America’s deterioration as a leader in the engineering and manufacturing fields can be attributed largely to the failings of the elite business schools, suggests Noam Scheiber, Rhodes Scholar and senior editor at The New Republic.
Business school graduates are now educated toward high paid financial services jobs, leading gradually to an “era of management by the numbers”. Executives are now more adept at buying and selling assets than running industrial companies, and this preoccupation with ROR has resulted in “a [reluctance] to invest heavily in the development of new manufacturing processes”.
Since 1965, the percentage of graduates of highly-ranked business schools who go into consulting and financial services has doubled, from about one-third to about two-thirds. And while some of these consultants and financiers end up in the manufacturing sector, in some respects that’s the problem. Harvard business professor Rakesh Khurana, with whom I discussed these questions at length, observes that most of GM’s top executives in recent decades hailed from a finance rather than an operations background. […] These executives were frequently numb to the sorts of innovations that enable high-quality production at low cost.
[…] In their landmark Harvard Business Review article from 1980, “Managing Our Way to Economic Decline,” Robert Hayes and William Abernathy pointed out that the conglomerate structure forced managers to think of their firms as a collection of financial assets, where the goal was to allocate capital efficiently, rather than as makers of specific products, where the goal was to maximize quality and long-term market share.