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Rethinking Management Education: A View from Chicago with Robin M. Hogarth
Introduction
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.1 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 earliercounterparts, 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.
FIGURE 1. ELEMENTS OF PERFORMANCE
Conceptual Knowledge
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.”2
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.”3
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.4
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.
Domain 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.5 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.6 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.7
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.
Action Skills
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.8
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.
Insight Skills
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 e...
