More than ever, now is the time for Canadian businesses – and Canadian business schools – to transform and re-orient themselves to a world which places a premium on capabilities, skills and knowledge that managers and companies in Canada don’t have. This is a new world and one ripe with opportunity, there for the taking, given the right understanding, mindset and education.
It is now 40 years since Peter Drucker published his mind-bending analysis of the world economy. In his study, The Age of Discontinuity, Drucker foresaw in remarkable detail the emergence of the global economy, the rise of the service sector and the downfall of the Soviet Union. More profoundly, and building on the studies of Daniel Bell and Marshall McLuhan, Drucker recognized how globalization would change the expectations of consumers, regardless of country or region. Tellingly, he predicted that a new, particular commonality, independent of any political system, would soon govern and focus the energy and activities of nations around the world. Very soon, Drucker said, the nations of the world would be interconnected and come to do business in a “global shopping center.”
The 2008 “Made in America” financial crisis illustrates Drucker’s prescience. This crisis also substantiates what a Japanese leader said decades ago at the G-7 Summit in Venice – “We are all in the same gondola now.” Drucker understood that any government, regardless of type (democratic or totalitarian) or stage of development (highly developed, like Europe, Japan, or the United States, or emerging markets like Turkey, Nigeria, Vietnam, or Brazil) has only two fundamental social systems – governments and bureaucracies, or markets and the price system. The issue isn’t one or the other, but the judicious combination of both. Drucker also understood that, while the world was on the verge of becoming a global shopping center, “this world economy almost entirely lacks economic institutions to energize global productivity.”
Today, globalization impacts customers and the management mindset in profound ways. Unfortunately, the global economy today neither reflects the existence of the political institutions defined as the “nation state” nor the makeover of those very institutions needed to correct the post-1945 imbalances between the “third world” and the first world. Today, a new “Great Game” has arisen, reconstructing the global economy not around a collection of individual nations, but one with global economic institutions, and with membership well beyond the G-7 or G-20 group of countries. The BRIC countries, for example, are a new global force and their influence is felt across a range of sectors, from autos and computers to energy and finance.
Yet there remains a disconnect. For instance, emerging markets and their central bank reserves actually provide the savings for the first world by purchasing foreign governments’ treasury bonds. The U.S. is the noted example. Indeed, the financial flows from the emerging countries don’t always reflect the rich world’s real but critical influences on the capital markets of the rich world. While stock market indexes highly correlate between say New York and Toronto or London, the same is not true between markets in New York and Tokyo in the past or between New York and Shanghai today. The result is that business cycles and savings-investments fluctuations can vary tremendously.
The challenges of globalization are unprecedented and extraordinarily complex. How should countries, Canada in particular, respond? And given Canadian managers’ lack of experience and knowledge for responding effectively to such challenges, what form should the education and training of managers take? Over a century ago, the Great Game was a term that implied the way nations were responding to new challenges from a profoundly changed, non-European geopolitical orientation, new areas of the world from Moscow to Central Asia and greater India. Today, the Great Game connotes a new geopolitical outlook for markets, technologies, and customers. It is global in scope, global in impact, and global in opportunity. Canada, or even North America, forms only one corner of the great game, which poses threats but also provides opportunities. This paper addresses these issues and their impact on management education and development strategies for Canada and Canadians.
Throughout its history, Canada has been cushioned from global forces by a set of social institutions that have been shaped by national experience, but that have also borrowed from foreign countries (e.g. large, state-owned universities from the U.S., a public broadcasting system and a national health system from Britain, and a selective but judicious degree of public ownership, from France and other European countries). Both the business community and political leaders have developed a successful model of wealth creation, one that combines the best of the conservative instincts of the European tradition, with the brash, creative juices of the American experience.
However, given the American economy’s awesome and frightening implosion, Canada’s CEOs must ask themselves where Canada’s future lies. It is an especially daunting question, given that this country’s job losses are beginning to exceed levels being reached in the United States. Canada’s main manufacturing activity, outside the ICT sector, is based largely on just two industries, automotive and aerospace, flagging areas at best, and with an almost congenital inability or unwillingness to strengthen the limited domestic R&D and design functions. This reluctance in turn perpetuates low productivity and high price elasticity, a classic recipe for low profit margins and stagnant growth. Such limitations beg this question: Are Canadian CEOs preparing for business as usual? Or, are Drucker’s ominous predictions of global discontinuity coming home to roost, where business models are quickly becoming obsolete and the logic of comparative advantage is shifting? Are Canadian managers, using the traditional tools of training provided by business schools, become too tied to the past, to a North American mindset, to an era where business and government were largely divorced and functioned in parallel, as two solitudes? Does the traditional approach to management development fail to equip managers with the tools and thinking they need to respond cohesively to the current global economic crisis? Does this traditional approach in fact further perpetuate the same parochial mindset?
For over a generation, think tanks, study groups, royal commissions, and business leaders have deplored the Canadian economy’s low productivity. Serious analysis today castigates the low levels of investment in information technology and research and development, the alarmingly large high-school drop out rates, the under-performance of Aboriginal peoples, and the limited success of university commercialization. Money isn’t the issue – Canada’s overall spending in most areas is among the highest in the world. Is the problem then a more basic one, namely the weaknesses and indeed failings of managerial education? For example, why do Canadian managers in the manufacturing and service sectors employ so few engineers and scientists in senior positions or in the boardrooms? Why does Canada rank so low on R&D spending, well below the OECD average of 2.47 per cent of GNP, and well behind the small, open economies of countries like South Korea, Switzerland, or Scandinavia?
In Canada, most universities have business schools. Across the country there are now more than 40 MBA programs. For the most part, these business schools are administratively isolated on campus; unlike leading foreign universities, few business faculty members have cross-appointments with other departments or are linked to external academic research centers. Most schools operate with a limited critical mass of faculty in most subjects. In some universities, undergraduate business enrollment is 20-30 per cent of the total registration. The reason is clear: business schools form a critical financial resource for the university, as enrollment represents a large cash flow for the total budget. In many other ways, Canadian business schools fall short of their foreign counterparts, which are in a class by themselves, (mostly American, but more European and Asian), have global networks for MBA and PhD students, strong business linkages in executive programs, as well as size, location, critical mass, and enormous alumni funding.
Today, the curricula and teachings of Canadian business schools, with few exceptions, perpetuate the North American focus and the same market space, from business-government relations to domestic supply chains that have been their traditional preoccupations. Finance and consulting remain the preferred MBA career choices. Yet economically and industrially, despite dogma and slogans to the contrary, Canada has slowly but steadily tied in its manufacturing and service sectors with North America’s industrial structure. Outside the energy and mining sectors, which are truly global, Canadian management and industrial institutions have a North American mindset. Few executives in senior corporate positions, starting with the banking sector, have been educated or have worked or lived most of their adult lives outside North America. Few executives speak a foreign language, except those who speak French, and practically none speak Japanese, Chinese, or Russian, let alone Spanish, German, or Arab. In the lists of Top 50 Canadian companies compiled by the media, a list that is the equivalent of the Fortune 500, the same names appear today as did 30 years ago, ten years ago, or even last year, with one or two exceptions, like Research in Motion. In other countries, and in particular, the U.S. predilection for creative destruction ensures that the names at the top will be churned: new corporations (e.g. Google and Facebook) and entirely new industries (on-line video, nanotechnology) will be born. Since 1912, only one company has continued to make Fortune’s listing of the top American firms, General Electric.
As Canada enters the second decade of the 21st century, it is instructive to look ahead and consider a possible change in direction. Is Canada too focused on North America, where the leading industries – autos, banking, forestry, and retailing – are primarily linked to the U.S. market or owned by foreign companies? Is Canada’s economy, with its abundant raw materials, energy, and food (via large land tracts) destined to remain commodity-based, a modern day Manchuria, reliant on the commodity cycle for the giant resource users, the U.S. and Japan, and increasingly, China and India? Or is Canada, judiciously linked to the ABCs of global government clubs (the G-7, G-20, the UN, La Francophonie and others), willing to break out of its parochial mindset and become a truly global player in the knowledge economy?
In an economic crisis like the present one, managers can act in two ways, defensively, which is the natural response, and aggressively, the creative response. The first approach, consisting of the exploitation of existing assets and corporate resources, means more of the same, or delaying well thought-out strategic responses and coping through budget cutbacks, worker layoffs, and hoping for the best, dependent on what governments will do by way of subsidies, stimulus spending, or favourable procurement. The bold way is to consider new choices, exploring proactive strategies and technological innovation. Is Canada to settle only for the first? Is Canada studying trends in countries across the world? Consider some core challenges facing Canada:
Long-term organizational progress/success comes from responding smartly to, and looking at, what other countries are doing in areas such as the introduction new laws and regulations, pollution control, inter-city poverty, energy prices, the impact of the Kyoto Accord; the country’s education system, and employee hiring and training. General Electric actually lists the groups that define the worst-case scenarios on its website, under “Destroy the organization.”
Definitions of corporate strategy, based on specific targets for customers and markets, require new business models or corporate logic that spells long-term success, not incremental adaptations. The huge spike in energy prices in 2008, despite recent declines, is another signal of disruptive change, not only for new markets, green technologies, and changed financial models, but also for the centrality of public infrastructure and novel public-private initiatives, from school funding to trade promotion. Examples abound, from Honda’s new hybrid, which has become the sales leader in Japan, or Chinese motor cycles, which have become a new leader in electric transport vehicles.
Excellent strategies need to be built on skillful, unremitting attention to organizational execution, and an unrelenting effort to improve customer relations through service and support. Economic and financial issues matter, but social and behavioural skills and techniques trump financial engineering. Military history is full of battle plans that were badly executed. People matter. For the past fifty years, Detroit has failed to learn that good cars need to be made with quality, safety, and fuel efficiency built in.
New players – New competition
Most CEOs know the lists of leading multinationals compiled by Fortune, Forbes, and other leading business publications. These lists now reflect the emergence of new, powerful, and growth-oriented companies outside the rich OECD markets of Europe, North America, and Japan-South East Asia. Clearly, the huge economies of India and China are building and supporting their own multinationals across the leading sectors – automobiles, appliances, and consumer electronics. Infrastructure sectors (ports, transportation modes like rail, airlines, subways, and utilities) and intermediate sectors like steel, semi-conductors, and electricity are the central focus. Two of the largest steel companies in the world today are Indian and Russian.
As depicted in Exhibit 1, the post-war dominance of the American economy puts the U.S. at the head of the globalization march, including the international drive to establish institutions like the IMF, the World Bank, and the UN. The U.S. became the only truly global super-power, and it extended its dominance by leveraging and further developing its already-sophisticated military technology and industrial power, universities and the intellectual capital developed in them, and until recently, its financial services industry. The world craved products and services made in Hollywood and Silicon Valley. Other countries excelled in some areas, but the American strengths were widespread and truly global – half the world’s multinationals were American and American universities topped the global rankings. But gradually, the American economy was being wrapped in a straight-jacket, namely a looming crisis caused by imperial and military overstretch, continuing macro imbalances between savings and investment, the steep decline in educational standards, institutional failure of core public agencies (exemplified in 9-11 and Katrina), and a perverse ideological paranoia typified by the red state-blue state phenomena.
What Keichi Ohmae, the Japanese management thinker, characterized a generation ago, namely a world dominated by the global triads of Europe, North America, and Japan-South East Asia, has become a multi-polar world that includes the very populous BRIC countries of Brazil, Russia, India and China. Today, new centers, e.g. the Arab Gulf states, and emerging nations such as Turkey, Egypt, Nigeria, Venezuela, and Vietnam, are important regional players. With their importance, they are influencing local markets, supply chains, and transportation corridors. The U.S. of today, as documented in Rand Corporation studies like Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future, is a net importer of high-technology products. Of the 120 new global chemical plants costing over $1 billion, only one is American; 50 are Chinese. The U.S. hasn’t built a new, state-of-the-art oil refinery since 1976.
These powerful players are shifting the economic, industrial, and financial balance of power. Their industrial clusters, their new capacity and desire to learn from foreign practices, and rising discretionary spending are steadily shifting the locus of economic activity from North America to cities and countries distant from America – the European Union, Japan, China, and old and new BRIC countries. Detroit and the failures on Wall Street are the symptoms of a deeper North American malaise. Both the U.S. and Canada trail leading OECD countries in broadband connections; too many Canadian and American students spend more time watching television than they do attending classes, and fewer undergraduates get their degrees in natural sciences or engineering. In the natural sciences, one-third of the doctoral degrees in the U.S. and over half of the PhDs in engineering are awarded to foreign-born students.
There are other factors contributing to the decline of North America, including troubling educational statistics at the high school and university level. For instance, in the U.S., there were twice as many physics graduates in 1956 (the year before Sputnik), as there are today. High-school dropout rates in Canadian provinces and U.S. states approach third-world levels, from 20-40 per cent. These factors affect the global outlook of young people and their orientation to the rest of the world. Consider two examples of the global power shift, both of which are outside the traditional media’s radar screens: Sub-Saharan Africa and South America. Africa in general and sub-Saharan Africa in particular typically are synonymous with intractable political stalemate, abject poverty, illiteracy, and constant local wars – civil, ethnic, tribal, and colonial. Somalia, Niger, and Zimbabwe are telling case studies. However, as two centuries of economic history readily illuminate, Africa is studded with real riches, from water and gold, precious metals and commodities of every description – oil and gas, uranium, copper – not to mention rich farm land.
But in Africa, in the north and in the south, there are now also new global players with their own multinationals that are profoundly changing the make up and operation of global supply chains, the transfer of technology and management techniques, and the sourcing of talent. China, of course, is the outstanding example, where the government, private firms and state agencies seek out long-term energy and food contracts in Africa, often in exchange for infrastructure development, and through barter deals such as resources and food for water projects, and buses and transportation.
As well, new players beyond the Chinese, including Japanese and Indian investors, are loosening their past dependence on resources from the rich world. Few North Americans understand the new, powerful corporate linkages between China and India, or even more ominously, between these two giants and Japan, with its superstar multinationals, huge personal savings, trading firms, and sophisticated technologies in electronics, pollution controls, health systems, and autos and transportation. And to these new realities can be added the arrival and influence in Africa of Arab investors and the sovereign wealth funds.
Geography partly explains Arab investment in middle-eastern countries. Lebanese traders have acted as merchants and financial middle men for centuries – but the scale of new projects in Arab countries is unprecedented. Baghdad has been a commercial center for 3000 years, and Persia’s influence extended eastward, westward, and as far north as Russia 500 years ago. From construction to port infrastructure, oil refineries to luxury hotels, cell phones and banking to agricultural development (fruits, vegetables, meat, flowers, and rice), Arab countries led by the Gulf States are cultivating and championing their own multinational companies. From Egypt to Kuwait, Morocco to Dubai, Arab firms are financing sectors such as telecommunications, ventures in food, textiles, hotels and tourism, banking and insurance, land reclamation and real estate, and logistics and transportation infrastructure (roads, airports, ocean ports and terminals). From 2004-2006, about $36 billion was invested in northern Africa and parts of the Middle East, about half of it from Asia, and half from Arab countries.
In South America, sophisticated managers with a global mindset are quietly expanding beyond commodities into high value-added sectors. Argentina’s Tenaris (steel and pipe), Brazil’s Embraer in aerospace and Perdigao in food, and Chile’s CSAV in shipping, join a host of other South American companies with high annual growth rates that are developing new alliances and marketing strategies with firms outside North America and Europe. Brazil, of course, has some of the newest multinationals from South America, not only in the traditional sectors like mining (such as Companhia Vale do Rio Doce (CVRD)) or Petrobras in petroleum. What is unique in the global march is that MNEs from the poorer world are expanding both to newly developing countries and, in an unprecedented way, to the rich world. Indeed, a Brazilian company now owns Canada’s INCO. Over the next decade, new investments in telecommunications, fiber optic networks and satellite systems over the next decade will greatly increase the reach and use of the Internet in Latin America, Africa and Eastern Europe. Today, forty billion emails are sent and received each day and hundreds of millions use cell phones. These kinds of information flows are organized to facilitate a global mindset, one that looks to the new great game of global geography and new geopolitical outlooks. In contrast, the traditional, Atlantic-centered trends, with their entrenched political power and received management and industrial wisdom, have become out-dated.
The lessons of globalization: Energizing managerial strategies
The unalterable trends of globalization, led by the three main drivers, financial capital, technology and wealth-creating overseas trade, integrate countries and their industries in ways that are unprecedented. Clearly, the impact of China and India on the global business community has no precedent. The two countries account for 40 per cent of the global population. This forces all managers to ask a simple question: Do we have an India or a China strategy? It is a question that must be asked, from the very limited strategic perspective of the nation state, because these two counties impact global competition in direct and indirect ways.
The direct ways include the new stock-exchange listings of Indian and Chinese companies that want to be global MNEs. The stereotyping of Indian and Chinese companies – IT and software for India, low-cost labour manufacturing for China – ignores many other sectors, from advanced household appliances to semi-conductors, from medical robots and medical devices to space technologies that are producing best-in-class companies in these two countries. India and China count, not just because of their population and trained labour force, but because they need to import so many technologies, managers and products. This is a great opportunity for Canada, to become part of their supply chains, their research centers and their North American marketing outlets.
China and India also have an indirect impact on other countries, through strategies that range from joint ventures to research alliances, from direct investments abroad to sub-contracting in rich countries. That explains why, in recent years, they have doubled the annual output of engineers, computer scientists and IT specialists with 3- and 4-year degrees, about 600,000, compared to only 225,000 in the United States. These are just some of the reasons why Canada must have a strong presence in these countries.
Indian and Chinese prowess is creating real convulsions in the global business environment. Now, two entire continents, South America and Africa, are awakening to globalization. No two continents are so rich in natural resources. No two continents could impact so many industries with sophisticated innovation – from agribusiness to petroleum, minerals to fashion. But South America and Africa need to make their own choices. Some countries want to play the global game, while others do not. Who will be left out? The same issues apply to the Middle East, steeped in ethnic and religious conflicts, and staggering oil wealth. Even a cursory check of developments in place like Dubai or Qatar raises basic questions about managerial biases towards nationalism and even isolationism in North America, where the U.S. Patriot Act makes it difficult for Arabs to travel in the U.S. or to buy U.S. companies.
Where does Canada fit, and which Canadian industries and corporations form part of the solutions? For Canadian managers, the basic challenge is to change the mindset, both of how managers and employees see the world, and of how Canadian institutions – universities, banking, manufacturing, government bureaucracies, and national media (including the CBC) – accommodate this new reality. Globalization forces everyone to have a world perspective. As shown in Exhibit 2, best-practice managers focus on a dominant paradigm, value creation for shareholders. Value creation is a result of excellence at all levels, in strategic positioning, in recognizing value from constant innovation, and from exploiting strengths and competences. In this sense, people count, and the best-practices firms go to inordinate lengths to recruit the best people, cultivate a learning environment, and practice a form of kaizen or continuous improvement of the strategic matters that count.
Strategic management requires sophistication at all levels, from the top of the pyramid – at the board and senior management levels — to operations and the factory floor. Organizations that execute poorly exhibit fundamental flaws that accounting statements may not expose: poor training, faulty communications, and bad relations between managers and workers. Poor execution is usually symptomatic of deeper problems, such as an autocratic, top-down organizational culture that values short-term results, executive hubris over substance, and fixed targets rather than innovative processes.
Managers need to overcome legacies of poor execution. Globalization enables and ensures the introduction of dramatic new ideas and innovations from outside sources – businesses, industries, countries, and regions. Organizations, if they are to succeed, need aggressive strategic policies at all levels, including those made and pushed for by foreign subsidiaries, which can teach headquarters that local innovations create global opportunities. Lessons abound from domestic and foreign firms: Toyota learning cold- weather technology in Canada and applying it to a new plant in Russia; retailer Canadian Tire taking board members and operational managers on annual visits to its key suppliers in China, and focusing on supply chain and logistics excellence; selected Canadian universities offering courses for senior citizens. What defines organizational success today is not only doing things well; success also means doing the right things. Or to quote Winston Churchill, “To improve is to change; to be perfect is to change often.”
Training Canada’s Managerial Mindset
Globalization accounts for the emergence of business schools around the world, a phenomenon that reflects – and that many countries hope, will enable them to replicate — the pre-eminent U.S. experience. By most measures of success – market capitalization, entrepreneurial capacity to create corporate winners, and constant innovation – American managerial performance in the manufacturing and service sectors is the unquestioned benchmark. American companies now have a higher percentage of CEOs and senior managers with engineering and science degrees. Indeed, a survey of S&P CEOs indicated that the vast majority had engineering degrees, far more than any other degree. Not only do American corporations rank at or near the top of the rankings in global media like Forbes, US News and World Report, and Business Week, they dominate most industry categories: autos, airlines, and food production are the notable exceptions. These top-ranked firms pay the highest salaries, including bonuses, and are the main career choices for MBA students.
However, even top-ranked business schools themselves need to change, including by changing their curriculum, hiring foreign faculty, and cultivating new networks. Countries and regions differ dramatically, in the role of government, for instance, as well as in the centrality of family firms, in environmental policies, in the need for international trade or the dependence on a few industries. The deficiency in many university business schools has opened up a new market for novel management teaching, including new, private universities (like the University of Phoenix) and global learning organizations like the Pearson Group (part owner of The Economist and The Financial Times, and linked with the University of Michigan Business School). Indeed, business- school deficiencies have help foster some 2000 corporate universities, from Disney or GE to Caterpillar and Toyota, accelerating the transfer of best-practice management techniques and tools, mostly cultivated from the intellectual capital base of the top American business schools. European business schools have some advantages that U.S. schools lack – diverse languages, cultures, and business models (including state-owned firms) – and a geography that stretches teaching models to emerging transition markets like the former states of the Soviet Union, North Africa, and new markets in Latin America.
Countries as diverse as the BRICs, the Asian Tigers, and the Gulf States have joined the academic scramble of Canada, Britain, and European countries to develop their own business schools. They recruit American faculty, source U.S. intellectual capital (textbooks, cases, curriculum design) and adopt a variety of development strategies, including stand- alone business schools (like INSEAD in France or IMD in Switzerland), and close business-academic partnerships. Leading U.S. business schools have certain advantages at home, for example the capacity to develop faculty with doctorates, because U.S. schools can readily draw on departments of economics, sociology, law, psychology, and mathematics, where many professors hold joint appointments. The U.S., so large and with such a varied population (by income, demographics, racial composition), remains a global magnet for novelty, institutions, ideas, and people. At the University of Chicago, for instance, the Booth Business School has three platforms for 270 students, each comprised of three 90-person cohorts, and that uses campuses in London, Singapore and Chicago. The faculty, with 90 Nobel Prize winners, teaches at these campuses, and the students, taking classes held at the three campuses, come from Europe, Russia, the Middle East, Africa, India, and South America.
Increasingly, the Top 20 best business schools are exploiting their global brands and intellectual capital by expanding beyond their home markets. The leading media ratings like the Financial Times and Business Week, comparing business schools around the world (including Chinese schools), show a range of brand-extension: international alliances and student exchanges, joint ventures (e.g. Columbia-London Business School; HEC in Paris-Oxford), overseas campuses (Chicago Business School in London and Singapore, Canada’s Ivey Business School in Hong Kong, ESCP-EAP with campuses in London, Paris, Berlin, Madrid, and Turin, to name examples from a lengthening list). If anything, this trend is likely to accelerate, as satellite transmission technology and e-learning improve. But the business-school ratings game, like its counterparts on Wall Street, such as Standard and Poors and Moody’s, is plagued by weak due diligence and auditing. The ratings game is now a play for newspaper advertising and business school promotion, the trap of hubris exemplified by Wall Street investment banks.
Notwithstanding the current economic downtown, the strength of leading American multinationals is primarily due to the success of their recruitment from the U.S. higher-education system, of which business schools form a part (only 5000 MBAs in 1961, now 100,000+ annually). The annual production of MBA graduates is a useful proxy for management quality generally, because the U.S. produces so many MBAs. Indeed, these graduates, as in many areas where education levels help explain the income gap between countries with similar levels of development, are the reason why MBA schools may be attractive to local business and governments. A primary impact of business school teaching at the leading schools is the increase in salaries of MBA graduates, based on the quality of the teaching program and their global networks. While international comparisons may seem questionable, it is clear that sound management is a critical factor of production (like raw materials, financial capital, and technology), and the lack of it remains an enormous constraint for many countries facing the impact of globalization.
How do Canadian schools compare? Holding population levels constant, Canada produces 7000 MBAs per year, seventy per cent of the American level.1 Canadian business schools (40 or more in total) increasingly lack a critical mass of faculty in key disciplines such as accounting or marketing, and feature too much teaching by part-timers and PhD students, and by faculty with limited or no work experience. Many MBA schools recruit BBA graduates, who lack a strong background in the arts and sciences. Curiously, few Canadian-based faculty study serious Canadian issues – a field now mined by groups like the Conference Board of Canada and think tanks. Sadly, the external assessors on the public funding agencies in Ottawa that provide grants to business schools are mostly Canadian faculty, who are often isolated from business schools in other areas of the world. As well, unlike in the fields of engineering and the physical sciences, there are no provincial or federal Centers of Excellence that require researchers from different fields and different business schools to work on joint projects, or with serious researchers in the banking, consulting, and business community.
More tellingly, Canadian business schools are isolated from best-practice firms because too many business faculty lack work experience and too few have lived or worked in countries outside North America, as depicted in Exhibit 4.. As a general rule, few managers read business school journals, unlike medicine or engineering, where practitioners read the professional journals.2 Research in business schools has become highly fragmented, with theorizing and intellectual capital gradually leading to bad theories about more and more of less and less practical thinking. Only a few decades ago, say in the 1970s, management theories and practices that were taught, i.e. good theories leading to good practices, meant that business schools were on the leading edge of new and sophisticated theory development. The computer was an enormous help, obviously, but leading edge academics and practitioners worked together to design, formulate, and codify a wide range of theories and models across basic disciplines like psychology, micro-economics, statistics, business history, and organizational theory. Business journals are now a pre-occupation of business faculty only, isolated from the everyday managerial mindset and unread by businessmen, who read journals and magazines focusing on best practices.
In the past three decades, business schools have experienced a dramatic reversal, having gone from being thought leaders to thought followers. Before globalization and the rise of India and China, and new managerial theories from Japan, leading-edge theories and practices were introduced and adopted at large according to the following graphic:
In the 1970s, the leading business schools, mainly U.S.-based schools had huge competitive advantages: They were rich and they could attract high-quality people from the universities at large, from governments, and from companies, banks, and even charities and not-for profit organizations. These clever people recruited and attracted the best and the brightest. They also attracted intellectual entrepreneurs, who cleverly incorporated best-practice business school theories and chased around the world selling this intellectual capital as management consultants. Many ‘academics’, even in business schools, kept a certain distance from the commercial world, in order to retain intellectual integrity and personal autonomy. By contrast, the leading consulting firms, founded by MBA graduates or even teaching faculty, inspired individual startup rivals, including new firms launched by intellectual gurus (e.g. Harvard’s Michael Porter and Monitor). These consulting firms in turn faced new rivalry and disruptive competition from other types, such as accounting firms, investment banks, think tanks, even advertising and lobbying firms. The intellectual capital could be bought but the consulting firms had their clients, who saw consulting as just another sub-contracted activity like legal work, auditing, public relations, or computer systems.
Despite the strong value of the intellectual capital developed by business schools, leading-edge corporations had to deal with serious and practical issues in the field. The Japanese, in particular, had internal challenges: resource scarcity, high energy costs, a paucity of conventional business schools, an economy with lots of small firms, and intense rivalry in most industries. With increased international rivalry, e.g. between the U.S. and Japan, it did not take long for leading-edge Japanese firms to incorporate and perfect managerial theories in practical subjects like zero defects, precision engineering, avoidance of waste, time-management techniques like speed to market and hours/minutes needed to produce a product or service. Japan, with few business schools, learned these techniques from American consultants like W. Edwards Deming, Peter Drucker, and Joseph M. Juran.
In the U.S., with its vast web of universities and engineering schools and math departments, companies turned to these intellectual hot spots like MIT, Stanford, Carnegie Mellon to learn about digitization, the power of the Internet, new drug research, and a wide range of time-saving techniques, products, services, applications, and organizational processes. Europe too had its intellectual strengths, some of them developed and housed in its universities, but it also had research-intensive companies like Phillips or Siemens, world-class technical universities, and superb research institutes like Max Planck or the Pasteur Institute.
In recent decades, best-practice companies around the world have built and leveraged three intellectual advantages. They have:
- effected a clear shift to more research and development, measured by R&D expenditures as a per cent of sales, and incorporating highly educated engineers and scientists into managerial positions;
- formed sophisticated alliances, formal and informal, where companies learned from each other, often hiring senior management from other industries, and using a range of consultants to keep their managers absolutely abreast of latest global developments; and
- made an unambiguous commitment to state-of-the-art practices in all elements of the firms’ supply chain, from who they hired, where they bought supplies and raw materials, to their internal operations and how resources were allocated to assure high performance.
In this sense, the managerial development paradigm has shifted dramatically; best practices no longer come from the academic world or university business schools. Best-practice companies have pioneered new managerial theory and practices. Learning from customer needs in foreign countries, they have applied novel techniques like just-in time, and advanced their own models of logistics, marketing, and human resource practices that are far removed from traditional business school textbooks. Business schools could only follow.
Except for limited areas, such as the analysis of corporate culture or financial modeling, best-practice management theories now come from best-practice companies. Many of these rarely have business-school graduates running them, and when they do, they are surrounded by people from different fields. If they do, their business-school training illustrates that the managers are intelligent, and that they constantly develop and value a rolodex with global contacts. Best-practice companies have incorporated and codified best tools, and create new mechanisms to build learning tools. Ambiguity, experimentation, multiple and new competencies, organizational slack, high trust, laws of empowerment and trust, enormous clarity of judgment – these are the tools of daily practice in best-management companies. Despite the economic downturn, best-practice firms rely on cutbacks and layoffs as a last resort, not the first.
Moreover, best-practice companies cultivate the multiple role sets of managers, their multiple competencies and skills, and what they know and don’t know. The Japanese, in particular, applied the American concept of job rotation, where managers, trained in accounting, spent time in production, marketing and sales, or research, because the benchmarks like levels of ambiguity, timelines and forms of feedback are quite different for each management function. Best-practice companies add to this team approach, by mixing people of different countries and languages, different education (engineering vs. science or anthropology) and headquarters vs. operating subsidiaries. Toyota defies virtually every precept of traditional business-school theory, including the use of trading firms as its marketing tool in foreign markets, and the playing down of the CEO’s role in the company’s success.3
Indeed, the management training paradigm has shifted.4 Best-practice companies lead the field in new-theory development. Too many business schools have taken out business from business education. What about firms and organizations, not to mention business schools, which tolerate inefficient managers? Is the Darwinian side of capitalism, so much mocked by critics of globalization, the enemy of inefficient management? Surprisingly, despite the enormous literature on management, and the profit-maximizing, optimizing theories that abound, little attention is paid to managerial inefficiency except when it comes to replacing the CEO. In Canada, longevity is a prized commodity, in board rooms, universities, banking, and business schools themselves.
In a global world, the quality of management is a central feature of growth and success. How countries and companies struggle with the great game of globalization is now the central test for wealth creation and productivity. To rephrase Thomas Harding, the 16th century writer and dissident, global competition makes rattling good history but domestic business is poor reading. Or, as they might say in England, ‘The King Is dead! God save the King!’ The global economy is now intertwined and integrated to such an extent that a domestic perspective for management no longer suffices. But ideas, as John Maynard Keynes has written, have a life of their own, and human foibles often have their own momentum, and vested power.
But here, history has its own lessons. Globalization is pushing the frontiers of management thinking. The best-practices of successful companies are illuminating, but so too are the worst practices of companies, their management, and their own theories of organization. The new, multi-polar world is forcing Canadian companies and Canadian management to move beyond the comfortable pew of North America. Canada’s poor productivity record, its massive reliance on the U.S. market, its dependence on commodities, and its failure to cultivate world-class companies in the traditional resource sectors – forestry, fishing, food – illustrate the absence of world-class management training. Canadian business schools now face growing international competition, as Business Week noted in its 2008 survey, as new, well-funded schools open in countries such as China and India. Business schools also face competition from global investment banks, think tanks, corporate universities, industry associations, consulting firms, and media publications.
In the main, Canadian business schools differ only by location and student size. Most offer undergraduate programs because BBA degrees provide a huge stream of cash flow for the university. Despite marketing slogans about differentiation, most Canadian MBA programs only offer standard, off-the-shelf specialization, e.g. more courses in marketing, finance, etc. None offers specialization in global issues or even industries central to Canada’s future, e.g. logistics and supply chain management, or MBA specialties in auto manufacturing, forestry, or mining, to cite practical examples. Even in hospital management, professors and classroom materials from the Walt Disney Company are more relevant than business school research. Even British schools offer specialty MBA programs in global energy! As a general rule, Canadian business schools rarely cooperate on anything, from sharing visiting global speakers and professors, or collaborating on doctoral programs, or serious research projects. Without an enforced mandate from the universities themselves, or even from governments – all Canadian universities are publicly financed – or a new system of federal and provincial Centers of Excellence that have been so successful since 1986 in engineering and the natural sciences, little will change.
The current recession, which may last much longer then even pessimists forecast, imperils Canada because so many of its strengths are dependent on a healthy U.S. market. But serious Americans realize the new reality. They see the world as a single, interdependent economy, not a collection of regions or separate markets, where firms could practice a product life-cycle model of first-world, third-world growth. Except for a few leading companies like Manulife, Bombardier, BNS, SNC, RIM, and the mining and oil and gas sectors, Canadian firms have retreated to the North American redoubt, often protected by government licenses, public agency rules, and direct legislation.
Best-practice firms, employing a JIT human resource strategy, focus their hiring strategies on their education suppliers, and impose the harsh discipline of quality standards. Like Canadian business schools, too many Canadian firms display the mindset – and complacency – of the Toronto Maple Leafs, a syndrome of high returns from owners and managers, but a losing organization for the people that count, the customers. Like the Big 3 car companies, operating on the core assumptions of limited foreign competition and low energy prices, too many Canadian companies operate on the assumption of a successful American economy, isolated from global forces and a global managerial mindset. Is the Canadian business-school industry part of the Canadian productivity problem, training managers for a world of the 1980s? When those assumptions are fatally wrong, certain consequences naturally flow.
For one perspective, somewhat self-serving, is that Canada needs more MBAs, see Roger L. Martin and James B. Milway, Strengthening Management for Prosperity (Toronto: Institute for Competitiveness and Prosperity, 2007).
Michael Skapinker, “Why Business Ignores the Business Schools,” Financial Times (January 7, 2008). See also Della Bradshaw, “Masters and Misgivings: A Coveted Qualification Turns 100 still Seeking to Prove Its Worth,” The Financial Times (April 6, 2008).
For a sobering and brilliant analysis, see Hirotake Takouchi et al., The Contradictions that Drive Toyota’s Success”, Harvard Business Review (June 2008). See also Charles McMillan, “Five Competitive Forces of Effective Leadership and Innovation,” Unpublished Paper, 2009.
For the best analysis of business education, from an academic with experience both in the U.S. and Europe, and former Dean at IMD in Switzerland, see Peter Lorange, Thought Leadership Meets Business: How Business Schools Can Become More Successful (New York: Cambridge University Press, 2008). Among his quality standards, the book argues for removal of academic silos through no departments by functional areas like marketing, finance, etc., no tenure, performance based bonuses, the compression of salary scales, team teaching and research, and open transparencies. On such measures, most Canadian schools fail.