An article in an academic journal fascinates me no end. It's by two Portuguese academics, Rosa Forte and Antonio Brandao, and is entitled 'A moral hazard model of a multinational firm's decision between foreign direct investment and international subcontracting'. It appeared in the autumn 2007 issue of Multinational Business Review.
What interests me about this article is the way it incorporates all the mysteries and enigmas, and thus the strategic challenges, that face business schools. By spending time deconstructing this article, I'd like to cast some light on academia for a managerial audience. In my experience of interacting with non-academics, whether senior management, human resources or management development directors, it is clear they often don't understand what goes on in business schools and can't figure out how best to work with them when they seek to develop staff through executive education activities, tap into research and faculty expertise, or evaluate the acquired knowledge of graduates.
The 'Moral hazard' article is 21 pages long, excluding notes and references. Six have mostly words on them; the rest are in intricate econometric mathematical notation. I'd quote a small section, but Word doesn't have the symbols required to reproduce it.
You may ask yourself what the point of such extreme quantitative research is. The answer goes back to the history of business schools and scientific legitimacy. As Rakesh Khurana describes in his book From Higher Aims to Hired Hands: The social transformation of American business schools and the unfulfilled promise of management as a profession (Princeton University Press, 2007), management is a relatively new phenomenon, triggered by industrialisation in the late 19th century. Scale and geographic expansion brought an administrative class into being, managers who often presided over organisations with dreadful labour relations. Because of their power and lack of accountability, large companies were seen as a danger to society. Rich Victorian industrialists like Joseph Wharton and Amos Tuck realised that in order to legitimise managers - and thus themselves - as proper professionals, education was needed. And maximum legitimacy for education resided in a university setting, rather than that of a trade school.
The problem was that there was no real body of knowledge about management; indeed, other university departments considered management as unfit for an academic context. A 1928 survey of curriculum content illustrates this dilemma. Of the 34 business schools surveyed, all included accounting and economics and, interestingly, English. Only 18 looked at markets, six at labour, three at production and two at personnel.
This situation continued until the second world war but changed in the immediate post-war years as the GI Bill in the US funded education for returning servicemen. Universities expanded their business schools to take advantage of the bonanza.
Putting some order into the situation again fell to wealthy industrialists, such as Ford, Carnegie and Rockefeller, through the foundations they had established. For them, the professionalisation of management was crucial and they developed a two-pronged strategy. The first was to fund research projects to demonstrate that business was a force for democracy and a bulwark against Soviet communism. The second funded the assembly of a cohesive and quantitative management body of knowledge that adopted 'serious' university content such as economics, mathematics and statistics rather than the softer 'left' disciplines. To promote this view, a range of peer-reviewed academic journals were created as vehicles for publishing research.
Business schools reflect the societies in which they are created. In post-war Britain, they encountered forces similar to those in the US, with some specific UK differences: primarily, the significant role of the state. Henley was established in 1945 as the Administrative Staff College, with a mission to bring civil servants, private business and nationalised industries together. Ashridge was founded in the late '50s to 'educate the men of the empire'. As with Henley, the Ashridge curriculum was strongly influenced by the labour relations of the time. In both cases, tensions must have been high. I've read through about 30 UK company histories, mostly from the 1950s. They all complain bitterly about excessive government encroachment and unreasonable labour unions.
Influential 1960s reports from Robbins and, later, from Franks, sought to emulate the US by creating business schools that were, unlike Henley and Ashridge, within a university setting based in London or Manchester. The impetus, as in the States, was to encourage the professionalisation of management. A second agenda, however, was the acknowledgement that UK competitiveness trailed behind that of other nations.
Fast-forward to today... It's time to return to 'Moral hazard' to see where we've ended up. The professionalisation of business schools and the creation of a grounded, scientifically based curriculum is a good thing. But the project has gone too far.
The promotion of faculty members today is almost entirely based on their research performance in peer-reviewed journals. The journals with the highest reputations are often very quantitative. So even a sensible management question like 'Should I outsource or should I foreign direct invest?' - which for most managers is about relationships, trust, political stability, communication and feel - is tackled academically, with econometric models that most people don't understand.
Although a study on 'make or buy?' is valuable to managers if it is conducted qualitatively, it would be unlikely to appear in a high-ranking academic journal. And if faculty don't publish work in these journals, they don't get promoted and their department doesn't get money from the research councils when a research assessment is conducted. So the 'Moral hazard' authors must have decided to model the debate econometrically. The fact that this makes little sense is lost in the process, and a difficult article appears in a little-known journal (Multinational Business Review) - to be read by only a handful of people: the authors, a couple of reviewers and masochistic me.
I'm not making the case that rigour is not important. I can launch a similar tirade against the simplistic airport books or popular strategy books of the Good to Great ilk that string together random anecdotes rather than apply a rigorous research methodology, quantitative or qualitative. What I'm after is a situation where academics conduct sound research and managers read it. Right now, there's an enormous gulf. Managers tend to read popular books and newspapers and magazines; academics read journal articles and write better or worse academic ones themselves. At the sound end of the spectrum, my colleague Howard Thomas, dean of Warwick Business School, recently co-authored a study of the most academically influential strategic management articles of the past 25 years (see table above).
Few practising managers come across these authors or articles, I suspect. This is quite a shame, as maintaining a competitive advantage through learning is the only way to go these days, and that is what they are writing about.
Overall, the challenge of relevance and rigour and the debate around qualitative and quantitative research continue. Faculty members are under pressure to publish - and some articles are excellent, while others are unintelligible. They are also under pressure from students and executive education participants to contribute practical guidance for practising managers. Reconciling these two pressures is not easy. Some faculty thus concentrate on publishing; others opt out.
From a manager's perspective, it's important to understand the rules of this game. Different schools have different perspectives on whether to play the research assessment game or the government funding game. Some do both and have research faculty and professors of practice who are much closer to business. Great insights are generated in business schools, but they are often 'difficult'. Managers should nevertheless engage with this literature and seek out faculty members who can contextualise the research and translate it into the real world. Those who can combine rigour and relevance deserve to be listened to.
For adventurous readers, I recommend joining the British Academy of Management, whose benefits include the International Journal of Management Reviews, a survey of what is going on in various disciplines, and the more challenging British Journal of Management.
THE FIVE MOST INFLUENTIAL ARTICLES
Citations total Citations
JB Barney (1991), 'Firm resources and
sustained competitive advantage',
Journal of Management 1,757 116.5
WM Cohen and D Levinthal (1990),
'Absorptive capacity: A new perspective
on learning and innovation',
Administrative Science Quarterly 1,464 91.5
DJ Teece et al (1997), 'Dynamic
capabilities and strategic management',
Strategic Management Journal 774 86.0
B Wernerfelt (1984), 'A resource-based
view of the firm', Strategic
Management Journal 1,098 49.9
J Nahapiet and S Ghoshal (1998),
'Social capital, intellectual capital
and the organisational advantage',
Academy of Management Review 373 46.6
Source: O Furrer, H Thomas and A Goussevskaia (2008), 'The structure and
evolution of the strategic management field', International Journal of
Management Reviews, Vol 10 (1)