According to The Economist, management theory may be a “compendium of dead ideas” for four reasons. Before analyzing the reasons, it may be useful to understand the two key types of management theory.
The first type of management theory is from academic management researchers. The academic group rigorously researches historical data to arrive at nuanced conclusions with a high level of confidence. Their papers are targeted mainly to other researchers, not practitioners. Their goals are academic reputation, tenure and promotions – not necessarily to be ahead of the leading practitioners.
The second type of management theory is from practical management gurus, such as Peter Drucker, Jim Collins, and Ram Charan, who write books that distill the lessons from dominant companies for practicing managers. In a dynamic area such as management, executives are constantly developing new strategies to win, and these books document this leading edge of management practice to help other practitioners (and to sell books). As the leading-edge of practice moves on, these books may become dated.
So which group is The Economist talking about and are the reasons for their conclusion justified?
The first point made by the Economist is that the “gurus have lost touch” with reality. This may be more accurate of the first group. Academic papers need rigor that seem to bleach out reality. But the books from the gurus do seek to offer practical information about, and insights into, the leading-edge strategies of the highly successful managers. Some succeed. Some don’t.
The Economist notes that one of the four (their number) basic ideas of management theory, that “business is more competitive than ever,” is not true. They are both right and wrong. As they correctly observe, business is not more competitive in some mature industries, such as airlines, where governments have been lax in enforcing anti-trust rules. But in emerging industries, the competition is fierce and proven by the high failure rates of new businesses and of ventures funded by venture capitalists.
The Economist also debunks the idea that we live in the age of entrepreneurialism because there are fewer entrepreneurs. The trends do support this point, but an important factor influencing new venture creation is the emergence of high-potential industries. The PC was the great catalyst for new ventures, and created a golden age for entrepreneurship due to the ease of entry. So did Internet 1.0 in the middle 1990s. Ventures don’t start in a vacuum. They need opportunity and emerging trends. The numbers will increase when the next high-potential industry, with ease of entry, emerges.
But why is entrepreneurship linked with management theory? Management theorists mainly focus on the corporate world. Many high-potential entrepreneurs, such as the founders of Amazon.com and Facebook, seek to destroy their corporate competitors. Management theory is about leading large companies. Entrepreneurship is about starting and building (high-potential) businesses from scratch. There is a huge difference between driving an aircraft carrier and a speedboat.
The last complaint in the Economist is that the theory has been naïve about globalization, which has created a backlash against it. But globalization, in the short-term, has been good for many executives, for many consumers, and for China. Perhaps the “naïve” label better fits the “free-market” economists and politicians who let countries like China game the system, rather than the management theorists.
The most important question is the description of management as a “compendium of dead ideas.” Management is about more than ideas – it is about practice. Management is not religion, which is seeking to find the eternal truth. Management is not science, which is seeking to find the eternal laws of nature. It is a form of warfare. The rules of war keep changing. Germany beat France in WW II because France was fighting the previous war. That is what management theoreticians do – analyze the last war. But business leaders need to fight the next war and find the next winning strategy. Some do. Many don’t. The best innovators in management have practically always been practitioners who want to win going forward. Management theorists just follow the great practitioners.
MY TAKE: Management researchers seek to develop the leading edge of academic theory, which may have little in common with current practice. Management gurus seek to distill the leading edge of practical theory that is developed by others and is constantly evolving. Management practitioners seek to develop the leading edge of dominance and need to be ahead of both theories.
Management is not about never-changing ideas. It is about how to win the next war. Some of the books from practitioners do offer nuggets of wisdom. We need to separate the academic theoreticians from the practical ones and examine the net worth of each to see if they are bankrupt today. And we need to separate high-performance entrepreneurship from bureaucratic management because the two are stages and worlds apart.
