride a bicycle on a planet governed by different and unknown laws of gravity, where an imbalance does not necessarily lead immediately to falling. Instead, falling can be caused by an imbalance that occurred some time ago. In these circumstances, passive learning will not teach you how to ride a bicycle. In fact, your experience may teach you the wrong things.
There are many important situations where the interpretation of feedback is ambiguous and in which individuals have enormous difficulty learning the right lessons from experience. If anything, feedback may reinforce erroneous beliefs, and even smart people fall into this trap.
To illustrate, consider the case of Benjamin Rush, a highly respected physician, professor at the first medical school in America, and one of the signatories of the Declaration of Independence. He advocated and practiced phlebotomy as a cure for febrile illnesses in the belief that the cause was excessive stimulation and excitement of the blood. When Rush fell ill with yellow fever, he prescribed plenty of bloodletting for himself. As reported by Eisenberg:
From illness and treatment combined, he almost died; his convalescence was prolonged. That he did recover persuaded him that his methods were correct. Neither dedication so great that he risked his life to minister to others, nor willingness to treat himself as he treated others, nor yet the best education to be had in his day was sufficient to prevent Rush from committing grievous harm in the name of good. Convinced of the correctness of his theory of medicine and lacking a means for the systematic study of treatment outcome, he attributed each new instance of improvement to the efficacy of this treatment and each new death that occurred despite it to the severity of the disease.
Though this incident is some two hundred years old and is taken from the field of medicine, it's not difficult to realize how comparable self-fulfilling and self-defeating actions can occur in business today. There are many situations where the choice of an action either prevents learning or reinforces existing beliefs without testing them. Consider decisions involving personnel selection (what happens to candidates who were not selected?) or certain types of investments and advertising expenditures.
As illustrated in figure 3, the interpretation of feedback in the form of outcomes needs to be an active and disciplined task governed by the rigorous rules of scientific inference. Beliefs must be actively challenged by seeking possible disconfirming evidence and asking whether alternative beliefs could not account for the facts. These activities provide the foundation for insight skills and are the time-tested methods that were followed by people who gained some of the world's greatest insights, such as Bacon, Faraday, Pasteur, and Darwin. Indeed, when he compared the inferential methods of Spencer and Darwin, Will Durant made the following telling comment:
Spencer began, like a scientist, with observation; he proceeded like a scientist, to make hypotheses; but then, unlike a scientist, he resorted not to experiment, nor to impartial observation, but to selective accumulation of favorable data. He had no nose at all for "negative instances." Contrast the procedure of Darwin, who, when he came upon data unfavorable to his theory hastily made a note of them, knowing that they had a way of slipping out of the memory a little more readily than the welcome facts!
Darwin's insights have endured. But how many have heard of Spencer?
Our framework sheds light on the troublesome topic of intuition that is frequently discussed in business education, both favorably and unfavorably. Intuition is the result of learning from experience: people are not born with intuition! And the quality of intuition depends on how one extracts and interprets experiential data. In situations involving good feedback, it is easy to acquire good intuition. When feedback is ambiguous, the quality of intuition depends on the effectiveness of insight skills.
Excerpted from Why Are You Here and Not Somewhere Else by Harry L. Davis. Copyright © 2013 The University of Chicago. Excerpted by permission of THE UNIVERSITY OF CHICAGO PRESS.
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