The Business School Paradox

For some among us August 21 is the long-awaited day of the total solar eclipse. For those of us in the Kenan-Flagler Class of 2018, today is the first day of our second school year of classes.

I have a friend who is getting a dual Master’s degree at UNC. Rather than spending two years on one degree he will spend three years on a combined two degrees. Over the past few weeks we have been talking a lot about the business school, entrepreneurship, and innovation. He keeps sending me links and stories about innovative solutions coming from all corners of UNC. I am continuously astounded that I have heard of nearly none of the innovations. It’s almost embarrassing to me. I am going to be a seasoned and wise Second Year. He is going to be a green First Year this fall at the business school, and yet he is more in tune with many important trends in innovation, around the university and around the world, than I am.

As I came to this realization, it dawned on me that the business school is probably the least innovative corner of the university. Business, especially in this heyday of the vaunted startups, is known as a true pioneer of innovation. Business, we are told, has the opportunity to bring new technologies, ideas, and solutions, to the masses. That, in a nutshell, is how we propel economic progress and improve standards of living around the world. Capitalism is good! Why is it then, that my business education has kept blinders on me with regards to innovation?

Every business school says that it is a school for the 21^st century. This primarily means that the school focuses on the international aspects of business. In other respects, it refers to focuses on business analytics and other trends that are relatively new in the business world. Every school wants to create the “leaders of tomorrow.” Certain schools may actually be accomplishing this. Harvard Business School has produced some impressive business leaders. Stanford is the leading feeder school for Silicon Valley, and Berkeley may be right behind them. Many other schools are trying to play the West Coast catch-up game.

I do not doubt that the programs and curriculums of schools have been carefully tailored for what the staff and faculty want to see in the future of business. However, these curricula are heavily influenced by the leading corporations of our times. What is in the best interest of these corporations (or at least what they perceive to be in their best interests) is not what is necessarily in the best interest of the business school, students, or the world in general. Nevertheless, the corporations are continuously welcomed in to our schools and have a large degree of influence on how and what we learn.

These corporations would have us think that we can build the business world of tomorrow based on the entrenched ideas of yesterday. Big pharma very well may want a lengthy and costly drug discovery, testing, and approval pipeline because only they have the pockets, scientists, and political influence to persevere in this environment. They have limited incentives to disseminate information on alternative methods for drug discovery, such as machine learning applications, beyond their wall. These methods could very well disrupt their lucrative status quo. Similarly, oil and gas companies, which have deep pockets to fund events at business schools, wield far more influence than alternative energy companies, despite the desperate need for an alternative to fossil fuels to emerge.

Every January at Kenan-Flagler the First Years compete in a mandatory case competition, sponsored by a corporation. This year, our “Core Case Competition” was sponsored by ExxonMobil. They started planning the January event in July 2016. Thousands of dollars were spent on planning, and around 20 managers from Exxon flew in from Houston to host and judge the event. The case was fairly straightforward. They presented six or so oil fields that we could invest in, and then we were charged with choosing which to invest in, given a limited capital budget. We were at least forty teams. To the best of my knowledge, only one team discussed the environmental or possible social impacts of the decisions we were proposing. However, to their credit, three of my classmate boycotted the event and wrote a lengthy treatise explaining their position.

I presume that if an alternative energy company had the money and desire to sponsor the Core Case Competition the case itself as well as the presentations would have been very different. The fact of the matter is, ExxonMobil has the money, so ExxonMobil is given the access by the school and gets to shape our educational experience.

The Core Case Competition is only one example of the overt corporate influence in our business education. Every incoming student is given a backpack by the school. Johnson & Johnson’s name is sewn in big blue letters right on the front of the backpack. Every single one of our classrooms has a plaque with the name of a company that sponsored the school. In many classes, we have a guest speaker or two from companies come in and teach a class. Sometimes entire courses are taught by corporate sponsors, not professors. Sometimes consultants from Deloitte are crawling around so much I feel like I go to the Deloitte School of Business, not Kenan-Flagler Business School (and who was Henry Flagler’s business partner? Why Rockefeller of course, founder of the ancestor of ExxonMobil, Standard Oil).

My Strategic Sourcing professor is an amateur 3D printing aficionado. Nevertheless, he did not ever mention 3D printing’s potential as a supply chain disruptor (it may be better referred to as an improvement agent, not disruption). Distributed manufacturing? Manufacturing on-demand? Rapid prototyping? Nothing. Any business student with a budding career in operations that doesn’t have her ear to the ground on these topics is being done a complete disservice by not being exposed to these innovations.

Corporations have a vested interest in disseminating propaganda about how they want the future to be for them. They foresee more profits in the future if they can mold all of the future business leaders of America into the shape that they want. If everyone is clambering to work for a big pharma company or big oil or an entrenched investment bank then no one is left to think about ways to make these industries better and more beneficial for society. For entrenched companies, change often comes with decline. It is natural then for companies to prevent this change, but business schools ought to foster it. This change and decline is often to the benefit of everyone else. It’s no wonder that corporations are throwing money at business schools (and even sponsoring the entirety of tuition for some students). They want influence to prevent this change and their decline.

I don’t want to claim that to be in the Fortune 500 precludes being innovative. Indeed, I can name a litany of enormous companies that are doing a number of innovative things to remain competitive. Goldman Sachs is the first that comes to mind. They seem to defy textbook strategy with their new foray into consumer banking. Amazon’s willingness to continuously test new products, services, and capabilities is very admirable. However, in many companies, innovation is a function pushed to the periphery of the organization. Goldman Sachs’s Marcus and Amazon’s continual experimentation make the news because of their novelty in a climate controlled by big corporations, not because of the nature of the innovations themselves.

The Entrepreneurship Paradox

“I’m not very entrepreneurial.”

– Numerous classmates of mine

Two hundred years ago nearly all laborers on Earth were entrepreneurs. Everyone was self-employed, usually on their farm. Businesses, as we think of them today, really did not exist. I suppose that the idea of a business didn’t even emerge until 19th century England with the onset of the Industrial Revolution. Everyone sees working for someone else as the default choice for a laborer, but for most of humanity that could not have been further from the truth. In such a short amount of time we have become so far removed from the true spirit of entrepreneurship that business formation and planning is not even a core component of curriculums. My business school has become so corporatized that innovation is a bastard step-child. You have to seek out classes on business formation and planning if you want them. This model of business education even betrays itself. Every single company, from the recruiting behemoths that come to campus to the Silicon Valley and Wall Street envies that my classmates wish they could all work for, all started from nothing. At one point every company was a start-up, but we operate as if only the Fortune 500 exists, has existed, and always will exist. We might as well rename ourselves the Kenan-Flagler School of Middle-Level Management with the curriculum and attitudes we have now.

How did we get to the point where admitted students state outright that they are not entrepreneurial? Kenan-Flagler, and other schools too, I presume, has become comfortable with students that are uncomfortable with business, new business formation, and innovation. I suspect we’ve gotten here because of the influence the schools allow the corporations to have. Just as the corporations lobby Congress to keep law and regulation that best serves them, they have infiltrated business schools so that the schools and their graduates can never be a true threat to the companies’ business models.

The business leaders of the 21^st century will be my classmates and peers who can think of better ways to provide products and service that are already provided or think of new products and services that people value, but do not even know that they want them yet! Effective middle level management and climbing the corporate ladder will not vaunt you to the ranks of 21^st century business leader. We should be exposed to disruptive technologies so we can think of ways to apply them to age-old business problems and begin to think about new applications for the future. If we have such an idea, we need the tools to bring it to fruition. Concocting pro-forma and throwing them into PowerPoint does not give birth to thriving new businesses.

The most ironic aspect of this entire situation is that many companies that come to campus say that they are “very entrepreneurial” and need “innovation” to survive and grow in the current competitive landscape. However, their corporate behavior, and the educational environment that they endorse, is an echo-chamber of yesterday’s stale ideas. Even ExxonMobil said that they are trying to get away from NPV calculations and use stochastic modeling. Why then did the case competition require pro-forma, and the winning teams all made NPV projections?

The most disappointing consequence of this corporate environment is that the most promising students, those who truly have the capacity for leading innovation, are funneled into less productive positions. The university wants to land them in these lucrative positions with investment banks and management consulting firms so that the school’s numbers look good for the rankings, and the corporations certainly reward these students handsomely. You can’t help but ask yourself, is the compensation they receive simply meant to placate them and prevent them from brewing up feasible competitive ideas?

Completing the circle of this perverse cycle is the ideas that management consultants then peddle. They go from corporation to corporation and offer innovation services and competitive edges in “rapidly changing industries.” All they really do is copy ideas they’ve seen at one company they worked at and recommend them at another.

“Management consultants love to prey on the insecurity of corporate America.”

Artificial intelligence, machine learning, the internet of things, automation and autonomous transit, alternative energy, nanotechnology, augmented reality, various bio-technologies, blockchain, quantum computing, and numerous other frontier technologies all offer enormous potential to improve business and make the world a better place for everyone within it. How many of my peers are working for a company where these ideas are at the core, rather than the fringe, of the mission and vision of the company? Frightfully few, I presume.

Graveyard of “innovation” images from corporate PowerPoint presentations: