Investing Caffeine

Business Theory: Voodoo or Value?

August 27, 2009 at 8:41 am 2 comments

Michael E. Porter, a former aeronautical engineer graduate turned Harvard Economics PhD professor, came out with a revolutionary article thirty years ago (How Competitive Forces Shape Strategy) in which he describes the Five Forces of competition that shape the profitability dynamics of an industry. Since then, Porter’s management theories have continued to spread and his knowledge is continually sought after. Some people believe Porter’s Five Forces, and other management business theories, are pure voodoo.

In a recent HBR (Harvard Business Review) article, Andrew O’Connell completed a book review of The Management Myth: Why the “Experts” Keep Getting it Wrong written by Matthew Stewart, a former consultant. Mr. Stewart (a former consultant turned non-believer) exposes the sham of the business consulting industry by outlining the outrageous fees paid by clients and the “mumbo-jumbo” language spouted out by newly minted MBAs.

In a similarly titled article (the Management Myth) written in 2006, Mr. Stewart goes on to say:

“The impression I formed of the M.B.A. experience was that it involved taking two years out of your life and going deeply into debt, all for the sake of learning how to keep a straight face while using phrases like “out-of-the-box thinking,” “win-win situation,” and “core competencies.”… M.B.A.s have taken obfuscatory jargon—otherwise known as bullshit—to a level that would have made even the Scholastics blanch.”

Some other interesting comments include his views on failing companies:

“In fact, we kind of liked failing businesses: there was usually plenty of money to be made in propping them up before they finally went under. After Enron, true enough, Arthur Andersen sank. But what happened to such stalwarts as McKinsey, which generated millions in fees from Enron and supplied it with its CEO?”

Too often with many books, a silver bullet or holy-grail is searched for. The true answer – there is no easy solution. I believe tools or frameworks, like Porter’s Five Forces, can create significant benefits by forcing practitioners into thinking about competition and profits in new ways. Although the lessons may not be worth millions in consulting fees, the education may be worth the $21.95 cost of a book (including free shipping) from Amazon. Mr. Stewart would likely take umbrage with these views, especially since I have an MBA from Cornell.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

Entry filed under: Financial Markets. Tags: 5 Forces, Andrew O'Connell, Competitive Forces, Five Forces, Harvard, Matthew Stewart, MBA, Michael Porter.