Sunday, February 12, 2012

Another useless MBA?

If all goes well, I will be awarded an MBA later this year. There is some disagreement on the usefulness of MBAs, with one of the “MBAs-are-useless” argument running something like:

MBAs are meant to train managers who are used to making intuitive “common sense” decisions to use more process and model-based reasoning. Examples of this are “Porter’s 5 competitive forces model” or the “5 Ps of marketing”. However there is not clear evidence that such methods and models produce better decisions or better managers. Furthermore, after completing MBAs most managers simply fall back into old practices and habits.

For a long time I held the view that an MBA is mainly just a good way to learn a certain “vocabulary” as well as financial analysis skills, but beyond that has a theories and models of questionable usefulness. With time however, it became increasingly clear to me what an MBA does and does not achieve.

Broadly speaking, we have two different ways of making decisions: intuitive and rational. An intuitive decision is what some would call “common sense”. This type of decision making is great for very complex decisions and also those in which we have significant experience. For example, “Employee X simply isn’t the right person for this job, based on my overall impression of their competence.", or “That company brochure simply looks unappealing.” Rational decision making however is far more limited in such complex situations because it generally forces an over-simplification. For example, “After evaluating Employee X’s levels of attributes W, Y and Z, we found them to be lower than required.” In such a situation we are likely to find ourselves tweaking the rationally formulated indicators to match up with our intuition. As a result, most of us make the vast majority of our decisions intuitively. It’s faster, more efficient, is better at dealing with high levels of complexity and taps into sub-conscious thought processes. So what role is there then for rational problem solving of the type propounded so strongly by management sciences?

Rational problem solving, which is the predominant (but not the only) form taught in MBAs is only actually useful for a small percentage of situations where intuitive problem solving breaks down. When past experiences, biases or blindspots mean that we need to take a “step back” and re-evaluate on some other basis. Why then should we care so much about this small fraction of situations? Because it is precisely these new, previously unencountered, non-routine situations that force our most important decisions. Think of the financial crisis, the rising importance of China or the development of new technologies. It is too tempting to intuitively apply past experience to future situations. Our minds apply past patterns to current situations and make mistakes with often tragic consequences. Some of these seemingly "common sense" rational models allow a framework for an explicit evaluation of a new situation and the assumptions behind our reasoning. This is an immensely powerful supplementary "toolbox".


Edward said...

Did you look at Gerd Gigerenzer's bounded rationality?

Maurice said...

No. But I will now.