I have a recent Op Ed in the International Business Times discussing Business Schools and the Financial Crisis. In the article (see Knowing What and How, Without Wondering Why) I address what I see as some curricular challenges that Business Schools will face in the wake of the crisis.

While I believe that the criticisms of Business Schools are largely overdone, I argued that we need to encourage students to think more deeply about the concepts, tools, and formulae we present in class, rather than simply seek to apply them. Moreover, I have advocated for a curricular approach that favors analytical skills over simple technical skills. I wrote:

Business schools have been criticized for espousing and promulgating models of individual behavior based on economic self-interest. They have been blamed for failing to impart ethics; emphasizing shareholder profit maximization above all else; encouraging short-term profitability at the expense of long-term organizational health; and for helping design and create the exotic financial instruments that helped get us into this mess.

I agree that the economic system is structured in a way that sometimes provides management an incentive to enrich themselves at the expense of shareholders, or shareholders at the expense of other stakeholders. However, I believe that the criticism of business schools as encouraging individuals to act in a self-interested, even opportunistic, manner is largely overblown. Our teaching in that respect is less normative than descriptive. We seek to describe human behavior (which tends toward self-interest) rather than encourage our students to act in such a fashion. As evidence, look no further than the financial crises that preceded the current one. Many of those occurred before the advent of business schools, yet share some of the same self-interested human behaviors at their core.

This does not mean that business schools are beyond reproach. It is true that the development of some financial derivative products have been based on models that have come out of business schools. Moreover, although we have long understood the consequences of self-interested behavior, we have not been very effective in creating tools to keep such behavior in check.

However, our greatest challenge as an enterprise comes not from the development of complex models, but in the manner in we teach students to use them. That is, we are quite good at teaching students what to do and how to do it. However, we do not prepare them well enough to ask tough questions about why we are doing it in the first place, and why it matters in the grand scheme of things.

We produce skilled and proficient technicians who know how to calculate the net present value of a revenue stream. We teach students how to accurately value assets and price risk given existing formulae. We explain how firms can streamline operations in an effort to create optimal organizational structures.

Yet for all those positive contributions, we do a poor job when it comes to questioning the validity of the assumptions underlying the pricing models that we teach, describing the boundary conditions of such models, and integrating across disciplinary boundaries to create a greater understanding (and appreciation) for how individual parts interrelate to affect the whole.

To read the Op Ed in its entirety, please visit Knowing What and How, Without Wondering Why.

Although I wrote the piece with Business Schools in mind, I do not think that it is purely a Business School phenomenon. I think the issue generalizes fairly well to a broad class of managerial failures that ocurred during the crisis. That is, managers perfected execution, but failed when it came to analysis. It reminds me of the now infamous Chuck Prince (then CEO of Citigroup) quote, “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Too bad most kept dancing, without wondering whether dancing was the right thing to be doing.

This entry was posted on Tuesday, June 16th, 2009 at 3:17 pm and is filed under Business Schools. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.