The Entrepreneur and the Academic

The Entrepreneur and the AcademicWalking around Melbourne city one afternoon I decided to have some chips for lunch and ended up in a trendy chippery in Elizabeth Street, munching away on some deep fried potatoes and mayo. The man serving me was the owner, an entrepreneur experienced in the fast food business. Brad, spoke openly and explained how he tries to make a buck in the hyper-competitive world of fast food.

Brad celebrated big successes in this market in the past but emphasised that he had only completed high school and had no formal business qualifications whatsoever.

Some time ago, Brad attended a post graduate management lecture at a local university. First Brad thought that the lecturer was talking gobbledygook, but after a while recognised that the theories presented in this talk match what he does intuitively to run his business.

The entrepreneur is the hero of contemporary capitalism

I told Brad that I occasionally teach marketing at La Trobe University.  Management scientist study entrepreneurs like Brad to figure out how they do business and present this back to colleagues and students as generalised theories, formulas and diagrams. One of the aims of business studies is to unlock the intuitive knowledge of entrepreneurs such as Brad so that other, less talented and more risk averse budding entrepreneurs, can replicate their success.

The Entrepreneur in Society

The entrepreneur is the hero of contemporary capitalism and has been idealised and studied in great detail by scholars around the world, each looking for the holy grail of entrepreneurship. Researchers study entrepreneurs like etymologists study insects. They dissect them, analyse them, observe their behaviour to extract the essence of what it is that makes them successful.

Entrepreneurial biographies are, however, always incomplete and sanitised versions of reality. The spirit of entrepreneurship is a mythical concept in business studies that can only be known through experiencing what it is to be in business, not by studying it

Further reading:

Managing ambiguity, do you resole uncertainty or seek opportunity?

Managing ambiguityA little while ago I was asked whether I was any good at managing ambiguity. My impulsive answer was that I prefer to resolve any ambiguity by analysing the situation. I responded to this question from the perspective of an engineer. My profession is based on using reason and logic to resolve any ambiguity inherent in reality. I did not realise at the time that this was the ‘wrong’ answer as I was expected to embrace uncertainty and seek opportunity, or something fuzzy like that.

Philosophically considered the world itself is ambiguous, e.g. light is simultaneously a wave and a particle, ethical judgements are based on cultural preferences, and the notion of absolute truth is philosophically untenable. However, our brains are wired to resolve any ambiguity. As soon as we observe light, it will collapse into either a wave or a particle, and within a given culture, ethical rules are absolute truths. Within a particular frame of reference, there can be only one truth. The most efficient tool to resolve uncertainty is logic. But reason itself has its limitations, and sometimes ambiguity remains no matter how much we analyse the situation. It is at these situations that intuition comes into play.

Management is a frame of reference in which ambiguity in most cases needs to be resolved. Customers don’t appreciate organisations that are ambiguous and require predictable quality. Uncertainty in processes also means business is not working efficiently as employees need to spend time assessing each situation to make a decision.

Management theorist David Wilkinson argues that leaders need to embrace ambiguity to initiate change. This statement is certainly true, but only to the extent that recognition of ambiguity is necessary to be able to generate possible outcomes and the manager’s ability to recognise the best solution. A preference for resolution of ambiguity does not preclude tolerance for vague situations.

Successfully managing a business is based on being able to make clear decisions. Without clear decisions, a company will not achieve its objectives, but without a recognition of managing ambiguity, a business can not evolve.

The Risk of Risk Management: A New Approach to the Risk Matrix

Risk management is like throwing diceManagement is about managing risk. If there were no risk, there would be no need to manage anything because positive outcomes would be guaranteed.

If Einstein were a management guru, he would have said that managers don’t play dice, but how wrong he was!

Around the world, businesses are using simple matrices to manage risk. People gather around a table and have arguments over whether a risk is low, medium or high. In most cases without proper consideration of the actual statistical issues.

Risk matrices are a poor proxy for real risk management and suck up a lot of resources to ‘manage’ trivial risk.1 Risk matrices provide false confidence in the actual risk profile and, more often than not, produce outcomes that do not add any information to the situation other than the ability to provide colourful overviews.

At the Lucid Manager, we have created an alternative risk matrix that you can use to inform your management decisions. We bring risk management to life. No boring and meaningless numbers, but practical advice. Download this picture, assess the likelihood and consequence of your risk and act by this schedule. Success is guaranteed!

Lucid Manager Ris Matrix

  1. Cox, L.A. (2008), What’s Wrong with Risk Matrices?, Risk Analysis, (28)2: 497-512. 

When you see an MBA on the road, kill them! The MBA Deception

When you see an MBA on the road, kill them! The MBA Deception

After two years of intense studying, writing more than 75,000 words, many exams, hundreds of hours of lectures and a fascinating expedition to Hanoi, Ian and I have finally formally graduated for my MBA.

When starting this journey, I asked myself whether I would be wasting my time. Well, it was not a waste of time – learned some interesting things; visited a fascinating city; met great people and did some interesting research. During my two years of intensive study I have, however, also cultivated a critical attitude towards the material touted as management theory.

One important aspect that seems to be forgotten in many management books is that running a business is first and foremost about the actual production process and provision of service. Management supports these activities, but cannot replace them. Studying management does, for example, not teach you anything about how to make the best horse saddles or provide world class healthcare.

If management theory is separated from what the business is about, the organisation can fall victim to fads that only achieve to alienate the people it is supposed to help.

Henry Mintzberg, copiously referenced in graduate schools around the world, is critical of the MBA phenomenon and argues that no education can teach intuition, creativity or insight:

Management is not a profession, nor is it science. It is a practice that depends mostly on craft and significantly on art. Craft is learned by experience. Art can, of course, be admired in a classroom–think of all the visionaries you read about in cases. But voyeurism is not management, either, nor does it develop creativity.

The Frugal Law Student refers to a New York Times article about the favourite books of the most successful Chief Executive Officers. Interestingly enough, they do not seem to read books like From Good to Great, Seven Habits of Effective People, Six Thinking Hats or any other self-help book. Their favourite books are fiction, poetry, philosophy and biographies. To become a good manager, it is important to be well rounded and read the classics.

The title of this post is inspired by the traditional Zen koan attributed to Zen Master Linji:

If you meet the Buddha, kill him.

What Linji is trying to say is that those who are on the road to enlightenment should ignore all their perceived conceptions of what enlightenment is. This also applies to the halo some people seem to apply to themselves after completing an MBA.

MBA Deception

Now that I have been adorned with academic robes myself I will deconstruct everything I have learned at the Graduate School of Management and share my thoughts on Ian and I invite you to join us and share your thoughts on this journey of creative destruction.

Nothing More Practical than a Good Theory

Nothing More Practical than a Good TheoryOne of the great problems in management theory is that there is quite a bit of humbug. Just a quick look at the management section in the local bookshop will prove this point. Management thinking is, due to its very nature, entrepreneurial and everybody who has an idea wants to ensure that it is read by as many people as possible and maybe make a few bucks is the process. More than any other science, management ideas are primarily developed to make money, and people are willing to pay good money for them, as good ideas can significantly impact the bottom line.

However, not many management theories are underpinned by solid scientific research. As a working manager, you need to be equipped with a pretty good ‘bullshit radar’. Looking around the management section of the average bookshop the volumes on sale do not seem to meet the rigour of academic research. Popular management books give you ‘simple solutions’ to success. Good to Great by Jim Collins is one of the best selling volumes in this genre.

The Business Pundit blog provides a great criticism of Collins’ work which is pseudo-scientific. The book is touted to be based on solid scientific analysis of data, but in fact, relies on Jim’s intuition (p. 11):

“We all have a strength or two in life, and I suppose mine is the ability to take a lump of unorganized information, see patterns, and extract order from the mess – to go from chaos to concept.”

Collins did not use any advanced statistical analysis of the data, and there are no indications of the validity of his findings. Although he repeatedly emphasises the data, his interpretation of the data is not scientific but based on intuition. There is nothing wrong with using intuition to make specific decisions, but you can not call it science and generate general rules for good business management unless findings have a solid foundation.

The reason pseudo-scientific books like Good to Great are popular is because our brains are not naturally wired to be critical thinkers. The success of a lot of business literature is based on confirmation bias and the Forer Effect. We prefer information that confirms our preconceptions. Also, most popular management theory does not go beyond self-fulfilling prophecy, and broad sweeping general statements and its popularity is in essence based on the same psychological principle that explains the success of astrology and other forms of divination.

Another problem is that the average manager does not have the capability or motivation to understand complex theories that underpin human behaviour fully. Managers don’t want to read complicated scientific theories and good advice to those who seek to write a management best seller is to stay away from using any sophisticated analysis.

Management is, in essence, a social science that aims to influence human behaviour to achieve a collective goal, whether that be increasing profit or creating a great piece of orchestral music. Management seeks to change the behaviour of customers to convince them to purchase goods or services. Management tries to influence employees to ensure goal-oriented behaviour. Management theory is also about influencing or anticipating the behaviour of the external world, i.e. the stakeholders and possible competitors.

As a social science, management does not follow the strict rules of the natural sciences. There are no simple formulas to ensure staff motivation, increases sales volumes or ensure customer satisfaction. Management is about human behaviour, which is intrinsically unpredictable. Collins and other popular management writers do not use scientific methods, but there are natural limits to what the scientific method can achieve in management. All we can hope to achieve is to develop statistical models. These models do, however, not produce nice statements about nice sounding concepts such as ‘Level 5 Leadership’ and the ‘Hedgehog principle’. At best, the scientific analysis provides partial insights into a very specific phenomenon instead of the organisation as a whole.

There are also too many practical and ethical issues with undertaking full-scale management experiments that would be required to make the sort of claims that Collins promoted in Good to Great. Simply looking at sets of data from the past can not generate such claims because there are too many confounding variables that are not covered by the data. In other words: the principles distilled by Collins might not be the only reasons these hand-picked companies were successful.

Scientific theories do, however, remain an important means to regulate our intuition. Before we had a consistent theory of gravity, architects were very limited by the size of buildings they could create. As our theoretical and practical knowledge of physics increased, so did the size and complexity of structures. Theory is required to propel human knowledge and even though management is many times more complex than skyscrapers, using only intuition will not improve our understanding of managing organisations.

In conclusion, because management is a social science, we can not rely on theoretical models alone. Working with people requires insight and intuition that can only be obtained by life experience. However, theory is an important underpinning of our intuition, and in the end, there is nothing more practical than a good theory.

Management Science: Nothing more practical than a good theory

On the train from Hanoi to Sapa, I shared a cabin with two English women. One was completing her PhD studies in corporate social responsibility and lamented the amount of work it takes to promote.

One professor of the Graduate School of Management of La Trobe University once tried to convince some students to continue with a PhD after completing the MBA. Most of us just laughed and shook our heads in disbelieve as every student will be happy to finish studying, at least for a while.

Later I had a discussion with him, and I put the point to him that a PhD does not create better opportunities on the job market and does not make you a better manager. There is a vast chasm between managerial reality and academic discourse. This chasm is not a bad thing because academic research is essential in advancing the knowledge and practice of management.

There are, however, great differences. For example, in scientific management, every fact that has been sourced from somewhere has to be referenced. Failure to do so is considered plagiarism, the worst sin that an academic can commit. This requirement leads to footnote fetishism, and even worse, it induces a fallacy in argumentation called the fallacy of notoriety. Just because something has been published in a reputable magazine, does not mean that it should be considered correct. The Fleischman-Pons announcement and the Sokal Affair are poignant illustrations of why this is so.

In managerial practice, nobody ever references anything—taking somebody else’s idea is called ‘best practice’. In my experience, adding references to business reports is looked upon strangely.

Another difference is that correct argumentation, essential for academic papers, is almost never practised in business reports. Business reports are usually dot-pointed and quite often lack precise argumentation and rely on rhetoric. I am not claiming that rhetoric is always dangerous, it is an essential part of life.

The third difference I’d like to point out is that academic management is about creating knowledge, while management practice is about achieving goals and those goals are most often not about gaining knowledge but relate to selling goods or providing services.

There are thus enormous differences between management as a science and management practice. It is important that for an MBA a balance is achieved between the two modi operandi.

Will I ever attempt a PhD in management? I love a healthy academic debate, and I love to research, but as a manager, I have found that it is important to leave the scholarly method behind and translate scientific knowledge so that everybody can understand how goals can be achieved, which is what business is all about.