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If you're so smart, why aren't you rich?

By Ajit Balakrishnan
October 04, 2012 09:17 IST
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The true creators of the knowledge that lead to very, very successful companies do not often financially benefit from the knowledge they create and disseminate, writes Ajit Balakrishnan

RupeeNext time you run into the CEO of a Fortune 1000 company at the airport, do a quick poll: ask him what he thinks of the Administrative Sciences Quarterly or the Academy of Management Journal.

Chances are that, at best, he will greet you with a blank stare or, at worst, he may hurl his coffee at you.

He (and as often, nowadays, she) may not even have heard about these two journals, rated as the two most prestigious management journals in the world.

CEO-types rarely, if ever, read the management science journals that any respectable management school professor would give an arm and a leg to get published in.

This is, for example, different from the medical and legal professions, where many of the top practitioners keep in touch with things that appear in their professional journals.

Is this because material published in the journals of these professions has a more direct bearing on things they do at work?

Then there are the business magazines, the equivalent of which does not exist in the legal or medical profession.

Their single-minded focus on picturing financially successful businesses and the connections they describe between actions and outcomes in these businesses create causal narratives that sound plausible.

Except that, most often, these narratives create what Mary Jo Hatch, author of the oft-used management textbook Organisation Theory: Modern, Symbolic, and Postmodern Perspectives, calls "superstitious learning".

The causal narratives painted may be wrong simply because the connections between the actions they describe and the outcomes they picture may simply be incorrect.

For example, a financially successful business may be described as a good role model for its management practices -- whereas its financial success may have almost nothing to do with these practices.

One reason why the connection between actions and outcomes can go so wrong in the narratives constructed by the business media is that oversized financial success of the kind that attracts public attention may have almost nothing to do with the originality of the ideas used

in the business.

More importantly, the true creators of the knowledge that lead to very, very successful companies do not often financially benefit from the knowledge they create and disseminate.

Dr Deming, for example, whose thoughts on quality management made companies such as Toyota world champions and put many other Japanese companies on the world map as high-quality producers, did not exactly roll in luxury.

Management schools, which are entrusted with producing new knowledge about business practices, exist in a complicated world.

Their reputations are made and embellished to a great extent by the annual rankings done by the financial and business press.

Financial newspapers and business magazines have discovered that the issues that carry these annual business school rankings are a lucrative source of advertising revenues from the not-so-highly ranked ones among the business schools.

Unfortunately, in these rankings the single largest weightage, often as much as 40 per cent, is given to the starting salaries of the graduating MBA class.

In other words, business schools that can place their students in the higher-paying industries, which in the last 15 years means the financial services industries, rank at the top.

The ideas on which the super-big business fortunes are based need not be, and often are not, the result of truly original insights or knowledge.

Their success can as easily be based on fortuitous timing or a monomaniacal pursuit of wealth, or an obsessive need for dominance.

In emerging markets like India, mega wealth, more often than not, comes from gaining access to a natural resource (public land, spectrum, coal, iron ore . . . the list is long) at a low enough price and at an early enough stage of a boom cycle in that industry.

Our Comptroller and Auditor General dutifully points this out to us from time to time for various industries.

Knowledge creators in disciplines like management have, as the aim of their theories, the goal of increasing the wealth of the societies in which they live, or at least the wealth of the users of their theories.

This leaves these knowledge creators open to a paradox; they dare not push the case for the superior 'knowledge' they possess too hard, because the potential consumers of their theories, the practitioners, can always turn around and ask them: "If you are so smart, why aren't you rich?"

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Ajit Balakrishnan
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