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Tom Cooley and the role of business schools

Business school deans, as an occupational norm, tend to write in terms acceptable to a very wide audience. After spending all day listening to students, faculty, and administrators, there is no sense adding wood to the fire by writing with undue specificity. This gets even worse when deans write for their alumni magazine. Forests of trees have been sacrificed so deans can say, essentially, “We’re doing great but we’d do even better if you gave us some money”. Part of the job.

So it comes as a surprise when Tom Cooley, Dean of NYU’s Stern School, pens an article on the importance of a research outlook for business schools, an important, but controversial topic. And he pens it in the Fall/Winter issue of the Stern alumni magazine! In the article, he takes on former deans and even the AACSB (the association that certifies business schools):

Jeffrey Garten, former dean of the Yale School of Management, told The New York Times that business school education should be more “clinical” and that business school faculty should be required to have more practical experience in business. And this spring, an Association to Advance Collegiate Schools of Business (AACSB) task force issued a draft report on research. Among its conclusions: that business schools should “demonstrate the impact of faculty intellectual contribution to targeted audiences,” and that AACSB should “develop mechanisms to strengthen interaction between academics and practicing managers in the production of knowledge in areas of greatest interest.”

I’m convinced that the critics of business school education have it exactly backwards: the pressure business schools face to give in to a vocational focus means that students do not acquire the analytical and intellectual training needed to inform a leadership career, and that enables businesspeople to deal with a range of variables far greater than a purely vocational “how to” approach can address.

Cooley celebrates many of the past successes of a research approach to business education:

Between 1954 and 1966 the Ford Foundation spent $35 million to foster business education and research at five schools: Carnegie-Mellon University, the University of Chicago, and Columbia, Harvard, and Stanford Universities. Using the transformation of medicine and engineering as a model, these schools invested heavily in research and in doctoral programs. The investments have clearly produced returns. In 1955-1956, graduate business education was virtually non-existent. Now, well over 100,000 graduate business degrees are awarded annually by 650 AACSB programs. Business schools now enjoy greatly improved status as professional schools, in large measure because the intellectual value of the undertaking is recognized. The widespread adoption of the MBA degree as a qualification for future business leaders has legitimized the position the Ford Foundation and others took 50 or more years ago.

Perhaps more important, business schools have generated ideas of depth and daring that have changed business and financial markets in important ways. Professors Finn Kydland and Edward Prescott were awarded the 2004 Nobel Prize in Economics for work they did in the 1970s and 1980s at Carnegie-Mellon’s Graduate School of Industrial Administration, now called the Tepper School of Management. Their work on what is called “the inconsistency of optimal plans” established the foundation for an extensive research program on the credibility and political feasibility of economic policy, shifting the practical discussion of economic policy away from isolated policy measures toward the institutions of policy-making. Kydland and Prescott were also cited for having transformed our understanding of business cycles by integrating it with the theory of economic growth.

Finn is a friend of mine, and is truly brilliant. He is, not coincidently, trained as an OR person. When he teaches, he is about as far from “vocational instruction” as you can possibly get, to the chagrin of some of our less open-minded MBA students (CMU MBAs are generally very open to research-oriented topics in the classroom: it is one of the hallmarks of our program).

Tom obviously likes Carnegie Mellon, even if he gives us a hyphen that we jettisoned years ago, and calls us a School of Management instead of School of Business.

Tom is an economist, and he gives a great example of how insights from economics provide the basis for serious training in management, and the harm a vocational, current-best-practices approach causes:

Would you rather have business school graduates who know what kinds of contracting structures businesses now use, or students who understand that contracts exist to solve moral hazard, asymmetric information, commitment, and agency problems? It is precisely because we don’t yet know the problems that we will be facing that practice-driven education, focused on current solutions to current problems, will always fall short.

He closes with some comments inspired by the book Moneyball:

One of my favorite business books of the past few years is Moneyball by Michael Lewis, the story of the Oakland A’s and their extremely successful general manager, Billy Beane. More important, it is the story of how baseball has been transformed by a generation of researchers (aka baseball nerds) whose major contact with the game is through data analyzed by increasingly complex computer programming. Beane understood that this apparently arcane research had the potential to create extraordinary value for his team. Indeed, under Beane’s leadership, the perennially undercapitalized A’s managed to reach the playoffs for four consecutive years. Over that period, their salary cost per victory was less than half of the next highest spending team and less than a quarter of teams like the New York Yankees.

Beane overturned the most basic principles of one of the most tradition-bound businesses in America – professional baseball – by using sophisticated statistical research in place of traditional “gut instinct.” Several major league general managers who have never played the game are now similarly schooled in the research tradition of “moneyball,” and executives in sports like basketball and football are catching on.

Moneyball is a good metaphor for what happens in academic research. You hire a bunch of bright, well-trained people with strong technical skills and a passion about what they study and turn them loose. With the right personnel, the right conditions, the right insights, and with a forward-looking rather than a backward-looking focus, exciting things can happen. And that research, applied in the right circumstances, has truly enormous potential for change.

To make the obvious OR connection: the sort of analytic skills you gain and the insights you learn from an analytic approach to business problems is what OR is all about. It is not about linear programming, or dual variables: it is about thinking clearly about objectives, decisions, and constraints.

Sorry for the long post, but Tom’s words speak for themselves. For those of us who are research-oriented, this is really inspiring stuff. Thanks to my friend and colleague Chris Telmer for the pointer.