What I really learned at Harvard Business School

The Daily Telegraph's former New York bureau chief Philip Delves Broughton forsook his trade to pursue an MBA at that most prestigious business school on Boston's Charles River. He experienced life in the classroom and on campus, studying alongside capitalism's ultra-privileged elite. Read on for the inside story.

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Last Updated: 09 Oct 2013

I don't know what you think of Philip, but right now, for you, he's just Philip.' The dean of Harvard Business School (HBS) and 90 of my classmates were looking straight towards me. At that very moment, I was trying to corral a collapsing chicken salad sandwich and looking very 'just Philip' indeed. We were a few weeks into the MBA course, and Dean Kim Clark had come to our classroom this lunchtime to introduce himself and take questions. He was a gaunt, devout Mormon in his late fifties who spoke with the authority of the prophets, quiet but commanding.

'When I first came into this classroom as a young professor to teach, there was a guy called Jack sitting there. He's now Jack Brennan, head of Vanguard. Over there was a former Dartmouth football player, Jeff. Jeff Immelt is now the chief executive of General Electric. Over there was Donna - Donna Dubinsky, who became the CEO of Palm.'

A switch seemed to have been flipped in our windowless basement classroom. You could feel the hum of ambition. Ninety students in five rows arranged in a horseshoe facing the blackboard, all of them, even the one now licking mayonnaise and chicken off his pencil, thinking: 'Will I be the one they mention in 25 years? Will a future dean address the class of 2033 saying: "In that seat was Susan. She was shy of speaking in class but now she's running the largest hedge fund in the world. Tom over there became CEO of Google. And Philip. Well. How many billions should one man have?"'

We were all looking at each other, wondering.

At Harvard Business School, there was but one true guru: Michael Porter. The Guru was urgent in everything he did. Despite a bad right leg, he walked fast, leaning away from the weight of his battered, bulging brown leather briefcase. Other professors would slink into the classroom, hang their jackets in a nook, and wait for the students to file in. The Guru had an entourage who swarmed into the room before he arrived, like a presidential security detail. One of his assistants set two cans of Diet Coke on his desk, his caffeine ration for the next two hours. He needed the cola like baseball players need amphetamines to stay awake during long, hot days in the field.

His uniform was a blue woollen blazer, light grey trousers and a silk tie, though he put on a suit for visiting heads of state. His once-blond hair was whitening now and worn swept across his head, a frosting of elder statesmanship. Pale blue eyes stared out from behind clear horn-rimmed glasses. When he became excited, you thought his eyeballs would burst through his lenses and clatter to the floor like marbles.

'So what explains Finland's success in telecommunications?' He strode up and down the steps in the classroom, his arms turning like a windmill, his trousers covered with chalk dust. This was the fourth time he had asked the question, but he was still unhappy with the answers.

'Come on. What explains this small Scandinavian country's becoming the dominant player in this field?'

Porter was an all-state high-school basketball player, and it was easy to imagine him in one of those old-fashioned uniforms, eyes darting, the ball bouncing rhythmically beneath his hand, slashing his way up and down a basketball court in New Jersey, where he grew up, directing the action from beneath a mop of blond hair. After high school, he had attended Princeton, where he earned his BSE in aerospace and mechanical engineering in 1969. He then brought his game to the study of business at Harvard, earning his MBA in 1971 and his PhD in 1973. He is one of only 17 university professors at Harvard, the highest academic position available there, and one of only two at the business school. The Times ranked him the most important business thinker in the world.

Porter began his career thinking about companies and the way they compete. By the time I got there, he was applying himself to entire countries and regions. He was advising the government of Libya on a programme of national economic regeneration, while his latest book was about reforming America's healthcare system. In his spare time, Porter serves on company boards and as senior strategic adviser to the Boston Red Sox. He gave the impression that no problem was so vast or slippery that it could not be attempted with the pitons, ropes and ice axes of a Porter analysis. It turned out to be a wonderfully optimistic way to think about the world, and exactly what I needed at this point in my MBA experience.

Porter's class was the only one at HBS for which you had to apply. Some people groused and said they would never 'kiss the ring', as if Porter were the pope and we mere supplicating sinners. I had no such problem. Roughly half of the applicants to the course were accepted, and I was delighted to be one of them.

The course was called 'Microeconomics of Competitiveness', though that makes it sound less interesting than it was. What it really dealt with was the big, gnarly question of how to spur economic development at local, regional, national, even continental levels. It was about how you co-ordinated business and government, schools and universities, road-builders and everyone, really, in a society to pull themselves up the economic ladder.

Porter's analytical approach began with what he called the 'diamond model' for the competitive advantage of nations. This was a way of assessing the quality of an economic environment by putting all the forces that affected it into four separate buckets (the corners of the diamond) and analysing how they helped or hindered one another to create a good environment for business. It allowed you to get beyond the natural advantages of any particular economy - large oil reserves, for example - and start to understand the causes of sustainable competitiveness.

You took a country, region, or city and looked at the rivalry between companies, the demand from consumers, the availability of skilled labour or capital, and the supporting network of industries. Each corner of the diamond could be unpacked and investigated, but overall it allowed you to see through to the potential sources of competitive advantage.

Porter believed that the fundamental unit for thinking about competitiveness was not the individual company or sector but the 'cluster'. To understand the success of Wall Street, for example, it was insufficient to credit the banking talents of a few executives, or the organisational setup at a few firms. You had to look at the presence of so many firms and financiers working in such a tight space, all the terrific universities in and around New York City turning out gifted graduates, the proximity of first-rate corporate lawyers, the courts and the legal framework, the exchanges, the Federal Reserve Bank of New York, the range of other businesses and corporate headquarters in the city. Together, they made Wall Street what it was.

It was the strength of the cluster, not the individual firm or sector, that mattered, and the strategist aiming to spur economic progress should work to develop every part of the cluster.

At the core of Porter's thinking was the belief that competition was the engine of productivity growth and that every business, town, or country should be seeking out a competitive advantage and developing it. But he had evolved this into something more humane than it first sounded. The cases we studied ranged from Finland to Rwanda to the slums of St Louis.

Porter was willing to address himself to any problem, however hopeless. He was not just another business-school professor trying to figure out how to drive an ever-wider wedge between cost and willingness to pay. He was taking the best of HBS and applying it in areas too often starved of such intellectual horsepower. In the Rwandan case, for example, we studied a country that, after the genocide of the mid-1990s, had to rebuild from next to nothing. But by the end of the class, and after watching a video of the country's president, Paul Kagame, who had come to speak to a previous year's class, we had laid out a detailed strategy for Rwanda to build its competitive advantage through scientific education and lightweight exports, which could be flown out of the country rather than having to take the dangerous land routes to the ocean. Was it feasible? Well, it was a start.

Porter's class consisted of 40 MBA students and 40 students from the Kennedy School of Government. While the MBAs would waltz into class in T-shirts, having walked through the tunnels linking the buildings on campus, the Kennedy School students arrived stomping snow from their boots, their faces raw from the wind lashing the Charles River.

The gulf between the business and government students was also apparent in how we approached the class. The HBS students would opine authoritatively, working solely from data in the case, while the Kennedy School students would squirm under Porter's questioning and then come up with big, broad remarks such as 'this is the problem when business and government work together'.

But Porter's goal was to meld the cultures and approaches of the two schools by pushing us on, urging us to consider how we would revive the Estonian economy or expand a washing-machine business in Latin America.

In the washing-machine case, we were discussing whether the business should try to survive in the face of low-cost Asian competition when I put my hand up and was called on. I said the owner should sell out now. He was not playing to his competitive advantage.

It was the right answer for the business school. But Porter stared at me, folded his arms, and looked around the class. 'Who thinks he should sell?' A student from the Kennedy School raised her hand and said that perhaps the owner of the business should keep going and that if Latin America was ever to have a home-grown appliance business, it had to persevere and not sell out at the first opportunity.

This was what Porter had wanted to hear - not my blinkered, manufactured MBA answer. I had been thinking solely of the competitiveness of the business, not of the people, country, and region it represented. I should have known better. Had I built a washing-machine manufacturer from the ground up in Costa Rica? Had I defied the odds to spend 20 years building factories, hiring employees, and developing a supply chain and marketing strategy? No. But I felt comfortable advising the founder to sell out rather than try to build something he and his country could be proud of. This was why people hated MBAs. Too much cost-benefit analysis, too little humanity.

Jack Welch, the former head of General Electric, visited campus during the second year to promote a book he had written. He came to a packed Burden Auditorium to be interviewed by Rakesh Khurana, a HBS professor who had criticised the cult of the superstar CEO, which Welch embodied.

Khurana began one of his questions: 'Business is too important an institution for us not to pay attention to its leaders ...' Welch butted in. 'No, it's the most important institution. It all revolves around that. Government generates no revenues. Government lives off taxes generated by business and people who work in business. Don't ever forget that.'

How any businessman, not least the most feted one of the past 30 years, could say this astonished me. Did he seriously believe business could run without sound government?

Porter's course was a useful counterweight to Welch. It showed that business was not the sole driver of a society and that it was possible to come out the other side, to have an MBA, to put competition at the centre of one's beliefs, and yet not be a completely heartless scumbag.

One morning in January I decided to spring for parking on campus. After five months of taking the bus or driving and then spending 15 minutes cruising around Allston (a suburb the other side of the river from Harvard) looking for a spot, I thought it was time to treat myself.

So there I was, cruising onto campus in my $2,000 used Toyota, unfolding a five-dollar bill and handing it to the attendant, feeling for all the world like a big-spending Russian oligarch. The roads were covered in ice and slush, and I was looking forward to a briefer-than-usual exposure to the Boston winter.

Once I got to the garage, I found a space on the third storey - but not before passing the most extraordinary assemblage of student transport I had ever seen. Ascending the ramp of the car park, they went, roughly, BMW, Lexus, BMW, BMW, Mini Cooper, Lexus SUV, BMW, Porsche, Lincoln Navigator, BMW, and on and on. Finally, I found the lower-rent district. There was Betsy, Bob's 10-year-old Saturn, which he'd told me on a ride home, stroking the plastic dashboard with pride, had done more than 130,000 miles.

I also spied an olive-green Chevy Lumina, which belonged to a former submarine captain. 'No-one likes to buy these cars secondhand because they are only driven by old people,' he told me. 'But that means you get a lot of car for a lower price. And old people tend to look after their cars much better.' I was developing a soft spot for the ex-military guys. They were refreshingly sane.

In the cafeteria, I found one of my section mates, Vivek, lingering as usual by the coffee station. He couldn't decide whether to go for a latte today. Aside from knowing everything a person should know about finance, Vivek also happened to know everything about cars. Everything. He knew torque ratios on a Honda Accord as well as the interior specs of a McLaren supercar. He knew prices, speeds, RPMs, detailing history. You almost felt bad asking him for advice on buying a car - it was like asking Einstein to help you with long-division. But he loved any opportunity to talk cars.

He went about your problem like a clinician, diagnosing your situation, personality and budget before delivering his answer. 'You should take a look at the Acura range', or 'The Korean cars aren't quite there yet. But give them a couple of years'.

'Have you seen the cars in the garage?' I asked him that morning.

'Yes.' Vivek only ever answered the specific question you asked him.

'Well, how come I'm driving a $2,000 Toyota and everyone else has a BMW?'

'Lots of people buy them when they get into HBS and want to get financial aid.'

'What?'

'Once you get accepted by HBS, you want to clear out your bank account so that you get more financial aid.'

'I'm sorry, I'm not getting this. You buy a BMW to get financial aid?'

'When you list your assets in the financial aid application, you don't have to mention your car, but you do have to list any savings or property. So you buy a car for $20,000, maybe you get an extra $20,000 in financial aid; so, basically, HBS buys you a BMW. If you hadn't bought the car, you'd have to pay the $20,000 out of your savings.'

'But don't they check this kind of thing? I thought that if you were caught lying on your financial aid form, you'd risk losing your place.'

'But this isn't lying. Nor is taking all your money and parking it with your parents while you apply for financial aid.'

'So your personal accounts look empty.'

'Right.'

'This is unbelievable,' I said. 'How many people do this?'

'Everyone coming from Wall Street knows about this. And the consulting firms. It doesn't always work. But lots of people try it.'

In its brochure, HBS said that roughly half the class received financial aid and that the average financial aid package was worth $10,000 per year. I knew that some, like Bob, had received much more, but the man had four children and had flown the stealth bomber. He deserved it. I had received $3,000 in my first year. Probably what I deserved. But the idea of these 25-year-old Wall Street jerks fiddling with their financial aid forms, with the connivance of their parents and the local BMW dealerships, ruined my morning.

I was doing my usual shuffle between the frozen yogurt machine in the basement and an upstairs study room when I thought I could use a voice from beyond the HBS walls. I wandered over campus and sat in the back of a sparsely filled classroom. Dan Gilbert, founder of Quicken Loans, had started his first mortgage company aged 23, while in the first year of law school. Twenty years later, Gilbert was much wealthier than many of the investment banking honchos who came to campus with their entourages and limousines, but he wore a fleece top and khakis and looked like he might have just dropped in from IT support. He was a compelling talker.

'We became philosophically driven real early,' he said of his company. 'It all starts and ends with culture, environment, philosophy. It's all about who we are versus what we do.' His biggest challenge 'was just getting people to pay attention. It's 70% of the battle.'

He repeated what I had heard on the venture capital circuit. Most ideas are pretty good ones. It all comes down to execution, staying alert, paying attention. 'Except for companies that have a certain patent, it's about thousands and thousands of little things.'

Process matters as much as outcome. In fact, process determines outcome. Toyota worked because every single worker kept their eye on the process and had the right and obligation to improve it and even shut down the production line if there was a flaw. 'There is nothing more important you can do,' Gilbert said, 'than to ingrain a culture where everybody is looking and has the power to make changes.'

If there was one thing we should remember coming out of HBS, Gilbert said, it wasn't the weighted average cost of capital or the four Ps of marketing. It was to return calls and e-mails in a timely way. That would put us 99.9% ahead of our competitors. 'People are shocked, people are in awe. They can't believe it. And we can't believe that people can't believe it because we think everybody should do it.' The e-mail auto-reply function, he said, was the equivalent of giving your customers the finger.

He emphasised the difference between the victims at a company, those who blamed others and felt sorry for themselves, and those who tried to make things right. Identifying the victims, or 'spectacle makers', was vital, or else they would contaminate everything you did. To illustrate the polluting effect of a whiner, he said: 'If I had my favourite bowl of ice cream over here and a bowl of shit over here, if I took one speck of shit and put it in the ice cream, would you eat the ice cream?'

Extracted from What They Teach You at Harvard Business School, by Philip Delves Broughton, published by Viking at £12.99. Copyright (c) Philip Delves Broughton 2008 www.penguin.co.uk. To order a copy at the special offer price of £9.99 including free p&p, please call the Penguin Bookshop on 08700 707 717, quoting 'Harvard Business School/Management Today' and ISBN 9780670917761. The offer is subject to availability, and open to UK residents only. Customers should allow up to 14 days for delivery.

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