Have American Businesses Been Stranded By the MBAs? 487
theodp writes "In his new book, Car Guys vs. Bean Counters: The Battle for the Soul of American Business, legendary car-guy Bob Lutz says to get the U.S. economy growing again, we need to fire the MBAs and let engineers run the show. The auto industry, writes TIME's Rana Foroohar, is actually a terrific proxy for a trend toward short-term, myopically balance-sheet-driven management that has infected American business. In the first half of the 20th century, industrial giants like Ford, GE, AT&T and others used new technologies to create the best possible products and services with the idea that if you build it better, the customers will come. But by the late '70s, if-you-can-measure-it-you-can-manage-it MBAs were flourishing, and engineers were relegated to the geek back rooms. 'Shoemakers should be run by shoe guys,' argues Lutz, 'and software firms by software guys.' Learning that China plans to open 40 new graduate schools of business in the next few years, Lutz quipped, 'That's the best news I've heard in years.'"
Re:Lutz is dead wrong (Score:4, Interesting)
MBAs are useful, but not in leadership roles. Give the top jobs to engineers who understand what their company is building, and have competent accountants and marketers working as advisers to the engineers. (And no, I'm not an engineer looking out for number one. I'm actually an accounting student.)
Re:Lutz is partially wrong (Score:3, Interesting)
I didn't read the article, but the summary sure makes it sound to me it's more of a "a guy who KNOWS cars" should be in charge of a car company (CEO, President, something along those lines) vs someone who doesn't have a clue about cars. It's not that you'd get rid of the sales, marketing, HR and other teams, just that a HR person wouldn't be cailling all the shots.. someone who knows cars would be.
And I agree 100%. I've worked in a variety of business sectors over my years (some part time fillers during internship(s) and others as a living between gaps in taking school, etc).
I've worked grocery store retail in produce, in a kitchen for a few months, an auto parts store, two different electronics retail stores (I was the car audio/video/security installation manager at the bigger, national store, and just an installer/sales of car stuff at the 2-owner ma & pa type shop).
I've seen it across the board. At the national retailer level, the car install area use to be it's own "location", where the chain was installer -> assistant manager -> install manager -> District manager -> regional manager. Almost every single one of the guys in the install manager up had experience installing and selling mobile electronics. But then the bean counters noticed it was one of departments with the highest sales and revenues at the time... so what did they do? They got rid of the mobile district managers and regional managers and merged the install bay into the same location as the store... which meant the DM and RM of the install bay were now the DM and RM that were in charge of TV's, camera's, etc... and stuff went down hill pretty quickly in the bay.
I know it may be one example, and some may consider it a poor example, but it *IS* an example none the less. I have perfect examples for most of the places I've worked where someone who didn't/doesn't know anything about what they are in charge of get in the way and hurt sales and all that more than they do anything to help them. A monkey that sat there flinging poo at the wall all day would cause less issue than the higher ups who have no knowledge and real experience with the field or products who always tend to try to change things the way they think it should be based on a totally different field or experience (and which hardly ever ends up working)
Exactly (Score:4, Interesting)
Company problems are like people problems, sometimes there's a systematic reason, other times it's completely down to the individual and the circumstance.
While you've focused more on the personal skills that many geeks lack, you're also missing that many geeks don't seem to understand how difficult running a business, really is. Even small businesses. There's so many things going on, so many things out of your control, so many people you rely on, and so many unintuitive "systems", which are really hard to get a grasp on.
The worst companies I personally know of, that I have worked for, or with, are run by engineers/scientists.
While there is something to be said for the executives having been in that industry, there's also a lot to be said for people with outside perspective, and a fuck load to be said for people who understand how businesses run. The article has said MBA's, but I take that more to mean accounting/management/finance/economics professionals, so MBA's/CA/CPA/CFA/* all in one bag. It's condescending to suggest that this is due to "MBA's", and the real discussion seems to be one of "short-term balance sheet driven management" versus "long-term" and or "non-balance sheet driven management".
Well, short-term versus long-term versus some mix of both, has and continues to be, one of the most debated topics amogst "MBA's". To suggest that somehow they don't understand this, is absurd. Hell, the very fact that Bob Lutz is writing about it, shows this is absurd, since he is in fact one of those "MBA" people.
Oh well, for those who haven't read the the Business Week [businessweek.com] article, I recommend it. It really gets to the heart of his story. The TIME one, not so much.
Pharmaceutical Industry Next (Score:4, Interesting)
1) Start an industry
2) Grow an industry
3) Get rich (profit)
4) Get greedy
5) Collapse
No connection to bussiness (Score:4, Interesting)
The other is changing market conditions. In the case of ATT, consumers simply rebeled against the price they had to pay for what became a commodity. It is hard to explain to a young person how much the rate for phone service has fallen. Using a cell phone I can call from anywhere in the continental US to anywhere in the continental US basically for what my parents paid for local calls, inflation adjusted. With Skype out of country calls fell from maybe fifty cents a minute or so to a less than a dime a minute(the countries I call are not on the unlimited plan). ATT revenues has been more than decimated by market forces.
One thing that did happen in the 70s and 80s, particularly 80s, was the concept that profit was a right and that firms when they employed a certain number of people needed to ongoing bussiness, even if the management was incompentant. This, in effect, removed the incentive for compentant MBAs. As long as a manager has a piece of paper, the firm had done due diligence, and the financial sector, backed by tax payer money, would insure that funding for the incompetent and inefficient firms would be ongoing. The primary negative consequences was that compentent and creative individuals found it harder to get funding, and employess.
Re:You need different kinds of people (Score:5, Interesting)
Re:Exactly (Score:4, Interesting)
No, it actually is about MBAs. Accounting professionals for example bring a useful skill: accounting.
MBAs are the people who are good at nothing in particular and generally exist to get in the way of the people who actually produce.
Re:Hewlett Packard (Score:4, Interesting)
HP is a great example of a company founded by engineers and later ran in to the ground by MBAs.
I think IBM is another case study in the making (again).
IBM began as a marketing-focused company (very early) and as it moved into the computer age acquired a strong (as in world-leading) engineering component while maintaining the market focus. Through the 70s and 80s, with the strong leadership of the Watsons gone, the market and engineering focus was replaced by bean counter optimization because IBM owned an unshakable monopoly and it was the most effective way to exploit that monopoly. The combination of (primarily) the PC revolution and (to a lesser degree) anti-trust litigation broke that monopoly and left IBM drowning in red ink.
Louis Gerstner came in and restored IBMs customer focus, increased investment in engineering and built a capable business & engineering services business. He put the company back on track and rebuilt its brand around a services-centric model that gave customers a one-stop shop for hardware, software and the services (business and technical) to make it go. When he left and Sam Palmisano took over, IBM began a long, gradual slide towards an MBA-driven company. Though IBM does still maintain one of the largest research divisions in the world, and employs a lot of brilliant people, researchers are increasingly facing demands that their work be quickly translatable into near-term profitable products, which (perhaps surprisingly to MBA types) is killing the profitability of their work. The accountants have been focused on achieving profits through cost reductions for a decade now, starting with reducing employee expenses through a wide variety of methods that have made IBM an increasingly unpleasant place to work.
Meanwhile, IBM's approach to growing the business is increasingly one of buying successful young software companies and marketing their products hard through IBM's extensive sales network while putting minimal, if any, effort into product enhancement. What little product improvement/development effort IBM continues is increasingly being pushed offshore. As various offshore organizations gradually build up the skills to be truly competent and useful, IBM has discovered their prices also rise so the MBA response has been to push out to other, lower-cost locations. With India now "too expensive", IBM is pushing more work off to South America, Eastern Europe and lower-cost areas of Asia -- and in doing so moving right back into the the problems that early offshoring efforts into India had with the added bonus of much more significant language barriers than existed in India.
Over and over again, the pattern of business in IBM today is micro-optimization of balance sheets, extreme focus on quarterly earnings and declining focus on the actions that are productive long-term: Developing customer relationships and creating compelling products.
Much of the discussion here has been on the conflict between marketing and development, but that misses the mark entirely. MBAs are not marketers. They don't know how to sell. They're all about business process optimization and financial optimization. Those are good things, but they're good for eking out marginal improvements in business effectiveness. They're a useful adjunct to the business components that REALLY matter -- making stuff to sell, and selling it. But when they begin to dominate, it's a problem.
Is IBM's current myopia going to cause it to fail? Almost certainly not. The micro-optimization and the buy-and-harvest approaches are currently working in the sense of growing revenues and profits. But the micro-optimization is just about played out, and customers are getting wise to the buy-and-harvest approach and becoming less willing to buy IBM. So IBM is heading towards a period of stagnation, at least, and serious decline at worst. The company is too big to die, though, and employes too many smart people, so what's going to happen is that
Re:Exactly (Score:4, Interesting)
A good manager trusts those to whom he gives responsibility, and is willing to discuss ways of achieving the common goal. Once the degree was awarded, neither one was ever again approachable on matters that at times included legal responsibilities the government licensing agencies assigned to my job title.
IMO we either need to change the MBA curriculum, or just declare a bounty on MBA's.
Cheers, Gene
Lawyers (Score:4, Interesting)
Oh, and get rid of the lawyers, they are even worse than an MBA.
Lawyers are risk management. Getting rid of them is getting rid of insurance--opening yourself up to major downside risk in everything from employment discrimination to your lease to the agreements you make with your clients. Effectively, it's a transaction cost of doing business.
Engineers tend to intuitively dislike lawyers because they seem to make things less efficient--transaction costs do that. When everything goes well, the lawyer was basically an expensive insurance policy that you never collected on. But when things go badly, a good lawyer can make the difference between riches and insolvency. Even having good agreements drafted can discourage people from suing you. Putting together a new corporate form can easily save millions, for example.
Sometimes a lawyer does too much--they effectively purchase too much insurance, spending far more to achieve additional downside protection that is not worth the expenditure. Think of it like a corollary to Amdahl's law. In these cases, good lawyers can (Depending on a client's preference and the specific trade-off) advise you about the relative costs and downside risks, or make some of these decisions using his or her own judgment.
Granted, there are a lot of fundamental problems with the legal system--good tort reform for everyone might be a better solution than limited liability conditional on legal forms, for example--but it also greatly benefits business (e.g. agreements are enforceable), so legal expenses are a cost of doing business well.
Re:You need different kinds of people (Score:5, Interesting)
One word, Android.
You are wrongly accusing weaknesses in linux desktop GUI functionality with the difficulty of penetrating an entrenched market. I have used Windows, OSX, OS/2, Irix, linux (gnome, KDE, XFCE) extensively and the Windows and OSX GUIs have their failings the biggest failing being the retarded "it wasn't developed here" brick wall. A good example, multiple desktops, they have been available in the linux GUI for ages but blind stubbornness kept them from being a standard part of other GUIs.
And some people just don't play well with others.
True story: While working full time as an engineer I went back to school and was taking some courses that were a mix of information technology and business management so many of the fellow students were business types coming from the other end of the spectrum. This was during the late 90s when the economy was booming and technical skills were in demand and good wages were required to retain talent. During a break a CIO employed at one company was conversing with a middle manager of software development from another company. They knew in common various talented people who had worked for both of them at one time or another but had moved around to gain better wages and benefits. The CIO made a telling comment, "when this boom economy ends we are going to get back at them", them being the technical people who did not stick around for the lower wages and benefits.
True story: Working with a group of engineers an equipment upgrade plan was developed that would reduce chemical usage costs and reduce hazardous waste disposal costs. Our calculations showed a 1 year payback due to reduced costs alone with the currently intangible benefit of advancing process performance for future product needs that the product designers and process engineers predicted. In presenting the project to the division VP in front of factory management I was laughed at and told "if engineers were putting your own money into these projects you would put more realistic cost savings numbers" which was followed by a round of laughter from management. My response was that I would put up my own cash to fund the project but I expected to collect any measured profitable gains as my return on investment. The laughing stopped and everyone had a poker face. The project was not approved and two years later when the latest product design was released for full production the equipment that was the target of the engineering upgrade was causing huge yield losses due to ineffective performance on the new product design.
We need the talent of MBAs, they learn valuable business skills and techniques in school, but they are currently overrated and overreaching in their decisions and control. When you extend this to the MBAs who climb the corporate ladder to the board level they are corrosive not only to their own work force but to the entire economy and future of the nation.
Speaking as an MBA (Score:4, Interesting)
I seriously doubt that MBA managers make these kinds of efforts when they take charge of companies. The dominant ethos of that profession appears to be to run a company by the numbers just long enough to move on to a higher paid position.
That's pretty much it. That's how the corporate American works and we're taught accordingly.
Engineers who want to know the business end of things this is what you study:
Pretty much the first semester of B school is all you really need. That's all. everything else is fluff. And as far as the group behavior/personal dynamics class goes, we were taught that "sensitivity training" was the solution for all human resource problems - it was all basic psych and sociology and lots of buzz words. Let's put it this way, if you don't have any social skills, getting personal coaching will do much more for you than those fluff classes.
There! Now you won't waste 2+ years and $40K+ on a big piece of toilet paper.
Want a Masters Degree for ego, promotion, or whatever? Get it in something you'll enjoy.
Re:How Many Times Have You... (Score:2, Interesting)
Would you pay 40 times that $2? That will get you an OBDII engine scanner, the only way you will get much useful information out of most cars these days without adding gauges yourself.
My rant: Most car fuel gauges depend on a variable resistor suspended in the fuel tank, a printed plastic card with a float attached to the moving contact. Too much sulfur or other gunge in your gas renders the sensor insensible. The card probably costs all of a dollar, but for my car it's only available as part of a $400 fuel sender + fuel pump assembly. And then it's another $500 in labor, since instead of just pulling the assembly out of the port at the top of the tank the entire fuel tank has to be dropped in order to do the repair.
Somehow I dont think that was the result of an oversight.
No, MBAs means MBAs, not CPA, CFA, etc. (Score:4, Interesting)
Business PhDs argue about all manor of interesting stuff. Business BA and MBA programs are just degree mills operated by business academics so their salaries can be even vaguely competitive with the business world.
MBAs are soft degrees for people who want money but lack direction, drive, and guts, i.e. they're risk-averse personally. You don't really want that sort of person running your company.
You might view an MBA as a qualification to manage someone significantly less educated and less intelligent than yourself. I'd hire an MBA from a tier n school for managing engineers from say tier n+2 schools.. or tier n school engineers if the MBA's undergrad was a STEM degree. I'd usually hire a business BA from a lower tier school only for managing people who held no collage degree.
You also shouldn't make managers from the engineers who cannot manage. duh! Yet, there are actually enough engineers and scientists who can handled the organizational load & inter-personal factors.
I'd imagine the "scientists" you mentioned were academics who started a company. Imho, anyone fresh out of academia should not be running a company, this even covers business PhDs. Instead, they should take a couple years acclimating to the real business world.
Conversely, you'll actually find good manages much more frequently among some non-academic science degrees, although not computer science. Bowing has been considered the best run large aerospace company for decades. Bowing traditionally prefers hiring physics majors for their management positions. I'd imagine that mathematics majors make fairly good managers for software developers too, google certainly does that occasionally.
Re:You need different kinds of people (Score:2, Interesting)
Well, you see, business is a tough game. The core guiding principle of business is greed. The winner of the game in business is often the one who is the most capable lier. So, sure, the MBA:s may know their stuff, but their stuff is greed and lying, so they should be taken out and ...told to stop being greedy and lying and then maybe assigned some work sewing blankets or something that is actually useful.
(Wait! What?! Yes, "the whole goddamn system is out of order!".)
Re:You need different kinds of people (Score:5, Interesting)
I've been thinking along these lines for years. One of the original catalysts of this was reading a book called Voltaire's Bastards: The Dictatorship of Reason in the West [amazon.com], by John Ralston Saul, an historian. It isn't a perfect book, but it is definitely thought provoking. It is difficult to summarize, but I'll give it a shot. He argues that our modern management class is obsessed with a somewhat myopic version of reason concerned mainly with measurement. This management class lacks a sense of imagination, of history, and of human nature, preferring to retreat to a world of graphs, tables, and equations.
The example he gave that sticks with me concerns the Mad Cow Disease crisis in the UK a while ago. Mad Cow Disease is a strange phenomenon, where protein structures called prions propagate when animals eat other animals that have the prions in their flesh. The prions eventually result in brain disintegration. They cannot be destroyed by cooking and processing. Managers in the beef industry knew that Mad Cow Disease existed, knew that it was growing, but they did not take it seriously. They likely tried to measure it in terms of number of cows infected, number of people infected by its human variant, Creutzfeldt-Jakob Disease, and concluded that its rarity made it a negligible risk. They could have wiped it out by quick action, but they did not. What they didn't seem able to imagine was that this disease and the fear surrounding it would eventually result in the destruction of the entire British beef industry. Almost all of the stock of British cows was destroyed. Britain was banned from exporting beef to most of the rest of the world. The financial losses were huge for the industry. Saul argues that these losses were due in very large part to the lack of imagination of MBA type managers.
I also have first hand with these issues. A friend worked for a food manufacturer that hired as plant manager an MBA graduate whose only previous experience was in a machinery assembly plant. Predictably, food safety practices and quality control went out the window, as these things were seen as negative items on a balance sheet. Lab testing and random bacterial swabbing budgets were reduced, until predictably there was a food recall that cost the company prestige, customers and a lot of money. He managed the plant primarily from his upstairs office, and he spent most of his time staring at graphs. He would seldom come down to the plant floor, and he had little comprehension of the processes and details of the plant he was managing. In the end, he left in disgrace, after transforming a plant that had formerly been extremely profitable and efficient into a money losing albatross.