Where business schools fail

I’ve been blessed to have been exposed to a variety of experiences throughout my working life. Early on in high school I was a laborer doing everything — stocking shelves, pumping gas and mowing fields. Later, I was a machinery technician working on hydraulics, diesel engines, HVAC systems, pumps and piping systems, and evaporators; I was even a volunteer firefighter and emergency medical technician for a spell. I progressed from laborer to mechanic to supervisor to manager to director and currently am president of a company. I earned an associate of science degree, then a bachelor of science in mechanical engineering and finally a master of business administration (MBA) degree.

All of the experiences a person goes through in life offer different perspectives. But I’ll tell you something I’ve not heard discussed much — the curriculum in business school. There are at least three places where business schools fail to provide business leaders with a good foundation for running a business:

• overemphasis on government’s ability to generate economic activity
• believing that it’s right to outsource lower-skill, lower-paying jobs
• viewing operations and maintenance activities as a cost that must be minimized.

On the first item, I’ll just say that the Keynesian approach, taught almost exclusively in B-school, has been shown in recent months and years as insufficient to deal with major economic issues. It might work well to stimulate around small perturbations in the economy, but it sure falls apart in the face of excessive government regulations and debt, restraining business growth.

The second failing is the belief that outsourcing lower-skilled and lower-paying jobs to other countries is the correct path. Striving to build an economy increasingly on high-tech, high-education jobs has a major flaw. Complex systems still must be fabricated and maintained. That means you need to have skilled workers to fabricate and maintain those systems. Where do skilled workers get their skills? They start out at a low-skill position gaining experience in how to be an employee, obtaining training and increasing their knowledge. Eventually, these people become higher-tech workers with higher skills.

As “educated” business leaders executed their strategies during the past decades by outsourcing low-skill jobs to foreign manufacturers, the available feeder stock for domestic high-skilled persons has dwindled. Meanwhile, we’ve fostered a segment of the population that thinks they’re entitled to a high-paying job by virtue of the fact they have a college degree and can fog a cold mirror. In addition, tax policies and regulations encourage businesses to manufacture offshore.

The third business-school failure is the idea that operations and maintenance are simply costs that need to be minimized. This results in shortsighted budget decisions. Operations and maintenance appear as a cost on financial statements, so the MBAs act in accordance with their training. It goes something like this. Shareholders expect executives to maintain or expand profit margins. That means you have to achieve a combination of selling more and/or reducing costs. Operations and maintenance costs looks like a good place to cut; after all, these usually have pretty good-sized budgets. This is where you get the lazy solution of 10% across the board budget cuts.

Like other business school failures, the problem is that the business schools aren’t teaching students how to look at things from the right angle. If you look at operations and maintenance from the effect they have on the organization’s profit and loss, you get a different perspective. Consider if you did nothing to maintain equipment — you’d have no maintenance costs; but eventually every single production system would fail. The result would be no production.

Operations and maintenance activities transform potential production into actual production. Similarly, procurement, human resources, sales and marketing each have a role to play in the team achieving optimized profitability.

Organizations need to optimize performance; they need to get the best return on investment for the operations and maintenance resources. To do that organizations need a sound foundation — organizational structure, budgeting and strategic plan. These need to be focused on optimum performance. Organizations also need well-designed and defined processes that are measurable and repeatable. And most importantly, organizations need to focus and execute. Focus and execution depends on an aligned senior management team, professionalism in leadership and management techniques, and an understanding that it’s not the absolute cost of functions that is important, but their effect on bottom line performance.

Tom Moriarty, P.E., CMRP, is president of Alidade MER. Contact him at [email protected] and (321) 773-3356.