Author: Steve Shu

Little late to post on the CNN article on Warren Buffet and Charlie Munger this past weekend. I was pretty much floored by Buffet’s comment …

Buffett: My job is to think absolutely in terms of the worst
case and to know enough about what’s going on in both [Berkshire’s]
investments and operations that I don’t lose sleep. Everything that can
happen will happen…. It’s Berkshire job to be prepared absolutely for
the very worst. A few years ago we did not have NBCs [nuclear,
biological and chemical attacks] excluded from our exposure, but we do
now….

Financial hedges against terrorism? Now I learned about constructing portfolios of investments in business school, applying betas, buying gold or stock in military companies, etc. That said, stepping back from math and theory for a moment, Buffet’s comment just strikes as one of those impossible things to do like stockpiling sleep.

Buffet and Munger are two *really* smart guys, and I believe them if they say it can be done. In France I was reminded of this by read one of Munger’s talks (given at the business school at UCLA) covering managerial decision making, and the importance of keeping in mind lots of frameworks and models for understanding the health of businesses and sectors. Part of the main message was that one should not rely on single models for understanding complex problems. Need diversity.

Although this post is not going to help the rant in my immediately prior post on ethics courses in business schools, ever since seeing Mark Cuban’s post on the new movie,  "Enron – The Smartest Guys in the Room," I’ve really wanted to check it out. I was thinking about picking up the book while I was out in France, but it seemed too big for me to lug home. Om Malik looks like he gives the movie high marks too. For those hot on the Enron topic, MBA bashing, or management consulting bashing, this might be a good chance to re-read Malcolm Gladwell’s detailed dig on Enron, MBAs, McKinsey, etc. in the article "The Talent Myth: Are Smart People Overrated?"

My wife (a business school professor) and I all always interested in improving business schools, so this caught my eye. Andy points to a really great article in the Harvard Business Review entitled, "How Business Schools Lost Their Way". It is a bit of a long article, but worth a read because it sheds light on some of the systemic forces regarding the tenure track for professors, how it ties to curricula, and how this ties to the effectiveness of business school training.

I have mixed feelings on this article though. On some points I agree. On other points, I think the conclusions are wrong or the analogies are dangerous.

Here’s the one-liner just under the title of the article:

Too focused on
“scientific” research, business schools are hiring professors with
limited real-world experience and graduating students who are ill
equipped to wrangle with complex, unquantifiable issues—in other words,
the stuff of management.

I
cannot deny that business schools (and the culture between business
schools) seems to be set up such that professors are mostly
incentivized by quality of research and the respect of peers. As an
example that shows the seams of the academic culture, it is more the
exception than the rule that a non-tenured professor will perform
something like blogging. Blogging tends to be perceived as pandering to
the public and not appealing to the scientific respect of other
academics. That said, while overall university cultures may not be
supportive of teaching (as the article points out), I know many
professors that have self-control mechanisms that drive them to serve
students as best they can.

Do I agree that graduating business schools students are
ill-equipped? I don’t know, but even if this is so I don’t think this
article or other articles along similar veins are pointing out the
shortcomings in an in-depth way.

I agree that business schools are under need of improvement (perhaps
not as extensive as the term "reform" connotes), but not for reasons
cited in this article and other articles regarding things like lack of
ethics training, leadership, etc. No doubt these things are important
factors, but it seems a little late to be teaching ethics to 30+ year
olds. And why do we single out the business schools for lacking
training in things like ethics? Good thing Bernie Ebbers (former CEO of
Worldcom) didn’t have an MBA. MBAs would never hear the end of that
one. If society and culture values these things so much, then perhaps
ethics should be taught earlier in life like during undergraduate
studies. There are many non-MBAs out there that have been culpable in
corporate fiascos. Why not make ethics or leadership training a job
requirement like Powerpoint or speaking skills as opposed to something
for MBAs only?

The article is also critical of business schools overly rewarding "business as a science" versus "business as a profession":

This scientific model,
as we call it, is predicated on the faulty assumption that business is
an academic discipline like chemistry or geology. In fact, business is
a profession, akin to medicine and the law, and business schools are
professional schools—or should be. Like other professions, business
calls upon the work of many academic disciplines. For medicine, those
disciplines include biology, chemistry, and psychology; for business,
they include mathematics, economics, psychology, philosophy, and
sociology. The distinction between a profession and an academic
discipline is crucial. In our view, no curricular reforms will work
until the scientific model is replaced by a more appropriate model
rooted in the special requirements of a profession.

No
doubt that having practical, real-world business knowledge helps in
teaching. I can see how things can start to get wound in the wrong
direction if business schools overly reward scientists and do not
reward those with practical experience. But why limit things to the
resume of the professor? I know many professors that bring in or draw
on the knowledge of alumni and executive-level practioners.
Additionally, there’s something to be said about the rigorous aspects
of business theories too. It serves as checks and balances for
"business education anarchy" and the amount of ad-hoc and arbitrary
teaching that can be brought by a pure practitioner. Imagine "Chainsaw"
Al Dunlap or Bernie Ebbers professing their management theories to be
fact or science.

As for business schools helping students to gain training in making
decisions under uncertainty or applying psychology areas to business
(the article favorably points out the works of Nobel Prize-winner
Daniel Kahneman and the late Amos Tversky), perhaps this is something
for improvement. Books like Malcolm Gladwell’s "Blink" have recently
become highlighted in the business world, yet only a handful of
business schools (e.g., The University of Chicago, Wharton, INSEAD,
Dartmouth, Duke) have separate judgement and decision-making courses
for their students.

Update (5/4/05): Nicholas Carr (former editor of HBR) and author of "Does IT Matter" also has an interesting take on the article at his blog. Hat tip to Andy (he’s also got an update there on his perspectives).

Having now spent some good time in France (in the Fontainebleu area south of Paris about one hour), I thought I would write down some business and cultural things I’ve run into as it compares to life in the U.S. This is my second time to France, and I think I am more in tune with absorbing some of the differences. I may have known some of these things before, but “living” in France for a longer period of time has made some of the things hit closer to home for me.

On my “interesting” list:

• McDonald’s has a quite regional offering compared to what I remember in places like Hong Kong and Indonesia. It looks like you can get things like Croque McDos (a.k.a. McDonald’s version of croque monsieurs – basically ham and melted cheese sandwiches made with French toast) and poisson nuggets (fish nuggets). In the U.S., you can only get the Big Mac and the standard chicken nuggets whereas you can get these other options in France. Note that the french fries taste pretty universal to me. Note that the Big Mac is so ubiquitous that magazines like the Economist even have their tongue-in-cheek fun with purchasing power parity for hamburgers.
• The INSEAD business school currently has information technology (IT) as a required course as part of its MBA degree. Faculty at INSEAD tell me, however, that satisfaction with the course is somewhat negatively correlated with whether it is a required course or an elective. Not unusual in that regard methinks. But I found it interesting that the course is a separate course as opposed to being integrated with operations, managerial accounting, or technology strategy courses (not that satisfaction with IT courses would go up by alignment in this manner). I personally thing IT has always had some trouble taking hold in business schools – probably an area for further innovation and improvement by the b-schools.
• The INSEAD business school has some push to emphasize design skills as part of training. For those that follow Tom Peters or Seth Godin, you may have sensed a fundamental shift and common thread about emphasizing design skills as part of the new wave of business. I am going to work to keep my knowledge current in the design skills area. It is at the top of my list along with watching outsourcing. If anyone runs into any good books or practical ways to stay current on this subject, please feel free to let me know. I am going to investigate the new book called, “Blue Ocean Strategy” written by an INSEAD professors, W. Chan Kim and Renée Mauborgne.
• The French system is much more of a socialist system compared to the U.S., but there are also some unique redistribution of wealth mechanisms I have not seen before. The highest marginal tax rate is about 50%. Another 24% is taken out for the social security system. Leaves about 25% in take home in pay for some. The government covers cost of education through the university level, plus the government provides healthcare insurance. Roughly speaking, the French have some interesting pro-family benefits such as the fact that each parent in a family can get paid half their pre-leave work salary until their child is three years old (wow cool – wonder what the cost is though!). Little odd though that, in some cases, families need to produce income statements for the schools. Based on one’s income level, a family may need to pay more for their children to eat in the canteen (i.e., cafeteria) on a per meal basis (say $10/meal versus $5/meal). Seems like it may a bit administratively burdensome, plus it also reflects fringes where the governmental system may not be efficient in redistributing taxes already collected. Unemployment at 10% or so with some areas as high as 30% (yikes!).
• The passenger train system from the neighboring cities into Paris seems like it could be subject to a substantial annual revenue loss (guesstimate millions to tens of millions of dollars) literally because of “free-rider” problems. There’s infrequently a conductor to punch verify tickets. Nor are there ticket control gates. Effectively an honor system at approx. $10 fare per person. Perhaps the culture prevents actual losses from being great, but risk of leakage seems pretty steep.
• Paris hasn’t changed much in the past 7 years. It probably hasn’t changed much in 100 years. It’s an awesome city. One of my favorite in the world.
• I understand one can get raw mussels in Northern France. Perhaps the only place in the world. Sounds very unappetizing to me. Even some French my wife and I met thought it was gross.
• It’s no wonder the French eat escargot. Practically every evening and morning snails are crawling all around outside the house. I’m surprised the Chinese never made moves to have these critters in the countryside areas and as part of the diet. Snails are fed rice as part of the cleansing process for eating, plus it would provide another food source for the Chinese.
• We only get German television where we are living. Movies like “Groundhog Day” are as hillarious in a  language that you don’t understand as in one’s native language. Would have loved to have learned more through local TV about the French culture though. That said, it’s interesting to note that mobile phone advertising in Germany is very fashion conscious. You can get flashing and glowing ring screens 24 hours per day on some of the TV shopping networks.

On my “irritating” list:

• Gasoline seems to be about 2 to 2.5 times higher than in the U.S., whereas golfing greens fees in Cely were about half of what it was for a comparable course in Chicago. Filling a tank of gasoline for a mid-sized vehicle is $50 to $75! Took about $50 in gasoline to get to a golf course to play a round of golf where greens fees were $50. Pretty hard energy burden to those who may depend heavily on gasoline. I’m sensitive to some of this as my mother-in-law drives expedited freight, and wildly fluctuating fuel costs pose a direct threat to her livelihood and income flow.
• Road navigation is ridiculous because interchange signage is overwhelming. Instead of simply having to know directions like East, West, South, or North for a particular road, one has to be familiar with the surrounding towns at each interchange point. Your geography better be real good in France – it’s one of my weakest subjects, and I can get by in the States. The French method  creates a bit of an operational issue as signage on the roads has to be much more extensive at each interchange point (not unusual to have 6-12 towns listed for a road going in one direction, say West).
• Typically you have to bring your own shopping bag to the grocery store. Cuts down on waste disposal I’m sure, but it is not very customer-friendly when you are given four complementary bags, and the cashier gives you hard time for the fifth bag. How much can one of those cheap, plastic bags cost as part of sales for a $200 grocery visit?
• Parking spots are even smaller than they are in Dallas, Texas (Note: parking spots in Dallas are the one exception to the general belief that everything is bigger in Texas). Of course cars are smaller in France too, but the spots seem disproportionately smaller. It’s no wonder that they have Smart Cars in Europe (even though these have not been as successful as originally hoped for).
• I can’t find iTunes songs for most of the top 10 songs. Guess that Apple has some different licensing and software arrangement to support different areas of the world. Too bad. I have no clue what some of the French songs are about (I don’t speak the  language), but the language for some of the German and French songs is simply beautiful sounding. It’s like discovering a new musical instrument for me for some songs.

On my “ingenious” list:

• One of the large supermarkets in France called Carrefour has an interesting mechanical device and coin collection gizmo clamped directly onto the handles of shopping carts to improve shopping cart operations from (presumably) two perspectives: to minimize both theft and labor to collect carts. Never saw this mechanism (Systec Variloc, perhaps no longer I think) in the States (although one could argue that the airports have something similar for their carts). The shopping carts are all chained together in the parking lot, and one needs to insert one Euro to release a shopping cart. When you return your cart and link your chainlink mechanism into the  daisy chain of other carts, you get your Euro back. In the States, the trend is to use return bays in the parking lot to encourage people to return their shopping carts. Other methods I have seen in some city areas of Chicago (e.g., off of Roosevelt in the South Loop) are to use wheel locking mechanisms that are somehow triggered by a magnetic or other mechanisms around the parking lot perimeter. The wheels basically lock into place and won’t turn anymore if shopping carts are brought beyond the perimeter. What Carrefour has sourced as a shopping cart device seems pretty effective as an alternative.
• The INSEAD business school was venture by a Harvard Business School grad to fill the hole of a Harvard-style case school in Europe. Original classes were held at the castle in Fontainebleu. Coordinating the incubation of the venture from Boston was tough when ship travel was still predominant. Same guy that founded  Fontainebleu was involved with directing venture money that amounted to something like 70% in the original equity money for Olsen at Digital Equipment Corporation (DEC). Interesting to note that market timing and conditions were as important for a venture like INSEAD as it seems to be for many cases where viral spread of ideas are desired. There is a pretty lengthly book on the establishment of INSEAD for those interested in the subject. Too much for me to read the whole thing, but it is a very impressive work.
• The French wine market is fascinating. A prior post by me on wines is here. Very historical and influenced by regulation. A lot of romance to it too. The cheese market is probably also fascinating, but I may have too sensitive of a nose to appreciate.

Steve Rubel and Om Malik have interesting posts here and here that may foreshadow the death of business blogging (motivated by the recent cover story by BusinessWeek on the subject of the power of business blogs). I really like the following chart by Paul Kedrosky where a BusinessWeek magazine cover depicts the death of equities against a plot of a subsequent bull market Dow.

All of this reminded me of a book I read in the late 80s called, "Winning on Wall Street" by Martin Zweig. While not a sole unpinning investment philosophy to the author’s fund, one of the measures as to whether to buy or sell a stock was to measure the number of bull articles versus bear articles in the newspapers. Part of the investment method philosophy was to trade against what the traditional print media was saying.

Well here’s how one of Zweig’s funds is performing.

(Note that Zweig’s book also covers many other economically-grounded measures than trading contrarian to print articles – so I’m not really being fair). Plus here’s another one of his funds that is doing better.

So whether there’s any correlation or not to using magazine covers to predict market trends (and the fall or rise of business blogging), well all of this discussion is entertaining but a bit neither here nor there.

I guess that my view is that I think it’s too early to call business blogging dead or alive. There’s so few corporate bloggers out there, mortalities haven’t been measured, and the timeframe hasn’t been long enough yet. Additionally, bloggers like Bob Lutz (Vice Chairman at GM) show us that even if the business blogging trend dies that big corporations can capitalize and be opportunistic too.