b-schools don’t make managers anymore

New Republic has an interesting article on the shift in b-schools from management to consulting:

But some of the people I spoke to asked a slightly different question: Even if you could reclaim a chunk of those blue-collar jobs, would you have the managers you need to supervise them?

It’s not obvious that you would. Since 1965, the percentage of graduates of highly-ranked business schools who go into consulting and financial services has doubled, from about one-third to about two-thirds. And while some of these consultants and financiers end up in the manufacturing sector, in some respects that’s the problem. Harvard business professor Rakesh Khurana, with whom I discussed these questions at length, observes that most of GM’s top executives in recent decades hailed from a finance rather than an operations background. (Outgoing GM CEO Fritz Henderson and his failed predecessor, Rick Wagoner, both worked their way up from the company’s vaunted Treasurer’s office.) But these executives were frequently numb to the sorts of innovations that enable high-quality production at low cost. As Khurana quips, “That’s how you end up with GM rather than Toyota.” 

And:

The new managerial class tended to neglect process innovation because it was hard to justify in a quarterly earnings report, where metrics like “return on investment” reigned supreme…

The country’s business schools tended to reflect and reinforce these trends. By the late 1970s, top business schools began admitting much higher-caliber students than they had in previous decades. This might seem like a good thing. The problem is that these students tended to be overachiever types motivated primarily by salary rather than some lifelong ambition to run a steel mill. And there was a lot more money to be made in finance than  manufacturing. A recent paper by economists Thomas Philippon and Ariell Reshef shows that compensation in the finance sector began a sharp, upward trajectory around 1980.

My take: It’s not clear to me that this is such a bad thing. It really depends on what you think about the modern American economy. If, like Jerry Davis, you think that transition to securitized virtual firms is bad, then this is just another symptom of the problem. If you think that the economy is now different and America’s advantage is in financial machinery, then maybe it’s ok. Either way: who *is* training the managers? Our products have been getting better over time – who’d doing that? Is it all foriegn firms?