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The more serious is the trouble, the more probable it is that some knowledge of scientific theory will be
required, and though the theorist will be called unpractical, he will probably be also indispensable.
- G. K. Chesterton, 1932

The Social Impact of Business Schools And

Management Development in Advanced Societies
By
Guillaume Carton,
Universit Dauphine
Paris France
(guillaume.carton@tjlcarton.fr)
Charles McMillan
Schulich School of Business
Toronto Canada
(charlesmcmillansgi@gmail.com)
Jeff Overall,
School of Business, Ryerson University,
Toronto, Canada
(jeff_overall@hotmail.com)
ABSTRACT: Despite the social impact of the MBA degree, business
schools face unprecedented challenges, both as a source of
management research and a locus for teaching management skills.
The development, dissemination, and diffusion of management
theory is reviewed during four epochs: 1) entrepreneurial capitalism,
2) scientific management 3) the rise of economists and economic
theory as the imperial force in management, and 4) the slow decline
of business schools in the 21st century. Narrow specialization, abstract
research models, and a North American bias in publications threaten
the business school model in a digital world. The paper concludes with
recommendations for business education.
Key Words: management development, structural models, invention and entrepreneurship,
management societies, theory vs. practice, asymmetric silos. digital revolution

March 20, 2015

Introduction
As a global industry, management development and the business model to generate,
refine, and diffuse best management practices is a multibillion dollar enterprise. It
encompasses academe, consulting, think tanks, business associations, lobby groups,
military academies. and business schools. The management consulting industry
alone now exceeds $100 billion world-wide. The MBA education industry includes
14,000 business schools worldwide, graduating over 200,000 students per year,
some 126,000 in the USA alone (see Exhibit 1), a 74 percent increase from the 20002001. Enrollments vary, from huge undergraduate programs (5-6000 students), to
MBAs only (e.g. Harvard 915 MBAs) or a combination, including executive and
doctoral programs.
Exhibit 1

Since 1945, US universities dominate the management development sector and US

multinationals, perhaps half of the top 5000, devote a disproportion amount of
spending to R&D, often in association with university labs. US universities top the
awarding of Nobel Prizes, even more so when many awards are given to foreign
nationals working in the US. Despite minor variations, US business schools
dominate the rankings of the Financial Times, the Wall Street Journal, or Business
Week. Comparative surveys of management practices, such as Bloom and Reenan
(2010), place US management as the benchmark for high corporate performance.
2

From Alfred Marshall in the 19th century to Peter Drucker in the 20th century,
numerous writers cite management as a factor of production, with land, labour, and
capital. Starting between WWI and WWII in America, but now worldwide, the
locus for management development the study, cultivation, and diffusion of best
management practice has been the business school, located in a university setting.
Once seen as trade schools, business schools now serve as reputation-creators of the
universities in unprecedented ways hiring of star faculty, enormous research
budgets, research output (including journals and publishing houses, e.g. Harvard
Business School Publishing), and as a source of outside funding, incuding from
Alumni. Even universities once seen to reject the profit-seeking ethos of
management, like Oxford and Cambridge, now cultivate their business schools,
perhaps following the lessons of Harvard University, whose prestigious business
school resides safely across the Charles River from the main campus.
In only a generation, the social impact of business schools as the main instrument
for management development is widespread, profound, and global. Since the
industrial revolution over 200 years ago, governments, inventors, entrepreneurs,
financiers and sundry other individuals pioneered organizational models, decision
tools, and tools of invention with little help from academic discourse or business
school assistance. Experimentation, knowledge, and models diffused from the
country of origin to the rest of the world. Today, management development resides
in a university setting, like medical or engineering schools. In retrospect, this
evolution only occurred slowly and recently, a result of the explosion in knowledge
creation and scientific progress. Modern business schools incorporated knowledge
in disciplines like economics, sociology, psychology, and applied statistical methods
with the introduction of computers. In the four eras reviewed in this paper,
management evolved by philosophies, methodologies, and social institutions that
shaped economic growth. In this paper, we argue that business schools, while
serving as a low risk screening signal for business, has a flawed business model for
todays digital world, and no longer meets the management development needs of
the future. The impact on business schools and their two main research outlets, the
Academy of Management and the Society for Strategic Management, are addressed.
Four Epochs of Management Theory Evolution
In a world characterized by rapid change, and what Joseph Schumpeter (1942)
called creative destruction, corporate enterprises today show a remarkable
consistency of purpose, institutional bias of persistence, and transformations
without remarkably changing the goal structures or profit-seeking preferences. As a
2000 year organization, the Catholic Church, headquartered in the Vatican, a
precinct with a population the size of a small suburb, has a mission statement, a
global reach, and ecumenical leadership that most firms would envy. Across the
industrial world, entrepreneurs, and executives, fed by their animal spirits, in
Keynes felicitous phasing, expanded for ego, profit, prestige, and country.
Management development, defined as the critical needs of the organization as well

as individuals (Drucker, 1977), became a combination of instincts and street smarts

born of experience to deal with risk, technological necessity, and competitive threat.
Management often concerned engineering design applying new organizational
forms, a clever mix of invention, trial and error experiments, and performance
learning, for big firms in particular (Schumpeter, 1942; Galbraith, 1952).
1. Entrepreneurial Leadership
Historically, Europe and America contrast two forms of organization and
management. European models can be dated from imperial rule and the staple
needs for trade expansion. It may be a truism today that the flag follows trade, i.e. in
colonial exploration, individuals entrepreneurs sought new commercial avenues,
sometimes against their own governments direct interest. John Cabot, a Venetian,
sailed under the banner of the English King, Henry Tudor; Columbus, a Genoese,
worked for King Ferdinand and Queen Isabella, and his exploration in America was
turned down by the British King.
A succession of monopoly enterprises Hudsons Bay Company spanning northern
America, the Dutch East India Company, the British East India Company were
organizational pioneers of rent-seeking managerial behaviour. Examples abound.
including the Anglo-Iranian Oil Company, precursor to todays British Petroleum,
De Beers Mining as the legacy of Cecil Rhodes in Africa. Unilever and Shell,
uniquely displaying two nationalities, Dutch and British, which date their origins
and strategic choices beyond their domestic borders. Clearly several factors were at
play industrial invention had a dominate influence, illustrated in the case of
French pharmaceuticals by the two Pasteurs (and both were Nobel Laureates), or
Thomas Edison and Alexander Graham Bell in America. Family concerns shaped
strategic intentions the Toyoda family in Japan, Thomas Bata in Czechoslovakia,
the Benz brothers in German, the Fords and Rockefellers in the United States.
Governments imposed constraints but also imitative opportunities in sectors as
diverse as electricity, transportation, banking, retailing, communications,
armaments, health, and agribusiness. And military conflict and their aftermath
shaped the strategies, structural design, and management talent for industries and
firms like Standard Oil, International Nickel, Krupps Steel, Rolls Royce, Boeing
Aircraft, Phillips and Honda.
Such countless examples illustrate how top executives sought new models of
management design, structures for production, strategic capabilities, and processes
for finance, work and raw material sourcing1. They experimented with accounting
1

Corporate histories are legion, often financed by companies to celebrate a memorial or anniversary, and
often depict the founders and managers in a favourable light. In business schools, the scholarship of Alfred
Chandler, formerly a member of the Harvard history department, was recruited by Dean John McArthur to
establish a group of business historians at Harvard Business School, start a new publication, Business
History Review, and incorporate business history into the MBA curriculum. Two books, Strategy and
Structure, and The Visible Hand are landmark studies of American enterprise, the basis of over 200
doctoral theses, and studies replicated his work in Europe and Japan. Today, some business schools have at

systems around double entry booking keeping, novel budgeting tools and forms of
training, and new forms of financing. New firms arose to address specific
management issues like financial reporting, especially for firms like Sears Roebuck
with multiple locations across a huge continent. As London and New York (post
1918) became international centers of finance, sophisticated financial entrepreneurs
like J. P. Morgan in the US, Max Aiken (Lord Beaverbrook) in Canada and the UK,
the Lazard Brothers in France and Britain designed new strategies of financing,
based on knowledge arbitrage, which were early forms of leveraged buyouts, short
selling, and conglomerate diversification understanding that massive scale was a
vital tool to reduce risk.
Aided by population increases from immigration, education spreading from the
Land Grant system, and massive financial flows from Britain, America reaped the
fruits of the industrial revolution. Inventions of the steam engine, water power, and
spinning jenny - the legacies of Arkwright, Hargreave, and Watt in a space of only
six years in a clustered part of Britain, had profound spillovers, applications, and
imitation inventions that shifted the production possibility frontier dramatically.
Phyllis Dean describes this seamless innovation process: machines and the
machines that make machines have proved to be capable of an infinite sequence of
improvement, and it is the process of continuing self-generating change that is the
ultimate cause of the sustained economic growth (p.34). Today this seamless
innovation, so notable in todays digital age, is called GPT general purpose
technologies (Bresnahen 2010) - that have pervasive impacts on new inventions,
intermediate products (e.g. steel, concrete, and electricity) that allow new forms of
imitation. America was the big winner, with a comparative advantage in
technological prowess.
Samples of American ingenuity were on display at the Paris Exhibit in 1900
sewing machines, typewriters, kitchen appliances and vast electrical dynamos - and
demonstrated American prowess in communications (telegraph, telephone, printing,
radio, photo journalism), transportation (canals, railways, macadamized roads,
steamships, urban electricity), often in sectors once dominated by Europe. The
reach of US industry was profound the output of iron and steel exceeded Britain
and Germany combined and accounted for 11 per cent of world trade. Americans
had a faith in science and economic progress, aided by a business ideology of Social
Darwinism, survival of the fittest, fostered by writers like Herbert Spencer, a
former Cambridge don and editor at The Economist. Newspapers, technical
journals, industry publications, and new business groups like the American
Chamber of Commerce, established in 1912, all fostered a new American ethos of
prosperity, the pursuit of happiness, and forward-looking management practices2.
least one business history scholar offering electives in business history, linking modern business theories to
evolution of industries, firms, and specific business practices.
2

A British historian, describing industry at the beginning of the 20th century, in reference to England but
applicable to most of Europe, saw a willingness to go on thinking in old ways and rely on old recipes for
prosperity, and a disinclination to keep pace in pioneering enterprise, were omen of troubles ahead
(Thompson, 1965, p. 23).

Dupont, an early form of a high tech enterprise starting as a monopoly explosion

and chemical firm became a powerhouse in First World War, but needed new
markets after the war. Its chemical technology could be applied to new products
paints, varnish, and nylon and General Motors as the lead customer. But unlike
many firms, especially GMs rival, Ford, operating with a autocratic functional
model, Dupont pioneered the departmental structure for diverse products:
explosives, stains, and paints, which combined an R&D department to search for
new product innovations like nylon and artificial rubber (Chandler, 1962). Such
complexities required financial reporting mechanisms that uniquely combined
budget features with tools to encompass functional performance, immediate
feedback, and return on investment, as a decision tool to allocate capital (Drucker,
1954; Simon, 1947).
Exhibit II

Duponts Financial Systems

Inventories
Current
Assets Plus (+)
Accounts
Receivable

Cash

Fixed
Investments

Sales
Divided
by:

Investment
Turnover

Total
Investment
Times

Return
On
Investment

Cost of Sales
Selling
Expense
Transport
Administrative

Sales Minus (-)

Earnings
Divided By:

Cost of Sales

Annual
Sales

Earnings
As A
Per Cent
Of Sales
SOURCE: Dupont

Business leaders were slow to understand and adapted to this shift, away from
single product production in owner-manager firms dotting small towns across
America to more complicated enterprises, allowing differential pricing strategies
and managerial accountability. Periodic crises arose for big enterprises as overinvestment of surplus capital (profits) and over-production of commodities led to
huge financial fluctuations, bank runs, and elements of panic. This environment was
not the one espoused by the traditional model of Says Law or the writings of Walter
Bagehot, and forced new thinking about how the financial system had to perform in
a countercyclical form to finance investment. It also touched on the dark side of the

the weaker elements the exploiters, speculators, adventurers, and marginal

producers, as a future vice president explained (Dawes, 1894).
Not all firms sought scale from internal growth or capital-intensive production.
Cities like Lowell and Lynn in Massachusetts became US textile centers. This state
introduced compulsory education in1852, with 92 per cent literacy among 15 year
olds, a generation before Britain required compulsory schooling in 1880 (West,
1975). Business elites converged to import superior equipment from Europe, thus
allowing American firms to copy and perfect it, a signal of US prowess in capital
machinery requiring new forms of management capability. Firms experimented
with novel training of workers, and the woolen mills in Woonsocket, Rhode Island
and Connecticut, aided by French-Canadians knowledgeable in the worsted system
of clothing firms in France grew rapidly. Merchants contracted for goods through
agents, brokering sales for the dry good stores. A large merchandise firm like
Chicagos Marshall Fields, which had bought goods through intermediaries, built
mills of their own, e.g., Cone Mills and Fieldcrest Mills to better control supply and
reduce risk.
Charles R. Flint, a leading American financier, was a stereotype of American
entrepreneurial impresario. His travels, takeover experience, and understanding of
the ups and downs of the market a forerunner of industry and technology cycles
suggested a combination of companies, each making different products, would
reduce overall risk: if one product had a bad year, the profit cycle of the others
would smooth out earnings. The conglomerate model of organization had a new
empirical rationale. Todays IBM dates as a holding company to a merger
assembled by Flint - CTR, Computing Tabulated Recording firm, the Tabulating
Machine Company, and the International Time Recording Company. CTRs
product lines were diverse: employee time-keeping systems, weighing scales,
automatic meat slicers, coffee grinders, and employee punched card equipment.
CTR financial prospectus noted that, in normal times the interest and sinking
funds on its bonds could be earned by any one of these independent lines, while in
abnormal times the consolidation would have three chances instead of one to meet
its obligations and pay dividends a forerunner of financial theories of stock
portfolio selection and diversification.
American expansion had two broad thematic narratives in management strategies
the steady search for industrial efficiency by investing in mechanization and the
shift from craft shills and production to standardization of work tasks,
standardization of time (24 hour clocks) and shift work, standardization of tools,
machinery, and components (e.g. wrenches, screws, bolts) and standardization of
work processes via standardization of parts and components best shown by the
railways. But this rationalization process also required new skills, and professional
administrators. As Chandler (1962, p. 28) notes, from the 1890s on, one of the
basic challenges facing American industrialists was to fashion the structures
essential for the efficient administration of newly won business empires.
Standardization, mechanization, and scale were also the watchwords for financial

engineering, and thus a shift of power and control to dominant shareholders, Wall
Street financiers. Executive planning was less about understanding the future than
controlling all aspects of the production process, from sourcing raw materials to
distribution and sales networks.
This narrative of 19th century enterprises had little input from workers, unions, or
artisans, so well documented by Robertson and Briggs (1991). They were more
efficient than small-scale, artisan production, but achieving scale in a linear fashion,
adding more workers and more machinery to augment output and profits, not by
using more efficient technologies or better labor relations, a pattern common in
industrialized countries. In America, other models were ignored or distained the
coop movements pioneered in France as a legitimate form of business enterprise, or
government-owned enterprises and hybrid-mixtures or private firms financed
with government funding. It was an era, according to Thorstein Veblen (1899), a
Yale PhD, a guided age of prosperity, the most easily recognized evidence of a
reputable degree of success as distinguished from heroic or signal achievement.
II. Towards a Science of Management
New technologies and innovations required transformation in the nature of the
enterprise per se. Expansion and scale were market-driven, and required
management development in functional areas, staff assignments, and new forms of
expertise, especially engineering. Little attention was paid to workers or managerial
roles. America, in contrast to continental Europe, had a surplus of raw materials,
even more if Canada is included, from land itself, to iron ores deposits, copper,
nickel, coal, and aluminum, forests in abundance, and farm land. But American
entrepreneurs faced a scarcity of workers, requiring an opening to immigration and
a stream of labour-savings devices. Europe, by contrast, had surplus workers but a
scarcity of raw materials that needed energy-saving and resource-savings
innovation.
Starting around 1870, when American and European per capita income were about
equal, US and Europe incomes began to diverge, slowly at first, and then steadily.
Richard Bendix claims that the United States underwent the most rapid economic
expansion of any industrialized country for a comparable period of time (18801910), a feat later achieved by Japan from about 1955-1980, or China, from 19722010. More specifically, in data compiled by Robert Gordon (2012), in the1870-1913
period, comparing growth rates and capital/labour investments, Europes GNP per
capita was 1.25, compared to 1.79 in the US, a ratio of -59; on output per hour,
Europes was 1.49, compared to 1.90 in the US, a ratio of only -0.41. The ratio of
capital/labour investments illustrates stark contrasts, hence the pattern of industrial
organization, innovation, and labour-savings innovation in production.
US corporate executives, aware of union pressures at home and Marxian thought in
Europe, responded with higher worker salaries and the prospects of a middle-class
life style. Engineering consultants, schooled in chemistry, mechanics, metallurgy

and construction, start a movement to use numbers and statistics to assess work
tasks in factories. Engineering schools and journals were focusing on industrial
production, and new books by a Canadian-born engineer at Cornell, Dexter
Kimbell, whose Principles of Industrial Production, went through six printings, and
emphasized the line and staff model of production, adding that genius does not
work well in harness, and men are always more important than machines or
methods (pp. 158-159). Chemical engineers, lawyers and accountants proliferated,
and firms like Arthur D. Little, Stone and Webster, and Ernst and Ernst, or the
American subsidiary of Price Waterhouse, grew rapidly with the expansion of
American firms. Cost accounting was rudimentary, mainly a book-keeping exercise.
The microeconomics of supply and demand of specific products (or services), or
analyses of product pricing and production costs were novel but rudimentary. The
consulting industry grew to fill this technical void, bringing specialized knowledge
and advice on bankruptcies, mergers, new financings, and reorganization
(McKenna, 2005).
Max Webers (1947) studies in religion and prosperity, and descriptions of
bureaucracy, first published at the turn of the century in German, attracted public
notice in the media, and engineering publications. His descriptions of the precise
features of bureaucracy and work, such as task specialization, strict subordination,
and standardization via precise rules, unity of command, and coordination via
centralized decision-making was close to the engineers view of work. Reference to
Ben Franklins nostrums was a clever touch. Further, such rational procedures and
practices dovetailed with Adam Smiths division of labour: The greatest
improvement in the productive powers of labour, and the greater part of the skill,
dexterity, and judgment with which it is any where directed, or applied, seem to
have the effect of the division of labour (Smith, 1776, p. 3).
In America, the term scientific management, often attributed to Frederick Taylor
from his 1911 book with that title, came from a renegade lawyer, Louis Brandeis, a
pioneering advocate for worker rights, a scourge of monopoly interests like the
railroad barons and financers like J.P. Morgan. In fact, scientific management was
pioneered in France, where the technical linkage between engineering as a tool of
design, and economic study of costs took place. A little known engineer, born in
Italy but raised in France from the age of nine, was a graduate of cole
Polytechnique. He became a leading member of the eco-engineering tradition of the
French school. His name was Jules Dupuit. Since the time of Louis XIV, the cole
Nationale des Ponts et Chauses was in charge of public works in France bridges,
utilities, transportation, water, sewers. After 1789, it became the cole des Ponts
and Chauses. This intellectual community had the engineering penchant for
statistics and data analysis. Jules Dupuit, self-taught in economic analysis was a
devotee of French theorizing and the writings of Antoine Augustin Cournot, a
mathematician turned economist and author of pioneering papers on competition,
monopoly, public goods, product quality, and entrepreneurship (Ekelund, 1968).
Dupuit is the father of marginal analysis applied to the firm, i.e. managerial
economics. He recognized the role of the entrepreneur, and the influence of
9

uncertainty in the decision process, and how market conditions competitive or

monopoly - impact demand conditions and pricing strategies (Dupuit, 1844). The
relation posited between price, marginal utility, and quality was, as Dupuit thought,
a "fact of experience" that "has been verified statistically". Further, this allowed
in a dynamic sense, as an ongoing process whereby individual entrepreneurs create
new combinations of utility-yielding characteristics. Based on his engineering
studies, he wrote: If the law of consumption was perfectly known, if sales
policywas set and invariable, these calculations would become perfectly
determinate problems, solved by the simplest arithmetic. Dupuit had powerful
originality see Exhibit 3 - but his work was downplayed by English economists and
actually scorned by Alfred Marshall, the economic guru of the classical Anglo
tradition. Curiously, the link between data analysis from an engineering perspective
and economic analysis is, in part, a legacy of the School of Commerce set up by the
Hapsburgs in 1770.
Exhibit 3
Depiction of Price-Quality Relationships

SOURCE: Jules Dupuit (1844)

As an engineer, Frederick Taylor also applied precise calculations to study work
practices like time and motion. He and his disciples (such as Henry Gantt, Benjamin
Graham, Frank and Lilian Gilbrith, and Hugo Munsterberg) applied rational
analysis and assessed features of fatigue, temperature, and lighting, as well as time
and motion records for later review by staff and division chiefs. The Gilbriths
eventually parted ways, and they also invented filmed motion studies. Collectively,
this work was cited by Peter Drucker (1954) as the most powerful as well as the
most lasting contribution America made to Western thought since the Federalist
Papers.
Born in 1856 of wealthy Pennsylvania Quakers, Taylor first learned about time
management at Philips Executer Academy, where his math teacher devised a system
to write an exam corresponding precisely to the time for class instruction. Shunning
entrance to Harvard, he became an apprentice at a local foundry, gaining an
10

engineering degree. In 1878, he joined Midvale Steel as a gang boss, the start of his
career in management. He was an early practitioner of what became known as
Kaizen management, continuous improvement, working with Henry Gantt (Copley,
1923; Aitken, 1960). They experimented with all aspects of work, tools, machine
speeds, workflow design, the conversion of raw materials into finished products, and
payment systems. In 1895, Taylor presented a paper, Piece Rate System at the
convention of the American Society of Mechanical Engineers, which received
rapturous reviews. He became a consultant at Manufacturing Investment Company,
and a major new client was Bethlehem Steel.
His work at Bethlehem was controversial, mainly because of in-fighting among
managers. But in one area, Taylor was a star. With his assistant, Maunsel White, he
experimented with metallurgy for the production of machine tools, altering the
traditional Musket alloy system by doubling the amount of tungsten, which has the
highest melting point of any metal, and adding more chromium. It was a revolution
in metallurgy, and after experimenting for two years, it became known as the
Taylor-White system for heat treating of chrome tungsten tool steel, a disruptive
approach first unveiled at the Paris Exhibition in 1890. It gained immediate
acceptance, including in Europe by a prominent German firm, Ludwig Loewe
Company, a manufacturer of armaments, sewing machines, and a predecessor of
AEG. For Taylor, this invention also brought fame, fortune, and a new platform to
spread his scientific management to business (Sudkir, 1970).
The Taylor work, later dubbed Fordism, was, in short, machine theory in motion, a
task to eliminate waste and unnecessary movements, or soldiering a deliberate
restriction of worker output. Wittingly or unwittingly, the core precepts aided
management control in two vital ways: it allowed the management apparatus, from
foremen to division chief, to accumulate collective knowledge and usurp the craft
skills of the individual worker; and it strengthened the managerial architecture by
improved record keeping, scheduling, and better cost accounting to coordinate work
tasks and functions. It also became both an ideology buttressing managerial
interests (a criticism also directed years later to Elton Mayo) and the start of a
movement to apply numbers and statistics to assess work.
The primacy on production as the key to rising efficiency and technical
improvements, and thus the market value of the firm, was a boon to professional
engineers, who served as business consultants. Taylors disciples and followers in
the engineering profession spread his message beyond America, to Britain, France,
and Germany, as well as to Japan and Russia, where even Lenin and Trotsky
developed an interest after the Revolution of 1917. In appearances before
Congressional committees, and in other forums, Taylors theories faced withering
criticisms and great resistance by American union movement a dehumanizing of
the worker and a tool for profits at the expense of the worker. Taylor himself
recognized some contradictions and drew a distinction between productive
industrial capitalists and financial capitalists (Aitken, 1960).

11

In retrospect, scientific management was a vital step in the evolution of management

theory, a forerunner of human relations and the modern problems of work, and the
comparative advantage of humans over automation. Generally, the work was data
driven and dealt with real world problems. It introduced engineering problems to
organizational design. The tradition of data collection and analysis had an
immensely practical application to scientific problems. It parallels the thinking of
Francis Bacon: those that bear fruit and those that shed light.
III. The Endless Frontier of Management
The first decades of the 20th century were a signal of the march of science. In WWII,
science reached unparallel heights, in Germany but especially in America, as science
investments became part of the war effort, impacting everything from agricultural
output, medical knowledge, military preparedness and defense, with consequences
that impacting management, resource allocation, and new science-based industries.
The rise of American universities and their professional schools, is a direct result of
deliberate post-war policy-making, financial expenditures on science, and nursed by
visionary business and academic leaders.
A 1946 report, Science: The Endless Frontier, headed by Vannever Bush,
commissioned by the White House that included the Presidents of MIT, Harvard
and John Hopkins and the head of Bell Labs (the actual report was drafted by the
wunderkind of the American economics profession, Paul Samuelson), was a glowing
expression of American euphoria and idealism. Science was a largely unexplored
hinterland that would become the basis of US post-war prosperity. It reviewed the
spending on science during wartime, including the Manhattan Project headed by
Robert Oppenheimer, and the fact that 66 per cent of the contracts went to only 68
firms (40% to only ten), and 90 per cent of the academic research went to only eight
universities, 35% to only one, MIT.
As funding rose steadily, the evidence of scientific work became apparent: the
discovery of the transistor in 1948, awesomely exploited by the Japanese, creating a
new era of electronics; the 1953 discovery by Crick and Watson of the DNA
structure unsealing the mysteries of the genetic code; and stunning advances in
antibiotics and the rise of clinical science as the dominant ethos in medicine; and
new cooperation between the national sciences (especially chemistry and biology)
and medical sciences. Such work enhanced the American pharmaceutical industry
and unleashed American science to cure childhood cancer, polio, transplanted
organs, and new forms of surgery including open-heart surgery. Ideas about the
curriculum in medical schools, the mix of theoretical knowledge learned in the
classroom and from textbooks, and practical experience of dealing with patients in
the hospital wards, took time to impact the business school curriculum at places like
Harvard and Chicago3.
3

American economists were the first to understand the full implications of science, foregoing the usual
mantras and dictums of classical economists, based on exogenous inputs of raw materials and physical
labour as capital investment and the contributions of scale. Instead, they turned to endogenous factors like

12

At this time, American management practices, helped from battle-hardened

military recruits, were unrivaled in consumer and industrial sectors, with pent-up
demand at home and overseas rivals short of raw materials, access to credit, and
devastated factories. In reality, the practice of management was mainly seen as an
art, informed by some classical writers (see Appendix A) and enriched by
engineering, finance, and sundry advice from consultants, accounting firms, and
ideas of successful firms like GE and General Motors. Management practices also
combined a theological view of humanity and social justice yet was doctrinaire and
anti-theoretical. Much was folklore, proverbs, and even biblical. In short,
management was mostly an amateur undertaking, where work experience, long
careers, and executive story-telling guiding managerial thinking. Before WWII,
business schools graduated only a few 100 MBAs, and within universities, scientific
achievement led to a strict ranking the natural sciences at the top, medical and
engineering schools, followed by social sciences.
Management development based on academic disciplines political science,
psychology, and economics first began in the 1930s. Irving Fisher, a Yale professor
whose 1930 book, A Theory of Interest, attracted interest not only because Fisher
was an enthusiast for prohibition, securities speculation, nutrition, and eugenics, he
was a spectacularly successful investor, until he lost most of his money in the 1929
crash. His views on gold, interest rates, money and banking, and sound money were
widely accepted by the American business establishment4. In 1938, a landmark
book, The Functions of the Executive, written by Chester Bernard (1938), a
professional manager at Bell, focused on the corporation as a total system, and
knowledge and technology, represented by the cumulative expenditures on R&D, represented by the
formula Y=AK, where Y=Production, dependent on A=Knowledge and K=physical capital, like the latest
machinery, computers, and machine tools. These developments led to new theories about education, human
capital, quality of management and professional staff, and R&D spending. This spending gap led to a
divergence in incomes of countries around the world, and by unequal performance of companies within a
single industry. Global spending on science, or research and development (R&D) steadily rose as a per cent
of GNP, from $522 billion in 1996 to $1.4 trillion in 2012, with huge variations by country as a per cent of
GNP: Saudi Arabia 0.04, India 0.08, Sweden and Japan 3.7, the US 2.9, China, 1.7. The new research
model, mostly housed in universities, not business or labs in government, is a virtuous cycle of ideas
discovery of peer approval and fundingresearch programdisseminate resultsnew projects. The
days of the lone wolf research scientist is largely a dinosaur model. To cite a specific example of
dissemination of research, by the end of 2012, there were 28,100 scholarly peer reviewed journals, with
some 1.7=1.8 million articles, and about 20 per cent freely available, but perhaps another 10 per cent via
personal websites, university websites, and to firms that disseminate research: Coursera, UDACity, Udemy,
and GoodSemester). For background, see The STEM Report: An Overview of Scientific and Scholarly
Journal Publishing (2012), The Hague: International Association of Scientific, Technological, and Medical
Publishers.
4

New economic and financial models, and wide media attention to finance, led to a new society, the
American Finance Association, starting at a meeting in Philadelphia in 1939 and a new journal, published
as American Finance, began in 1942 with the first issue addressing articles on wartime financing. In 1946,
that publication became the Journal of Finance. Since 2000, five of the Presidents came from the
University of Chicago. Similar national associations started in other functional areas accounting,
marketing, human resources, logistics and supply chains - further accelerating the diffusion of best
practices in American industry but increasing the trends towards sub-specialties.

13

brought an integration of sociological, economic, and psychological insights.

Bernard himself had wide interests, from music to philosophy. He also participated
in seminars at Harvard with scholars like Talcott Parsons, Robert Merton, and
Kurt Lewin. His theories on decision-making, incentives, communications, and
moral responsibility impacted academic studies to this day (Godfrey and Mahoney
(2014).
The growth in the union movement, New Deal laws and regulation, and fast rising
enrollment in the universities, forced rethinking about managerial practices, aided
by the growing maturity of the economics profession that brought interdisciplinary
thinking to practical uses of economic analysis5. Chicago was the center of the
leading economics department. Faculty expounded the canons of classical
economics, a defender then (and now) of economics orthodoxy (rational man and
markets producing optimal outcomes). The faculty undertook path-breaking
contributions to the theory of the firm, and defended openly the doctrinaire
paradigm known as the Chicago school, conservative in politics and economics that
later intruded into sister disciplines like psychology and sociology starting in the
1950s (for a review, see Machlop, 1967).
Elsewhere, at Cambridge, U.K. and Harvard in Cambridge, Massachusetts - the
classical paradigm was itself being transformed by John Maynard Keynes and his
1937 opus, The General Theory of Employment, Interest and Money. Keynesianism
was promoted in America by Joseph Schumpeter, E. H. Chamberlin, Seymour
Harris, but especially Alvin Hanson. US economics was quickly using mathematical
symbolism, modeling and new methodologies like input-output analysis
(econometrics), game theory, linear programming, and away from the oral
traditions of English economists. These mathematical techniques were best
exemplified by a Harvard PhD thesis by the new wunderkind of the economics
profession, Paul A. Samuelson, immodestly called the Foundations of Economic
Analysis, published in 1947, that became the course staple for top graduate
programs worldwide, including in Russia and China.
During wartime, the United States excelled at the mobilization of economists for the
Treasury, Agriculture, Commerce, and the Office of Price Administration, and
commissioned studies for search (anti-submarine warfare), resource allocation (raw
materials supplies and use for tanks or ships), computation (e.g. code breaking),
weather and bombing (altitudes, day vs. night), time series estimations (e.g.
casualties). Further, new economic methods and new research about testing
hypotheses, using data manipulation with computers, originated at the Cowles
Commission. The Cowles Commission for Research in Economics, founded in 1932
5

The erudite, well traveled and connected Harvard economics professor, Joseph Schumpeter, an Austrian
by birth and former Minister of Finance, suggested the advantage of scientific economists was a
command of techniques, classified as history, statistics, and economic sociology. It is the sum total of such
gadgets inclusive of strategically useful assumptions which constitute economic theory. In Mrs. (Joan)
Robinsons unsurpassably felicitous phase, economic theory is a box of tools. (Schumpeter, 1948, p. 50).

14

in Colorado by Alfred Cowles, a wealthy investment advisor, moved to Chicago in

1939 to include the presence of Irving Fisher. It became an on-going research
project, founded the new journal Econometrica, and recruited the cream of
American social scientists, and a cluster of superb European and Soviet immigrant
scholars. A new discipline, operations research, had new journals started in 1952:
Operations Research, Management Science and Naval Research Logistics Quarterly.
Mathematical studies ranged from highway traffic, railway transportation, ocean
shipping, inventory management, crop rotation, and activity analysis (for historical
background, see Christ, 1952). This work became the primary input for future
changes in the business school curriculum.
No scholar had so much academic influence on business schools and management
research as Herbert Simon6. The Cowles Commission became a special kind reawakening for Herbert Simon, trained as a political scientist who became an
advising consultant in 1947. Jacob Maschak, former head of Oxfords Statistics
Institute, became Director of Research, and brought magical recruiting, including
Simon, and a whos who of the American economics profession, including such
eventual Nobel Prize laureates as Tjalling Koopmans, Franko Modigliani, Kenneth
Arrow, Gerard Debreu, Lawrence Klein, and Milton Friedman. This distinguished
group, their research staff, and graduate students had weekly seminars, circulation
of papers, a reprint series and monographs, summer conferences, and smaller group
meetings. Paul Samuelsons steady stream of research papers were required
reading.
Assemblies were free wheeling, operating under Cowles Commission Rules, or
sometimes called Maschak Rules, where even younger, less-experienced members
could challenge and contradict senior scholars openly with impunity an academic
climate that Simon later instilled at GSIA at Carnegie. Like Paul Samuelson, Simon
wanted to strength the philosophical and methodological foundations of the social
sciences, in part by introducing the use of mathematics i.e. the hardening of the
social sciences, and improved relations between natural scientists and social
scientists for both kinds of wisdom (Simon, 1979). Simons career illustrates the
new foundations of management development as a scientific endeavor. Economic
departments, in particular, flourished and a range of academic economic journals
intruded on all aspects of management, with new subjects such as operations
research, consumer behaviour, organizational theory, and capital markets and
corporate strategy. What was needed was an academic home. In America, that
setting was the university.

Simons (1947) Administrative Behavior, citing E. C. Tolmans analysis of behaviour cognitions,

Purposive Behavior in Animals and Men, and his novel views on learning processes and concepts like
purpose (goals), thought processes (cognitive psychology) and cognitive maps became a mainstay of
courses in leadership, strategic management, and organizational design. Subsequent editions included a
1967 paper written in Journal of Management Studies, then a publication of Manchester Business School,
The Business School: A Problem in Organization Design setting out, almost as axioms, the proper role
and organization of business schools.

15

IV. Business Schools

The evolution of todays business school model within a university-based setting has
been amply addressed (e.g. Lorange, 2008; March 208). Starting in the late 1950s,
spreading two decades later to Europe (e.g. Franks, 1963) business schools became
the academic locus to management development, educating via the MBA degree
modern theories and practices. Such changes to the business school format and the
curriculum accelerated with two reports, funded by the Carnegie and Ford
Foundations, a replay of the 1910 Flexner Report, funded by Andrew Carnegie,
Medical Education in the United States and Canada, that called for scientific
medicine, full time, salaried faculty, and limits of student enrollment based on
quality. In the decades following WWII, the widespread application of
mathematical tools, aided by computers on university campuses, slowly transformed
the business curriculum, and new theories and applications in all core subjects,
enriched by the disciplines of psychology, sociology, economics and history.
Internally, business schools were organized around functional areas for teaching
and research, a contrast to the Carnegie style characterized by its
interdisciplinary, heterodox and problem-solving approach. More importantly, the
Carnegie approach contrasts with other models. The case method at Harvard,
studying functional areas like production, marketing or finance, with a capstone
course on strategy focused on industries and companies, cultivates modeling and
applications incorporating judgment, intuition, and entrepreneurial flair as inputs
to executive leadership. Chicagos emphasis on conceptual knowledge and action
skills, especially communications and presentations, eschews domain knowledge of
specific industries or sectors (Davis and Horvath, 2012). Generally, schools
elsewhere followed these models, in whole or in part.
At this time, the approach of Carnegie Mellon and the Graduate School of
Industrial Administration (GSIA) remains a case study in interdisciplinary
scholarship, a mix of scholars with backgrounds in engineering, science, math,
political science, sociology, psychology, and history. This community, rightly called
a mirror of the Vienna Circle (March, 2008), combined scientific methods and
practical work gathered in an industrial setting to a range of functional problems.
GSIA planned to focus on only two fields of research inquiry: organization
behaviour, with Harold Guetzkow and Herbert Simon, friends from student days at
the University of Chicago, and management science, headed by William Cooper7.
Consider an example of the Carnegie approach to problem solving: production
systems. The GSIA focuses on aggregate production planning, where firms had long
7

An indication of the influence of the Carnegie research on business school teaching and research,
including the level of citations of leading books and journal articles (see March, 2008), came from
publications like March and Simon (1958), Organizations, Cyert and March (1963), The Behavioural
Theory of the Firm, Cohen and Cyert (1964), Theory of the Firm, March (1965), Handbook of
Organizations, and a range of studies in specific topics, sometimes based on doctoral thesis, such as G.P. E.
Clarkson (1962), Portfolio Selection: A Simulation of Trust Investment.

16

production runs, and several plants in multiple locations. How could management
plan sales output, based on studies from the sales and marketing staff to
manufacturing operations, and assure that raw materials and components and the
right equipment were available? Carnegie wasnt alone addressing
this
optimization challenge it had been a huge issue in wartime that attracted attention
from systems theorists, defense analysts, and Bell, IBM, the US Defense
Department, and the Rand Corporation. New textbooks like C. West Churchman
and Russel Ackoffs Introduction to Operations Research added mathematical
applications like linear programming. The Carnegie team studied four companies in
detail, starting with a paint factory at PPG Industries (formerly Pittsburg Plate
Glass). The published output included a series of papers and a book, with an
inelegant title, Planning Production, Inventories, and Workforce and four authors:
Charles Holt, John Muth, Franco Modigliani, and Herbert Simon. It combining
grounded theory, practical applications, elegant mathematics, and clever production
modeling. These studies integrated all aspects of production, from raw materials
planning, manufacturing, and sales and distribution, and the tools of finance,
personnel, and technology, and accounting, i.e. the conceptual origins of strategic
management (Lorange, 2008). And it revolutionized the literature in production
operations and supply chain management, resulting in new journals in operations
management and supply chain management, of vital interest in military planning,
global logistics, and energy economics.
Modigliani was an interesting addition: he had been a colleague with Simon at the
Cowles Commission and a widely published macroeconomist. With another GSIA
colleague and economist, Merton Miller, when asked to teach an MBA finance
course, but with no practical experience and not thinking much of the existing
syllabus, they reworked the material and devised a paradigm-shifting model, the
M&M theory, or capital structure irrelevance principle, published in the American
Economic Review. In simple terms, the value of a firm is unaffected by how that
firm is financed, by issuing stock or selling debt. Another member of the production
study, John Muth, pioneered new thinking about rational expectations, and a
colleague at GSIA, Robert Barro, picked up these theories and became a future
Nobel Prize laureate at Chicago (Sent, 2002).
The Merton-Modigliani work enhanced the field of finance and capital markets,
both for economists generally and for business schools. A related path-breaking
finance paper, first drafted by Fischer Black, a physics-mathematician and Harvard
Ph.D. and Martin Sholes, a Chicago Ph.D. in finance and a friend of MITs Robert
Merton (son of the famous sociologist, Robert C. Merton) and Franco Modigliani.
Submitted in the fall of 1970, the paper was rejected by both Chicagos Journal of
Political Economy and Harvards Review of Economics and Statistics, It saw the light
of day when two Chicago professors intervened: "The Pricing of Options and
Corporate Liabilities" became the mainstay of finance teaching and research. These
models offered for financial institutions and the Chicago Board of Options
Exchange new financial pricing products, based on models of bewildering
mathematical complexity.

17

The financial medias focus on this work and demand for MBA finance specialists
was a boon for some American business schools Booth Business School at Chicago
could boast it had eight Nobel laureates on faculty. Select business schools located in
large financial centers - New York, Boston, London, Chicago, or San Francisco
experienced huge enrollment expansion, and external financial support. The
growing list of financial institutions, not just traditional banks, the financial
intermediaries of large corporations like GMAC at General Motors, or investment
banks like Lehman, Goldman Saks, or J.P. Morgan were sources of massive MBA
hiring from the top American schools, plus hiring by venture capital, private equity,
wealth management, hedge funds, sovereign wealth institutions, asset management
and wealth management firms a virtuous cycle of the better getting better.
Prior to the Wall Street implosion in 2008, the worry among prospective students
was the fear that corporations recruited only from Tier 1 schools, the flight to
quality syndrome. Within business schools, faculty in finance were joined by
economics departments to a takeover and a reorientation of finance journals. It
went further: the rationalist theories of economic behavior intruded on other
subjects in the MBA curriculum. In fact, the number of economists, often in finance
in business schools, equaled the number of US economists in the rest of the
university (Fourcade et al, 2015).
Today, finance is an indicator of the modern challenges of business schools.
Parochialism, sub-specialties, and departmentalizing of disciplines narrowed the
intellectual identities of faculty and challenged the core purpose of business schools
as a generator of research useful to managers. The four core disciplines - economics,
psychology, sociology and history each have their own sub-specialties, and it is
clear, by citations and references, that the intellectual narrowness is growing.
Citations in the top 25 economics journals show only 4.1 per cent and 2.1 per cent
references to political science or sociology publications, and political science and
sociology journals cite only 0.8 per cent or 0.3 per cent to economic journals
(Fourcade et al., 2015).
This compartmentalizing and the narrow identities of sub-specialty disciplines,
reinforced by faculty status, titles, committee structures, and attention spans of
faculty, are reflected in two management societies,8 the Academy of Management
and the Strategic Management Society (Exhibit 4). They illustrate the research subspecialties. Few corporate executives attend meetings; almost no consultants present
research papers, even though they are now leaders in codifying design structures
and processes of best practices pioneered by business firms. The two societies and
their journals contrast with the functional subjects like finance (Journal of Finance),
accounting (The Accounting Review), marketing (Journal of Marketing), and
production (Management Science). The cycle time of submission (if the editors
accept the manuscript) to actual publication (usually requiring revisions) can be 2-3
8

The authors are undertaking a competitive analysis of these two societies as part of a larger project on
business schools as eco-system organizations.

18

years, an extraordinarily long process in a digital age, and illustrates further the
diminishing value of business research for the practical needs of managers.
Exhibit 4
Profiles of Two Management Societies:
Academy of Management and Strategic Management
Date of Founding
Key Participants
Original Membership
Current Membership
Current Structure
Journals Published

AMS
1936
Charles Jamieson
William Mitchell
10
19,000
25 Divisions:

Governance

1.Academy Annals
2. Academy of Learning and
Education
3. Academy of Management
Journal
4.Academy of Management
Review
5. Academy of Management
Perspectives
Elected Board + Professional Staff

Location

Pace University, N.Y.

SMS
1981
Dan Schendel
12 Founders
3,000
12 Interest
Groups
1.Strategic
Management
2.Journal
Strategic
Entrepreneurship
Journal
3.Global Strategy
Journal
Rotating Board +
Professional Staff
University of Illinois,
Chicago

The Strategic Management Journal, in particular, as a forum for strategic

management, was intended to combine the work of business school scholars,
practitioners, and consultants and annual conferences would be a forum for close
exchange (Schendel, 1980). Today, this asymmetric closeting focus extends to
management journals, where the top American management journals, like those of
the Academy of Management, tend to have North American origins, while European
journals have European authorship (March, 2008). It goes further: as the discipline
of economics abandoned its legacy of moral philosophy, history, political economy,
institutional economics, or industrial sociology, it attempted to copy the paradigm of
the natural sciences, especially physics8. Business schools introduced new, softer
8

Paul Samuelson (1961), the precocious enfant terrible of the economic profession, addressed this issue in
his presidential address to his peers in 1961:
My own scholarship has covered a great variety of fields. And many of them involve
questions like welfare economics and factor-price equalization; turnpike theorems and
osculating envelopes; nonsubstitutability relations in Minkowski-Ricardo-LeontiefMetzler matrices of Mosak-Hicks type; or balanced-multiplier under conditions of
balanced uncertainty in locally impacted topological spaces and molar equivalences.

19

courses in business history, ethics, corporate responsibility, business government,

international business, and corporate governance, with new journals addressing
these topics, with minimal overlapping of student needs and faculty research
interests. Even worse, as Simons (2012) notes, students are taught how to analyze
and formulate strategy, but they learn little about how to organize and mobilize
resources to execute those strategies (p. 30).
As Bennis & OToole (2005, p. 1) notes, business, like law and medicine, is a
profession and business schools should be professional development institutions, not
an academic discipline. Consistent with the scientific pretensions of business schools,
faculty are promoted not by their interactions with practitioners, but by their
publishing record in selected top-tiered journals. Conversely, these journals often
lack relevance to business problems and are rarely read by practitioners (Bennis &
OToole, 2005, p. 3; McMillan and Chen, 2012). By recruiting and promoting
faculty on such criteria, research outlets have abstractions and models that may be
internally consistent but lack application or predictability, a vast wastelands filled
with academics that have limited if any practitioner experience (Bennis & OToole,
2005, p. 5). The two main societies are like social movements see Exhibit 5 building scale through academic pretensions at the cost of relevance.
Exhibit 5
From An Admittance-Seeking Social Movement
The
Aspiring
Community
Of
Scholars

Legitimacy
Differentiation
Mobilization

Acceptance
As An
Academic
Field

To Entrepreneurial Ethos of Growth and Maturity

Large but
Static
Membership

Governance:

Contradictions:

Conferences
Publications
Journals
Networks &
Knowledge
Diffusion
Impacts

Turnover/
Exits
New Fields,
Spin-offs
Weak Ties
Personalities

Social
Outcomes/
Inertia

Criticisms of business schools and pre-occupations with ratings cover a range of

issues. A decade ago, despite warnings by faculty like Mintzberg (2004) or Pffefer
and Fong (2002) about over-specialization, and firms using business schools as a
screening tool for hiring, the status quo now operates with a new external threat, the
20

digital age of the knowledge economy. More immediately, employers have direct
concerns: the core curriculum is disconnected from the evolving needs of the
marketplace (Bisoux, 2005), and lack relevance and systems integration (Rubin &
Dierdorff, 2009, p. 209), as well as interdisciplinary thinking, including history and
public policy inputs (Teal & Krishnan, 2011, p. 56).
Few outside the business school precincts can avoid the paradox that leading firms
like Apple, Google, Alibaba, Facebook, or Amazon are the prime sources of
engineering and scientific innovation, and the new world of the digital economy.
Most studies of such firms come from only the top schools or long term consultants
who have access to leading executives. In fact, a double paradox exists: the
curriculum of courses in the MBA curriculum now requires readings and cases
from the consulting world, consulting journals, or articles written by consultants in
outlets like the Harvard Business Review.
Unlike engineering or medical education, the MBA curriculum consists largely as
pedagogy of required and elective courses in a classroom, with little time spent
outside the confines of academe. That is a contrast with the pedagogy in medical
schools, where students combine academic work and practical application on the
hospital wards. Even worse, few business schools teach the practical diagnosis tools
of medical schools, thus opening another avenue of opportunity for consultants,
practitioners, and executive advisory firms (Teece, 2010).
Exhibit 6
Two Contrasts of Knowledge Tool Kits: Medicine and Business
Decision Issues
Diagnostic Approach
Action/Learning

Life Sustaining

Medicine
Heart Rate, Breathing,
Ultrasound, MRI,
Angiography
Implants, Surgery,
Endoscope

Dialysis, Pacemakers,
Intensive Care, Life Saving
Drugs

Business
SWOT-PEST, Cashflow,
ROI, Five Forces,
Business Model
Exploitation of AssetsYields, Internal Processes,
Technology Diffusion,
Time-Based Competitive
Positioning
Lean Production,
Ecommerce, Radical
Transformation, ReBranding

However, the awesome global reach of the digital economy reflects new management
models, new recruitment patterns, and novel integrated thinking of executives
schooled in engineering, philosophy, mathematics, and cognitive sciences. The
industrial revolution was really a three-for-one convulsion technological via new

21

inventions, physical investment in machinery and factories replacing physical

labour, and entrepreneurial flare by investing today for tomorrows success. The
digital revolution is also three-for-one, transforming industrial societies, industries,
and firms. The three-for- one revolution engages three currencies: ideas, intellectual
capital, and innovation. Despite temporary lapses, the forward march is permanent.
It threatens the business school model.
Summary and Conclusions
To the general question on the social impact of business schools, the only serious
answer is profoundly affirmative. The top business schools in particular, as
professional communities in a university setting, have raised the role and
importance of management as a vital performance factor in society. Even countries
organized with very different political systems, such as Communist countries in
China, Cuba, or Vietnam recognize management and the business school as the
central tool to produce managers.
However, in advanced Western societies, where market and price mechanisms exist
for about 60-70 per cent of total output, only intellectual purists of the highest order
can fail to recognize how the digital revolution is replacing the models, systems, and
organizational forms of the industrial revolution. But they still need organizations
and management. As Simon (1991) points out, even market-driven capitalist
economies need a theory of organizations as much as they need a theory of markets.
The attempts of the new institutional economics to explain organizational behaviour
solely in terms of agency, asymmetric information, transaction costs, opportunism,
and other concepts drawn from neo-classical economics ignore key organizational
mechanisms like authority, identification, and coordination, and hence are seriously
incomplete (p. 44).
A new, two-speed economy is arising, one replacing the legacies of the 19th and 20th
century industrial revolution, based on bricks and mortar, industrial machinery, 24
hour physical transportation, and traditional tools of finance. Business schools
concentrate on training managers and conducting research for this paradigm. The
second, a new general purpose technological revolution, is based on digital
computation and communication, and migrates quickly and globally from a slow
speed to critical velocity. Silicon Valley is the vocabulary of this digital world,
transforming management and advanced applications in genetics, smart machines
like drones and phones, robotics, 3D printing, artificial intelligence, and the Internet
of things. At the core are new technologies and software based on immense
computing power with staggering calculation speed, machine learning, and
dramatic advances in cognitive skills. New interdisciplinary disciplines like
cognitive science, new models and ecosystems of intellectual capital, integrate
research from medical science, engineering, and psychology (Wilson, 1999). These
core inputs for management development encourage fast-thinking, fast innovation,
and global reach. As suggested in Exhibit 5, do traditional management societies
and business schools ideally fit the first model and not the second?

22

For business schools, the internal organizational conflicts and contradictions can no
longer be put aside, a Faustian bargain between academic respectability through
publications and growing irrelevance of practitioners. By any standard, the MBA
degree is an enormously successful academic brand. The digital economy threats the
traditional curriculum and classroom pedagogy for management development,
because the underlying disciples have changed. It is unclear that the existing model
is useful, relevant, or applicable. The challenges faced by business schools apply
equally to other professional schools in a university setting, but business schools, in
their pursuit of the science of management, risk growing competitive pressures from
forces outside academe as well as professional schools like medicine, engineering,
and applied schools of digital engineering. Entrepreneurial behavior and action in
academe will determine in a future generation the lasting social impact of business
schools in the new digital age.

23

Appendix A
Four Eras: Selected Readings and Trends in Business School Evolution
Entrepreneurial Leadership Scientific Management
Adam Smith, Wealth of
Nations
Thomas Mathlhus, An
Essay on the Principles of
Population
Alexander Hamilton,
Report on Manufactures
John Stuart Mill, Principles
of Political Economy
Alexis DeTocqueville,
Democracy in America
Charles Babbage, On the
Economy of Machinery
and Manufacturers,
E. G. Wakefield, Art of
Colonization
W. Bagehot, Lombard
Street
William Stanley Jevons,
Money and the
Mechanisms of Exchange
Vilfredo Pareto, Mind and
Society
Karl Marx, Das Capital
C.K. Hobson, Export of
Capital
Charles Darwin, Origins of
Species
Herbert Spencer, Principles
of Pyschology
W.O.Douglas, Democracy
and Finance
Alfred Marshall,
Economics
Max Weber, The
Protestant Ethic and the
Spirit of Capitalism
Charles Gide,
Principles of Political
Economy
Sigmund Freud, Future of
an Illusion

F.W. Taussig,
Principles of
Economics
Thorston Veblin, The
Theory of the Leisure
Class
Max Weber,
Joseph Schumpter, The
Theory of Economic
Development
Bhm-Barweck, The
Positive Theory of
Capital
Irving Fisher, The
Purchasing Power of
Money
Frederick Taylor,
Scientific Management
A.A.Berle, Jr. and
Garner Means, The
Modern Corporation
and Private Property
Chester Barnard, The
Functions of the
Executive
Gilbrith. F.B., Primer
on Scientific
Management
Henry Fayol, Industrial
and General
Administration
F. Reothlisberger,
Management and
Morale
Lyndall Urwick, Notes
on the Theory of
Organizations
Gustave Le Bon, The
Crowd: A Story of the
Popular Mind
Mayo, Elton, The
Human Problems of An
Industrial Civilization

Science Revolution
Joseph Schumpeter,
Capitalism, Socialism,
and Democracy
Norman Weiner,
Cybernetics
Kenneth Boulding, The
Organizational
Revolution
Peter Drucker, The
Practice of
Management
Paul Samuelson,
Economics
John Kennth Galbraith,
American Capitalism
Robert Gordon,
Business Leadership in
the Large Corporation
Herbert Simon,
Administrative
Behaviour
William H.Whyte, Jr.,
The Organization Man
Elliot Jaque, The
Changing Culture of a
Factory
Robert K. Merton,
Social Theory and
Social Behaviour
D. Luce and H. Raiffa,
Games and Decisions
Peter Blau, Dynamics of
Bureaucracy,
Chris Argyris,
Personality and
Organization
James March & Herbert
Simon, Organizations
Douglas McGregor, The
Human Side of
Enterprise
Michael Crozier, The
Bureaucratic
Phenomenon

Business School Impact

1. Creation and
Expansion of Journals
in Traditional
Functions (Finance,
Marketing,
Accounting),plus new
journals in
administrative science,
organizational theory,
operations research,
public policy,
management science,
etc.. plus textbooks by
subject, countries.
2. Expansion of business
and consulting
journals, including in
some business and
industrial associations
(American Marketing
Association,
Conference Board,
Chamber of
Commerce, etc..
3. Creation of new
management journals
by Country Britain,
France, Canada, Japan,
Russia;
4. Daily, weekly reports
on companies,
industries, countries
from Investment Banks
and international
societies like OECD,
World Bank, regional
banks, IMF;
5. Social Media, blogs,
Internet applications
like MOOCs.
6. Business School
Transnational Alliances

24

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