Those that hold a degree in economics will surely know three different and diverse theories: (just follow the link to know more about them)
- The agency theory: that describes how managers and shareholders pursue different objectives and thus need to be aligned through both control and appropriate rewards. Shareholders will want returns and value, managers will want their own returns, power, and to increase their personal value.
- Transaction cost economics, defined like the additional costs to a product than those to produce it, that is to control its fair use and distribution, the cost of formalising the relationships between the product and the user, to prosecuting breaches of contract and punishing offenders.
- The five forces analysis, by Porter. This one needs no presentation. This model describes the strategic positioning based on the bargaining power of customers, the bargaining power of suppliers, the threat of new entrants, and the threat of substitute products as well as the level of competition in an industry.
I could mention many more. But those three are specially interesting. What do they have in common?
Sumantra Ghoshal (1948-2004) is known about his theories about transnational companies, and the matrix structure (my beloved matrix structure, I must say, this morning I was proposing using it for a new project… but thats a whole new story)
Ghoshal worked in a couple of well known business schools, and ended up founding the Indian School of Business, so he was not an enemy of the MBA spirit, but he directly blamed corporate scandals such as Enron on MBA courses. Why?
Because business is a social science. (Remember the reflection I made, long ago, about Economy as a Science?) Well, sciences must be held with care. Sciences must be thoroughly studied, interpreted and understood.
Specially social sciences. Those do not only describe reality, but they are also able to change it. I reflected long ago on how a science like Economics could rewrite itself (See the Phillips Curve in the previous link). Ghoshal thought the same. In fact Ghoshal thought that the (incomplete) knowledge of a social science could change our mindset. Like those that can be taught in a fast, practical course such as an MBA.
Now let’s go back to the question I left unanswered. Yes, there is something in common between those theories…
They distrust people. They focus on the darker side of humanity: managers will cheat, companies won’t collaborate, customers will breach the contracts… all of them need badly to be controlled, sometimes even prosecuted. That’s the way. Some cheat, some control and the bottom line: it’s all a trade-off.
Those that excel are those that are able to play with the system and not to get caught. Does that ring a bell? Enron’s managers got it very clearly. They played, they tried, they lost. And not only them, many more did.
The title focused on MBAs but that can be true for any executive education. Our mindset defines our behaviour. And even well intended theories can made us adopt an incorrect mindset, inadvertently. A mindset that can make managers behave opportunistically, drawing conclusions from incorrect assumptions: people will try to cheat you.
And if you, as a manager, interiorise that, to hell with positive theories about managing people.
Well, some people will try to cheat you, but some will not. It’s not a definite behaviour. What about ethics? People do have a choice! And people can still have integrity. And you have the choice to manage with integrity.